cpp workshop november 2007. introductions frank gallagher stephen roy ppp unit department of the...

CCPPP WorkshopP Workshop

November 2007

IntroductionsIntroductions

Frank GallagherStephen Roy PPP UnitDepartment of the Environment, Heritage and Local Government

Pat LeahyJohn KinnaneNational Public Procurement Policy UnitDepartment of Finance

AgendaAgenda•09.45 Introduction

•10.00 Corporate Procurement Planning

•10.15 SUPREM Expenditure Analysis

•11.10 Coffee Break

•11.30 SUPREM Workshop

•13.00 Lunch

•14.00 Morning Recap

•14.10 Analysis of SUPREM Data

•14.45 Transaction Analysis

•15.05 Supplier Analysis

•15.25 Organisational Analysis

•16.00 Q+As

•16.15 Wrap Up

Procurement ModernisationProcurement Modernisation

• 2001- 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

Corporate Procurement Corporate Procurement PlanningPlanning

• 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

National Public National Public Procurement Policy Procurement Policy

FrameworkFrameworkPublic statement by Finance Minister Brian Cowen -2005 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.”

VFM Purchasing in the Local VFM Purchasing in the Local Government SectorGovernment 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

D/Environment InitiativesD/Environment Initiatives

•CPP Guidance Document•Basic Format for CPP•www.environ.ie/en/LocalGovernment/ProcurementModernisation

•Information sessions•Once-off CPP funding – CPPs to be public

•Procurement co-ordination - future savings

CPP FormatCPP 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

CPPs - Points to noteCPPs - 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

Supply PositioningSupply Positioning

•What is “supply positioning”?

•The supply positioning matrix

•Potential buying strategies


• 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

Supply Positioning and Risk Evaluation Matrix - SUPREM

Supply Positioning ChartSupply Positioning Chart



Expend a small amount of procurement

effort



Expend a large amount of procurement

effort

• 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 StrategiesPotential 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

Creating a Spend ProfileCreating a Spend Profile

Step 1

Obtain info from FMS

etc

Step 2

Define & Quantify Spend

Categories

Step 3

EstimateRisk

Step 4Input data

into SUPREM Create Supply

Positioning Chart

Step 5

Draw initial conclusions

from Spend Profile

Parallel 1

Supplier Analysis

Parallel 2

Transaction Analysis

INTERPRETRESULTS

Parallel 3

Organisation Analysis

SSUPREMUPREM

•Information required

•Expenditure – categories of Goods & Services

•Risk Assessment

•Internal

•External

•Procurement Relationship•How SUPREM works

•Expected Results

SSUPREM – Assessing RiskUPREM – Assessing Risk


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


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


FACTOR WEIGHTINGStrategic Importance

Easily

Substituted

Not

Important

Low Importance

Moderate Importance

Important Critical

Supply Failure Impact

Very Low Low Moderate High Very High Critical

Procurement Relationship Complexity

Very Easy Easy Slightly Complex

Moderately Complex

Complex Highly Complex

Supply Failure Probability

Very Low Low Moderate High Very High Certain

Nature of Supply Market

Highly favours buyer

Moderately favours buyer

Slightly Favours Buyer

Slightly Favours Supplier

Moderately Favours Supplier

Highly Favours Supplier

RISK HIGHERLOWER

SSUPREM – How it WorksUPREM – 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 marketProbability of supply failure

Complexity of procurement relationshipImpact of supply failure

Strategic importance to organisation

Review, print, save or copy chart and report

SSUPREM – Log inUPREM – Log in

SSUPREM – Enter CategoriesUPREM – Enter Categories

SSUPREM – Enter Risk UPREM – Enter Risk FactorsFactors

SSUPREM – ReUPREM – Report and chartport and chart

Opens in New Window

SSUPREM – UPREM – Sample ReportSample Report

SSUPREM – Getting AccessUPREM – Getting Access

www.suprem.gov.ie

All users must be registered Complete application form for

username and password

Contact: [email protected]

SSUPREM WorkshopUPREM 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)

SSUPREM WorkshopUPREM Workshop

FACTOR WEIGHTINGStrategic Importance

Easily

Substituted

Not

Important

Low Importance

Moderate Importance

Important Critical

Supply Failure Impact

Very Low Low Moderate High Very High Critical


Very Easy Easy Slightly Complex

Moderately Complex

Complex Highly Complex

Supply Failure Probability

Very Low Low Moderate High Very High Certain


Highly favours buyer

Moderately favours buyer

Slightly Favours Buyer

Slightly Favours Supplier

Moderately Favours Supplier

Highly Favours Supplier

RISK HIGHERLOWER

SSUPREM WorkshopUPREM WorkshopCategory Total

SpendStrategic

ImportanceSupply Failure Impact


Supply Failure

probability


Professional Fees

250000

Moderate Importance

High Complex Moderate Moderately Favours Supplier

Plant & Equip. Hire

200000

Moderate Importance

Moderate

Easy Low Moderately Favours Buyer

Furniture & Fittings

145000

Low Importance

Low Easy Low Slightly Favours Buyer

Gen. Maintenance

132000

Low Importance

Moderate

Easy Low Slightly Favours Supplier

Telecoms (Fixed)

110000

Moderate Importance

High Slightly Complex Low Slightly Favours Supplier

Health & Safety 98000 Important High Moderately Complex

Low Slightly Favours Buyer

Telecoms (circuit a/cs, inter-links)

82000 Important High Slightly Complex Low Moderately Favours Supplier

IT Consumables 63000 Moderate Importance


Catering 15000 Low Importance


Security 35000 Important High Slightly Complex Low Slightly Favours Buyer

Advertising 30000 Moderate Importance

Moderate

Slightly Complex Low Moderately Favours Buyer

Vehicle Op. Costs

25000 Low Importance

Moderate

Very Easy Low Slightly Favours Buyer

Confidential Waste

25000 Important Moderate

Easy Low Slightly Favours Buyer

Cleaning 20000 Low Importance

Very High

Slightly Complex Low Slightly Favours Buyer

Landscaping 16000 Not Important Very Low

Very Easy Very Low Moderately Favours Buyer

Morning RecapMorning Recap

Why are we doing this?

CPP Basics

Supply Positioning

SUPREM

Typical SUPREM findingsTypical 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

Analysis of SUPREM dataAnalysis of SUPREM data

‘Streamline’

Unit cost reduction

Risk reduction

Long-term VFM

TransactionsSuppliersProcess

DemandContract

Aggregate

Clear SpecsSubstitutesAlternative

s

Relationships

PlanningMeasuremen

t

Analysis of SUPREM dataAnalysis of SUPREM data

Transaction AnalysisTransaction 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.


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.


Invoices

Value Band Number % of total

Spend Trans

< €100 410 5.55% 41.00%

€101 - €250 255 11.54% 25.50%

€251 - €500 126 12.60% 12.30%

€501 - €1000 115 11.50% 19.79%

> €1000 94 9.40% 50.81%

Number and value of invoices by value band

Example

c80% of invoices equates to c30% of Spend

Transaction AnalysisTransaction AnalysisCategory Expenditure Transactions Average Value

Maintenance 86000 109 €788.99

Heat Light & Power 48000 24 €2,000.00

Catering 30000 96 €312.50

Advertising 27000 84 €321.43

Printing 27000 64 €421.88

Skip Hire 26000 94 €276.60

Insurance 24000 12 €2,000.00

Cleaning 22000 90 €244.44

Stationery 15000 115 €130.43

Postage 12700 24 €529.17

Vehicle Fuel 10000 108 €92.59

IT Consumables 3600 52 €69.23

Couriers 3500 92 €38.04

Safety Materials 3500 36 €97.22

€69.23

€38.04


• 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.


Some ways to reduce transaction numbers

CONSOLIDATED INVOICES

DEMAND MANAGEMENT

STRATEGIC USE OF PURCHASE CARDS

FRAMEWORK AGREEMENTS

SUPPLIER MANAGEMENT

Supplier AnalysisSupplier 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?


“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?


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?


• 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.


• 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.


• 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.

Supplier/Transaction Supplier/Transaction AnalysisAnalysisSupplier Category Spend Trans. Ave. Value % Spend % Trans.

Image Design Advertising 15000 49 €306.12 4.54% 4.90%

Central Press Advertising 7000 6 €1,166.67 2.12% 0.60%

Allied Press Advertising 3000 5 €600.00 0.91% 0.50%

Buzz Radio Advertising 1000 12 €83.33 0.30% 1.20%

Planet Radio Advertising 1000 12 €83.33 0.30% 1.20%

Contract Caterers Catering 11000 18 €611.11 3.33% 1.80%

City Caterers Catering 7500 60 €125.00 2.27% 6.00%

Farrelly Foods Catering 3500 18 €194.44 1.06% 1.80%

Capital Corp Cleaning 9500 40 €237.50 2.88% 3.00%

Acme Inc Cleaning 9500 30 €316.67 2.88% 4.00%

Professional Finish Cleaning 3000 20 €150.00 0.91% 2.00%

Speedy Couriers Couriers 1700 40 €42.50 0.51% 4.00%

Couriers Couriers 1000 30 €33.33 0.30% 3.00%

Quick Couriers Couriers 800 22 €36.36 0.24% 2.20%

Keegan Oil HL &P 15000 12 €1,250.00 4.54% 1.20%

ESB HL &P 33000 12 €2,750.00 9.99% 1.20%

FBD Insurance 24000 12 €2,000.00 7.27% 1.20%

Smart Computers IT Consumables 1200 12 €100.00 0.36% 1.20%

Healy Hard-drive IT Consumables 1200 22 €54.55 0.36% 2.20%

Prestige Computing IT Consumables 700 8 €87.50 0.21% 0.80%

Performance Products IT Consumables 500 10 €50.00 0.15% 1.00%

Organisational Analysis 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

Organisational StructureOrganisational 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?

Policies, Procedures & Policies, Procedures & PracticesPractices

• 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

ICT and eProcurementICT 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?

Procurement Skills & Procurement Skills & KnowledgeKnowledge

• 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?

CPP Tools & AssistanceCPP 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

AQ&Q U E S T I O N SQ U E S T I O N S

& &

A N S W E R S A N S W E R S

Wrap UpWrap Up

cpp workshop november 2007. introductions frank gallagher stephen roy ppp unit department of the...

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