Demand Aggregation, Market Research, Feasibility Studies: Options, Actions and Risks
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1 Mena-OECD Network on Public Procurement Workshop on Good Practices in Modernizing Public Procurement Kuwait May 2013 Demand Aggregation, Market Research, Feasibility Studies: Options, Actions and Risks Isabella Rapisarda Senior Account Manager Consip SpA
2 Contents 1. Overall vision inside EU 2. Reasoning as a Central Purchasing Body (CBP) 3. Towards feasibility study for a CPB: Key Phases and possible actions in Project Cycle 3.1 demand Aggregation 3.2 Market analysis 4. Costs acquisition projection 1
3 Overall vision inside EU In EU, the financial constraints and the Public Demand responsibility to sustain the domestic economy require Public Authorities to address public procurement by centralizing and standardizing the purchasing needs. Objectives: To reduce public expenditure for goods & services purchasing through the large scale economy benefits; To allow the massive collection of common classification data on public procurement with the purpose to establish standardized costs for Public sector; To contain the number of public tenders in order to reduce notification costs and legal expenses coming up from single procedure; To ensure a more effective planning and monitoring of the public procurement cycle; To implement e-tools. Actions: European Legal Framework introducing the concept of Central Purchasing Body (CPB) by EU Directive; Central Purchasing Bodies (CPB) set-up across Europe; Mandatory use of eprocurement across the EU by 2016, according to the new EU directives draft on Public procurement; Member State actions towards mandatory use for centralization and use of etools.
4 Reasoning as a Central Purchasing Body: key points (1/2) Article 11, Directive 2004/18/EC defines a Central Purchasing Body: Contracting ti authority which h acquires goods or services, or awards contracts, or concludes framework agreements intended for one or more contracting authority.. More emphasis on the Centralization and use of etools.. New EU Directive draft stresses the Centralized purchasing concepts: Member States shall provide for the contracting authorities the possibility of recourse to centralized purchasing activities offered by central purchasing bodies established in another Member State ; All procedures for the award of contracts carried out by a central purchasing bodies are made using electronic means of communication. 3
5 Reasoning as a Central Purchasing Body: key points and risks (2/2) KEY POINTS Stricter obligation to get best value for money vs fairness; Large volumes at stake: need to adequately assess each procurement choice in terms of impact on private sector; RISKS!!! Excessive attention for applying the rules to the detriment of supply/service quality; Market immaturity to comply with ih PA requests : Risk to restrict and distort competition; Identifying best governance model (i.e responsibilities, roles, deliverables, milestones, project timeframe); Inside CPB conflicts might rise within functions. Public demand centralization requires higher transparency standards and key stakeholders (final users on top) involvement. Hostile attitude by final users and public opinion. 4
6 Key stakeholders for a CPB Ministries Monitoring Authorities High level public Institutions... Other regional or local CPBs and Public Buyers Institutional representatives Central Purchasing Body... Supplier & Trade Organizations... i... Public Opinion Public Administrations Enterprises
7 CPB Project cycle: the expected results To ensure impartiality of procedure; Non discrimination; Equal access; Appropriate time limits; Transparent/objective approach; High level l of stakeholders participation i and satisfaction; Quality and cost effective framework agreements realization; Opportunities for learning by doing; Key quality issues included into aggregated initiative design from the beginning. 6
8 Towards feasibility study for a CPB: Defining the scope Demand management Purchasing strategies and supplier selection Logistic management Payment /einvoice phase Goods & services delivery monitoring tools When it comes to purchasing aggregation, the most crucial phase is the design and deployment of the purchasing strategy. The first important decision to make in designing the procurement system of a complex organization concerns its degree of centralization. 7
9 Towards feasibility study for a CPB: the roles Each phase can be conceived as an independent project with a complete life cycle. Programming Development of a purchasing strategy Development of tender documentation Supplier selection Contract execution CPB with PA CPB with (suppliers & PA representatives) CPB CPB PA (CPB) 8
10 CPB Project Cycle Phases common features Programming Development of a purchasing strategy Development of tender documentation Supplier selection Contract execution CPB with Pa CPB and suppliers and Pa representatives) CPB CPB PA (CPB) 1. Key decisions, requirements and responsibilities are defined in each phase. 2. Cycle phases are progressive each phase needs to be completed until the next is successfully tackled. 3. New programming relies on evaluation, to build experience for next initiatives; 9
11 Towards feasibility study for a CPB: Key Phases and possible actions in Project Cycle Programming and Planning Feasibility study and definition of procurement strategy Supplier selection and contract t award Contract management Service Level monitoring Opportunity identification Tender documentatio ti n preparation Maximum quantity tracking Service level inspection Feasibility study Procurement strategy definition Authority opinion aquisition Tender documentation publication Contract unit extension (if necessary) Contract time extension (if necessary) Surveys Complaint analysis Contract conclusion Corrective measures 10
12 Step 1. Programming (1/2) It represents a crucial phase, in any centralization for the pursue of the benefits coming from aggregation and standardization. It comprises designing and implementing of the procurement strategic plan according to the CPB priorities: iti (i.e for the Italian Central Purchasing Body is defined according to the National Public Finance Policy). The historic expenses data may might balance the inadequacy of good & services public expenditure sources. Planning includes re-planning. The initially iti prepared strategic t plan document (on multi years basis) is regularly reviewed, refined, and updated accordingly. 11
13 Step 1.Programming: g the Drivers (2/2) National budget and public finance focus Contract focus Final users focus 12 Value and Volume of Timetable Users Segmentation public procurement Continuance Cluster analysis and savings expected; Numbers of public buyers; Innovation (example: GPP); Completeness of frameworks offer
14 Step 2.Feasibility Study and Procurement Strategy (1/6) - - Opportunity identification - PA needs analysis Main Tasks - Market analysis (specific of market concerned: size, structure) - Definition of contract requirements -Savings forecast - Procurement strategy definition Deliverables - Feasibility study - Summary of pros & cons - Executive summary - Procurement Strategy 13
15 Step 2.Feasibility Study and Procurement Strategy : Category Selection criteria (2/6) Value of the expenditure The higher the value of the purchase, the higher the savings. Impact on final users (PA) The higher effect on the final users (PA), the lower the chances to aggregate the volume will be. Easily-standardized goods The higher easily standardize goods, the higher the chance to aggregate the volumes will be Competitiveness of the supply market The more competitive the market is, the more successful the aggregated tender 14 This analysis results in a PRIORITIES CHART for suitable categories for an aggregated tender
16 Step 2.Feasibility Study and Procurement Strategy : Category Selection criteria (3/6) high critical strategic products / products / services services market complexity non critical products / services product / services with economies of scale low low economical relevance high
17 Step 2.Feasibility Study and Procurement Strategy : Category Selection criteria (4/6): i.e Healthcare sector Monitors PRIORITY 1 Suitability Indicato or HIGH MEDIUM LOW Haemo fluids Medicinali veterinari Dental devices PRIORITY 3 PRIORITY 2 Vaccines TNT sterilitation Test tubes Plastic surgery and respiratory system protheses Gastroenteral protheses Dialysiis solutions Electrodes Neuro surgery protheses Medical Gases Sterilisation Dialysis devices Filters X-Rays devices Magnetic resonance scanners Sutures devices Cardiac valves Vascular protheses Otolaryngology implant TNT Alcohol & disinfectants Diapers Surgical gloves Laroscopy s surgical material Sutures Pace makers, stimulators Clinical chemistry system Orthopaedic protheses Stent Pharmaceuticals Medical aids Reagents & diagnostic devices Needles & syringes Resuscitation devices X-Ray & films Tomography devices IV fluids 16 LOW MEDIUM HIGH Expenditure Indicator
18 Step 2. Feasibility Study and Procurement Strategy: PA needs analysis (5/6) Strictly based on the PA estimated needs, this phase aims at analyzing the PA supply process and seizing the value of potential demand coming up from information such as: Public buyers geographical distribution; Annual total needs identification; Total Demand value; Total Demand value distinguished by PA type & geographical area. Procurement method applied; Purchased supply and services detailed description; Purchasing tender criteria (lowest price, quality-price); Outsourcing. 17
19 Step 2.Feasibility Study and Market Research: Suppliers market analysis (6/6) Market opportunity identification means selecting the most effective buying procedure in terms of: Market (global sourcing, local sourcing); Number of suppliers (single, dual sourcing, multi sourcing); Type of relationship (partnership, long term contract, short term contract); Market trend: evolution and innovation Supplier reputation: quality Drivers analysis: Economical (total spending /yr) technical complexity (product and/or evolution) strategic impact of Central initiative on market 18
20 Costs acquisition projection: the savings and benefits purpose (1/2) Grouped procurement can lead to significant savings BY ACCURATE PROCESS OF TRACKING AND QUANTIFYING CONTRACT FINANCIAL BENEFITS. Public procurement is mainly focused on Budgetary benefits (also referred to as cashable, tangible or hard benefits): PRICE REDUCTION ON FINAL CONTRACT PRICE Savings and benefits Process 1 2 Define the scope Baseline current costs 3 Predict future costs Baseline spend Spend after procurement = Savings/Benefits (Volume x Price) (Volume x Price)
21 Costs acquisition projection: savings and benefits (2/2) Baseline current costs Historic expenditure data (Such as CPB data warehouse) MEF reports PA Direct feedback, Questionnaires, focus groups, annual forecast, account managers vs Predicted Costs Average standard costs; arrangements on new components or categories; higher or lower service level all these elements combine to bring about initial tender price Public tenders notice analysis (EU Official Notice Systems as TED GUUE, PA web sistes) KEY SUCCESS FACTOR 2008 National Budget Law made mandatory for Central entities to send annual forecast of their requirements for goods and services to Consip and MEF. indicates sustainable spending indicators.
22 Thank you for your attention! Contact Details: Isabella Rapisarda it
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