Sydney Water Procurement Transformation

Unlocking maximum value from your supply chain by assessing your value chain using an end‐to‐end inclusive approach – rather than a silo approach

• Scene setting• SW new procurement strategy• Procurement key strategic pillars

1. Category Management2. Organisation model3. Procurement PMO Governance

• Procurement transformation Lean 6 sigma approach• Examples ‐ key procurement capability projects

– Spend cube– Project Leap

• Procurement delivered financial benefits• Transformation critical success factors• Questions

Presentation content

Scene setting ‐ Sydney Water procurement spend profile

The Pre 2013 Sydney Water Procurement function was fragmented, largely “Advisory / Tactical” opposed to “Partnering / Strategic” and did not address core strategic procurement fundamentals, for example:

There was little emphasis on procurement partnering with the business in influencing and driving outcomes to ensure optimum valueThere was no overall performance framework in which Procurement targets were set, measured, benchmarked and reported;There was no requirement for Corporation wide strategic category management planning;Procurement were not active in the end to end procurement process, developing new commercial approaches or on current strategic procurement practices such as comprehensive spend analytics and opportunity assessment, spend category management, supplier positioning, hypothesis testing, strategic sourcing & negotiations and enterprise supplier performance management;There was little emphasis on strategic sourcing  fundamentals including thorough market assessment to attract the best solution for the business. Competition is presented in terms of providing opportunity for suppliers, rather than securing thebest available outcome for the CorporationThere was no procurement accountability to  develop process capability and improve use of information and technology to take advantage of technology enablers for procurement planning, analysis, and process execution and performance management.

Scene setting – Sydney Water procurement pre 2013

Sydney Water identified the need to transform to a Centre‐Led Category Management procurement approach 

Sydney Water procurement transformation opportunity

Mature level of CapabilitiesMature level of Capabilities

Opportunity to improve capabilities

Opportunity to improve capabilities

Opportunity exits through the development of capabilities to build a “value‐add” sustainable procurement model that partners with the businesses to determine how to best optimise supply chain value that deliver 

greater returns. 

People 

ProcessTechnology

PerformanceManagement 

Procurement Attributes Maturity Procurement Operating Model

8

Successful procurement strategy focuses equally on:

1. Benefit Generation – identifying and capturing value from procurement strategy definition and category management

2. Benefit Delivery – realising the potential benefit into the bottom line by embedding the required operating model, processes, technology and benefit tracking and performance measurement mechanisms

Procurement Strategy

Category Management

Organisation design

Process, IP & governance

Technology enablers

Benefit &performance tracking

Organisation

Process & IPTechnology 

Benefit Generation

Benefit Delivery

Procurement Operating Model

Performance Mgt

Sydney Water procurement strategy

Lead and support the corporation’s Group Procurement function via the Strategic objectives(Customer Focus / Business Excellence / Forward Thinking) through:

Drive a significant leap in measurable financial performance and efficiencies that can be tracked against our SCI targets and demonstrated to the regulator

Drive enterprise-wide total cost of ownership solutions for all spend categorieswhich considers:

– Safety– Risk– Cost– Quality– CSR

Build and embed corporation wide procurement skills and capability through process, technology and ways of working

Support and educate the corporation in all aspects of procurement contribution to business continuity

Sydney Water procurement purpose

•Opex $m•Capex $mD

ivision A

•Opex $m•Capex $mD

ivision B

•Opex $m•Capex $mD

ivision C

•Opex $m•Capex $mDivision D

•$XMCategory A

•$XMCategory B

•$XMCategory C

•$XMCategory D

•$XMCategory E

•$XMCategory F

Category Management 

Levers

Sourcing / Contracting Approach

Risk

Demand Mgt

Supplier Rel’ship Mgt

Information Mgt

Policy & Gov’nce

Technology

Change Spec or Process

Category Analysis

 

Category Plans

Benefits

Spend Managed under Contracts

Tracked benefits

Automated processes

Improved data integrity

Strategic Supplier Relationships

Improved decision making

REFRESH

REFRESH

Entrench Category Management as a sustainable core competency within Sydney Water

Category Management is the entire art and science of supply chain mgt applied to a single category of goods and services (CIPSA)

1. Category management integrated model

12

MRO Products

Electrical

Batteries

High Voltage

Consumables

Hardware Consumables

Industrial Consumables 

Equipment

Dry Hire

Lifting Equipment

Pipes & Fitting

Plastic Pipes

Hoses

Flow Control

Actuators

Values

Procurement category hierarchy example 

2. Procurement operating modelCentre‐Led / Category Management Operating Model

Category Management” relies on cross functional collaboration to identify, and deliver supply chain value outcome that satisfy both divisional and organisation strategic objectives and  will enable procurement to optimise the organisation’s buying power by grouping products and services together based on the ability of the market to supply not on organisational boundariesA central group that sets strategy and policy, agreed programmes, designs and implement processes, selects appropriate technologies, shares leading practices and measures performance

Service Strategy  Strategy & Capability Service Management & Support

Category TeamsMaint & Engineering

FM & PropertyCorporate & ITChemicals 

Capital Procurement TeamMinor & Major Capital projects

Procurement Excellence TeamMulti‐Generation plan delivery

Procurement Business PartnersService Delivery

Infrastructure DeliveryCorporate, IT & Customer Service

Procurement PMO OfficeProject & Performance Management reporting

Procurement Service SupportAccelerated Sourcing & Procurement Analytic

support

Purpose: Responsible for all related expenditure categories which are incurred to support the Corporation’s direct service delivery to its customers, in accordance with the Corporation’s strategic and commercial objectives

Purpose: Responsible for developing and embedding corporation wide procurement skills and capability through process, technology and ways of working

Purpose: Support and drive the Procurement and Business Partner relationship model and to be a champion for driving customer connected change across the end to end procurement process. The role will be a key point of contact for Procurement services

Purpose: Lead the Procurement PMO and reporting function across Procurement and be charged with increasing the transparency and certainty of delivery of procurement objectives and initiatives as well as providing procurement support resources to both Category and BAU projects

Audit and Governance Reporting

“Right” people in the “Right” roles with the “Right” level of Skills, Knowledge & Experience

3. Procurement PMO governance ‐ what gets measured gets done • Procurement PMO objective ‐ Lead the Procurement PMO and reporting function and be charged with increasing the transparency and 

certainty of delivery of procurement initiatives • PMO process purpose ‐ Drive a ‘what gets measured gets done” culture through ways of working and improved project management, 

governance and reporting

1. Project Initiative Approval 3. Project Flash Report2. Project Task Brief (CPQQRT)

4.. Procurement Acquisition Plan Approval 5. Benefits Approval 6. Contract Summary / Execution Approval 

Bankable and non‐bankable examples

Bankable benefit examples

Re‐negotiation of product / service price

Demand / usage reduction, or volume consolidation 

Revision of existing specification

Rebates (Volume, Retrospective or Early Payments)

Make vs. Buy & Outsourcing

Process improvements, or Internal labour reduction

Non Bankable benefit examples

Competitive  process for capital spend 

Competitive process for first time non capital spend

Extension in payment terms

Price increase limitations

Bankable Benefit “Bottom Line”• Improvement to a creditable historical total cost baseline through a reduction in cost or a revenue improvement on previous year

Non Bankable Benefit “Cost Avoidance” • An avoidance of an increase to a creditable historical cost baseline through avoiding costs or reducing risks 

Benefit delivery methodologyThe benefit delivery methodology consists of 5 key elements; baseline, forecast, captured, reallocated and realised 

Baseline

ForecastForecast

CaptureCapture

ReallocatedReallocated

RealiseRealise

Activity Stakeholder

Identify and record cost and benefit baseline for category of spend for which savings will be measured against (demand & price)

ProcurementBusiness Finance

Report benefits forecast due to procurement activities in line with the procurement strategy recommendation

Procurement Business

Report benefits captured due to procurement activities in line with contract award dates or consumption dates A maximum of 12 months of benefits will be reported for any submission 

Procurement BusinessFinance

Reallocate financial benefits with the business units BusinessFinance

Report benefits realised and tracked throughout the life of the contract

Contract ManagerProcurementBusinessFinance

Benefits are measured and reported based on Financial Year  with a maximum of 12 months of benefits reported for any submission 

Driving procurement transformationSydney Water procurement transformation programme is a complex programme of work

Lean Six Sigma approach has been adopted to achieve the “sea change” to a Category Management Paradigm.

There is a strong focus throughout 2013 to 2015 on increasing procurement capability to not only reflect a category management philosophy but also to fundamentally change procurement’s value proposition to the organisation

To deliver the current stage of the reform procurement has developed a Lean Six Sigma Multi Generation Plan “MGP” that is based on the KPMG procurement maturity model that reflect the critical attributes of procurement against four levels of maturity outlined below

The MGP process has three major steps: 1) defining the goal, 2) identifying the generations, and 3) identifying and categorizing the capabilities

The Procurement MGP you to see whether pulling a particular feature forward in a program of works makes sense, or whether some particular capability is better deferred until later in the program.

Lean Six Sigma “DMAIC” methodology has been adopted to delivery capability improvement initiativeswithin the Multi Generation Plan

Level of Maturity Critical Procurement Attributes1 Foundation 1 Procurement Policy2 Established 2 Procurement Risk Management3 Leading 3 Category Management & Strategic Sourcing4 Excellence 4 Supply Base Management

5 Technologies & Systems6 Management Information & Data Integrity

MGP example – category management attribute Procurement Attribute:

Category Management and Strategic Sourcing

Level 1 - Foundation Level 2 - Established Level 3 – Leading Level 4 - Excellence

2013 - FY14/15 FY15/16 FY16/17

KPMG Procurement Attribute Maturity Descriptor

The organisation has basic category management and strategic sourcing processes documentedDiscipline around process adherence is poor with the processes not fully engrained within the organisation leading to sporadic use

Developed category management and strategic sourcing process exist and engrained within the procurement department and the wider organisationCategory Leadership and team members from the wider organisation have clear roles and responsibilities assigned

All spend managed through a category management process (exceptions are subjected to executive approval)Extensive collaboration on category strategies

Category management has a strategic place within the organisation as a generator of value with total buy-in from executive level

Sydney Water Improvement Roadmap

Implement Procurement Centre-Led / Category Mgt procurement organisation model Design and implement Category Mgt / Strategic Sourcing process Formation of Cross functional Category teams Category plans developed and approved Conduct Contract Management skills gap assessment Conduct Contract Management targeted training Review of contract templates

Category plans form part of FY15/16 Divisional Business planning cycle (incl Make or Buy decisions & challenging status quo)Supplier Relationship model in place for Strategic (Fundamental) and (Preferred) Suppliers Annual Benchmarking / Industry (ROSMA) / stakeholder / supplier assessment (end of Financial Year)Annual revision of Multi Generation plan including further capability development

Category plans form part of FY16/17 Organisation strategic planning (incl Make or Buy decisions & challenging status quo)Supplier Relationship model in place for Strategic (Fundamental), Preferred and Transactional Suppliers Annual Benchmarking / Industry (ROSMA) / stakeholder / supplier assessment (end of Financial Year)Annual revision of Multi Generation plan including further capability development

MGP example – technology attribute Procurement Attribute:

Procurement Systems and Technology

Level 1 - Foundation Level 2 - Established Level 3 – Leading Level 4 - Excellence2013 - FY14/15 FY15/16 FY16/17

KPMG Procurement Attribute Maturity Descriptor

The organisation has little system automation is their procurement processesManual and paper-based transaction prevail with some basic system functionality in placeProcurement systems are not user friendly or intuitive, requiring specialised knowledge to operate and typically used by purchasing staff only

Systems provide more widely accessible user interfaces to support on-line ordering from cataloguesBest of breed systems have been adopted with interfaces to the finance systemAdditional functionality is available, although usage is not mandated in all cases

System functionality and usability allow procurement function to focus more on strategic responsibilities by decentralisation of transitions to user levelBroader scope of eProcurement functionalities driven by clear ramp up roadmap for Purchase to Pay

Fully integrated eProcurement solution well adopted and benefits are generated in a continuous, systematic and stable mannerProcurement technologies enable established procurement influence to Operations and Finance

Sydney Water Improvement Roadmap

review SWC Procure to Pay platform including improve:

System integration between FMIS / Maximo Automation from requisition to payment B2B expansionPurchase approval to delegation of authority Supplier on-time payments, maximise supplier rebates / discounts and improve Procure to Pay process cost

Development Contract Management solution CMS Phase 1 – Contracts Repository

Procurement Categories hard-wired to procure to pay system through use of UNSPSC codes Explore optional EProcurement opportunities (ESourcing, reverse auctions, on-line community buying, contracts workbench) Implement CMS phase 2 capability to support Supplier Performance Management and Reporting

Hard-wire Procurement categories through UNSPSC codes to Finance GL accounts

Summary of key “MGP” capability initiatives

•Re‐engineering of the existing Contracts Framework ”Tendering process” to a Category Management / Strategic sourcing process•Deployment of cross function category plans and teams 

Category Management & Strategic Sourcing

•Procure to Pay transformation project•Formation of the P2P user group •Contract Management solution project

Technology and Systems

•Maximo, FMIS and Business Intelligence Data Integrity project•Inventory optimisation project•Procurement reporting and managed information framework project

Management Information “MI” & Data Integrity

•Deployment of cross function contract management teams for fundamental contracts and the review of contract management plans•Development and implementation of a Supplier Relationship Management framework 

Supply Base Management

•Review Procurement policy to align with Centre‐Led / Category Management philosophy•Unite all procurement related policies into one central policy

Procurement Policy

• Development and deployment of Procurement PMO function•Development and implementation of the Contract Assurance audit framework•The implementation of Procurement Executive review committee

Procurement Risk Management

Define Measure Analyse Improve Control

Project Identification

Project Charter

High Level process Map

Project Plan

Project Reporting

Project CTQ Detailed

Data Collection Plan

Measurement Systems Analysis

Process Capability Baseline

Project Reporting

Statistical Problem

Sources of Variation

Project Plan Update

Project Storyboard Update

Project Reporting

Define Toll Gate Measure Toll Gate Analyse Toll Gate

Solution Generation

Measurement Systems AnalysisProject Plan Update

Project Storyboard Update

Project Reporting

Improve Toll Gate

Process Improvement

Process Capability

Process Control

Storyboard Update

Project Reporting

Control Toll Gate

Establish and refine project improvement activity goals & identify issues that need to be addressed to achieve increased effectiveness and efficiency.

Gather information about the targeted process. Establish Metrics to obtain baseline data on process performance and to help identify problem areas.

Identify  Root Causes of (quality) problems, and confirm Causes using appropriate statistical tools.

Implement ‘creative’ solutions ‐ ways to do things better, cheaper, and/or faster ‐ that address  problems identified during the Analysis phase. Statistical methods used to assess improvement.

Institutionalise the improved system by modifying policies, procedures, and other management systems. Process performance results  periodically monitored to ensure productivity improvements are sustained.

Activities within the Define Phase Activities within the Measure Phase Activities within the Analyse Phase Activities within the Improve Phase Activities within the Control Phase

• Team election and scoping• Identify Champion, Process Owner and Team• Review Project Charter• Validate High‐Level Value Stream Map, Process Map and Scope• Validate Voice of the Customer and Voice of the Business• Validate Customers and Requirements (CTQs)• Validate Problem Statement and Goals• Validate Financial Benefits• Create Communication Plan• Define Resources• Identify X (critical drivers) and Y (critical characteristics or outputs)• Evaluate Key Organizational Support• Select and Launch Team• Develop Project Plan and Schedule• Complete Define Gate

• Identify Key Input, Process and Output Metrics• Develop Operational Definitions• Develop Data Collection Plan• Define Defect, Opportunity, Unit and Metrics• Detailed Process Map of Appropriate Areas• Validate Measurement System• Collect Baseline Data• Begin Developing Y=f(x) Relationship• Determine Process Capability and Sigma Baseline• Determine Process Performance/Capability• Validate Business Opportunity• Value Stream Map for deeper understanding & focus• Quick Wins (Control Plans)• Measure Gate Review

• Define Performance Objectives• Identify Value/Non‐Value Added Process Steps• Identify Sources of Variation• Identify Potential Root Causes• Reduce List of Potential Root Causes• Confirm Root Cause to Output Relationship• Estimate Impact of Root Causes on Key Outputs• Prioritize Root Causes• Determine Vital Few X's, Y=f(x) Relationship• Complete Analyse Gate

• Develop Potential Solutions• Evaluate, Select, and Optimize Best Solutions• Develop ‘To‐Be’ Value Stream Map(s)• Perform Design of Experiments• Assess Failure Modes of Potential Solutions• Define Operating Tolerances of Potential System• Develop and Implement Pilot Solution• Validate Potential Improvement by Pilot Studies• Correct/Re‐Evaluate Potential Solution• Develop Full Scale Implementation Plan• Confirm Attainment of Project Goals• Complete Improve Gate

• Implement Mistake Proofing• Develop Training Plan & Process Controls• Define and Validate Monitoring and Control System• Develop Standards and Procedures• Implement Statistical Process Control• Determine Process Capability• Implement Solution and Ongoing Process Measurements• Identify Project Replication Opportunities• Develop Transfer Plan, Handoff to Process Owner• Verify Benefits, Cost Savings/Avoidance, Profit Growth• Close Project, Finalize Documentation• Complete Control Gate• Transition Project to Process Owner• Communicate to Business, Celebrate

Lean Six Sigma ‘DMAIC’ process improvement roadmap

•Project completed (Build Spend Map & Schema )

1. Spend cube project

•Issue data request

•Review data quality

Collect Spend Data

• Confirm understanding of data

•Clean data

Cleanse Data Set

• Group spend into category portfolios according to GL, vendor, narrative and nature of transactionCategorise 

Data

•Summarise and validate data into spend by BU, vendor and category

Validate Data

•Develop reporting suite

•Publish spend mapDevelop Spend Map

Output

Activities

Ongoing

Raw data set Initial data setSpend schema (taxonomy)

Preliminary spend map for discussion

Validate spend map and draft reporting suite 

Spend mapReporting suite

Refresh dataMaintain business rulesDashboard reportingAnalyse data and reporting

Web‐based (no technology needed)Interactive reportingAccess to data behind reportsStandard and customisable reportsExport to PDF

Spend cube sample report ‐ Corporation level reporting

Spend cube sample report – Business Unit level reporting

Spend cube sample report – Category level reporting  

2. Project Leap ‐ DRAFT redesigned procurement process (high level)

Project Leap ‐ redesigned procurement process (Linear)PROCUREMENT 

PROCESS ENABLERS

1 STRATEGIC ALIGNMENT 2 CATEGORY PLANNING 3 OPPORTUNITY FRAMING 4 OPPORTUNITY DEVELOPMENT 5EXECUTE PROCUREMENT 

STRATEGY6

IMPLEMENT & ON‐BOARD

7 CONTRACT VALUE DELIVERY 8 IMPROVE VALUE DELIVERY

1Understand SWC Corporate Strategy & Direction

1Develop High Level Strategic Positioning Matrix ‐ Supply Risk v Spend

1

Initiate Task Brief (incl strategic objective, boundaries, in/out of scope, milestones, resources, stakeholders, etc.)

1Develop Scope of Work & boundaries for the procurement opportunity

1 Develop (or refine) Specification 1Prepare & execute Implementation & Communication Plans

1

Establish contract management team and develop contract management plan (scope delivery, safety, KPI's, environmental, quality & commercial, governance, etc.)

1

Develop Supplier Relationship Management (SRM) approach (incl. additional opportunities, plan, team, governance, etc.)

Procurement Policy, Guidelines & Governance

2Understand SWC Divisional Business Plans and Financial Drivers

2 Establish Category Planning Team 2Develop project plan for each opportunity 2

Assess market & supplier capability (best practices/ benchmarking, market competiveness, capacity, trends). Issue RFI as required.

2

Develop market approach documentation (incl pricing options, performance objectives & KPI's, bespoke terms & conditions, governance model, assessment criteria & weightings, schedules, etc.)

2Project look‐back review(incl capture & sharing learnings) 2

Monitor & manage Supplier & Contract to deliver the Contract Management Plan

2Monitor market conditions & best practices Contract Templates (Shells)

3Develop Procurement Business Plan 3

Develop (& update) a definition of the Procurement Category 3

Supply Positioning & Supplier Preferencing (at the opportunity level) 3

Issue procurement sourcing documentation to the market/suppliers 3

Identify issues, risks & variation to contract delivery & escalate for resolution

3Conduct a supplier risk assessment at the strategic level (i.e. group of contracts)

Procurement Templates

4Understand (& monitor) Industry & Supply Markets including best practices & benchmarks

4Develop, test & select hypotheses to support the procurement opportunity & strategy

4Evaluate market responses and decide on the shortlist for subsequent negotiation

4

Administer contract on a day‐to‐day basis (incl. information management & on‐time payments for copleted work)

4 Re‐examine & update Category Plan Procure to Pay (P2P)

5Strategic Positioning' development & refresh (at the Category or Sub‐Category levels) 

5Refresh Opportunity Framing Documentation 5

Plan  & execute negotiation strategy (incl testing against the procurement strategy, benefit realisation & risk assessment)

5Assess & act on options at end of the contract term E‐sourcing

6Conduct (& update) Category Risk Assessment 6

Prepare final contract documentation & execute contract

Management Information & Master Data

7Finalise Category Plan with prioritised procurement opportunities for development

BI Reports

Contracts Management System

2 CATEGORY PLANNING 3 OPPORTUNITY FRAMING 4 OPPORTUNITY DEVELOPMENT 5EXECUTE PROCUREMENT 

STRATEGY6

IMPLEMENT & ON‐BOARD

7 CONTRACT VALUE DELIVERY 8 IMPROVE VALUE DELIVERY Procurement PMO Office

Procurement Business PlanCategory Plan  (incl. programme of work)

Task Brief Scope of Work Detailed SpecificationImplementation & Communication 

planContract management / 

governance  planSupplier Relationship 

Management (SRM) PlanProject Management

Planned Initiative Forms Project Road Map and plan  RFI (as required) Probity plan KPI reporting & monitoringChange Management & 

Communications

Revised Category Plan Project planProcurement Strategy & Decision Support Pack RFQ/RFP/RFT Benefits realisation assessment

People & Capability (incl Training)

Negotiation plan Execise Contract OptionsProcess Audit, Probity &/or Contract  Health Checks

Recommendation & Decision Support Pack (Storyboard)

Supplier Assessments or Audits (at Supplier's premises)

Executed Contract with Contract Summary Brief 

Benefit approval (PMO)

DELIVERABLES

1. STRATEGIC ALIGNMENT

REALISE VALUECAPTURE VALUEIDENTIFY VALUE

DELIVERABLES DELIVERABLES

Project Leap ‐ redesigned procurement process (Level 4 process step)To understand SWC corporate strategy & direction as an input to the Procurement business planning process

An understanding of SWC corporate strategy & direction as context to the Procurement business plan

Procurement

Business Strategy & ResilienceSW Executive

Manager Group Strategic ProcurementManager Category Management

Corporate StrategyIPART recommendations, findings,

requirementsInsights and direction Manager Group Strategic Procurement

Manager Category Management

Manager Group Strategic ProcurementManager Category Management

Corporate StrategyIPART recommendations, findings,

requirementsInsights and direction

Procurement focusManager Group Strategic Procurement

Manager Category Management

Manager Group Strategic ProcurementManager Category Management

Corporate StrategyInsights and directionProcurement focus

Market insightCurrent business performance

Deficiencies in the strategic insightsOpportunities

Manager Group Strategic ProcurementManager Category Management

Manager Group Strategic ProcurementManager Category Management

Deficiencies in the strategic insightsOpportunities

Refined procurement focus

Manager Group Strategic ProcurementManager Category Management

SWC ExecutiveSWC Board

DELIVERABLES

PROCESS STEWARDSHIP

OBJECTIVE

► ► ► ►

TOOLS

Provider Input Process

Understand Corporate Strategy

Apply Strategic Insights & Directions to identify

Procurement focus

Understand strategic risks associated with

the Procurement focus

Syndicate understandings

Output Recipient

Project Leap – category plan example (Chemicals)

Project Leap – category plan example (Chemicals)

SWC Executive Benefit Dashboard report

Five critical success factors in driving transformation

Executive Sponsorship

Mandate “Case for Change”

Fit for Purpose and sustainableOrganisation model / people capabilityWhat gets measured gets done