A LEAN PROCUREMENT STRUCTURE FIT FOR TODAY’S CHALLENGES WELCOME TO A LEAN PROCUREMENT STRUCTURE FIT FOR TODAY’S CHALLENGES Colin Cram Marc1 Ltd colin.cram@talktalk.net Tel: 01457 868107 Mobile: 075251 49611 www.marc1ltd.com

TESCO: 24 MARCH 2012 ANNOUNCEMENT PROCUREMENT TO BE DEVOLVED TO LOCAL STORES Local Managers have Better Understanding of Local Demand Each Store Able to Choose Own Products and Ranges, but Retaining Core Ranges More Responsive Customer Service Release Initiative and Creativity Greater Use of Local Suppliers Each Store Able to Negotiate Best Prices/Deals – Big is not always Best! Greater Variation in Store Designs Each Store to have its own Procurement IT System (based on common overall approach) BUT Centralised Purchasing of Tesco’s Own Brand Products to Remain

WHAT ARE THE LIKELY BENEFITS? WHAT ARE THE POTENTIAL DOWNSIDES?

JANUARY 2014 Internal Review Indicates Purchase Price Differentials of over 40% on Some Products Tesco Blames Suppliers for 25% of Products Out of Stock at Some Stores Many Tesco’s Stores Reduce Product Ranges by over 50% Suppliers Claim Tesco’s Purchasing is Chaotic. Number of Contracts has increased 1000 fold. Costs Passed on to Tesco Suppliers Claim Effective Scheduling of Deliveries has Ceased. Costs Passed on to Tesco. Lorry Congestion causing Delays near Tesco Stores

JANUARY 2014 continued ‘Which’ Survey Indicates that Tesco’s Product Quality is ‘All Over the Place’ Action Sustainability Report Claims Tesco’s policies on sustainability and working conditions of overseas suppliers have become meaningless Local Suppliers Claim they get Less Business from Tesco than Before. Tesco Admits it does not have the Data to Refute this Claim Managers Claim Too Many Staff have had to be diverted from Customer Service to Back Office and Procurement Functions

JANUARY 2014 continued Tesco Sued over 13 Outbreaks of Food Poisoning New Store Collapses – 10 deaths and 56 injured – Tesco Blames Local Architects and ‘Cowboy’ Builders Tesco’s sales Down by 27% - Combination of fewer customers who each spend less Tesco’s Share price Down by 70% CX Denies Tesco in Meltdown. ‘We are going through major change. Teething troubles are inevitable and will be overcome’

JANUARY 2015 Tesco Share Price Down by 90% 25% of Stores Earmarked for Closure Tesco CX Resigns to Spend More Time with Family Director of Procurement Replaced by Interim Takeover Bid from Coop Denied PWC to do Fundamental Review

JULY 2015 TESCO TAKEN OVER BY COOP After Review by Monopolies and Mergers Commission

MIRROR TO PUBLIC SECTOR PROCUREMENT What Does It Look Like MIRROR TO PUBLIC SECTOR PROCUREMENT What Does It Look Like? How Well is it being Managed? Can iit be Done Better?

DOES PUBLIC SECTOR PROCUREMENT MATTER? £230 Billion pa £3,500 per Adult and Child pa One Third of Total UK Public Spending One Sixth of UK Gross Domestic Product (GDP) 0.75% of Global GDP Size makes it Critical to Delivery of Public Services Effective Management is Essential to Reduce Public Spending Deficit Critical to Delivering Innovation , Sustainability and Economic Growth Policies EDUCATION PROCUREMENT - £30+bn Alone would put UK in top 30% of national GDPs

PUBLIC SECTOR PROCUREMENT £Bn Central Civil Government: 55 Ministry of Defence 15 Local Government 50 NHS 20 GP Prescriptions 10 Higher Education 4-5 Further Education 3 Schools 3

FEATURES OF PUBLIC SECTOR PROCUREMENT 70% Non-Central Government 50% Common Categories, Goods, Services 3000 Procurement Organisations? £bn Professional Services 30 Social Care 25 Construction 25 ICT 15 Facilities Management 15 Energy 4 Reprographics 3 Travel 3 Fleet 3 Food 2

PROCUREMENT IS DISORGANISED 2000 Procurement Organisations? Many Procurement Consortia Government Procurement Service Pro 5 ESPO YPO CBC West Mercia NEPO IESE West Midlands London (increasing collaboration, but not a consortium) AGMA Lancashire Lincolnshire Welland Kent CC and Laser Dukefield

OTHER PURCHASING GROUPS Higher Education NWCE LUPC SUPC (Southern) North East Purchasing Consortium Further Education and Academies Crescent Purchasing Consortium NHS Supply Chain SPS HTE London Procurement Programme

PUBLIC SECTOR ORGANISATIONS CREATE UNNECESSARY COSTS - For themselves and Suppliers Indiscipline Different Procedures/Contract Ts and Cs Complexity – e.g. Tender Procedures Multiplicity of Tenders Multiplicity of ‘Duplicate’ Contracts and Contract Managers Varied Specifications/Reinventing the Wheel Very Varied Capability Duplication Inconsistency of Expertise, Processes and Procedures AND cannot use industry best practice supply management

PUBLIC SECTOR ORGANISATIONS CREATE UNNECESSARY COSTS – for Themselves and Suppliers Specifications: Tarmac IT Finance Systems Outsourcings Street Lighting Construction Waste Disposal Research Equipment Commodities Goods and Services Who has the Best Specifications?

HOW ELSE TO TAKE OUT COST? TACKLE THE SUPPLY CHAIN

HOW CAN ONE SAVE MONEY THROUGH PROCUREMENT? Increased Leverage Better Quality Contracts Expertise Available to All Commodity Market Knowledge Available to All Better/More Consistent Policy Implementation Consistent Specifications Opportunities to Use More Advanced Purchasing Techniques - Relationship Management - Supply Chain Management - Value Analysis

UNDERPINNED BY Right Procurement Structures Information Common Information/IT Systems Discipline Specialist Expertise Available to All Market Product Procurement

SO WHAT HAS BEEN THE COST OF POOR PRACTICE /MISSED OPPORTUNITY? Furniture 30% FM/Outsourcing/Major Contracts Up to 35% Laboratory Consumables Up to 90% IT 5 – 80% Construction 5 – 25% Excellent Construction Management 5 – 15% Social Care 10% Legal Services 10% Good Contracts Management 5 – 35% © C M Cram

EXAMPLES OF OBJECTIVES 1. Savings through Leverage etc 2. Innovation 3. Social Objectives including Sustainability 4. Supporting Economic Growth 5. Common Processes, Procedures and Interpretation of Procurement Law 6. Consistent Specifications and Quality 7. Application of Category Expertise for All 8. Expert Procurement and Contracting Expertise for All 9. Service 10. Targets and Performance Measurement © C M Cram

How Should an Organisation Proceed? MODEL EVALUATION How Should an Organisation Proceed? Collaborative Model/ Objectives Indep Collab CLAN Joint Region Sector National Cash Savings Innovation Social Objectives/Sust Supporting Economic Growth Common Processes etc Consistent Specs Specialist Category Expertise Specialist Procurement and Contracting Expertise Service Targets/Measurement TOTAL © C M Cram

PUBLIC SECTOR PROCUREMENT IN 10 YEARS TIME? Central/ Major Departments/ Buying Solutions Industry Specific Regional P S Hubs/ Medium Depts Local/Med/ Small Departments Major National Contracts/Suppliers * Common Categories Relationship Management Market Management PPIs/Major Project Support Regional/Large Local Contracts/Suppliers Small Local Contracts Discipline/Implementation/ Compliance © C M Cram

PUBLIC SECTOR PROCUREMENT: THE FUTURE? INTEGRATION COLLABORATION INDEPENDENCE © C M Cram

THANK YOU. https://www. iod THANK YOU! https://www.iod.com/MainWebSite/Resources/Document/policy_article_towards_tesco.pdf or ‘Google’ ‘Colin Cram Towards Tesco’ Colin M Cram Marc1 Ltd Tel: 01457 868107 Mob: 075251 49611 Email: colin.cram@marc1ltd.com www.marc1ltd.com