1. Purchasing supplies at CERN
Procurement Strategy
Dante Gregorio IPT-PI

2. Outline Definition of strategy
When should the Procurement Strategy be defined?
Function and influences on CERN Procurement strategy
Other issues influencing the choice of the Procurement strategy
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Purchasing Supplies — Procurement Strategy

3. Definition of strategy1
Definition of strategy
“Understand the Ends to be attained”

4. 1. Definition of strategy (Fred Nickols)
“Strategy is about means. It is about the attainment of ends, not their specification”
The necessary precondition for formulating strategy is a clear and widespread understanding of the ends to be obtained.
Without these ends in view, action is purely tactical and can quickly degenerate into nothing more than a flailing about.”
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Purchasing Supplies — Procurement Strategy

5. When should the Procurement strategy be defined?2
When should the Procurement strategy be defined?

6. 2.1 When to start? Purchasing Supplies — Procurement Strategy
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Purchasing Supplies — Procurement Strategy

7. 2.2 Contract management lifecycle
Selecting the procurement strategy
Specifying the activity
Drafting and issuing tender documents
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Evaluating the bids
Decision and implementation
Monitoring of contract performance
Purchasing Supplies — Procurement Strategy

8. Strategy implemen-tation
2.3 When? Continuous flow!!!!!
Strategic analysis
Strategic choice
Strategy implemen-tation
Be prepared to modify the strategic choice if needed !
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Purchasing Supplies — Procurement Strategy

9. Function and influences on CERN Procurement strategy3
Function and influences on CERN Procurement strategy
“These are the issues that should be discussed and documented in the start-up meeting document with a view to incorporating these into the qualification criteria and tender documents!
Remember that for requirements above 750k CHF risks & the related mitigation strategies should be documented in the risk matrix.”
Anders Unnervik

10. 3.1 Procurement function @ CERN
1. Close link between the procurement function and organizational objectives and strategies; 2. Unlike private sector where the focus is profit, CERN is accountable to the taxpayers of its member states whose money is being spent, including disappointed bidders and potential suppliers; 3. Procedures and practices have been put into place to stand up to the scrutiny of auditors and member states on purchasing decisions made.
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Purchasing Supplies — Procurement Strategy

11. 3.2 Influences on Procurement strategy
4. Cost
3. Supply market
5. Non-cost factors
6. Risks
2. Demand
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Strategy
1. Objectives
7. Stakeholders
Purchasing Supplies — Procurement Strategy

12. 3.2.1 Procurement objectives @ CERN
Ensure contracts fulfil all the necessary:
- Technical requirements
- Financial requirements
- Delivery requirements;
Keep overall costs for CERN as low as possible;
while achieving balanced industrial returns for the CERN Member States.
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Purchasing Supplies — Procurement Strategy

13. 3.2.2 Procurement Demand @ CERN
What is the estimated annual
expenditure of the supply?
- Forecast
Who are the main users?
- Group, Department, CERN-wide
Demand cycle?
- Fluctuating, seasonal, one-off
Simple supply or a ‘bundle’ with services attached?
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Purchasing Supplies — Procurement Strategy

14. 3.2.3 CERN’s Supply Market (1)
(i) Market structure:
How many suppliers?
What is their size (production capacity, market share)?
What is the level of product differentiation?
Competition:
How do suppliers compete ?
(quality, price, service, CSR)
Barriers to entry?
Market trends?
Expected changes in technology?
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Purchasing Supplies — Procurement Strategy

15. 3.2.3 CERN’s Supply Market (2)
(iii) Supply chain:
How complex is the supply chain?
Is there a high level of dependency on sub-contractors?
What are the typical delivery and transportation methods?
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Purchasing Supplies — Procurement Strategy

16. 3.2.3 CERN’s Supply Market (3)
Substitutes:
Are there any substitute goods that can fulfil the same requirements?
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Importance as a customer:
What is CERN’s market share as a customer?
How attractive is CERN as a customer?
Purchasing Supplies — Procurement Strategy

17. 3.2.4 Cost Factors Total Cost of Ownership Initial investment
Operating costs:
Energy consumption
Spares
Maintenance
Training etc.
Disposal costs
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Purchasing Supplies — Procurement Strategy

18. 3.2.5 Non-Cost Factors Compliance with the technical specifications;
Compliance with industry norms and standards;
Compliance with CERN-specific rules;
Compliance with contractual terms and conditions;
Legal issues (e.g. IPR etc);
Reliability and financial standing
of supplier
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Purchasing Supplies — Procurement Strategy

19. 3.2.6 Procurement Risk Factors (1)
High
Low
Low High
Impact
Should manage & monitor risk
Must manage & monitor risk
Must manage & monitor risk
Consider taking risk
Should manage risk
Must manage & monitor risk
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Should accept risk
Should accept risk but monitor
Should monitor risk
Likelihood
Purchasing Supplies — Procurement Strategy

20. 3.2.6 Degree of Risks (2)
Dependent on the length of time and the difficulty in securing the supply:
Standard industrial products (COTS) Low risk
Non-standard products which can be produced with existing manufacturing techniques and/or technologies, but industry has no experience of manufacturing the products Medium risk
New high-tech products requiring
a conceptual design phase.
The manufacturing methodology
has to be developed High risk
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Purchasing Supplies — Procurement Strategy

21. 3.2.7 Key Stakeholders Identify internal stakeholders
(HSE, Technical experts and end-users)
Identify external stakeholders
(local communes, certification bodies, Host State authorities, member states, collaborating institutes).
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Consultation required to ensure needs are taken into account!
Purchasing Supplies — Procurement Strategy

22. Other Issues influencing the choice of the Procurement strategy4
Other Issues influencing the choice of the Procurement strategy
“These are issues that should be discussed during the start-up meeting!”
Anders Unnervik

23. 4.1 Resources & Procedures
Make or buy ?
Availability of key staff ?
2. Rules & Procedures:
Estimated amount ?
Price enquiry, Invitation to tender, single-source ?
Sources of funding - CERN budget code / visiting team ?
FC approval ?
Service or Supply ?
BVFM or lowest compliant bid ?
Urgency of requirement ?
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Purchasing Supplies — Procurement Strategy

24. 4.2 Standard or Non-Standard?
COTS or non-standard products which can be produced with existing manufacturing techniques and/or technologies:
- Functional specification
Non-standard products where industry does has neither the required know-how nor the interest to develop and design the products:
- Build-to-Print specification
Prototypes and or Pre-series needed?
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Purchasing Supplies — Procurement Strategy

25. 4.3 Dual Sourcing? Dual sourcing? - Purchase options
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Purchasing Supplies — Procurement Strategy

26. 4.4 Evaluation and carrying risks
Who can best evaluate and carry risks?
Contractor or CERN?
Industry has no experience : CERN = General contractor - providing tooling, components, raw material
e.g. assembly of the LHC dipole cold masses where the main components and tooling (presses, superconducting cable, steel, etc.) were purchased by CERN and delivered to the cold mass assemblers.
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Purchasing Supplies — Procurement Strategy

27. 4.5 Limits? 2. Frame contract or firm commitment?
1. Limits on sub- contracting?
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Purchasing Supplies — Procurement Strategy