a view of procurement best practice
DESCRIPTION
What does good procurement management look likeTRANSCRIPT
A view on procurement best practice
Dr Gordon Murray
Agenda
Agenda
Governance
Agenda
Strategy
Agenda
The day job
What do you mean when you refer to procurement?
7
Procurement Cycle
8. Closure / Review Need
1. Identify problem
2. Develop Business Case
3. Define Procurement Approach
4. Competitive procurement
5. Tender Evaluation
6. Award Contract
7. ManageImplementation
of Contract
8
8. Closure / Review Need
1. Identify Need
2. Develop Business Case
3. Define Procurement Approach
4. Supplier Appraisal5. Tender Evaluation
6. Award Contract
7. ManageImplementation
of Contract
Gateway Stages
Challenge
Challenge
Challenge
Challenge
Challenge
Challenge
Structural options
Which is best – centralised or decentralised procurement?
Centralised
The Market
Dept
Dept Dept
Dept
Procurement Unit
De-centralised
The Market
Dept Dept Dept Dept
Organizational structures within purchasing
Advantages Direct responsibility of operating
companies Stronger customer orientation
towards internal user Less bureaucratic purchasing
procedures/higher operational flexibility
Less friction costs due to coordination
Direct communication with suppliers
Disadvantages Dispersed purchasing power,
lack of economies of scale No uniform way of handling
towards suppliers Scattered supply market
research Limited possibilities for building
up specific expertise on purchasing, supply markets and components
Different commercial purchasing conditions among different operating companies
Advantages and disadvantages of decentralised purchasing
Devolved
The Market
Dept Dept Dept Dept
Procurement Unit
Procurement Collaboration
Procurement Collaboration
Why bother?
Why collaborate?
Collaborative procurement options
Consortia
The Market
Buyer Buyer Buyer Buyer
PBO
Collaboration strategy
Conversation (networking)
Coordination
Cooperation
Collaboration
(Derived from Huxham, 1996)
Procurement decision-making tools
Spend analysis
ABC Analysis: 75/20, 15/30, 10/50
The implications of ABC Analysis
Kraljic’s Procurement Positioning Model
Bottleneck Strategic
Routine Leverage
Supply Market
Complexity/Risk
Impact on profit
Who does what?
Procurement led
Coordinated
Decentralised
Potential benefit from
central management
Need for business involvement
Relative Power
Supplier Positioning Model of potential customers
Development Core
Nuisance Exploit
Attractiveness of account
Relative value of account
eProcurement
P2P & Strategic procurement interfaces
eProcurement Strategy
A potential Procurement Applications Portfolio
Category management
Marketing view of brand management
Approach to Category Management
Potential sourcing options
Make/buy/lease Internal/external Standardisation Domestic/overseas Single/multiple sourcing Stockless/JIT Annual Blanket Orders/Systems
contracting Partnership/Adversarial Distributors/Manufacturers Vertical integration/Arms length Vendor rationalisation
Consortia/Coordinated purchasing Forward/spot buying Quality/cost Short/long term contracts Earlier supplier involvement Supplier development Supplier councils Supplier certification Reverse marketing Supplier assistance Value analysis/value engineering Utilisation of IT/IS
Illustration of sourcing plan content
Supplier selection and contract award
View supplier selection and contract award as risk
management
Mandatory and desirable features
Supplier selection
Award criteria
The award approach
Contract Management
Contract Management
When does it start?
When does it end?
Who’s responsible?
The activities of a buyer during a contract period to ensure that all parties to the contract fulfil their
contractual obligations
Bailey, Farmer, Crocker, Jessop and Jones (2008) p. 419
Fundamentals
The contact is the agreement which is to be managed – it must be right
‘Battle of the Forms’The contract must be understood by all those managing
the contractA supplier can voluntarily add performance standards to
the tender document It is possible to include supplier improvement plans
within a contractContract management approach creates the
environment for determining whether or not the supplier will want to bid again
48
What could go wrong with a contract?
49
Managing risk
Risk analysis Risk assessmentRisk mitigation
50
Risk threat responses
Reduction (treat)RemovalTransferRetentionShare
51
Risk assessment
Risk Probability Impact Proximity Mitigation
52
Relationship management
53
Relationship management
Adversarial contracting does not necessitate adversarial relationships
Effective relationship management requiresMutual respectMutual trustMutual understandingCreating an open and constructive environmentContributing to joint management of contract delivery
54
Service delivery management
55
Performance management
Shaped by the original customer definition of need
KPIs identified prior to contractingLikely to be directly linked to tender evaluation
criteriaKPIs should be
Proportionate, fit for purpose, easy to support by evidence, accepted by key stakeholders
56
Performance measures
Cost and value obtainedPerformance and customer satisfactionDelivery improvement and added valueDelivery capabilityBenefits realisedRelationship strengthResponsiveness
57
Change happens!
Contract variations
58
What circumstances could justify a change in the contract?
59
What steps are required when a change takes place?
60
Managing contract change
Acceptance that change happens Risk management predicts what might happen and potential
responses Changes require negotiation Change management control is essential
Due process Principles of transparency, fairness, accountability and stewardship Appropriate record keeping Due authorisation
Accepted changes require scheduling to minimise adverse impact Changes need to be communicated
Novation and assignment
CCR and CCN process
61
Change Control Form
1. Reason for change:
2. Description (giving full description of any specification):
3. Proposal for implementing the Change:
4. Timetable:
5. Likely impact on the Services, the Service Level and any Charges:
6. The Price (if any) (including itemised breakdown):
7. Further clarification of the Change/Charge/additional information:
8. Signed for and on behalf of XXX
9. Signed for and on behalf of XXX
62
63
Closing the contract
64
Contract exit circumstances
Client contractual breach or changed circumstances
Provider defaultFrustration of contractEnd of the contract term
65
Contract management review
Aims to capture the lessons learnt for improving procurement
Should include key stakeholdersComplete a post-contract review report
What worked well?What didn’t work?What are the lessons for letting this type of contract in
the future?What are the lessons learnt for improving procurement
performance?Capture and communicate
Success factors
Thank you for your attention