Transforming Procurement

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REGIONAL CENTRES OF EXCELLENCE PROCUREMENT
PROGRAMME

• Transforming Procurement
• Steve Holland
• Director
• RCE Procurement Programme

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Key Drivers

• Local Government White Paper emphasises
  collaboration and smarter procurement
• CSR 07 local authorities could be facing a cash
  savings target of over 5 billion
• Citizens expect improving services

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Scale of Procurement

• Local Authorities will spend about 100 billion
  annually throughout the CSR 07 period

• Over 40 of spend is on contracts with the
  private and third sectors

• After schools expenditure is taken into account,
  the proportion of spend on third party contracts
  is about 60

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Where does the money go?
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Where does the money go?

• Level 2 Proclass classification has 160
  categories that enable further breakdown of
  spend. The top 5 spend categories
• Construction Buildings (17)
• Social Care Adult Services (13)
• Environmental Services Waste Management (7)
• Construction Roads (6)
• HR Temporary Agency Staff (5)

• The top 10 categories account for 60 of the
  spend
• The top 22 categories account for 80 of the spend

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What is the scope for savings?

• No one knows just how much cash can be saved
• however about 12 billion is spent on commodity
  goods
• and services

• Wheeled bins reverse e-auction saved 30

• Use of pre-procured national contracts can
  typically save 5 plus

• Postal services contracts can save up to 10

• There are wide variations in price for many
  commonly procured goods

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What is the scope for savings?

• About 12 billion is spent on construction
  related goods and services

• The use of regionally based construction
  framework agreements is already saving seven
  figure sums

• Reverse e-auctions for common

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What is the scope for savings?

• About 6 billion is spent on care services for
  adults and children

• Care costing tools are already saving up to 10
  for a range of services

• E-procurement is already saving significant sums
  in the cost of paying for domiciliary care

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What is the scope for savings?

• About 3 billion is spent on environmental
  services

• Millions can be saved by jointly procuring waste
  collection and disposal solutions

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What is the scope for savings?

• About 8 billion is spent on a wide range of
  other goods and services

• Best practice guides have been published in
  relation to Agency Staff, Energy, Postal Services
  and Consultancy with potential savings of 10 plus

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What are the obstacles to optimising savings?

• Procurement Landscape

• Lack of procurement expertise

• Lack of Market Intelligence

• Failure to optimise buying power

• Self imposed rules

• Autonomous behaviour culture

• Lack of capacity to improve resulting in missed
  opportunities

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REGIONAL CENTRES OF EXCELLENCE PROCUREMENT
PROGRAMME

• Transforming Procurement in Energy
• Steve Holland
• Director
• RCE Procurement Programme

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RCE Procurement Programme

• The programme seeks to identify and promote to
  local authorities via the 9 RCEs the very best
  practice and deal opportunities so that savings
  can be optimised.
• We are beginning to look hard at the link between
  our products and services and cash savings at
  local level.

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Early Successes

• Construction
• The use of regionally based framework
  contracts pioneered in the East Midlands and the
  South East supported by the RCEs are already
  aggregating over 1 billion of construction
  related expenditure with predicted savings in the
  millions. These arrangements are ripe for
  systematic promotion and roll out to all regions
• Reverse e-auctions
• Used for commonly needed repairs components and
  materials for social housing have resulted in
  contracts open to the sector that can save
  millions. These opportunities are also ready to
  be rolled out to the sector in all nine regions
  and indeed to be developed further.

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Early Successes

• Use of national and regional contracts
• Avoiding the need for expensive and time
  consuming procurement activity at local authority
  level can typically save over 5. The North West
  RCE has successfully promoted these sorts of
  contracts and the RCEs have now established an
  open contracts database which will be promoted to
  all local authorities in each region.
• Deals
• The RCEs are promoting outstanding deals in
  key markets like postal services where cash
  savings of 10 are being achieved in a 230
  million market.

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Early Successes

• Reverse e auctions supported by the RCEs have
  resulted in excellent contracts open to all waste
  collection authorities for wheeled bins with a
  price reduction of over 30 thanks to the
  aggregation of buying power achieved through the
  events
• Difficult markets like energy ( almost 1 billion
  spend in local government) need to be approached
  with top level category expertise in a strategic
  way. The RCEs are publishing a comprehensive
  guide to effective procurement in this market
  this month.

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Early Successes

• Care costing tools supported by the RCEs are
  beginning to result in less variation in price
  for expensive care packages but need to be used
  universally
• Huge price variations in many commonly bought
  goods have been tackled by the RCEs but much more
  needs to be done
• E-procurement is still not being deployed
  effectively in local authorities as an RCE
  national survey ( about to be published) shows.
  Considerable work in helping local authorities in
  this key improvement area needs to be done

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Other recent developments

• Supporting procurement clustering
• OJEU service
• Open Contracts information service
• Unit cost care services benchmarking tool

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What needs to be done?

• Collecting analysing and using market
  intelligence to develop and implement procurement
  strategies

• Concentrating procurement expertise in far fewer
  organisations who operate on behalf of the many

• Aggregation of buying power in key markets to the
  correct level for sustainable value for money

• Procuring contracts that are open to the many not
  restricted to the few

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What needs to be done?

• Managing and wherever possible reducing demand

• Entering markets that require moderation

• Rationalising supplier bases

• Deploying e-procurement tools effectively

• Doing these things with partners

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The Energy Market

• Public Sector has 6.5 of the total Energy
  Market

• 10 suppliers account for over 90 of market

• 9 companies produce 84 of all Gas

• 9 companies produce 75 of all electricity

• They employ 140,000 people - 3.2 of GDP

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The Energy Market
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Fundamentals for Buying
To buy energy effectively you will need to
provide the following information
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Fundamentals for Gas

• Site address including postcode
• Meter point reference
• Consumption data annual or daily
• Submit offer based on annual offtake quantity
• Details of any site curtailage, including
  volume
• Emergency contacts for sites over 25,000
  therms

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Fundamentals for Electricity half hourly

• Site address including postcode
• Full supply number
• 12 months half hourly consumption data
• Agreed supply capacity
• High/Low voltage

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Fundamentals for Electricity non-half hourly

• Site address including postcode
• Full supply number
• 12 months meter reads
• Agreed supply capacity

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Fundamentals for Street Lighting un-metered

• Site address including postcode
• Full supply number
• Estimated annual consumption or half hour
  data
• Comprehensive inventory copy of supply
• certificate from distribution company
• Connection agreement

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Budget Risk Management
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Budget Risk Management
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Traditional Fixed Price
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Traditional Fixed Price

• Potential Benefits
• A defined recurring process to help with
  resource
• planning
• A fixed price known well in advance
• Only data evaluation skills are required (no
  market
• knowledge is needed)
• Provides protection against price increase
  during
• contract period

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Traditional Fixed Price

• Potential Risks
• Takes no account of market prices
• Only 1250 chance of achieving best price
• No flexibility
• Focuses on supplier profit margin in terms
  of
• competition, which can be just 1-2 of
  total cost
• Will need to evaluate mulitsite tender
  within very
• limited period
• Fixed price may not be aligned to your
  budget period

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Flexible Purchasing Variable Price
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Flexible Purchasing Variable Price

• Potential Benefits
• Longer period to optimise purchasing
• Access to short term markets
• Potentially removes any forward market
  premium
• Opportunity to benefit from price falls
• Potential to provide lower prices than if
  purchased
• for whole year

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Flexible Purchasing Variable Price

• Potential Risks
• Final cost is not known
• A billing rate must be set
• The final price could be higher
• It requires a minimum volume to go to market

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Professional Buying Organisations

• Why use a PBO?

• Timing is everything

• Information overload

• Skills and knowledge

• Support systems

• Buying Power

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What Next?

• Download the Energy Guide now

• Talk to your Regional Centre of Excellence about
  practically using the guide

• Transform and improve your procurement
  performance and save cash