The LEAN Sourcing Approach Briefing

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The LEAN Sourcing ApproachBriefing
self-starter pack for procurement staff

• Version 1.0

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The Procurement Reform Agenda

• The Coalition Government has set out the
  requirement to support the implementation of the
  Growth Agenda and to ensure that more Small
  Medium Sized Enterprises (SMEs) /Voluntary,
  Community Social Enterprises (VCSEs) win
  government contracts.  The requirement includes a
  new approach to the way central government
  departments carry out procurement.
• This requires departments to think very
  differently about how procurements are planned
  and delivered.
• Subsequently, this requires a much closer working
  relationship between procurement staff and
  colleagues from policy areas and project
  management functions than has previously been the
  case.
• The new approach has been endorsed by Francis
  Maude, the Minister for the Cabinet Office and
  all central government departments and their ALBs
  are required to adopt it.

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The new policy requirements

• The new approach comprises the following new
  government policy requirements
• Adoption of a LEAN sourcing approach that strips
  out waste and reduces costs
• A requirement to carry out significant levels of
  pre-procurement market engagement with diverse
  range of prospective suppliers, including SMEs in
  order to warm-up the market, test our thinking
  and generate ideas for innovation as part of the
  development of outcome-based specifications.
• Contracts should be broken down into lots where
  appropriate, and requirements that are below the
  value of 100K should be rapidly sourced through
  the new Government Dynamic Market place.
• All Government procurements are strongly
  encouraged to use the Open Procedure.
• There is now a presumption against the use of the
  Competitive Dialogue procedure which has often
  resulted in slowing things up unnecessarily and
  typically incurs huge costs on both sides.
• There is an expectation that all but the most
  complex procurements are completed within 120
  working days (publication of the advert to the
  contract award decision date).

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What this means for our department

• Collectively, we need to develop
• A detailed understanding of what the pipeline of
  potential procurements is so that these can be
  planned and resourced effectively
• Strong recognition within business areas that
  early engagement and joint working with the
  procurement function (as part of a
  multi-disciplined procurement team) is a critical
  success factor
• A full understanding of the key principles of the
  LEAN sourcing process and how engagement with
  suppliers in the market before establishing a
  formal procurement process has to become standard
  practice (we can no longer rush out with an
  advert)
• Strong acceptance that large complex contracts
  with large suppliers are no longer going to be
  permitted (in the vast majority of cases) and
  that increasing the number of contracts awarded
  to SMEs/VCSEs (through breaking down requirements
  into lots) is the new way forward (where
  appropriate).
• Strong recognition that departmental performance
  in delivering procurements within 120 days will
  be subject to ongoing scrutiny by ERG and No10
  and that we can only achieve this by working
  together.
• More efficient and effective approaches to taking
  business decisions to ensure that we do not incur
  any unnecessary delays.

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7 key principles of the new approach
1. Establish a clear understanding of required
business outcomes
Strong focus on preparing to go to market This
is a key activity that takes time and careful
planning
2. Engage with the market in order to shape and
confirm that the business requirement is
attractive to a diverse range of suppliers
3. Use LEAN thinking and visual tools to set up
and run a well planned and efficient process
4. Do not commence formal procurement until
thorough engagement with suppliers has taken
place.
Strong focus on running a fast procurement
process This is a key activity that requires
collective effort and is dependant on effective
preparation
5. Streamline any engagement with suppliers and
stakeholders by using a boot camp approach to
make best use of limited time
6. Use e-sourcing tools to support the
procurement and follow the LEAN Standard
Operating Procedures (SOPs)
7. Measure and manage performance through
continued focus on turnaround times and costs.
Advert to contract award decision date should be
completed within120 working days
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Key principles from a Procurement perspective
ctc
1. Establish a clear understanding of required
business outcomes
2. Engage with the market in order to shape and
confirm that the business requirement is
attractive to a diverse range of suppliers
3. Use LEAN thinking and visual tools to set up
and run a well planned and efficient process
4. Do not commence formal procurement until
thorough engagement with suppliers has taken
place.
5. Streamline any engagement with suppliers and
stakeholders by using a boot camp approach to
make best use of limited time
6. Use e-sourcing tools to support the
procurement and follow the LEAN Standard
Operating Procedures (SOPs)
7. Measure and manage performance through
continued focus on turnaround times and costs.
Advert to contact award decision date should be
completed within 120 working days
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Procurement routes our choice has become
limited
Route Key Features Use
Open All interested suppliers may respond to the advertisement in the OJEU by tendering for the contract. Well defined, outcome-based requirements will help ensure a manageable number of bid responses from good quality and capable suppliers. There is a government commitment towards greater use of the Open procedure.
Restricted A two stage process where a selection of suppliers who respond to the advert is made and only they are invited to submit a tender for the contract. The selection (pre-qualification) questionnaire (PQQ) must only contain proportionate and relevant criteria. Use in limited circumstances where pre qualification is essential. The use of a standardised , stripped back core PQQ is mandatory across central Government, and not used at all for sub 100k work.
Competitive Dialogue Following an advert and a selection process potential suppliers are invited to enter into dialogue to develop one or more suitable solutions before chosen suppliers are invited to tender. The Government has set a presumption against the use of competitive dialogue.
Negotiated One or more potential suppliers are selected to negotiate the terms of the contract. An advert is usually required. Only to be used in extremely limited circumstances described in the Regulations, for example, where a previous procurement was discontinued because of unacceptable/irregular tenders.
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Setting expectations

• LEAN sourcing - the procurement process has not
  changed
• Wasteful practices have been removed and highly
  efficient best practice (government industry)
  has been built into it
• Strong consideration has been given to the supply
  side in the design of the process in particular
  SMEs/VCSEs
• You should recognise the good practice that is
  set out within the process
• Applying your professional judgement when
  following the LEAN process is a critical success
  factor

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What you should get from this briefing...

• Good awareness of the LEAN sourcing process and
  how the Governments SME policy requirements fit
  into it
• An insight into the components of the LEAN
  standard solution and the benefits of applying it
• Sufficient knowledge and confidence to start to
  apply the standard solution on forthcoming
  procurements

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Procurement Route Decision Tree

• Analyse the requirement to ensure that you have a
  sound understanding of business outcomes
  required, and consult the marketplace early

You have been approached with a new requirement
OR you have an operational imperative e.g. an
expiring contract
Start
Is your requirement covered by Government's
Central Procurement Programme?
Refer to the Government Procurement Service.

• Engage the market to sound out ideas on the best
  way to shape, and where possible, simplify and
  breakdown the requirement

Is your requirement covered by an existing
departmental or cross government contract?
Use pre-existing departmental or cross government
arrangement

• Now that you have completed pre procurement
  market engagement (including publication o f a
  project specific PIN and Industry Bootcamp) you
  should now be able to define and specify (in
  accordance with the appropriate EU Regulations)
  Can you define and specify in accordance with
  regulations the following
• How the project outcome will be delivered, and
• How the contract and commercial deal will be
  structured

Yes but there is strong evidence the market is
very large and that pre-qualification is the only
option
YES
OPEN PROCEDURE
COMPETITIVE DIALOGUE PROCEDURE Government
presumption against its use Use of Competitive
Dialogue may be challenged by ERG. Follow the
Competitive Dialogue LEAN sourcing Standard
Operating Procedures.
RESTRICTED PROCEDURE Confirmed by Commercial
Director / Head of Procurement Follow the
Restricted Procedure LEAN sourcing Standard
Operating Procedures. Use mandatory standardised
PQQ and ensure it contains proportionate and
relevant criteria.
Use the Open Procedure following the LEAN
sourcing Standard Operating procedures
There is a government commitment to move towards
greater use of the Open Procedure
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The new LEAN sourcing process the 5 Stage
Process
The new approach requires more work to be carried
out before going to market
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Pre-procurement market engagement

• The LEAN sourcing process has a strong focus on
  pre-procurement market engagement
• Market analysis - engaging early with the market
• Encourages innovation buyers get to hear what
  potential solutions suppliers can offer and
  suppliers are aware of the requirements.
• Enables buyers to test the markets response to
  their high level requirements, (including any
  socio economic factors)
• Saves time and cost when the procurement process
  begins suppliers can deselect themselves for
  opportunities they know they are not suitable for
• Allows for consortia formation
• Questions we need to ask ourselves
• Have we consulted with a broad range of suppliers
  through interactive supplier days?
• What is the supplier makeup of the market?
  Particularly those markets where there is a high
  SME prevalence?

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Considering different ways of going to market

• Sourcing strategy
• Use this engagement to consider whether there is
  opportunity to break requirements into smaller
  lots whilst maintaining a focus on the
  requirements of the business
• Questions we need to ask ourselves
• Have we considered what size of contract is most
  suitable for the requirement?
• What is optimum contract duration, size and
  value?(contract value is a key determinant for
  SME and Voluntary, Community Social Enterprises
  (VCSEs) engagement)
• Have we made it clear that we are willing to
  consider bids from consortia arrangements and
  allowed appropriate time for consortia to form
  and bid?
• The Procurement Process itself removing
  barriers for SMEs

Ways to remove barriers for SMEs Ways to remove barriers for SMEs
1. Use the standard PQQ 3. Minimise financial and other selection criteria
2. Enable consortia time to form 4. Remove financial scoring
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Planning for project approvals

• Approvals can be time consuming and can in
  extreme circumstances cause significant delays
• There are various Cabinet Office spending control
  mechanisms and processes in place which need to
  be understood. See http//www.cabinetoffice.gov.u
  k/resource-library/cabinet-office-controls-guidanc
  e-actions-and-processes-document
• Key message be prepared, build these activities
  into the plan and minimise the delays by having
  all of the documentation ready.

Brings a sharper focus to planning. In
particular, mapping out what approvals and
assurance are required and the preparations
required to be made by the team
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LEAN Sourcing Process General Overview
Issue of OJEU Notice
To be completed within 120 working days
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In summary......
Pre-OJEU
Procurement OJEU to Award

• Setting up for success - readiness
• Developing a clear understanding of requirement
  business outcomes
• Engaging with suppliers in the market and
  identifying opportunities for innovation and/ or
  breaking requirements into more attractive lots
• Developing a detailed understanding of the
  business requirement and constructing it in a way
  that will be clear and attractive to the market
• Getting a team in place with the right
  capabilities and a clear delivery plan (that
  takes into account approval and assurance points)

• Execution
• Operating a highly efficient process in line with
  the plan, which focuses on reducing turnaround
  times and costs to both the client and the
  suppliers within the competition but maintains
  quality

Pipeline of known procurements

• Key points
• The more quality time that is spent on pre-OJEU
  activities the more efficient the procurement is
  likely to be.
• Reduced turnaround times (OJEU to award)
  reduced costs and improved resource utilisation
• LEAN sourcing is not about cutting corners it is
  about improving efficiency, and quality as part
  of a repeatable approach that is subject to
  continuous improvement

The pool of scarce resources

• Risk
• Failure to complete the pre-OJEU activities is
  likely to result in three things occurring
• A protracted procurement incurring significant
  costs
• A business outcome that is sub-optimal
• Dissatisfaction of key business stakeholders

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The LEAN standard solution set

• Components comprise of
• Value Stream Map (a route map)
• Standard operating procedures (SOPs) - (what to
  do instructions)
• Standard implementation plan (activities based on
  SOPs)
• Visual management (tools and templates to drive
  progress and performance as part of a hub)
• A set of key performance indicators to help drive
  continuous improvement
• One core process with three variants Open,
  Restricted Competitive Dialogue

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LEAN Sourcing Standard Solution

• The Standard Solution enables the execution of
  the LEAN sourcing process. It provides a suite of
  tools that you can use to execute the sourcing
  process from business need identification and
  baselining through to contract award signature.

Standard Operating Procedures (SOPs) A set of
high level desk instructions describing the best
known method for carrying out the activities
described in the value stream map

• Procurement Route Decision Tree
• A tool to assist procurement

• professionals to think through and identify the
  most appropriate procurement route for their
  requirement.

Visual Management A way of displaying information
to drive the performance of the process
specific parts of the process
Value Stream Map The route map which sets out the
LEAN sourcing process.
Team Implementation Plan (TIP) An action plan
showing who will do what and when in specific
functions and processes
KPIs Performance indicators to measure turnaround
times and cost of running procurements.
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Open Simplified Routemap
7. Overview Open
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Open Standard Operating Procedures (SOPs)
Key specific differences in practice Key specific differences in practice
Typical as-is New approach
Used rarely, and only when requirements are so specific and the target supply base is known to be small More efficient requirements capture through stakeholder bootcamp, followed by full and comprehensive pre-procurement market engagement
Used rarely, and only when requirements are so specific and the target supply base is known to be small Publish OJEU, Bidders pack (ITT including Ts Cs) at same time, with a clear statement of requirement and evaluation criteria
Problems with this Inevitable tendency to avoid using the Open route because of the lack of control over the number of bidders. Benefits Provides full clarity to market and opportunity for supplier self de-selection Helps to ensure the widest possible market is aware of and understands the opportunity to compete pre-OJEU
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What a Standard Operating Procedure looks
like.....

• The Standard Operating Procedures (SOPs) are a
  set of high level desk instructions. They
  describe the best known method for carrying out
  the activities in the value stream map for each
  stage of the procurement process.
• The left hand column describes the operation or
  activity step, the centre column provides the
  detail and the right hand column contains
  examples or relevant links to other materials
  available on the internet, for example, the HMT
  green book templates for business cases.

Signifies a key risk of not carrying out the
activity appropriately. Identifies a point of
built in quality within the activity.
Illustrates an ease point, for example where
there is an existing template for completing the
activity.
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Restricted Simplified Routemap
22-36 days
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Restricted Standard Operating Procedures (SOPs)
Key specific differences in practice Key specific differences in practice
Typical as-is New approach
1. Publish OJEU PQQ 1. Publish OJEU, PQQ Bidders pack (including Ts Cs) at same time
2. Evaluate PQQ 1. Publish OJEU, PQQ Bidders pack (including Ts Cs) at same time
3. Use time between 1 2 to develop ITT (full bidders pack) 1. Publish OJEU, PQQ Bidders pack (including Ts Cs) at same time
4. Issue ITT to those who get through pre- qualification 1. Publish OJEU, PQQ Bidders pack (including Ts Cs) at same time
5. Evaluate responses to ITT 1. Publish OJEU, PQQ Bidders pack (including Ts Cs) at same time
Problems with this Benefits
Suppliers may get through PQQ and not like Ts Cs and then cause delays in timescales - waste Inefficient supplier self de-selection - they may not have entered the competition if they had seen full pack Provides full clarity to market and opportunity for supplier self de-selection Helps to ensure that requirement are crystal clear before going to market. Helps to ensure the widest possible market is aware of and understands the opportunity to compete pre-OJEU Helps consortia and other partnerships to form
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Formal training

• GPS is rolling out training across central
  government which will comprise
• 1 day LEAN Sourcing Awareness course
• 3 day LEAN Sourcing Simulation workshop
• Initially the both course types will be classroom
  based but an e - learning package is being
  developed to replace the 1 day course. This
  should be available by June 2012.
• Further information will be available from GPS by
  phoning the service desk on 0345 4102222 or by
  emailing training_at_gps.gsi.gov.uk

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Access to the LEAN sourcing materials
http//procurement.cabinetoffice.gov.uk/
http//gps.cabinetoffice.gov.uk/node/1109
UNCLASSIFIED 23
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Next steps

• Gain access to the LEAN sourcing materials
• Download and read the Standard Operating
  Procedures your starting point should be the
  set that covers the Open procedure
• Consider how these procedures and the key LEAN
  principles can be applied to forthcoming
  procurements
• Apply the principles to your procurement using
  the Standard Operating Procedures as a mechanism
  to ensure that you are following the LEAN process
• Note It will be important to capture turnaround
  times (the time taken in working days from the
  publication of the Advert to Contract Award) as
  our departments performance against the 120 day
  target will be subject to ongoing scrutiny from
  the department, ERG No10.