What does good procurement management look like

1. A view on procurement best
practice
Dr Gordon Murray

2. Agenda

3. Agenda
Governance

4. Agenda
Strategy

5. Agenda
The day job

6. What do you mean when you
refer to procurement?

7. Procurement Cycle
8. Closure / Review
Need
7. Manage
Implementation of
Contract
6. Award
Contract
5. Tender
Evaluation
1. Identify
problem
2. Develop
Business Case
3. Define
Procurement
Approach
4. Competitive
procurement
7

8. Gateway Stages
8. Closure / Review
Need
1. Identify Need
Challenge
Challenge
7. Manage
Implementation
of Contract
2. Develop Business
Case
6. Award Contract
3. Define Procurement
Approach
Challenge
Challenge
Challenge
Challenge
5. Tender Evaluation
4. Supplier Appraisal
8

9. Structural options

10. Which is best – centralised or
decentralised procurement?

11. Centralised
The Market
Procurement Unit
Dept
Dept
Dept
Dept

12. De-centralised
The Market
Dept
Dept
Dept
Dept

13. Organizational structures within purchasing
Advantages and disadvantages of decentralised purchasing
Advantages
Disadvantages
 Direct responsibility of operating
companies
 Stronger customer orientation
towards internal user
 Less bureaucratic purchasing
procedures/higher operational
flexibility
 Less friction costs due to
coordination
 Direct communication with
suppliers
 Dispersed purchasing power,
lack of economies of scale
 No uniform way of handling
towards suppliers
 Scattered supply market
research
 Limited possibilities for building
up specific expertise on
purchasing, supply markets and
components
 Different commercial purchasing
conditions among different
operating companies

14. Devolved
The Market
Procurement Unit
Dept
Dept
Dept
Dept

15. Procurement Collaboration

16. Procurement Collaboration
Why bother?

17. Why collaborate?

18. Collaborative procurement options

19. Consortia
The Market
PBO
Buyer
Buyer
Buyer
Buyer

20. Collaboration strategy
Collaboration
Cooperation
Coordination
Conversation (networking)
(Derived from Huxham, 1996)

21. Procurement
decision-making tools

22. Spend analysis

23. ABC Analysis: 75/20, 15/30, 10/50

24. The implications of ABC Analysis

25. Kraljic’s Procurement Positioning Model
Bottleneck
Supply
Market
Complexity/
Risk
Routine
Impact on profit
Strategic
Leverage

26. Who does what?
Procurement
led
Potential
benefit from
central
management
Coordinated
Decentralised
Need for business
involvement

27. Relative Power

28. Supplier Positioning Model of potential
customers
Development
Core
Nuisance
Exploit
Attractiveness
of account
Relative value
of account

29. eProcurement

30. P2P & Strategic procurement
interfaces

31. eProcurement Strategy

32. A potential Procurement Applications
Portfolio

33. Category management

34. Marketing view of brand management

35. Approach to Category Management

36. Potential sourcing options

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Make/buy/lease
Internal/external
Standardisation
Domestic/overseas
Single/multiple sourcing
Stockless/JIT
Annual Blanket Orders/Systems
contracting
Partnership/Adversarial
Distributors/Manufacturers
Vertical integration/Arms length
Vendor rationalisation

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Consortia/Coordinated purchasing
Forward/spot buying
Quality/cost
Short/long term contracts
Earlier supplier involvement
Supplier development
Supplier councils
Supplier certification
Reverse marketing
Supplier assistance
Value analysis/value engineering
Utilisation of IT/IS

37. Illustration of sourcing plan content

38. Supplier selection and
contract award

39. View supplier selection and
contract award as risk
management

40. Mandatory and desirable features

41. Supplier selection

42. Award criteria

43. The award approach

44. Contract Management

45. Contract Management
When does it start?
When does it end?
Who’s responsible?

46. The activities of a buyer during a
contract period to ensure that all
parties to the contract fulfil their
contractual obligations
Bailey, Farmer, Crocker, Jessop and Jones
(2008) p. 419

47. Fundamentals
 The contact is the agreement which is to be managed –
it must be right
 ‘Battle of the Forms’
 The contract must be understood by all those managing
the contract
 A supplier can voluntarily add performance standards to
the tender document
 It is possible to include supplier improvement plans
within a contract
 Contract management approach creates the
environment for determining whether or not the supplier
will want to bid again

48. What could go wrong with a
contract?
48

49. Managing risk
Risk analysis
Risk assessment
Risk mitigation
49

50. Risk threat responses
Reduction (treat)
Removal
Transfer
Retention
Share
50

51. Risk assessment
Risk
Probability Impact Proximity Mitigation
51

52. Relationship management
52

53. Relationship management
Adversarial contracting does not necessitate
adversarial relationships
Effective relationship management requires
 Mutual respect
 Mutual trust
 Mutual understanding
 Creating an open and constructive environment
 Contributing to joint management of contract delivery
53

54. Service delivery management
54

55. Performance management
Shaped by the original customer definition of
need
KPIs identified prior to contracting
Likely to be directly linked to tender evaluation
criteria
KPIs should be
 Proportionate,
 fit for purpose,
 easy to support by evidence,
 accepted by key stakeholders
55

56. Performance measures
Cost and value obtained
Performance and customer satisfaction
Delivery improvement and added value
Delivery capability
Benefits realised
Relationship strength
Responsiveness
56

57. Change happens!
Contract variations
57

58. What circumstances could justify
a change in the contract?
58

59. What steps are required when
a change takes place?
59

60. Managing contract change
 Acceptance that change happens
 Risk management predicts what might happen and potential
responses
 Changes require negotiation
 Change management control is essential




Due process
Principles of transparency, fairness, accountability and stewardship
Appropriate record keeping
Due authorisation
 Accepted changes require scheduling to minimise adverse impact
 Changes need to be communicated
 Novation and assignment
60

61. CCR and CCN process
61

62. Change Control Form
1.
2.
3.
4.
5.
6.
7.
8.
9.
Reason for change:
Description (giving full description of any specification):
Proposal for implementing the Change:
Timetable:
Likely impact on the Services, the Service Level and
any Charges:
The Price (if any) (including itemised breakdown):
Further clarification of the Change/Charge/additional
information:
Signed for and on behalf of XXX
Signed for and on behalf of XXX
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63. Closing the contract
63

64. Contract exit circumstances
Client contractual breach or changed
circumstances
Provider default
Frustration of contract
End of the contract term
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65. Contract management review
Aims to capture the lessons learnt for improving
procurement
Should include key stakeholders
Complete a post-contract review report
 What worked well?
 What didn’t work?
 What are the lessons for letting this type of contract in
the future?
 What are the lessons learnt for improving procurement
performance?
Capture and communicate
65

66. Success factors

67. Thank you for your attention