Making Collaboration Work Key Considerations, Challenges & … Event... · 2011. 2. 21. · Ian Conner CPO – Strategic Procurement Service Southwest One February 16th 2011 . Agenda

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?