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

2. Outline 1.Definition of strategy 2.When should the Procurement Strategy be defined? 3.Function and influences on CERN Procurement strategy 4.Other issues influencing the choice of the Procurement strategy 5.Division of Responsibilities CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 2

3. 1 Definition of strategy “Understand the Ends to be attained”

4. 1. Definition of strategy (Fred Nickols) CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 4 “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.”

5. 2 When should the Procurement strategy be defined?

6. 2.1 When to start? CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 6

7. 2.2 Contract management lifecycle CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 7 Selecting the procurement strategySpecifying the activityDrafting and issuing tender documents Evaluating the bidsDecision and implementationMonitoring of contract performance

8. 2.3 When? Continuous flow!!!!! CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 8 Strategic analysis Strategic choice Strategy implemen -tation Be prepared to modify the strategic choice if needed !

9. 3 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. CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 10

11. 3.2 Influences on Procurement strategy CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 11 Strategy 5. Non-cost factors 4. Cost 6. Risks 7. Stakeholders 2. Demand 1. Objectives 3. Supply market

12. 3.2.1 Procurement objectives @ CERN  Ensure contracts fulfil all the necessary: - Technical requirements - Technical requirements - Financial requirements - Financial requirements - Delivery requirements; - Delivery requirements;  Keep overall costs for CERN as low as possible;   while achieving balanced industrial returns for the CERN Member States. CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 12

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? CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 13

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? (ii)Competition:  How do suppliers compete ? (quality, price, service, CSR)  Barriers to entry?  Market trends?  Expected changes in technology? CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 14

15. 3.2.4 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? CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 15

16. 3.2.5 CERN’s Supply Market (3) (iv) Substitutes:   Are there any substitute goods that can fulfil the same requirements? CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 16 (v) Importance as a customer:  What is CERN’s market share as a customer?  How attractive is CERN as a customer?

17. 3.2.6 Cost Factors Total Cost of Ownership  Initial investment  Operating costs: Energy consumption SparesMaintenance Training etc.  Disposal costs CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 17

18. 3.2.7 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). CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 18

19. 3.2.8 Procurement Risk Factors High High Low Low High Low High CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 19 Should manage risk Consider taking risk Should manage & monitor risk Must manage & monitor risk Likelihood ImpactImpact ImpactImpact Should accept risk Should accept risk but monitor Must manage & monitor risk Should monitor risk

20. 3.2.9 Degree of Risks 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 CERN — 28/02/14 Purchasing Supplies — Procurement Strategy 20

21. 3.2.10 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). CERN — 28/2/14 Purchasing Supplies — Procurement Strategy 21  Consultation required to ensure needs are taken into account!

22. 4 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 1.Resources  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 ? CERN —28/2/14 Purchasing Supplies — Procurement Strategy 23

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 not have neither the required know-how nor the interest to develop and design the products: - Build-to-Print specification  Prototypes and or Pre-series needed? CERN —28/2/14 Purchasing Supplies — Procurement Strategy 24

25. 4.3 Dual Sourcing? Dual sourcing? CERN —28/2/14 Purchasing Supplies — Procurement Strategy 25

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. CERN —28/2/14 Purchasing Supplies — Procurement Strategy 26

27. 4.5 Limits? 1. Limits on sub- contracting? CERN —28/2/14 Purchasing Supplies — Procurement Strategy 27 2. Frame contract or firm commitment?