PowerPoint Presentation Best Practices in Procurement Education

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WELCOME
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DANIEL LIEGHIO 4C Associates
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Delivering Savingsto the Bottom Line4C
AssociatesBrook House229-243 Shepherds Bush
RoadLondon W6 7ANwww.4cassociates.com

• 24th May 2007

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Agenda

• Introduction
• About 4C, and about savings
• Some approaches to fast and effective savings
• in areas youve just reviewed?
• in all the other areas?
• Identifying, verifying and prioritising
  opportunities
• Locking in the savings
• Change management
• Delivering ongoing value

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Introduction About 4C

• 4C are one of the UKs leading providers of
  specialist procurement consultancy and
  outsourcing
• We work with large organisations to improve their
  procurement abilities and results
• We often need to help them to obtain large
  sustainable savings as quickly as possible
• We look to maximise competitive leverage whilst
  avoiding bureaucracy and delay

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Introduction About 4C

• Some recent accolades
• 3 CIPS awards in 3 years
• Top 3 in the Sunday Times 2006 Fast Track 100

Why are we successful?
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Introduction What are savings?

• Savings must avoid unsustainably affecting
  quality
• Improving value not just Reducing costs
• Butreal savings, which can be taken out of
  budgets
• How you define value in procurement?
• The minimum I can pay for the service I require
• Getting more than you need wont be good value
• Is it sustainable? 1 year, 3 years, 10
  years?
• Ways of saving that we wont talk about today
  (much)
• Effective tendering
• Shared services

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Introduction Why do savings opportunities exist?

• OJEU does not guarantee value
• We may get value by accepting the best bid but
• What if we havent asked all the right questions?
• What if no supplier is offering value for money?
• What if you like part of one suppliers bid and
  part of anothers?
• What if the reality turns out to be worse than
  the proposal?
• Tenders dont typically minimise the risks of
  these things happening a discussion for another
  day

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Agenda

• Introduction
• About 4C, and about savings
• Some approaches to fast and effective savings
• in areas youve just reviewed?
• in all the other areas?
• Identifying, verifying and prioritising
  opportunities
• Locking in the savings
• Change management
• Delivering on-going value

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More savings in areas youve just reviewed?

• Easy savings have already been done by many
• Or have they..?
• How close is the value to what could be achieved?
• How would we know?
• Are the savings locked in for the future?

Supplier management
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Supplier management

• Supplier management means staying on top of
• Is the supplier doing what they should be doing?
• Are they charging what they should be charging?
• Are they giving you the info. you need to find
  this out?
• Organisations often dont get the value they
  think they do

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Supplier management

• What are some things that suppliers do to
  increase their margins?

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Supplier management

• If you can find out, you can start to maximise
  value
• Some categories are notorious for this, e.g.
  agency staff

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Cost Component Analysis

• Supplier management depends on Cost Component
  Analysis
• Break the total cost of ownership into individual
  cost drivers
• Understand competitiveness of each vs.
  alternatives
• CCA is very difficult to carry out effectively
  without a procurement category expert

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Cost Component Analysis Obtaining information

• Buthow do you find out about activity and
  pricing?
• If you have good contracts, you will already have
  what you need
• But we often spend a lot of time working with
  suppliers too
• Difficult if suppliers cant or wont give you
  the info you need
• Effective strategies to beat this can include
  working with
• The best value suppliers, or
• Suppliers with good systems
• Depends on the situation

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Agenda

• Introduction
• About 4C, and about savings
• Some approaches to fast and effective savings
• in areas youve just reviewed?
• in all the other areas?
• Identifying, verifying and prioritising
  opportunities
• Locking in the savings
• Change management
• Delivering ongoing value

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Savings in all the other areas?
Fast and effective approaches to sustainable
savings

• What other opportunities are there?
• Ways to achieve savings can (always?) be found
  with sufficient innovation and expertise

Supplier management

• Other approaches
• Using the right supplier for the job
• Negotiation
• Volume migration
• Demand management

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Using the right supplier Preferred suppliers

• To optimise value, you need to be able to
  accurately define requirements and anticipate who
  is best able to meet them
• Some suppliers can provide better value than
  others
• In complex areas, e.g. professional services,
  buyers dont always know
• What am I looking for?
• Who is best able to provide it?
• How much will I need to pay to get it?

A combination of price, performance and strategy
determines supplier status
Not yet approved
Approved
Preferred
Disallowed
Segment strategy
Comparable performance info
Comparable pricing info
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Using the right supplier Growing suppliers

• To optimise value, you need to be able to
  accurately define requirements and anticipate who
  is best able to meet them
• Some suppliers can provide better value than
  others
• In complex areas, e.g. professional services,
  buyers dont always know
• What am I looking for?
• Who is best able to provide it?
• How much will I need to pay to get it?

A combination of price, performance and strategy
determines supplier progression
Reduce
Maintain
Grow
Remove
Segment strategy
Comparable performance info
Comparable pricing info
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Using the right supplier Category procurement
tools

• Specialist category tools can compare pricing and
  performance between approved category suppliers

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Negotiation
Fear of negotiation exists across the
public-sector, and is driven largely by EU
regulation But well-prepared negotiations can be
fast and effective

• Explore win-wins to reduce waste but remember
  youre not getting value
• Why would a supplier want to reduce prices?
• Can always do better or worse from a relationship
• Identify how, and build your strategy upon it

High
Value to Supplier
Current position
Low
High
Low
Product / service price
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Negotiation
Fear of negotiation exists across the
public-sector, and is driven largely by EU
regulation But well-prepared negotiations can be
fast and effective

• Explore win-wins to reduce waste but remember
  youre not getting value
• Why would a supplier want to reduce prices?
• Can always do better or worse from a relationship
• Identify how, and build your strategy upon it

High
OPPORTUNITY
Value to Supplier
Current position
THREAT
Low
High
Low
Product / service price
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Negotiation
Fear of negotiation exists across the
public-sector, and is driven largely by EU
regulation But well-prepared negotiations can be
fast and effective

• Explore win-wins to reduce waste but remember
  youre not getting value
• Why would a supplier want to reduce prices?
• Can always do better or worse from a relationship
• Identify how, and build your strategy upon it

High
Current position
THREAT
Value to Supplier
Low
High
Low
Product / service price
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Negotiation

• What if you dont like the suppliers response?
• Understand the alternatives, plus any legal
  constraints and timelines required, e.g.
• Volume migration?
• Switching technologies?
• Creativity and experience of other organisations
  and best practices will be invaluable
• Ideally you keep your current suppliers but a
  credible threat to change is vital

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Volume migration
High

• Move volume away from worse-value suppliers, and
  towards better-value suppliers
• You may have other contracts for similar services
• There are also OGC, LCSG and other existing
  OJEU-compliant alternatives
• There may also be alternative technologies

Spend
Low
Value
High
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Demand management Is there an opportunity?

• Ask, for each category
• Who is managing demand in this category, and how?
• Do they have the expertise and information they
  need to do a good job?
• Are you confident that its being done well?
• There are many ways of managing demand to reduce
  spend

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Demand management Information required

• Ask, for each category
• Who is managing demand in this category, and how?
• Do they have the expertise and information they
  need to do a good job?
• Are you confident that its being done well?
• There are many ways of managing demand to reduce
  spend

• Products / services
• Whats in each category?
• Who is buying them?
• What specifications are being used, and why?
• What prices are being paid?
• Processes for
• Supplier selection
• Specification and ordering
• Supplier and contract management
• Who is responsible for what?

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Demand management Some approaches

• There are many ways of managing demand to reduce
  spend

However, its typically easier to change to
contract than to change category users behaviour
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Demand management Mobile telecoms example
No of Users
1. There are 1450 users making an average of 109
minutes of calls each per month 315 02 mobile
users make less than 10 minutes of calls per
month Can we remove 50 of these phones? 2. The
top 10 users make 15,000 minutes of calls per
month at an average of 1,560 minutes each Can we
reduce the call volumes and associated costs?
Call Minutes per Month
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Agenda

• Introduction
• About 4C, and about savings
• Some approaches to fast and effective savings
• in areas youve just reviewed?
• in all the other areas?
• Identifying, verifying and prioritising
  opportunities
• Locking in the savings
• Change management
• Delivering ongoing value

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Identifying further opportunities

• Map internal stakeholders
• Who uses which services?
• Who makes decisions?
• Who set up and manages the relationship?
• What can they tell you about supplier
  performance, pricing, value for money, contracts,
  category strategies and plans, etc.?
• What do they want to achieve?
• Build buy-in to change from internal stakeholders

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Identifying further opportunities
What are the characteristics of a good savings
opportunity?

• Substantial supplier or category spend
• Limited category-specific procurement expertise
  available
• Low organisational resistance to change can help
• Perceived organisational barriers to change
• Some categories are known for ultra-high savings
  opportunities

• 1m ?
• Depends on your organisation

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Identifying further opportunities
What are the characteristics of a good savings
opportunity?

• Substantial supplier or category spend
• Limited category-specific procurement expertise
  available
• Low organisational resistance to change can help
• Perceived organisational barriers to change
• Some categories are known for ultra-high savings
  opportunities

• What are the components of total cost?
• What are good benchmark levels for each?
• Which suppliers are providing good value for
  money?
• What can we do about it?
• What have others done about it?

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Identifying further opportunities
What are the characteristics of a good savings
opportunity?

• Substantial supplier or category spend
• Limited category-specific procurement expertise
  available
• Low organisational resistance to change can help
• Perceived organisational barriers to change
• Some categories are known for ultra-high savings
  opportunities

• Dis-satisfaction with current suppliers
• Ongoing initiatives which have stalled
• Constructive stakeholders
• High-level buy-in

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Identifying further opportunities
What are the characteristics of a good savings
opportunity?

• Substantial supplier or category spend
• Limited category-specific procurement expertise
  available
• Low organisational resistance to change can help
• Perceived organisational barriers to change
• Some categories are known for ultra-high savings
  opportunities

• Unclear there is any alternative to the current
  situation
• Unclear who is ultimately paying for the services
• Etc.

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Identifying further opportunities
What are the characteristics of a good savings
opportunity?

• Substantial supplier or category spend
• Limited category-specific procurement expertise
  available
• Low organisational resistance to change can help
• Perceived organisational barriers to change
• Some categories are known for ultra-high savings
  opportunities

• 40 savings, for example in
• Office supplies
• Document management
• Uniforms
• Parts of ICT
• Etc.

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Identifying further opportunities
Characteristics of a good savings opportunity

• Substantial supplier or category spend
• Limited category-specific procurement expertise
  available
• Low organisational resistance to change can help
• Perceived organisational barriers to change
• Some categories are known for ultra-high savings
  opportunities

Use initial findings to set priorities for
further investigation
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Verifying further opportunities

• Gather available information on each supplier,
  including contracts, quality, spend,
  disaggregated pricing, and TCO
• Obtaining information from suppliers is often
  faster and is sometimes the only realistic option
• Compare cost components with external benchmarks

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Setting priorities

• Construct a simple (at first) cost model, built
  on a number of category-specific variables
• What would be the effect if we could change each
  variable?
• Analyse a range of scenarios based on making
  realistic changes to each savings lever

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Setting priorities

• Assign priorities to each savings lever based on
  the organisations priorities
• Savings targets
• Timeframes
• Political / buy-in from within the organisation
• Scale of the project
• Etc.

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Example opportunity summary
Opportunities in the bottom left are simplest and
fastest
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Agenda

• Introduction
• About 4C, and about savings
• Some approaches to fast and effective savings
• in areas youve just reviewed?
• in all the other areas?
• Identifying, verifying and prioritising
  opportunities
• Locking in the savings
• Change management
• Delivering ongoing value

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Change management in a programme environment
Change management

• Poorly-managed change leads to a high risk of
  failure
• Following a few basic steps will maximise your
  chances of success

Programme timetable
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Delivering ongoing value Sustaining the savings

• How are the savings going to be maintained?
• Who is responsible for making sure that they are?
• Sustain savings via best-practice agreements and
  internal change
• On the supplier side
• Ensure pricing will move in line with industry
  benchmarks
• Give suppliers a clear incentive to continually
  improve value
• Ensure quality MI is provided by suppliers, to
  help manage value
• Others, e.g. supplier code of conduct

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Delivering ongoing value Sustaining the savings

• Internally
• Upgrade management tools and reporting to
  effectively manage best value in each category,
  and across the board
• Ensure key internal officers understand how to
  deliver maximum value after the project concludes
• Make sure new responsibilities are clear and
  embedded in routine
• Effective communication and training are key

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Delivering ongoing value Management reporting
Cost savings reporting
Knowledge transfer

• Category Value Delivery Plan

Category management
Impact on behaviour
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Delivering ongoing value Control Dashboard
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Summary and something about people

• There are very big opportunities out there, which
  can be captured quickly and effectively
• To maximise value, organisations need to
  understand much better what they are buying
• This will require expert staff to have
• Significant procurement expertise,
• Deep category expertise and
• The gravitas to influence very senior
  stakeholders
• There are not enough of these to go around and
  many are at specialist consulting firms like 4C
• The Public Sector must do more to develop
  expertise in depth, and to explore outsourced and
  shared-service models

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Thank youvery muchFor furtherinformationpleas
e contactDan LieghioDirector4C
AssociatesBrook House229-243 Shepherds Bush
RoadLondon W6 7ANdaniel.lieghio_at_4cassociates.co
m www.4cassociates.com020 8741 4441

• 24th May 2007

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ALEX SCOTT Wyse Solutions
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LCSG ConferencePresentation byAlex Scott
Senior ConsultantWyse Solutions
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Supply Positioning

• STRATEGIC SECURITY
• Low value / high risk
• STRATEGIC CRITICAL
• High value / high risk
• Prospectus
• TACTICAL ACQUISITION
• Low value / low risk
• Bus. Cards / Forms
• TACTICAL PROFIT
• High value / low risk

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The Print Contracting Cycle
Identify an opportunity
Identify potential suppliers
Ongoing relationship
Obtain prices terms
Invoice payments
Make contract
Delivery of goods / services
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Print Management Tool Process
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Tender Evaluation

• Basic Principles
• Price Evaluation Models
• Getting Best Value From Suppliers
• Managing Prices
• Terms of Contract
• Relationships with Suppliers
• Issues for Consideration
• Trust Based Partnerships
• Balanced Purchasing
• Darwinian Rivalry

Core Business Process
Competency of the Business Process
Source Gartner Inc. 2001
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Contract Management

• Performance Measures
• Delivery
• Pricing
• Customer Service
• Product
• Benchmarking

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The Preferred Supplier
CORE BUSINESS High value / high attraction
DEVELOPMENT OPPORTUNITY Low value / high
attraction
Attraction
EXPLOITATION High value / low attraction
NUISANCE Low value / low attraction
Expenditure
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KIERAN McGREGOR London Centre of Excellence,
Procurement Training Programme
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Best Practices in Procurement Education

• Kieran McGregor
• Associate Consultant LondonMet Enterprises

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Structure of Session

• What delegates like
• Challenges
• Suggested best practices
• Questions / Discussion

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What delegates like

• Interaction
• Cross fertilisation (opportunity to learn from
  other organisations)
• Relevance / applicability of materials
• Flexible learning approach

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Challenges

• Too many demands on precious time
• Empowering delegates to apply learnings in the
  workplace
• Location and physical environment of training
• Appropriate facilitators

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What can Providers improve?

• Understand the client
• How ?
• -
• -
• -
• -

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What Providers can do better

• Training needs assessments
• Individual study programmes
• Understand the company/industry
• Understand all stakeholders

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Other lessons

• Dont focus on cost
• Build relationships
• Accept that your organisation may not be unique
• Dont reinvent the wheel
• Ensure selection of appropriate delegates
• Empower delegates to apply new skills/knowledge

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Discussion
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DARREN BLACK RORY GRUMLEY London Borough of
Camden
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Agenda
Procure2PayThe Good, The Bad and The
Ugly Darren Black Rory Grumley
Presentation 30 minutes Open questions 25
minutes Wrap up 5 minute
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e-Procurement and P2P process
Goods and services requested
A receipt is made
An invoice is received
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What are the benefits
More efficient P2P process Remove use of
maverick suppliers Management
Information Greater control of budgets
Less resource
Cash
Drives future savings
Controls spend
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London Borough of Camden Monthly Metrics
7,000 POs per month through e-Procurement
1,200 agency staff managed through on-line VMS
800 requisitioners 350 approvers
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Ely, Clint and Lee
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The Bad
Goods and services requested
A receipt is made
An invoice is received
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The Good
A PO is raised
A receipt is made
An invoice is received
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London Borough of Camden - Benefits
Efficient P2P process
900,000 pa resource savings
Availability of maverick suppliers removed
660,000 delivered in 1st full FY 1.1m planned
for current FY
Substantial increase in the use of core list
itemsest 50,000 pa in 1st FY
Pre approved items
Costs taken out of budgets18 month payback
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Making it happen

• Removal of maverick suppliers
• Audit trail of communications
• Returning invoices
• Local resistance

• Nominal mapping rationalisation
• Rationalisation of codes
• Mapping all relevant codes to UNSPSC
• Complaints

• Centralisation of invoices
• Removal of manual signature
• Change of control from local to central
• How to get suppliers to send invoices to a
  central address resource investment
• Local resistance

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Making it happen

• Im out of scope syndrome
• What is it?
• Board support and escalation

• Supplier adoption
• Rationalisation exercise
• Move to electronic PO

• Receipt
• Why?
• Timely ?
• Supported by automated MI
• 76 1st time invoice match

• Helpdesk / training
• Handholding policy Resource investment
• Trained 900 requisitioners and 600 approvers
• Difficulty of getting correct people to train

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Questions
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What makes Camden so different

• P2P design built around Policies and Procedures
• We mandate that PO Nos are quoted on all
  invoices
• All invoices are received and matched centrally
• We remove all paper order pads
• We actively manage out maverick suppliers
• The budget holder must approve all requisitions
  requiring approval
• We remove the ability to mis-code
• Software purchase built around P2P design
• Board sponsorship
• Go live with all products and services (80 of
  spend)
• Focus upon training and hand holding

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THANK YOU FOR ATTENDING
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