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Making Collaboration Work – Key Considerations, Challenges & Pitfalls Ian Conner CPO – Strategic Procurement Service Southwest One February 16th 2011
Agenda
Southwest One – who are we?
Collaboration – It‘s the next big thing
Procurement Transformation within Southwest One
Embedding Category Management within the Client Organisations
Some examples of Collaborative Procurement in practice
Where next?
Q&A
Southwest One Structure
The vision of Southwest One is to
enable the social transformation of
Taunton, Somerset and the South
West to deliver better value for
money for council taxpayers and
improve access to services for local
residents, namely:
Create efficiency savings
Develop new ways for people to
access public services
Help the councils and the police
improve services to the community
Support the development of the
local economy
75%
25%
DELIVER SERVICES TO SCC AND TDBC FROM 11/07, ASC FROM 06/08
FRAMEWORK AGREEMENT ALLOWS DELIVERY OF
SERVICES TO >38 OTHER AUTHORITIES WITHOUT COMPETITIVE TENDER
A comprehensive Services Catalogue bringing the best partner ecosystem to the region
Collaboration – The New Shangri La
― Shangri-La has become synonymous with any earthly paradise but particularly a mythical Himalayan utopia — a permanently happy land, isolated from the outside world.‖ (wikipedia)
―Public Sector People Managers' Association president calls for collaboration‖
―Senior civil servants on course for pain, cuts and collaboration‖ (Guardian)
The Reality is Collaboration is hard, difficult to establish and requires significant skill (and patience) to make work
―More councils look to shared services to keep them afloat‖
Collaboration – what it means in Southwest One Procurement
There are three principal outcomes arising from collaboration which apply to the procurement shared service in Southwest One:-
Bringing IBM in as a partner leverages expert knowledge and wide experience of identifying improvement strategies in Procurement, providing the catalyst needed to embed new methodologies and deliver value
Aggregated demand across two levels of Government and the Police to generate cost reduction opportunities
Builds a central procurement team which is stronger and more capable than the sum of it‘s parts
The shared service structure enables the recruitment of skilled category procurement specialists and a focus on developing close working relationships and driving strategic initiatives that just wouldn‘t have been possible for any of the three organisations without the partnership
Collaboration – Making it work
Governance - Board of Directors drawn from all 4 partners.
Issues arising from perceived lack of focus on any one party are easily addressed and resolved at senior level before dissent grows
Close alignment to stakeholders is key - hearts and minds engagement is crucial - Stakeholders are mapped and strategies aligned with them well in advance of key decision boards.
Generate a Sourcing Council of the ―Great and the Good‖ to sign off strategies and avoid subsequent arguments
Detailed and extensive Customer satisfaction surveys are deployed to understand and obtain users views of how procurement is performing, looking at Tactical; Category Management and Business Advisory aspects
Collaboration – Making it work
The Southwest One model is based on seconded employees from the original teams with additional resource coming from direct hires and IBM specialists.
Category Teams have been established from a mix of secondees (staff previously part of the old buying teams), new hires and some IBM resource.
Apart from high level technical skills, key attributes are soft skills….
the ability to engage closely with stakeholders at all levels, winning ‗hearts & minds‘ Equally comfortable debating key economic issues with the CEO or having a chat and a cup of tea in a church hall in Hatch Beauchamp
From
Beat the supplier up and take his wallet!
To
Partnership
Collaboration
Aligned goals
Procurement – Evolution or revolution?
How should procurement support the drive for spending reductions?
Within the 3 Client organisations that comprise Southwest One the key drivers are:-
Maintain front line Police presence
Safeguard as many key council provided services as possible
―More for less‖
Drive efficiency
Reduce waste
Support the local economy
Green Agenda
Procurement is perfectly positioned in the current economic climate to demonstrate it‘s worth in delivering ―more for less‖ for the Authorities and not simply acting as a processor of tenders
“Southwest One Strategic Procurement Service to deliver £200 million in cost savings over 10 years”
Combined addressable spend of £500M per annum across the 3 Authorities
Move procurement from a back end process driven service to a front end advisory service, influencing and informing key commissioning decisions
Deploy ―Category Management‖ as a core methodology that analyses supply markets and demand trends to focus on best value delivery (not just cheapest price)
Collaboration in procurement enables two prime goals:
Aggregated and committed spend and the ability to leverage it
Scale, specialised, professional procurement team, utilising a leading edge methodology with focus on outcomes
Development of existing procurement staff alongside bringing in ―fresh blood‖ was key to enhance skills and move procurement to a new ‗strategic‘ level
Challenge demand within the Client organisations
Transforming the team
Initial deployment of IBM procurement Consultants
First steps – focus on structure of the team
Establish master categories and ―Tactical team‖
Establish desired characteristics for each role
Assessing team capability & identifying Gaps against the role characteristics
Agreeing Gap closure initiatives to upskill team to required levels
Procurement Capability Accelerator
Importing key skills & expert practitioners to lead by example
The “Wave Plan” S
avin
gs p
ote
ntial
Ease of Implementation
High
Low
Hard Easy
1
2
3
4 Office MRO
Uniforms
Police specific
Scientific services
Adult Social Care
Social Care
Learning Difficulties
Social Care
CYP
Publications
EBI Highways
EBI Hard FM
EBI Professional Services
EBI
Construction
Tpt Fleet & Grey Fleet
3PST
3PST
Public Tpt
Professional
Services
Travel
Waste
s
Communications/marketing
IT
Banking and finance
Tactical procurement
EBI Soft FM
Fleet Inc ASP
Adult Social Care
Publications
EBI Highways EBI Soft FM
EBI Hard FM
EBI
Construction
Fleet
3PST
Social Care
Professional
Services
Travel
Leisure
and public services
Utilities
0
5
10
15
20
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
INP
UT
Agreed list of
key
stakeholders &
comms plan
Specifications,
business plans,
corporate
objectives,
budgets,
historical spend
data
Forecast of
future
requirements
identifying
product
function,
volumes, &
value
Supply market
data, trends,
analysis on
what other
companies do
Succinct report
identifying
future trends in
supply market,
our view on best
practice
Requirements
market & best
practice
analysis,
peculiarities of
SW1
environment
Agreed plan on
how to take
Category
forward,
considering
sourcing, SRM,
compliance,
demand etc
Agreed
Category
Plan
Future
estimated
benefits
When elements
will be delivered
& resources
required
Form a cross
functional
Team
Stakeholder
Management Analysis
Stakeholder
Management
Requirements
Analysis
Market &
Analysis
Category
Strategy
Balancing
Benefits &
Risks
Timelines &
Resource
Form Category
Management
Team
OU
TP
UT
Agreed
Category
Plan & KPI’s
Team
knowledge
Best Practice
Develop Options Draw Conclusions Gather Facts
The Category Planning Process
Industry Dynamics
B MS corrugated expenditur e for the United States and Puerto Rico total $19 million
Market conditions — 1994 through 1997
Applying it to suppliers . .. Examp le: Corrugated — pilot
A. T . Kearn ey 1 7 / 5 3 5 3 / 2 4 ama
• High capital required to bu ild mill/box plant ($1 billion) • Deman d exceeds current supply of raw material sources
New Entrant Threat
• Most operating at fu ll capacity (98%–99%) • Capacity gro wth exp ected to average 4% between 199 4–1997 • Pricin g of raw materials same for competitors • Ability to sell overseas at higher margins
Power Of Suppliers
• Linerboard inventories at record lows • Current demand exceeds capacity • Capacity add ed in small increments
Supply Market Riva lry
• Supp liers desire to u pgrade account profile • BMS name/reputation • Stron g BMS credit rating/low risk • $18MM bu y across 17 locations may not provid e immediate leverage with large integrated suppliers
Power Of Buy ers 3
• Threat of no n-paper alternatives in clude shrink wrap, plastic • Conv ersion to trays reduces spend
Substitute Threat
Hig h
M o d erate
Lo w
5
3
1
Key
1
35
Cost Analysis
Cost structure comparison (aluminum)
Applying it to suppliers...Example: Cans/tubes
* Other includes SG&A, taxes, insurance, interest, freight, warehousing and R&D
Source: Company annual reports Vendor 1 Vendor 2 Vendor 3 Vendor 4
Raw
Materials
45%
Labour
18%
Depreciation
19%
Other*
18%
Raw
Materials
51%
Labour
18%
Depreciation
5%
Other*
26%
Raw
Materials
38%
Labour
43%
Depreciatio
n 3%
Other*
16%
Raw
Materials
33%
Labour
41%
Depreciatio
n 2%
Other*
24%
Demand Segmentation
Our buy can be understood using four distinct segments
Includes:
• Capital equipment
• High-tech instruments
Includes:
• Sensitive supplies
• Sensitive chemicals
• Ongoing equipment
Includes:
• Flexible supplies
• Safety supplies
• Chemicals and Specialty gases
Includes:
• Table-top equipment
• Floor-stand equipment
Supplies which support routine
day–to–day lab operations
Common equipment which is
key to the basic operations of
most labs
Items which satisfy the unique
needs of specific departments
Necessity to keep abreast of
state-of-the-art capabilities for
leading edge research
% %
Pro
du
ct
Ch
ara
cte
risti
cs
Procurement Process
% %
Generic
Specialized
Ongoing One-off
Total Spend
Applying it to suppliers ... Example: Laboratory supplies and equipment
Supplier Portfolio
The supplier portfolio for this category is concentrated in major segments
Marketing functions Sales functions
•
•
Users/Originators
Sales drivers — Informational items — Emotionally appealing items
•
Purpose
Consumers/trade Professional/ institutional
•
•
Audiences
Colours Art work Paper
• •
•
Pre-Press
Volume-run size Matching press to job
•
•
Press
Finishing Packaging Distributing Expediting
•
• •
•
Post-Press
Selling aids/field literature Point of purchase materials Training materials Magazine/journal inserts Other sales and marketing materials
Our View
Specifications/ complexity — Paper grade — Number of colours — Bindery Volume — Average run size
Supplier View
•
•
•
•
•
•
•
TCO/Value Chain
Supply Market
Business Model
The business model for plastic processing has several levers
that we can influence to reduce cost
Pre-Conversion
Costs
internal
Controllable
(Varies By
Business)
• Resin (type, grade)
• Labor (skill, union)
• Design (gram wt., shape)
• Capacity utilization
• Process technology
• Tooling capital
• Set up
• Process control
Technology
• Decoration
• Packaging
• Distribution (inventory
freight expending)
• Resin choice
• Design complexity
• In-house design
capability
• Gram weight
optimization
• Tooling investment
• Choice of stock vs..
custom
• Order size
• Speed to Market
• Decorating complexity
• Vendor proximity
• Release quantity
• Order pattern
Conversion
Costs
Post-Conversion
Costs
Supplier Capability The supplier capabilities span a broad spectrum of capabilities
ID/ RX to CV Neuro IMM Onc Derm Other
Vendor 1 X X X X X X X
Vendor 2 X X X X X X
Vendor 3 X X X X X X
Vendor 4 X X X
Vendor 5 X X X X X
Vendor 6 X X X
Vendor 7 X X X X X
Vendor 8 X X X X
Glo
bal
US
-Fo
cu
se
d
Supplier Experience/Capabilities
Supply market analysis
Embedding Category Management methodology
Become an Evangelist – tell everyone and anyone
Train the team! All SW1 procurement team (and some key people outside procurement) have been through a 2 year Procurement Capability Accelerator programme focussed on explaining the philosophy and explaining ―How to‖ guides
Get Finance involved…. Budget reductions focus minds and incentivise non believers
Develop a robust and credible benefits tracking process – avoids scepticism
Manage data… knowledge really is power! Where is the money going? Who is buying what? If possible deploy an ERP system to strictly manage the buying process to identify Maverick spend
Above all get high level stakeholder sponsorship and commitment
Embedding Category Management
Procurement isn‘t something you can ‗do to‘ organisations…. You have to do it ‗with‘ them.
‗Local agendas‘ can drive strategies in a different direction….
‗we know best‘ mentality needs to be overcome – bringing ‗science‘ to the project helps to overcome this, but also developing ‗soft skills‘ within procurement professionals – we need to learn how to win ―hearts & minds‖
Office politics can be a substantial block to progress – Senior level support from the partner organisations is vital
National frameworks without commitment have their place
but may not deliver best value - mandation can be hard to
enforce
Some Examples of Collaborative projects developed from Category Strategies
Soft FM (Cleaning and Catering) provision:
single, cross-authority long-term prime Cleaning and Catering contract – aggregates up significant diversified spend
Output based rather than input based
Temporary labour contracts
Fragmented local supplier base
consolidated into tiered
agreements
Examples
Social Care
Helping to focus on real cost drivers
Delivering negotiated benefits
Assistive Technology
Equipment before Care
Block booking beds
Fleet
Changing how the
Authorities manage
demand questioning the
specification and
equipment levels actually
needed and negotiating
better rates
It is a hard road and there are difficult messages to communicate
But it is worth it….
• Delivery of savings is happening now. Projects have been implemented that will reduce costs by more than £60m with lots more to come
• With a true Centre of Excellence for procurement, the three public-sector organisations within SWOne will be better able to preserve front-line service delivery even as we face up to the ever growing need to cut costs - It‘s an exciting Journey and we are up for the challenge!
Questions?