Summary of Procurement Phase 1 Programme

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TRANSFORMING CHESHIRE
This presentation has been prepared for and only
for Cheshire County Council. We do not accept or
assume any liability or duty of care for any
other purpose or to any other person to whom this
report is shown or into whose hands it may come,
save where expressly agreed by our prior consent
in writing.

• Summary of Procurement Phase 1 Programme
• October 2006

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Executive Summary

• In November 2005, a scoping exercise was
  conducted to identify cashable savings in
  procurement
• This set out a savings plan with spend categories
  grouped into three blocks
• Categories of low political sensitivity in which
  quick wins could be achieved within the
  financial year 2006-07
• Further categories to be addressed in 2006-07
• Wider spend categories in which further scoping
  was necessary to identify potential savings
• The work to generate savings in this first block
  of categories (agency staff, IT consumables and
  print) has now been completed. Against an
  original annualised target of 250k across the
  three categories, the following results have been
  achieved
• Agency Staff (internal benchmarking phase 1)
  total annual saving 255k minimum, 06-07 CCC
  impact 190k
• IT Consumables total annual saving 220k,
  06-07 CCC impact 58k
• Print total annual saving 598k, CCC 06-07
  impact 153k (assumes implementation 01/11/06)
• Further procurement work will form a part of the
  wider Transforming Cheshire programme, i.e. as
  part of the reviews of each council service,
  rather than as a stand-alone procurement project

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Scoping Exercise approach

• In November 2005 a scoping exercise was conducted
  to identify cashable savings in procurement. This
  work consumed 20 person-days of PwC consulting
  input, and around 10 person-days of Cheshire
  County Council input, and involved the following
  steps

Understand spend

• Spend Data Data from the Spikes Cavell
  initiative previously delivered was used as the
  basis for the scoping exercise. This enabled us
  to identify and prioritise key spend areas and
  assess supplier rationalisation opportunities
• Interviews Discussions were held with over 20
  Council officers involved in the purchasing of
  various products and services. We used these
  interviews to gain an understanding of the
  current procurement situation (suppliers,
  contracts, processes, etc.) in each key spend
  category
• Savings opportunities We assessed the scale of
  potential savings at category level, using our
  experience of programmes undertaken with
  authorities of similar spend profile, procurement
  structure and approach. We also used our
  knowledge of market pricing and detailed analysis
  of achievable savings in commodity areas

Understand procurement situation
Understand savings opportunities

• The results of the exercise can be found
  overleaf. Categories are split into three blocks
  quick wins in areas of low political
  sensitivity, categories to be address in
  financial year 2006-07 and longer-term categories
  in which further scoping work was necessary

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Scoping Exercise findings
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Results overall

• Implementation of the initiatives in each of the
  phase 1 categories has exceeded original savings
  estimates by a significant factor
• Savings achieved are summarised below
• Whilst the calendar time taken to deliver these
  savings exceeded original expectations, the scale
  of savings has ensured that FY06-07 have been
  significantly surpassed. The phase 1 programme
  has also been delivered on budget with regard to
  PwC costs
• Details of the approach and savings for each of
  these initiatives follow

722k
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Results Agency Staff (phase 1)

• The review of agency staff spend has two key
  phases
• Internal benchmarking complete
• Market tender ongoing at time of writing (Oct
  06)
• Phase one of this work centred around analysis of
  existing procurement arrangements and rates /
  charges incurred amongst the existing supplier
  base
• This was delivered through a series of surveys
  and interviews with users across the council.
  These examined current usage, suppliers, terms,
  rates, future requirements, processes and factors
  deemed important in the sourcing of temporary
  workers. Key findings from this analysis
  included
• The final key finding from a potential savings
  point of view was the variance in charge rates
  incurred by council services for similar kinds of
  agency worker see overleaf

Total spend c. 5.7m p.a.
gt 115 different providers used, and limited
aggregation with individual suppliers
No audit trail of worker vetting high potential
risk
Autonomous sourcing no overall responsibility
or view of expenditure
Limited management reporting
gt 8,000 invoices processed in 12 month period
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Results Agency Staff (phase 1)

• An illustration of the typical variances in rates
  incurred by services is given below
• The average variance identified was 28.8. Quick
  win savings were therefore achieved by
  establishing a preferred supplier list (PSL).
  This was created from the base of suppliers
  already used by CCC, thereby eliminating the need
  to conduct a full tender process in the short
  term
• Developing this PSL, together with effective
  measures to monitor and ensure compliance to the
  new arrangements, identified 255k of annualised
  savings, of which 190k was agreed to impact
  FY06-07 budgets
• It should be noted that the savings figures above
  reflect a conservative 50 compliance figure in
  the short term, accounting for the run-down of
  existing usage. Whilst this compliance rate is
  likely to increase over time, additional savings
  are likely to be superseded by those generated
  through the phase 2 market tendering work

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Results IT Consumables

• A full data gathering exercise was conducted to
  assess the Councils spend on IT consumables
  including data from Roses, CBS, incumbent
  suppliers and IT supplier EDS. The data were
  analysed and split into two categories of
  product Data Storage Media and IT Consumables.
  Annual spend for the two categories combined was
  around 750k p.a.
• The e-auction took place on July 3rd 2006. 12
  bidders took part in the e-Auction including
  incumbents of the Council and other major
  suppliers. This was from an initial list of over
  200 suppliers contacted. 68 were invited to
  submit pre-qualification responses, from which 26
  qualified and were sent the Invitation to Tender
• The auction result gave rise to a number of
  options for realising savings, based on the type
  of products selected (OEM branded or alternative
  products such as re-manufactured toner
  cartridges) and the delivery channel used (i.e.
  through central storage and distribution facility
  CBS, or direct delivery via the Roses electronic
  marketplace)
• CCC selected the option to source alternative
  brand items, where available, from a single
  supplier XMA. Items will be sourced directly
  through Roses
• Auction results and savings achieved can be found
  overleaf

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Results IT Consumables

• Savings from the implementation option selected
  were as follows
• Total annual savings of 221k were therefore
  achieved, representing a 29 overall cost
  reduction
• Of this total, 145k directly benefits the
  Council with the remainder comprised of
  expenditure relating to schools and external
  customers of CBS
• In calculating FY06-07 budget reductions, CCC
  Design Authority requested that 80 of the total
  saving be used to reflect some caution around the
  immediate switch to alternative products. With an
  effective implementation date of 1st October
  2006, this gives a FY06-07 impact of 58k

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Results Print

• The aims of the project were to reduce overall
  print spend and consolidate the number of
  suppliers used. This was achieved through a full
  information gathering, tendering and e-auction
  project, together with structural changes to
  improve the way Cheshire Council commissions
  print work
• Data was gathered from a number of sources,
  including invoices, CCC spend information and
  suppliers. This was then analysed and divided
  into five lots with an overall spend of
  1,014,016 per annum
• The e-auction took place on September 4th 2006.
  33 bidders took part in the e-Auction including
  incumbents of the Council and other major
  suppliers. This was from an initial list of over
  450 suppliers contacted. 97 were invited to
  submit pre-qualification responses, from which 54
  qualified and were sent the Invitation to Tender
• A potential total saving of over 597k is
  available to the Council by using the best
  bidders for each lot (excluding implementation
  costs). This represents a 59 reduction in
  overall spend. The auction result is summarised
  overleaf, and full details are available from
  Paul Haycock of PwC or Neil Thompson of
  Vendigital
• In order to implement these savings, CCC is
  required to appoint a central Print Buyer. The
  role will be to commission work from the winning
  suppliers where requirements defined by Services
  meet the specifications included in the tender.
  For specifications against which suppliers have
  bid (e.g. one-offs) the role will be to
  negotiate prices with the preferred suppliers or,
  by exception, the wider marketplace

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Results Print

• For three of the five lots, a proportion of items
  were specifically priced by each supplier in
  their bids. The remaining tail of spend will
  also be supplier by the winning bidder for each
  lot with the same level of savings as the auction
  value
• For all lots, each supplier was rated against
  non-price criteria such as service / delivery
  levels, quality offered, management reporting,
  environmental factors etc. The auction then
  ranked each suppliers according to their total
  score comprising 50 price and 50 non-price
  criteria
• The savings achieved, excluding implementation
  costs, through the auction were as follows
• Therefore, from a total annual spend of
  1,014,016, the auction identified a total saving
  of 597,794, representing 59 of total spend
• With the deal and commissioning arrangement
  coming into place on 1 November 2006, CCC will
  benefit from five months savings in FY06-07
  229,081 (adjustment made for implementation
  costs, i.e. print buyers, recruited internally)

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Next Steps

• A statement of work was compiled for phase 2 of
  the procurement programme. This covered the next
  stage of work around agency staff, a number of
  quick win initiatives in the councils social
  care spend, plus further scoping in the areas of
  IT telecoms and advertising. This approach and
  the required funding were approved by Members in
  May 06
• However, as a result of developments in the
  overall Transforming Cheshire programme, we have
  agreed to continue only with the agency staff
  work. This follows on from the phase 1 work to
  address the potential for improved rates in the
  marketplace, following the Competitive Dialogue
  tendering process
• Other procurement opportunities both scheduled
  for phase 2 and in further spend areas will be
  addressed as part of the wider review of all
  council services in the Transforming Cheshire
  programme. This means that the Procurement
  programme will cease to be a stand-alone project,
  and will be subsumed into the wider programme