4.1 The Six Themes and revised aims from Orbit s 2020 strategy are linked to the Procurement Vision by the following key objectives:

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1 1.0 Introduction 1.1 Following on from discussions with members of ET, members of the P2P Project Board and other key stakeholders of the LT, the purpose of the report is to seek agreement to the implementation of a new procurement strategy which supports Orbit s 2020 ambition of improving the social and environmental prospects of people and communities. 2.0 Background 2.1 Over the past 5 years our approach to procurement has delivered substantial savings to Orbit. Whilst there are many aspects to be proud of our approach can be described as reactionary ; only undertaking projects which have been identified by Orbit partners; often with tight timescales. 2.2 In reviewing our approach we investigated what others do; importantly outside of sector. The BBC has been identified as a key benchmark because they have to comply with EU Procurement Directives and have had P2P in place for over 10 years. They have also undergone rigorous review and have a range of targets to measure performance. 3.0 Procurement Vision 3.1 Orbit s ambition is to work together to improve the social, economic and environmental prospects of people and communities; an organisation which maximises efficiency and resources through a commercial approach. 4.0 Link to The Six Themes and revised aims from Orbit s 2020 strategy are linked to the Procurement Vision by the following key objectives: To adopt best practice procurement throughout Orbit this objective supports our ambition of maximising efficiency and resources through a commercial approach and harnessing insight, innovation and technology to create solutions themes; To deliver a corporate procurement programme that provides value for money, cashable savings and/or added value this objective supports our aim of making surplus to re-invest and; To ensure that all staff involved in the purchase of goods and services are trained in the skills appropriate for the level and impact of their purchases and are supported by a strong, central, professional and cost-effective procurement service this objective supports our aim of being disciplined, open and accountable; To develop and manage a supply base of appropriate size, quality and cost effectiveness through efficient trading mechanisms which make it easier for our staff to make purchases - this objective supports the Simplify and be consistent principal; Page 1 of 10

2 To encourage sustainable procurement, help reduce waste and effectively manage internal demand for goods and services - this objective supports our ambition of improving social, economic and environmental prospects of people and communities; To establish, maintain and deepen strategic relationships and alliances, including shared services and collaborative procurement, with complementary organisations e.g. RP s, Local Authorities and other best in class organisations - this objective supports the our principals of Lead and Influence and Innovate and Change. 5.0 Our approach 5.1 In our investigation of world Class procurement and discussions with the BBC we identified the need to have a more robust approach to the delivery of procurement. Our approach resulting from this investigation tells us we need to focus on: Identifying influenceable spend within Orbit; spend which a procurement team can be expected to influence Managing the supplier base; the procurement team identifies projects and works with the OA s to deliver to achieve savings and agreed objectives Ensuring effective contract management arrangements are in place for key contracts and reducing the number of suppliers to manageable levels Implementing effective IT/P2P systems making it easier for staff to make purchases and reduce maverick spend. 6.0 Our Procurement Priorities 6.1 In order to meet our 2020 requirements, we have identified a number of key priorities for which support the delivery of our vision: To promote sustainable procurement practices and to maximise efficiencies through the delivery of projects utilising Orbit s purchasing power. To adopt the principles of Spend Analysis and Category Management which supports our objective of making it easier for staff to make purchases; and planning future purchasing activity based on proper controls including spend and risk to Orbit To actively manage suppliers; by adopting a supplier monitoring database; establishing robust processes for the take on and monitoring of suppliers; and the development of P2P strategies To deliver procurement and contract management training to those staff who have responsibility for procurement in their part of Orbit The investigation of procurement options such as partnering and collaboration through consortia buying, identification of innovation and achievement of e-procurement objectives that streamline processes in support of continuous improvement Page 2 of 10

3 7.0 How will it be delivered? 7.1 In support of 2020 our two year strategy will be to put in place a number of new tools which strengthen our strategic approach to procurement; 7.2 Using a spend analysis tool we identify all spend across the group which can be influenced. Targets are then set to cover potential savings, supplier reduction, increase in electronic invoices etc. 7.3 We undertake categorisation of our suppliers to fully understand how much is spent, how many suppliers we have in each category and whether contracts are in existence. We consider other risks such as H&S, poor performance and create a strategy for the reduction of suppliers. We will however need to be mindful of encouraging local and smaller suppliers. 7.4 We implement a group wide supplier monitoring database and credit risk tool. Members of the P2P project board have viewed a solution which fully meets our needs. Suppliers register electronically onto our system. The solution will link to Orbit Finance and Invoicing systems and has been successfully developed and implemented within First Wessex. 7.5 Over the next two years we will create an Amazon type front page which provides staff with one source of information for accessing our current suppliers. Our objective would be to investigate a range of tools which support a self serve type approach. 7.6 We commence investigation to identify a suitable approach to implementing catalogue purchasing within Orbit. This could involve our own catalogues and a possible partner who offers catalogues which are accessed outside of Orbit (punch out catalogues). Working with finance and ICT we will need to investigate whether our existing finance and procurement systems will take us to Other organisations (e.g. BBC) and other housing associations have invested in Oracle type systems to fully maximise and integrate finance and purchasing. 7.7 Currently the Procurement team don t have a strong set of performance indicators. In order to effectively measure the procurement transformation we need to broaden these measures and we intend to bring in other indicators recommended by those we have benchmarked at the BBC which will more effectively measure our influence on Group spend. 8.0 Costs of Delivery 8.1 Over the next 2 years we believe we can manage Category Management and spend analysis from within the existing procurement team resource. 8.2 The supplier monitoring database will cost 6K plus on-going upgrades and maintenance of 2K per year. Whilst the database is predominantly self serve by suppliers we will need an administrator role ( 12K - 15K Page 3 of 10

4 per year) to manage new suppliers and to ensure suppliers comply with our policies. We will achieve this by reviewing the existing team structure. 8.3 In addition and in support of 2020 procurement will also need to investigate whether our current systems meet our longer term requirements. Feedback suggests other organisations start with smaller solutions and eventually adopt Oracle/SAP type systems. 9.0 Benefits 9.1 The benefits of our proposed strategy in support of our recommended approach are detailed in Appendix Risks 10.1 Failure to adopt a more proactive approach will result in Orbit not maximising it savings potential; which is a key strategic aim of Catalogue purchasing and supplier management are strategies used by best in class organisations. Unless these are embedded within Orbit we risk: Failing to deliver savings targets Opening up Orbit to increased risk key staff, with goods skills leaving Orbit missing an opportunity for suppliers to support the delivery of Recommendations 11.1 To support the Group vision of a more streamlined effective organisation I am recommending ET endorse the following: 1. The takes on responsibility for suppliers within the Group. This covers the initial take on of suppliers and active monitoring to ensure they continue to meet minimum standards. To support this Orbit purchases a supplier monitoring database which has been seen and approved by P2P Board members (see Appendix 1) 2. Orbit adopts a category management approach to purchasing which seeks to significantly reduce the number of suppliers we use.(see Appendix 2) 3. We take forward a longer term project to consider the most appropriate methods for ensuring staff have the ability to make informed purchasing decisions. (links to P2P Phase 3) 4. We continue to deliver a range of procurement projects on behalf of Orbit partners (see Appendix 3) 5. We adopt a set of robust performance indicators more aligned to an organisation of our size. (See Appendix 4) 6. supports the creation of a procurement sustainability strategy and policy which, once agreed, it will communicate to staff and suppliers. Page 4 of 10

5 Appendix 1 Supplier Monitoring Database Screen shot The database has the following capabilities: All suppliers are held in one place The database holds all key supplier information; i.e. Contract, KPI s, H&S info, Insurances It links to existing Orbit finance systems so staff can view last 3 years spend and copies of invoices It is self serve; suppliers will enter the majority of the information The system automatically s suppliers on anniversary dates when updated info is required The system will hold credit score information (Risk Disk from Experian) A suppliers account can be put on stop where using the supplier represents a risk to Orbit Each supplier has an identified sponsor from within Orbit The system has the ability to hold supplier review information Page 5 of 10

6 Appendix 2 Category Management Approach Key steps Milestone Tasks Desired Outcome: Start Complete Resource Status Categorise all February areas of spend Agree common vocabulary and company specific terminology Sub-divide categories into contract areas. Produce comprehensive contracts register Review last three years spend and undertake analysis Identify gaps and prepare report on findings Draft out proposed category headings Prepare first draft of categories into contract areas Review draft documents and agree amendments Prepare first draft of contracts register Review draft register and prepare amendments Info on who we spend with How much we spend How many suppliers covering same categories Issues and gaps Consistency of approach Agreed & Sign Off Spend by category & sub category Link to P2P - Categories Consistent approach agreed Where contracts are in place Start & end dates Copies of contracts Level of non contract spend Version of register for communication to the business Agree and sign off Agreed list of contracts March 2013 April 2013 April 2013 June 2013 July 2013 July 2013 August 2013 September 2013 Sign off: OHE, OE&S, OH, OG & OS and OHE, OE&S, OH, OG & OS and OHE, OE&S, OH, OG & OS Sign off: OHE, OE&S, OH, OG & OS Risk analysis Agree basis for risk analysis Agreed range of October Page 6 of 10

7 Milestone Tasks Desired Outcome: Start Complete Resource Status exercise. exercise. risks for determining future procurement approach 2013 and OHE, OE&S, OH, OG & OS Undertake risk analysis exercise Agree and sign off Level & Areas of risk identified An agreed approach to procurement project selection for 14/15 onwards November 2013 December 2013 and OHE, OE&S, OH, OG & OS Sign Off: OHE, OE&S, OH, OG & OS Page 7 of 10

8 Appendix 3 Potential Procurement Projects 2013/14 (DRAFT) Given changes in Asset Management (Gas & Property Matters) these projects are subject to amendment. No Project Part of the Group OJEU? Value ( ) 1 Fire OHE 2 Security OHE 3 Laundry Equipment OHE 4 Grounds Maintenance OE&S Yes 5 Grounds Maintenance (Hastings) OE&S Yes 6 Grounds Maintenance OHE Yes 7 Communal Cleaning OHE Yes 8 Cyclical Decorations (Re-tender) Group Yes 9 Gas Servicing OHE Yes 10 RMI Partnership (Outsourcing of Maintenance & improvements) OHE Yes 11 Design Agency Services OHE 12 Payroll & HR - new project Group Yes 13 AMF Technical Consultants framework Group 14 Cleaning Garden Court OS 15 Page 8 of 10

9 Appendix 4 Proposed Procurement Targets 2013/ Procurement Savings 2.Project Quality 3.Team Costs 4.Qualified Staff 5.Supplier Management 6. Contract Management Best Practice Indicator Measuring: Procurement savings as a % of influenceable spend Quality rating received on procurement projects delivered Cost of procurement Team as % of influenceable spend % of professionally qualified procurement staff No of suppliers registered on the payments system % increase in the number of central contracts (contracts covering the whole Group) Effectiveness of procurement in achieving savings Best Practice Target* 11/12 12/13 YTD 2013/ /15 7.4%(1) 987K 1.2K 1.2m 1.2m Customer Satisfaction 90% 83% 75% 85% 90% Cost-effectiveness of team 0.62%(2) N/A 0.48% 0.48% 0.48% Effectiveness of procurement based on the perception of staff and users Ability to measure off contract spend How many strategic sourcing arrangements in place, leakage routes minimised 67% 44% 50% 50% 67% 1,500 4,000 4,000 2,500 1,500 25% N/A N/A 5% 10% Note 1 Savings target is based on world Class as defined in the CIPs/ Hackett Group procurement value, performance and capability study. Target is set against Influenceable spend. Subject to final agreement the influenceable spend is 16m per year for Orbit. 16m X 5.2% (Peer Group) = 832K. Note 2 Team Costs target is based on world Class as defined in the CIPs/ Hackett Group procurement value, performance and capability study. Target is set against Influenceable spend. Subject to final agreement the total influenceable spend is 78m per year for Orbit. Page 9 of 10

10 Appendix 5 1. Category Management Suppliers reduced to manageable number through aggregation Improved ability to achieve VFM Better management information to inform future procurement projects Adoption of suppliers in support of catalogue and content management 2. Supplier Monitoring Database All suppliers in one place Reduced risk by focus on key Orbit requirements (Insurance, Financial stability, H&S, E&D, Sustainability) Joined up information (contract terms, invoices and spend data) Ability to stop suppliers over non compliance Ability to review performance 3. Catalogue and Content Management (CCM) Benefits to Orbit Cost and efficiency savings Greater visibility and control over what is being spent, ensuring Orbit is buying goods and services consistently and at the best possible price One system to support our objective of simplicity Process efficiency reduced number of steps to make a purchase Commitment to reduce paper transactions in support of sustainability strategy Reduced reliance on manual, paper based processing, minimising human error and protecting against procurement fraud Benefits to Users Removes the need to manually create purchase orders Allows users to search for and compare products in a centrally managed catalogue Reduces the need to deal directly with suppliers or find suppliers Removes the hassle of processing and storing paper Invoices Benefits to Procurement Catalogues can be restricted to nominated content High quality, real time management information enabling analysis of spend across the organisation Better opportunity to negotiate discount with suppliers Compliance to internal business rules surrounding procurement Benefit to Suppliers Speedier payments supporting increased cash flow Reduced use of paper More business and profit Page 10 of 10