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CPP Workshop November 2007. Introductions Frank Gallagher Stephen Roy PPP Unit Department of the Environment, Heritage and Local Government Pat Leahy.

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Presentation on theme: "CPP Workshop November 2007. Introductions Frank Gallagher Stephen Roy PPP Unit Department of the Environment, Heritage and Local Government Pat Leahy."— Presentation transcript:

1 CPP Workshop November 2007

2 Introductions Frank Gallagher Stephen Roy PPP Unit Department of the Environment, Heritage and Local Government Pat Leahy John Kinnane National Public Procurement Policy Unit Department of Finance

3 Agenda 09.45Introduction 10.00Corporate Procurement Planning 10.15SUPREM Expenditure Analysis 11.10Coffee Break 11.30SUPREM Workshop 13.00Lunch 14.00Morning Recap 14.10Analysis of SUPREM Data 14.45Transaction Analysis 15.05Supplier Analysis 15.25Organisational Analysis 16.00Q+As 16.15Wrap Up

4 Procurement Modernisation eProcurement Strategy Co-ordinated purchasing, leverage buying power, reduce transaction costs 2003 – Local Government Strategy Approved by CCMA Potential savings of €60m per annum eProcurement tools – LA Quotes, LGCSB initiatives e.g. EFT

5 Corporate Procurement Planning NPPPU established in Dept. of Finance 2005 – National Procurement Policy Framework Corporate Procurement Planning VFM – C&AG Act 1993 & PMSA 1997 Annual Corporate Governance requirement

6 National Public Procurement Policy Framework Public statement by Finance Minister Brian Cowen Speech to Chambers of Commerce: “I recently approved a policy framework that aims to facilitate a smarter and more professional approach to public procurement by Departments by requiring them to develop Corporate Procurement Plans to set targets to achieve savings, value for money objectives and the appropriate structural changes in their organisation.”

7 VFM Purchasing in the Local Government Sector LG VFM Reform Agenda – Indecon & T2016 Not just procurement thresholds Strategic and co-ordinated purchasing Reduce transaction costs- less low value invoicing Streamline existing processes – eProcurement tools Utilise the buying power of the organisation Ensure security of supply CPPs set out steps for achieving greater VFM Also ‘sustainable’ procurement aims

8 D/Environment Initiatives CPP Guidance Document Basic Format for CPP ProcurementModernisation Information sessions Once-off CPP funding – CPPs to be public Procurement co-ordination - future savings

9 CPP Format Short Executive Summary – busy managers Introduction Expenditure and Risk Analysis – SUPREM Organisational Analysis incl. legal compliance - see D/Finance guidelines Specific Goals – measurable and timeframe Appendices – commercially sensitive info

10 CPPs - Points to note Include all revenue expenditure – current, contract & direct labour expenditure Exclude staffing costs and large capital projects Consultation with purchasing areas vital Reform manual process before automation VFM and security of supply both critical Review progress in next year’s CPP

11 Supply Positioning What is “supply positioning”? The supply positioning matrix Potential buying strategies

12 Supply Positioning For categories of goods and services determine –Difficulty of securing supply (Risk) –Relative expenditure Technique used to assist in the development of procurement strategies for particular goods or services Spend Profile –“supply positioning matrix” –Supplier and transaction analysis

13 Supply Positioning and Risk Evaluation Matrix - SUPREM Supply Positioning Chart

14 Supply Positioning and Risk Evaluation Matrix - SUPREM Supply Positioning Expend a small amount of procurement effort

15 Supply Positioning and Risk Evaluation Matrix - SUPREM Supply Positioning Expend a large amount of procurement effort

16 Risk Management and Problem Solving: Long term contracts offer security of supply Develop sound relationships with key suppliers Often worthwhile investing resources in finding alternative suppliers or goods and services Potential Buying Strategies Managed supplier relationships: Performance outcomes need to be defined and outcomes monitored Supplier quality development Efficient transaction management Aggregation of orders where appropriate Seek to utilise other agencies’ arrangements Aggregate demand and efficient transaction management Monitor the supply market, gain an understanding of suppliers’ cost components and their strategies for more empowered negotiations Arrangements that give flexibility to leverage demand

17 Creating a Spend Profile Step 1 Obtain info from FMS etc Step 2 Define & Quantify Spend Categories Step 3 Estimate Risk Step 4 Input data into SUPREM Create Supply Positioning Chart Step 5 Draw initial conclusions from Spend Profile Parallel 1 Supplier Analysis Parallel 2 Transaction Analysis INTERPRET RESULTS Parallel 3 Organisation Analysis

18 S UPREM Information required Expenditure – categories of Goods & Services Risk Assessment Internal External Procurement Relationship How SUPREM works Expected Results

19 S UPREM – Assessing Risk

20 4 Sources of Risk The Purchasing Organisation e.g. poor specifications The Product or Service e.g. poor technology The Supplier e.g. poor performance The Market e.g. poor competition – monopoly

21 S UPREM – Assessing Risk Generally, risk is greater when: the procurement is complex consequences of failure are severe there are few suppliers specialist knowledge is needed market conditions are changing specific quality requirements exist supplier performance is poor there are safety/environmental considerations

22 S UPREM – Assessing Risk FACTORWEIGHTING Strategic Importance Easily Substituted Not Important Low Importance Moderate Importance ImportantCritical Supply Failure Impact Very LowLowModerateHighVery HighCritical Procurement Relationship Complexity Very EasyEasySlightly Complex Moderately Complex ComplexHighly Complex Supply Failure Probability Very LowLowModerateHighVery HighCertain Nature of Supply Market Highly favours buyer Moderately favours buyer Slightly Favours Buyer Slightly Favours Supplier Moderately Favours Supplier Highly Favours Supplier RISKHIGHERLOWER

23 S UPREM – How it Works CREATES ‘SUPPLY POSITIONING PROFILE’ Enter name and expenditure for each category of goods and services Select most appropriate responses for: Nature of the supply market Probability of supply failure Complexity of procurement relationship Impact of supply failure Strategic importance to organisation Review, print, save or copy chart and report

24 S UPREM – Log in

25 S UPREM – Enter Categories

26 S UPREM – Enter Risk Factors

27 S UPREM – Report and chart Opens in New Window

28 S UPREM – Sample Report

29 S UPREM – Getting Access All users must be registered Complete application form for username and password Contact:

30 S UPREM Workshop Break into Groups Assign Risk Weightings to 10 Categories Input Risk and Expenditure Data into SUPREM Generate Report & Chart Revise Inputs as necessary Re-generate Report & Chart Discuss Findings & Risk Rationale (after break)

31 S UPREM Workshop FACTORWEIGHTING Strategic Importance Easily Substituted Not Important Low Importance Moderate Importance ImportantCritical Supply Failure Impact Very LowLowModerateHighVery HighCritical Procurement Relationship Complexity Very EasyEasySlightly Complex Moderately Complex ComplexHighly Complex Supply Failure Probability Very LowLowModerateHighVery HighCertain Nature of Supply Market Highly favours buyer Moderately favours buyer Slightly Favours Buyer Slightly Favours Supplier Moderately Favours Supplier Highly Favours Supplier RISKHIGHERLOWER

32 S UPREM Workshop CategoryTotal Spend Strategic Importance Supply Failure Impact Procurement Relationship Complexity Supply Failure probability Nature of Supply Market Professional Fees250000Moderate Importance HighComplexModerateModerately Favours Supplier Plant & Equip. Hire200000Moderate Importance ModerateEasyLowModerately Favours Buyer Furniture & Fittings Low ImportanceLowEasyLowSlightly Favours Buyer Gen. Maintenance132000Low ImportanceModerateEasyLowSlightly Favours Supplier Telecoms (Fixed)110000Moderate Importance HighSlightly ComplexLowSlightly Favours Supplier Health & Safety98000ImportantHighModerately Complex LowSlightly Favours Buyer Telecoms (circuit a/cs, inter-links) 82000ImportantHighSlightly ComplexLowModerately Favours Supplier IT Consumables63000Moderate Importance LowEasyLowSlightly Favours Buyer Catering15000Low ImportanceLowEasyLowSlightly Favours Buyer Security35000ImportantHighSlightly ComplexLowSlightly Favours Buyer Advertising30000Moderate Importance ModerateSlightly ComplexLowModerately Favours Buyer Vehicle Op. Costs25000Low ImportanceModerateVery EasyLowSlightly Favours Buyer Confidential Waste25000ImportantModerateEasyLowSlightly Favours Buyer Cleaning20000Low ImportanceVery High Slightly ComplexLowSlightly Favours Buyer Landscaping16000Not ImportantVery LowVery EasyVery LowModerately Favours Buyer

33 Morning Recap Why are we doing this? CPP Basics Supply Positioning SUPREM

34 Typical SUPREM findings c 5% total expenditure c 20-30% total expenditure < 1% total expenditure c 50 – 60% total expenditure Many low value purchases e.g couriers, newspapers Group-wide ‘common’ items – e.g printing, furniture ‘Specialist’ goods & services – e.g. IT consultants, legal fees ‘Critical’ goods & services – e.g. professional fees, energy costs

35 Analysis of SUPREM data ‘Streamline’ Unit cost reduction Risk reduction Long-term VFM Transactions Suppliers Process Demand Contract Aggregate Clear Specs Substitutes Alternatives Relationships Planning Measurement

36 Analysis of SUPREM data

37 Transaction Analysis Used to understand the: organisation’s interaction with its suppliers ordering and payment habits. Need to identify the: overall number of transactions number of transactions per supplier per expenditure category value and frequency of transactions.

38 Transaction Analysis A significant effort is spent managing a very small portion of the organisation’s spend. Note that €80 is considered to be the minimum estimate of the cost of a transaction. This figure reflects both direct costs (postage, cheque printing, etc) and indirect costs (staff time, overheads, etc). Some organisations may have a higher figure (up to €120) representing more complex transactions or larger overheads. The organisation should look to reducing the number of transactions that have a value below the cost of processing.

39 Transaction Analysis Invoices Value BandNumber% of total SpendTrans < € %41.00% €101 - € %25.50% €251 - € %12.30% €501 - € %19.79% > € %50.81% Number and value of invoices by value band Example c80% of invoices equates to c30% of Spend

40 Transaction Analysis CategoryExpenditureTransactionsAverage Value Maintenance € Heat Light & Power €2, Catering € Advertising € Printing € Skip Hire € Insurance €2, Cleaning € Stationery € Postage € Vehicle Fuel €92.59 IT Consumables360052€69.23 Couriers350092€38.04 Safety Materials350036€97.22 €69.23 €38.04

41 Transaction Analysis Number of invoices with a single line Number of invoices with more than 10 lines List of suppliers who generate more than one invoice a week with a single line This is a way, albeit a crude one, to determine if any consolidation of invoicing is happening. You would expect to see higher numbers of lines and fewer invoices if consolidation is occurring.

42 Transaction Analysis Some ways to reduce transaction numbers CONSOLIDATED INVOICES DEMAND MANAGEMENT STRATEGIC USE OF PURCHASE CARDS FRAMEWORK AGREEMENTS SUPPLIER MANAGEMENT

43 Supplier Analysis “Micro” Analysis  How many Suppliers are dealing with the organisation?  How often are they used?  How much is spent with them?  Do multiple Suppliers provide the same goods or service?  Do different parts of the organisation have contracts with same Suppliers?

44 Supplier Analysis “Macro” Analysis  How many Suppliers in the market?  Which Suppliers are the most powerful?  How are the Suppliers geographically located?  Are multiple suppliers part of the same group?  Is the market stable?

45 Supplier Analysis  Do we have too many / too few Suppliers for particular goods or services?  How does the market view the organisation as a customer?  Have we the ability to influence the market?

46 Supplier Analysis Number of suppliers used this year Number of suppliers used this year as a % total suppliers on the database Number and value of suppliers by supplier bands Number of suppliers with a single invoice Average invoice value of suppliers with a single invoice The majority of suppliers with a single invoice will be ad-hoc, one-off suppliers. Each new supplier will be generating administrative effort to create and maintain which could be saved, as could the effort required by the purchaser/customer to source the supplier. Number of ‘new’ suppliers in the previous financial year who have been re-used in this financial year Can be indicative of where insufficient supplier registration procedures exist, when combined with a review of the existence of duplicate supplier records.

47 Supplier Analysis List top suppliers (e.g. top 20, 30) by spend and volume of invoices Simplistically, the suppliers with whom the most money is spent generally require some designated supplier relationship management in order to ensure that the organisation is achieving best value for money and to negotiate changes in business practices (including e- Procurement and other automation). Suppliers who generate the most invoices are candidates for increased automation throughout the Procure to Pay cycle.

48 Supplier Analysis Duplicate suppliers (list evidence and show how it would affect the positioning in the top supplier tables) Most organisations have significant duplication of suppliers. This can be identified by telephone number, C2 or VAT registration, description searches, etc. In some instances this may be for legitimate reasons (e.g. different supplier locations), but in others it could be human error. Number of ‘new’ suppliers in the previous financial year who have been re-used in this financial year Can be indicative of where insufficient supplier registration procedures exist, when combined with a review of the existence of duplicate supplier records.

49 Supplier/Transaction Analysis SupplierCategorySpendTrans.Ave. Value% Spend% Trans. Image DesignAdvertising € %4.90% Central PressAdvertising70006€1, %0.60% Allied PressAdvertising30005€ %0.50% Buzz RadioAdvertising100012€ %1.20% Planet RadioAdvertising100012€ %1.20% Contract CaterersCatering € %1.80% City CaterersCatering750060€ %6.00% Farrelly FoodsCatering350018€ %1.80% Capital CorpCleaning950040€ %3.00% Acme IncCleaning950030€ %4.00% Professional FinishCleaning300020€ %2.00% Speedy CouriersCouriers170040€ %4.00% Couriers € %3.00% Quick CouriersCouriers80022€ %2.20% Keegan OilHL &P €1, %1.20% ESBHL &P €2, %1.20% FBDInsurance €2, %1.20% Smart ComputersIT Consumables120012€ %1.20% Healy Hard-driveIT Consumables120022€ %2.20% Prestige ComputingIT Consumables7008€ %0.80% Performance ProductsIT Consumables50010€ %1.00%

50 Supplier/Transaction Analysis SupplierCategorySpendTrans.Ave. Value% Spend% Trans. Image DesignAdvertising € %4.90% Central PressAdvertising70006€1, %0.60% Allied PressAdvertising30005€ %0.50% Buzz RadioAdvertising100012€ %1.20% Planet RadioAdvertising100012€ %1.20% Contract CaterersCatering € %1.80% City CaterersCatering750060€ %6.00% Farrelly FoodsCatering350018€ %1.80% Capital CorpCleaning950040€ %3.00% Acme IncCleaning950030€ %4.00% Professional FinishCleaning300020€ %2.00% Speedy CouriersCouriers170040€ %4.00% Couriers € %3.00% Quick CouriersCouriers80022€ %2.20% Keegan OilHL &P €1, %1.20% ESBHL &P €2, %1.20% FBDInsurance €2, %1.20% Smart ComputersIT Consumables120012€ %1.20% Healy Hard-driveIT Consumables120022€ %2.20% Prestige ComputingIT Consumables7008€ %0.80% Performance ProductsIT Consumables50010€ %1.00%

51 Supplier/Transaction Analysis SupplierCategorySpendTrans.Ave. Value% Spend% Trans. Image DesignAdvertising € %4.90% Central PressAdvertising70006€1, %0.60% Allied PressAdvertising30005€ %0.50% Buzz RadioAdvertising100012€ %1.20% Planet RadioAdvertising100012€ %1.20% Contract CaterersCatering € %1.80% City CaterersCatering750060€ %6.00% Farrelly FoodsCatering350018€ %1.80% Capital CorpCleaning950040€ %3.00% Acme IncCleaning950030€ %4.00% Professional FinishCleaning300020€ %2.00% Speedy CouriersCouriers170040€ %4.00% Couriers € %3.00% Quick CouriersCouriers80022€ %2.20% Keegan OilHL &P €1, %1.20% ESBHL &P €2, %1.20% FBDInsurance €2, %1.20% Smart ComputersIT Consumables120012€ %1.20% Healy Hard-driveIT Consumables120022€ %2.20% Prestige ComputingIT Consumables7008€ %0.80% Performance ProductsIT Consumables50010€ %1.00%

52 Supplier/Transaction Analysis SupplierCategorySpendTrans.Ave. Value% Spend% Trans. Image DesignAdvertising € %4.90% Central PressAdvertising70006€1, %0.60% Allied PressAdvertising30005€ %0.50% Buzz RadioAdvertising100012€ %1.20% Planet RadioAdvertising100012€ %1.20% Contract CaterersCatering € %1.80% City CaterersCatering750060€ %6.00% Farrelly FoodsCatering350018€ %1.80% Capital CorpCleaning950040€ %3.00% Acme IncCleaning950030€ %4.00% Professional FinishCleaning300020€ %2.00% Speedy CouriersCouriers170040€ %4.00% Couriers € %3.00% Quick CouriersCouriers80022€ %2.20% Keegan OilHL &P €1, %1.20% ESBHL &P €2, %1.20% FBDInsurance €2, %1.20% Smart ComputersIT Consumables120012€ %1.20% Healy Hard-driveIT Consumables120022€ %2.20% Prestige ComputingIT Consumables7008€ %0.80% Performance ProductsIT Consumables50010€ %1.00%

53 Organisational Analysis The four areas that should be addressed in the context of assessing the organisation’s procurement capacity are: ORGANISATIONAL STRUCTURE POLICIES, PROCEDURES & PRACTICES ICT and eProcurement PROCUREMENT SKILLS

54 Organisational Structure How is procurement viewed by the organisation? Where does purchasing occur in the organisation? Are purchasing activities planned & co-ordinated? Who has responsibility and for what? Is there any organisational duplication? Is there scope for streamlining processes and redeploying resources?

55 Policies, Procedures & Practices Are there clear procurement policies in place? Is everyone made aware of these policies? Do you review these policies regularly? Do Procurement Policies comply with the most up to date legal requirements Are procurement/tendering processes clearly documented Are there monitoring systems in place e.g. managerial sign off to control purchasing processes

56 ICT and eProcurement Does the ICT system support the procurement activity? Is it ‘user friendly’ – can you get the data you need? Can you use ICT tools to measure procurement savings? Do you use available eProcurement tools? Is your ‘purchase to pay’ cycle sufficiently streamlined?

57 Procurement Skills & Knowledge Are Managers and staff up to date on procurement legislation? Is procurement knowledge and experience shared within the organisation? Are Training opportunities offered…and availed of? Are new approaches to purchasing being explored?

58 CPP Tools & Assistance  Financial Management System (FMS)  Agresso, JD Edwards, Oracle, etc  Analysis Programmes  SUPREM, etc  CPP Template  Capacity Building Material  Policy Docs, Organisation Chart, HR Profiles  DoF’s Consultancy Framework Agreement

59 A Q & Q U E S T I O N S & A N S W E R S Wrap Up


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