There are various impacts that change can have on your business so how can change be managed effectively to transform procurement? This session reveals how you can implement, manage and even control change to mediate risk. Presented by: Colin M Cram, FCIPS (Marc1 Ltd) at PfH Live 2014

1. COLIN CRAM
MARC1 LTD
Tel: 01457 239894
Mobile: 075251 49611
colin.cram@marc1ltd.com
www.marc1ltd.com
TRANSFORMING PROCUREMENT

2. QUESTION
The Government needs to build more housing. One
way is for housing associations to cut their
costs, thus enabling more houses to be built from the
existing cash. The Government has therefore
legislated to require housing associations to reduce
their total cost of ownership by 18% in 5 years,
without compromising quality, safety and energy
efficiency. TOTO includes construction and any other
costs that housing associations have to pay. How
will Procurement ensure that this reduction is
achieved?
©C M Cram FCIPS

3. 1. What actions would be needed to achieve the 18%
reduction?
2. What procurement techniques would be required to
deliver those actions?
3. What expertise would be needed?
4. What resources would be needed?
5. What is the gap between what exists now and what
would be needed?
6. How might one bridge that gap?
7. Would collaboration help bridge that gap? If so, what
should be the model?
Please also bear in mind the relationships, internal and
external, required to deliver the reduction.
©C M Cram FCIPS
QUESTIONSTO CONSIDER

4. WHAT ACTIONS WOULD BE NEEDED TO
HELP ACHIEVE THE 18% REDUCTION?

5. MANY ORGANISATIONS CREATE UNNECESSARY
COSTS - For themselves and Suppliers?
• Indiscipline
• Different Procedures/Contract Ts and Cs
• Complexity – e.g. Tender Procedures
• Inappropriate Allocation of Risk
• Multiplicity of Tenders
• Multiplicity of ‘Duplicate’ Contracts and Contract Managers
• Framework Agreements: Paying Suppliers to Sell to Oneself
• Varied Specifications/Reinventing the Wheel
• Very Varied Capability
• Inconsistency of Expertise, Processes and Procedures
©C M Cram FCIPS

6. Different Specifications for the Same Product:
• Tarmac
• IT
• Finance Systems
• Outsourcings
• Street Lighting
• Construction
• Waste Collection and Disposal
• Commodities Goods and Services
Over-Elaborate Specifications
Who has the Best Specifications?
ORGANISATIONS CREATE UNNECESSARY COSTS
– for Themselves and Suppliers
©C M Cram FCIPS

7. BE AWARE OF COSTS TO SUPPLIERS
e.g. What is the Cost to Suppliers of Tendering?
• What is the Cost?
• What is the Cost of Duplicate Tenders?
• What is the Cost of Pre-Qualification Questionnaires
(PQQs)?
• What is the Cost of Tendering when one has little choice of
Winning?
• What is the Cost of a Good Tendering Team?
PROCESSES CAN CREATE COST FOR EVERYONE
TENDERING COSTS DISCRIMINATE AGAINST SMEs
©C M Cram FCIPS

8. HOW SUPPLIERS SEE THE PUBLIC SECTOR. IS THIS HOW
THEY SEE HOUSINGASSOCIATIONS? (0-5)
Indiscipline 5
Different Procedures/Contract Ts and Cs 3
Different Processes 3
Complexity – e.g. Tender Procedures 2
Inappropriate Allocation of Risk 2
Multiplicity of Tenders 2
Multiplicity of ‘Duplicate’ Contracts and Contract
Managers
5
Varied Specifications/Reinventing the Wheel 3
Very Varied Capability: Inconsistency of Expertise 2
Inability to Use Best Practice Techniques 2
Framework Agreements: Paying Suppliers to Sell to PS
©C M Cram FCIPS
5

9. HOW ELSETOTAKEOUTCOST?
TACKLETHE SUPPLYCHAIN

10. METAL FURNITURE
• Steel is 60% of Cost of Manufacture – 60 units of cost
• Assume 20% Profit
• Selling Price Equals 120 units of cost
• Then Cost of Steel equals 50% of Selling Price
• Reduce Cost of Steel by 20% (to 48 units of cost)
• Then Cost of Manufacture Drops by 12% to 88% of
Former Cost
• Add 20% Profit Margin (17.6% of former manufacturing
cost)
• New Price: 105.6 Units
PRICE SAVING: 12%
©C M Cram FCIPS

11. HOW CAN ONE SAVE MONEY THROUGH
PROCUREMENT?
Eliminate those Factors that Create Cost
• Increase Leverage – Get Suppliers’ Attention
• Better Quality/Appropriate/Consistent Contracts
• Make Tendering Easier/Simpler
• Expertise Available to All
• Commodity Market Knowledge Available to All
• Better/More Consistent Policy Implementation
• Consistent Specifications
Use More Advanced Purchasing Techniques
- Relationship Management
- Supply Chain Management
- Value Analysis
- Market Management
- Sophisticated Negotiation
- Innovation
©C M Cram FCIPS

12. WHAT PROCUREMENT TECHNIQUES WOULD BE
REQUIRED TO DELIVER THOSEACTIONS?

13. WHAT EXPERTISE WOULD BE NEEDED?

14. Cost Reduction Priorities Importance 0-10
1. Increase Leverage
2. Consistent Contracts
3. Consistent Processes Procedures and Legal
Interpretation
4. Excellent Contracts Management
5. Specialist Global Category Expertise
6. Exceptional Contracting Expertise
7. Consistent Specifications
8. Best Practice Techniques
1) Relationship Management
2) Supply Chain Management
3) Value Analysis
4) Market Management
5) Sophisticated Negotiation
6) Innovation
7) Better whole life costing
8) Better risk management
9. Re-fresh Supplier Base
10. Committed Business Volumes
© C M Cram

15. WHAT RESOURCES WOULD BE NEEDED?

16. WHAT IS THE GAP BETWEEN WHAT EXISTS
NOW AND WHAT WOULD BE NEEDED?

17. Resource Needed
Resource
Now
Resource
Needed
Gap
Benefit
£
Specialist Plumbing Procurement
Expert
0 2 2 ?
Global cement procurement
specialist
1 2 1 ?
Expert value analyst 1 3 2 ?
Exceptional contracting specialist 1 3 2 ?
TOTAL
© C M Cram

18. HOW MIGHT ONE BRIDGE THAT GAP?

19. Implementation Risks
Degree of Risk
0-10
How Far Can
Risks be
Mitigated?
(0-10
Staff Requirements Unaffordable 10 8
Unable to recruit specialists needed 8 7
Procurement has inadequate authority 9
8
Nearby housing associations lukewarm about
collaborating
7
4
Internal indiscipline 10
10
TOTAL
© C M Cram

20. STORES AND STOCKHOLDINGS COSTS
Costs: Interest/OpportunityCost 5%
Depreciation, Obsolescence and
Redundancy 4-10%
Handling 5%
Storage 5%
Insurance/Losses due to Fire and Flood 1.5%
WHY ARE STOCKHOLDINGS ALWAYS GREATERTHANTHE
STATED POLICY?

21. • Decide Outcome required and How its Achievement can be
Measured
• Examine end to end Process. How far does it deliver the
desired outcome?
• Examine and Map individual Processes
• Evaluate how essential each Process is to achieving the
desired Outcome
• How much time does each Process take. What is its added
Value?
• Re-design individual and End to End Process to Deliver
Required Outcomes
• Introduce any Technology with Caution. No Point in
Automating the Wrong Thing
WHO ARE THE BEST PEOPLE TO DO THIS? THE STAFF
©C M Cram FCIPS
GETTING IT RIGHT

22. WOULD MORE STRUCTURED COLLABORATION/JOINT
PROCUREMENT HELP BRIDGE THAT GAP? IF SO, WHAT
SHOULD BE THE MODEL?

23. Collaborative Model/ Objectives
Note: All models incorporate some
local procurement
As
Now
Consortium
Geographical
e.g. Greater
Manchester
and
Merseyside
National
Integrated:
Central,
Geographical,
Local
Strategic Management of
Procurement. Save 18% TOTO in 5
years
Leverage
Consistent Processes Procedures
and Legal Interpretation
Reduced Costs for Suppliers and
Contracting Organisations
Access to Specialist Expertise
(Contracting and Category)
Consistent Specifications
Best Practice Techniques
Accountability
Sustainable Procurement Org
High Levels of Service
TOTAL
© C M Cram

24. JOINT PROCUREMENT CASE STUDY:
RESEARCH COUNCILS
Where We Were in 2000
 Loose procurement collaboration between 5
councils and some research institutions
Where We Are Now
 Shared Service Centre – Procurement, HR, IT,
Pensions, Office Services
 Membership of 8 Research Councils and over
60 Research Institutions
 Fully Joined up Service
 Providing Services to Other Public Bodies
©C M Cram FCIPS

25. ISSUES
 Cost of Current Operations – Base-lining
 Work Volume of Current Operations
 Staff Concerned About Efficiencies
 Some Staff Not up the Job
 Directors of Procurement Unhappy
 Different Cultures
 Different Pay and Conditions
 Different Procedures, Processes, Finance
Systems
©C M Cram FCIPS

26. BENEFITS IN YEAR 1
 Cash Savings of £10m
 Staff Savings of 15%
 Workload Increase of 15%
 Performance Measurement
 Costs Known
 Service Defined
 Full Transparency and Accountability
 Respect from Industry – Lower Costs
©C M Cram FCIPS

27. INDEPENDENCE
COLLABORATION
INTEGRATION
© C M Cram
HOUSING ASSOCIATION PROCUREMENT: THE FUTURE?

28. Colin M Cram
Marc1 Ltd
Tel: 01457 239894
Mob: 075251 49611
Email: colin.cram@marc1ltd.com
www.marc1ltd.com
THANK YOU!