Capacity and Capability Review of Central Procurement Function

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3 3 Table of Contents 1 Executive Summary Approach to the Review Spend Analysis Findings Capability and Capacity Assessment Findings Recommended Strategy Recommended Procurement Operating Model Introduction Background Objectives Scope Review Approach Structure of Document Procurement Spend Analysis Findings Spend Analysis Approach Spend Analysis Challenges State Spend Profile Capability and Capacity Assessment Findings Overview Capability Assessment Approach Procurement Organisation Detailed Capability Assessment Findings Recommendations Introduction Spend and Savings Opportunity Identification for Non-Addressable Spend Strategy and Governance Category Management Approach Supplier Relationship Management Requisition to Pay Master Data Management Technology... 76

4 Savings Definition and Measurement Savings Calculation Methodology People and Workforce Implementation Roadmap Phase Phase Phase Appendix Categories Data Sources List of Interviewed/Surveyed Stakeholders Capability Assessment Framework for Analysis Organisational Data Supplier Data Referenced Materials Acronyms... 99

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6 6 1 Executive Summary A key government priority is to substantially reduce costs and achieve better Value for Money (VFM) through reforming public procurement with the area of procurement being identified as one of 14 Public Service reform initiatives announced by the Minister for Public Expenditure and Reform in November The Department of Public Expenditure and Reform (D/PER) engaged Accenture following a public procurement process to: Identify the actions required to realise substantial savings in public procurement in the short to medium term, and to Identify the actions to build additional on-going procurement sourcing capabilities and structures for continued procurement practice improvement and greater efficiencies This review was conducted over a 6 week period between May and July This report sets out the key findings and recommendations. 1.1 Approach to the Review Accenture used a structured approach which had four key elements as illustrated in Fig 1.0 below: these compose a rigorous analysis of procurement spend data; an extensive programme of engagement with buyers, suppliers and procurement staff; structured surveys to benchmark current capability; and comparison with external benchmarks. This approach means that the findings and recommendations are grounded in a strong evidence base. The approach was underpinned by Accenture s High Performance Procurement Model (HPP). Evidence-Based Approach Spend Data Conducted a comprehensive data gathering and analysis from multiple sources including vote estimates, Departmental financial accounts, purchase order data, contract listings and historical reports Over 24 data sources used including D/PER, NPS and individual sectors ranging from school accounts to HSE ERP platforms and Justice Finance Shared Services External Benchmarks UK, European and global procurement interviews conducted to provide international insight and experience Accenture Benchmarks were used to support the assessment and provide qualitative and quantitative benchmarks Accenture s High Performance Procurement (HPP) Model was used to assess current procurement capabilities Stakeholder Engagement Interviewed buyers, suppliers and internal customers - 73 interviews were conducted Engaged Ministers, Secretaries General, Agency CEOs, Procurement Officers, School Teachers, Doctors, Garda, Local authority engineers, industry groups including IBEC and IMSTA and supplier key account managers and CFOs Surveys Qualitative structured capability assessment surveys based on Accenture s HPP framework were used across all sectors Self-assessment surveys completed by procurement representatives from across the five sectors and validated against interviews with key stakeholders Figure 1.0: Data Sources Used to Support Evidence-Based Approach

7 7 1.2 Spend Analysis Findings The analysis of available spend data indicated that the State currently spends 9b on supplier goods and services. A breakdown of this spend is presented below in Figure 1.1. Figure 1.1: State Spend Breakdown (2011) Analysis of this spend shows that: 6.9b is currently sourced through State purchasing processes and therefore can be classified as being Addressable by Procurement. Most of this spend is at sector level. The Health sector accounts for 3.1b (45%), with Education and Local Government accounting for approximately 1.1b each. Justice and Defence combined account for 647m and other central agencies account for the remaining 890m 2.1b is not addressable through procurement as it is not currently managed through State purchasing processes, e.g. the General Medical Scheme, and supply of blood through the Blood Transfusion Service. This was therefore out of scope for identifying procurement savings. However, savings could be delivered through other means 4.3b is deemed suitable to be managed by a central procurement function 2.1b is deemed not suitable to be centre managed and should be managed within sectors 888m annual spend is currently managed by the central procurement functions (NPS and CMOD) with 187m actively contracted delivering 37m annual savings Based on analysis and information provided, the review estimated that annual savings between 249m to 637m can be achieved through a structured cost reduction programme. However, this will require investment in the capability to ensure sustainable benefits. Figure 1.2 overleaf summarises central-managed and sector-managed spend and the potential savings to be achieved. It is worth noting that there is currently no standard categorisation for spend data across the Public Service. The categorisation used in Fig 1.2 below is based on the category analysis conducted as part of the review.

8 8 Figure 1.2: Breakdown of Estimated Savings (Annual) Savings are calculated on a figure of 6.2b ( 476m unclassified and 170m school bus scheme removed from 6.9b total) giving an annualised savings range between 249m to 637m 180m to 438m of these savings could be realised by greater central aggregation of common categories, challenging demand/specifications, and driving compliance A further 69m to 199m savings could be realised by adopting similar category management principles within sectors to sector-specific categories

9 9 1.3 Capability and Capacity Assessment Findings A key question considered by the review is the current capability and capacity of the central procurement service to deliver identified savings. For the purpose of this review, the central procurement function refers to the National Procurement Service (NPS), the National Public Procurement Policy Unit (NPPPU), and the procurement processes of the Centre for Management and Organisation Development (CMOD). The review assessed the central procurement functions capability against the High Performance Procurement (HPP) model that measures procurement capability across six key dimensions. The summary assessment findings are presented below in Table 1.2: Procurement Dimension Procurement Strategy Sourcing and Category Management Contract and Supplier Management Requisition to Pay Process Workforce and Organisation Procurement Technology Maturity Rating (Consolidated Average) Summary Findings Lack of integrated procurement strategy and structured planning Incomplete procurement policy coverage and fragmented policy management No agreed standard procurement performance targets or metrics No standard methodology to baseline, measure and report procurement benefits Lack of visibility and categorisation of spend, inconsistent methodology, demand management and category expertise No central access to accurate and timely spend data Lack of consolidated, accurate demand forecasts and demand challenge Lack of engagement with stakeholders on central framework tenders Supplier led model, fragmented contract management and lack of consistent supplier performance scorecard No central visibility or management of contract data No accurate data on total State suppliers Lack of compliance management process to monitor contract compliance and leakage No buying channel strategy Contracts are not integrated into ordering processes No central management or control of spend and vendor master Accountability is fragmented across central procurement - single point of contact not always available due to decentralisation of purchasing operations and control No central list of procurement professionals across the State NPS lacks authority to deliver savings optimally Lack of consistent roles and responsibilities, structure and operational performance management Structured skills training and supplier education Limited cross-sector communities of practice e-tenders platform in place but lack of integration to analytics and operational and financial management systems Table 1.2: Summary of Capability Assessment Findings

10 10 Whilst there are many examples of good procurement practices within the Irish Public Service, when compared to industry and Public Services globally, these practices are not applied consistently across State procurement functions. Examples of best practice across the central procurement functions include CMOD s approach to ICT demand management, the NPS energy framework pricing, and the CSSO development of standard framework contracts and the HSE s vendor dashboard. The key findings impacting the ability of central procurement function to realise sustainable savings are: 1. Central procurement functions are not organised in a manner to enable delivery to realise optimal savings for the State: Central procurement functions are not integrated or aligned to common goals and targets NPS lacks the authority to influence senior stakeholders on spend decisions The Procurement Officer role as currently implemented is focused on financial cost control but lacks visibility of supplier, price and specification data Purchasing is devolved in many Departments and operational control is therefore dispersed resulting in lack of control of demand 2. Central procurement functions lack timely access to accurate spend data that is required to inform category management decisions: Procurement information is fragmented across multiple financial accounting systems across sectors and departments No single consistent classification for spend and supplier data. The review identified over 200,000 suppliers but this is likely to be inflated as many are likely to be supplying multiple agencies No automated mechanism to consolidate or manage spend data nationally Central procurement functions lack analytical skills and tools to interpret spend data, identify opportunities and prioritise execution. 3. Procurement lacks a holistic approach to managing categories of spend, suppliers and compliance There are inconsistent approaches to spend portfolio and category management approach in use across central procurement functions Limited centralised visibility of spend has made it difficult to identify category opportunities, prioritise planning and to track implementation and benefits measurement There is no single source for information on supplier performance, nor a state-wide supplier management strategy Fragmented sourcing, ordering and payment processes and systems have restricted central procurement s ability to drive framework implementation and monitor compliance 4. The State lacks monitoring or reporting arrangements that focus on procurement metrics: Today departments and agencies have a focus on financial management but lack visibility of usage and pricing information to monitor spend from a procurement perspective There is no standard definition of a procurement saving or ability to measure and track benefits There are no standard procurement metrics to track procurement performance

11 Recommended Strategy The review has identified annualised potential savings between 249m to 637m in addressable spend that can be achieved through a centre-led strategic cost reduction programme (see Section for how this was calculated). We are recommending a total cost of ownership approach to procurement rather than the traditional focus on third party supplier price and cost reduction which will typically only deliver one-third of potential total cost savings. Our recommendations to achieve the total cost of ownership include the following levers: 1. Strategy and policy 2. Demand 3. Specification 4. Price Achieving the identified level of savings in addressable procurement spend will require significant investment in the capability and capacity of procurement. The review has identified pockets of excellence but these need to be replicated and implemented in a consistent manner across all sectors. A key recommendation is to establish a single integrated procurement function accountable for policy, sourcing and category management of common categories and support operations. This function should be led by a Chief Procurement Officer (CPO) within a National Procurement Office (NPO). The NPO would need as a priority to prioritise visibility of spend, and the development of an appropriate governance and operating model in order to deliver strategic savings. This recommendation is consistent with approaches taken in other European and Global Public Service organisations including the UK CPO who established the UK Government Procurement Service. Our benchmarking has underlined the need to prioritise centre-led procurement organisation focused on common categories of goods and services, supported by visibility of spend through investment in technology and the support and engagement of senior civil servants in key Departments to effect sponsorship of initiatives. 1.5 Recommended Procurement Operating Model The review considered a number of options for strengthening how procurement is managed. It recommends a Hybrid Centralised Model (as described in sections of this document) as it provides the capability to drive efficiencies from the centre, leverage buying power, and remove duplication of effort. We recommend that the proposed organisation be centralised in a single location in Dublin. The organisation will require significant engagement with senior procurement officers across sectors. The recommendations with respect to the proposed model key features are as follows: 1 Establish Chief Procurement Officer Role and National Procurement Office Appoint a new Chief Procurement Officer (CPO) accountable for national procurement strategy, policy, implementation and effective compliance framework Establish a National Procurement Office (NPO) as an Office under the aegis of D/PER Transition the current NPS, NPPPU and CMOD procurement processes from their current reporting lines and locations to the CPO in Dublin

12 12 2 Establish Organisational Alignment NPO to manage all strategic spend for common categories of goods and services Policy Unit within the NPO to be responsible for strategic and operational procurement policy and compliance across sectors Transition some experienced resources from individual procurement teams within each sector to the new NPO in Dublin Establish a fulltime Procurement Officer within each sector to be responsible for procurement across relevant Departments and Agencies Establish robust governance model for procurement with senior executive level involvement and sponsorship across the sectors. In addition, the creation of Category Councils is a key element of the recommended governance model 3 Enable Savings Delivery & Compliance Implement centralised Spend Analytics technology and capability to capture, cleanse and accurately categorise all state spend by type, location and vendor Develop detailed spend and savings targets across sectors with detailed integrated plans for delivery by NPO and sector procurement It is recommended that Secretaries General be made accountable to provide monthly reports to the CPO 4 Manage Transition of Project We recommend that Five major work streams to be established under a common program to deliver the new organisation and capability: 1) Establish Governance and Operating Model 2) Create and transition NPO from current organisations 3) Plan and implement Strategic Sourcing 4) Design and implement Spend Analytics 5) Plan and implement Procurement Operational Shared Services The report also makes sector-specific recommendations for managing procurement in Health, Local Government, Education, Justice and Defence sectors. In addition, it includes detailed recommendations on: Category management approach Strategic sourcing approach Supplier relationship management Requisition to pay Master data management Technology Savings definition and measurement People and workforce. The review has identified short and medium term savings and recommended steps to achieve these. The review has also identified that the current procurement functions at a central and sectoral level are not currently in a position to deliver the identified savings. Changes in how procurement is governed and managed are required and investment in the people, process and supporting technology are outlined in the report in order to ensure sustainability of the savings and procurement organisation.

13 13 2 Introduction 2.1 Background In November 2011, the Minister for Public Expenditure and Reform launched the Government s Public Service Reform Plan. This plan identified procurement reform as one of the major projects of key strategic importance. The procurement recommendations and actions in the plan focused on the following areas: Policy Framework and Procurement Reform Plan Aggregation Enforcement Performance Measurement and Expenditure Analysis Capability E-Procurement Logistics and Inventory Management While work is on-going on the implementation of procurement reform, there is a need to take stock of the capacity and capability in this area to ensure that the procurement reform programme is successfully and strategically coordinated, managed and implemented. Accenture was commissioned to undertake a six week capacity and capability review of the State s central procurement function. This document is the final report from this initiative. 2.2 Objectives The objectives of the procurement capability and capacity review are to identify the actions required to realise substantial savings in public procurement in the short to medium term, and to build additional on-going procurement sourcing capabilities and structures for continued procurement practice improvement and greater efficiencies 1. In particular, the review was explicitly requested to focus on the following key areas: An analysis of the total procurement expenditure for the State by category and by sector The identification of priority categories and sectors for a central procurement function to deliver savings from procurement To quantify the savings potential from the priority categories and sectors To outline the requirements of a central procurement function to deliver and sustain the savings from a perspective of: The required approach to carrying out sourcing and category management The approach for managing the top suppliers across Government The skills and competencies required to deliver and sustain the savings The operating model, governance and organisation structures required to enable successful and timely delivery of savings The technology that will enable visibility of spend and adherence to centrally and competitively tendered frameworks and contracts 1 Request for Tender - A capacity and capability review of the central procurement function to identify the actions required to realise substantial savings in public procurement in the short and medium term, Department of Public Expenditure and Reform, March 2012

14 Scope The primary focus of the review was on central procurement processes, including the NPPPU, NPS and CMOD. Central government Departments and bodies under their aegis, local authorities and noncommercial semi-states were also included in the review in order to understand procurement capability and capacity across the Public Service, and inform recommendations for realising substantial savings. Commercial semi-states were deemed to be out of scope as not part of the Public Service. The review only looked at non-pay current expenditure on goods and services. Capital expenditure was excluded due to time limitations and differences in stakeholders. However it is anticipated that many of the findings identified in this report would be equally applicable to capital expenditure and that capital procurement should be considered as a further source of savings. 2.4 Review Approach The review was conducted over six weeks between May and July 2012 using a holistic assessment framework based upon Accenture s research into high performance procurement in both public and private sectors. Figure 2.1: Capability Assessment Approach The review was carried out in the following three phases: 1. Understand and assess the current Public Service Third Party Spend 2. Identify savings opportunities and capability recommendations 3. Develop implementation roadmap The understand and assess the current Public Service Third Party Spend phase focused on baselining the current state of State spend and central procurement practices. Work was split over two workstreams: a. Analysis of State Spend Portfolio: What is the total State spend on goods and services, what are the categories of spend, and what can be addressed by central or sector procurement to deliver savings and/or other non-financial benefits? b. Assessment of Current Procurement Capability: How does procurement operate currently within central procurement and across State bodies when compared to leading public and private sector practices (i.e. organisation, process, technology, skills and competence), and

15 15 what are the gaps in capability and capacity that will need to be addressed to enable the realisation of savings and sustainable procurement benefits. As part of the identification of savings opportunities and capability recommendations, the findings of the spend analysis were used to identify the following: Total State spend that should be managed centrally or within sectors Optimal savings that might be realised through procurement, based upon external benchmarks Using the findings of the capability assessment, recommendations for procurement organisation, governance, process, technology and skills that are required to enable the realisation of these savings The review team then prioritised recommendations and developed a high-level implementation roadmap to rapidly deliver the recommendations and enable savings. The evidence-based approach used external and internal data sources to corroborate recommendations as outlined in Table 2.1 below. Evidence-Based Approach Spend Data Conducted a comprehensive data gathering and analysis from multiple sources including vote estimates, Departmental financial accounts, purchase order data, contract listings and historical reports Over 24 data sources used including D/PER, NPS and individual sectors ranging from school accounts to HSE ERP platforms and Justice Finance Shared Services External Benchmarks UK, European and global procurement interviews conducted to provide international insight and experience Accenture Benchmarks were used to support the assessment and provide qualitative and quantitative benchmarks Accenture s High Performance Procurement (HPP) Model was used to assess current procurement capabilities Stakeholder Engagement Interviewed buyers, suppliers and internal customers - 73 interviews were conducted Engaged Ministers, Secretaries General, Agency CEOs, Procurement Officers, School Teachers, Doctors, Garda, Local authority engineers, industry groups including IBEC and IMSTA and supplier key account managers and CFOs Surveys Qualitative structured capability assessment surveys based on Accenture s HPP framework were used across all sectors Self-assessment surveys completed by procurement representatives from across the five sectors and validated against interviews with key stakeholders Table 2.1: Data Sources Used to Support Evidence Based Review Approach

16 Structure of Document The structure of this report, which represents the findings and recommendations arising from the procurement capacity and capability review, is as follows: Chapter 1 summarise the context and approach taken by the review, identifies the key findings and outlines the recommendations. Chapter 2 introduces the background to the review project. It describes the scope of work and approach that was taken by the review team. Chapter 3 presents the key findings of the analysis of current State spend. It identifies the total State current spend on goods and services and categories of goods and services the State is buying. It also describes what each of the State organisation is buying and where this spend is being managed (i.e. central, sector or local). Chapter 4 presents the findings of the assessment of current procurement capability. It describes the current central and sector procurement functions in terms of organisation, governance, process, technology, skills and competence, and how these compare to leading practices in industry and other government organisations. Chapter 5 presents the potential savings available to the Public Service through centre-led procurement initiatives and describes the recommended developments in procurement capability and capacity required to realise these savings. Chapter 6 presents a proposed implementation roadmap to deliver and to sustain the identified procurement savings.

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18 18 3 Procurement Spend Analysis Findings This chapter describes the findings of the spend analysis, including: The approach taken to gather and analyse spend data The key challenges faced by the review team in accessing and analysing State procurement data, and the impact of these on overall central procurement performance The findings of the spend analysis, including how much of State spend is currently addressable by procurement 3.1 Spend Analysis Approach There is no central database or reporting of procurement spend within the Irish Public Service. Therefore, in order to complete this review the project team were required to gather and collate the required spend data manually from across more than 24 disparate systems, a number of financial accounts and historic reports to enable a comprehensive analysis of State spend on goods and services. The approach taken to gathering and collating spend data was as follows: Estimates for Public Services (2011) provided by Department of Public Expenditure and Reform, supplemented with local government report on expenditure (2009) and a more detailed spend breakdown provided by the HSE (2010/2011), were used as an initial baseline As there is no common spend categorisation for the Public Service, a master spend categorisation to classify spend in a common manner was developed by the review team using existing categorisations within the National Procurement Service (NPS) and Health Service Executive (HSE) supplemented where gaps existed with a combination of international standard categorisations as applicable (i.e. UNSPSC and eclass) Each non-pay line item within the estimates was mapped to a spend categorisation to normalise data across sources and to enable analysis Spend that cannot be addressed by procurement currently was removed from the data set as this was considered out of scope. For example, spend on blood products where the price is set by the Blood Transfusion Board cannot be influenced by procurement Approximately 1.5 billion of the estimates data that was used as a spend baseline did not have sufficient information to enable it be classified. This was due to insufficient quality and consistency of procurement spend data provided resulting in the need for more detailed spend data to be gathered from individual agencies. With the support of the NPS and Department of Public Expenditure and Reform, an initial list of 23 contacts were identified across the Public Service to support the project team to get access to more granular procurement spend data. Where the point of contact within an agency could not provide spend data, the review team were required to identify other individuals themselves who could provide information on procurement spend For a number of agencies, a complete data set could not be extracted in the short project timeframe and a spend breakdown was extrapolated based upon the data available (full details of what data sources were used and any assumptions used to extrapolate spend details can be found in the Appendices)

19 19 A total of 73 stakeholders and 24 systems were examined in an effort to gather sufficient spend data to complete the analysis 3.2 Spend Analysis Challenges Procurement spend data is available within the multiple individual department systems and could be extracted; however, as illustrated by the work undertaken by the review team, gathering and collating this data is complex and labour intensive: Data is fragmented across multiple systems: It is estimated that there over 4,000 instances of financial systems in operation across the State when consideration is given to the individual systems operated across all sectors, such as education where primary and secondary schools have independent systems. Purchasing and operational control is dispersed: While each Department is required to appoint a Procurement Officer, it is the observation of the review team that these roles are not clearly differentiated from that of the Finance Officer. While there is a strong focus on financial control evident across Departments, purchasing is decentralised in many Departments and operational control is dispersed Data is not consistently categorised: While there are examples of standard spend categorisation used by organisations, there is no standard spend categorisation currently in existence that is used across the Irish Public Service. For example the National Procurement Service (NPS) has developed a high-level categorisation for the sub-set of State spend that it currently manages, while the Department of Agriculture, Food and the Marine and local authorities are independently in the process of developing their own standard categorisation; however these categorisations are not applied consistently and there is no common language to describe what goods and services are purchased by the State Financial accounting is insufficient for procurement analysis: The estimates used to determine the initial spend baseline were produced as part of the Public Service budgeting process and while they do provide information on where spend was accrued, they do not always provide a breakdown of how money was spent that is sufficient for procurement analysis, for example grants to universities are not broken down into how the grant was spent The ability to access and analyse spend data is fundamental to enabling procurement to deliver savings and enables timely and accurate access to State procurement spend data. This is one of the key recommendations arising out of this review and will be dealt with in more detail in Section 4.

20 State Spend Profile The total State non-pay expenditure on goods and services, excluding capital expenditure and commercial semi-states, was approximately 9 billion based upon the vote estimates in A breakdown of this spend is provided in Figure 3.1. The analysis carried out as part of this review estimated that 6.9 billion of this spend is addressable by procurement to deliver savings as it is currently sourced through State purchasing processes and, as a result, can be influenced by procurement. The remaining 2.1 billion, of the total 9 billion goods and services, was considered to be non-procurement addressable as it not currently managed through State purchasing processes, and therefore out of scope for this review. Figure 3.1: Breakdown of State Spend (2011) The non-procurement addressable spend figure includes approximately 1.3 billion of the total State spend on drugs, where price is negotiated by Minister of Health, and a further 100 million spend on bloods, where price is set by the Irish Bloods Transfusion Board. While this spend is considered to be non-addressable by procurement, it could be addressed through other nonprocurement initiatives. It is a recommendation of this report that this spend be considered for future cost-savings initiatives.

21 Procurement Spend by Sector The breakdown of spend by sector is as follows: Figure 3.2: Breakdown of Procurement Addressable Spend by Sector ( million) Of the total 6.9 billion procurement addressable spend, the Health sector alone accounts for 3.1 billion, or 45%, of the total 6.9 procurement spend, with Education and Local Government accounting for approximately 1.1 billion each, Justice and Defence combined accounting for 647 million and other central government agencies accounting for the remaining 887 million Spend by Category As highlighted above, there is no standard categorisation for spend data currently in existence across the Public Service, although there are multiple instances of spend categorisation currently in use throughout the State, including those used by the NPS, HSE, Garda, Irish Prison Service and local authorities, which are not integrated or aligned. All State spend was mapped to a common categorisation, developed by the review team, to provide a single, integrated understanding of State procurement spend. Spend data from each sector was mapped to seventeen categories that grouped spend according to comparable characteristics, such as similarities in supply market profile, end users, product type, etc. (see Table 3.1 below). Of these categories, medical products and professional services accounts for 2.6 billion, or 37%, while the top six categories accounted for 82% of the total procurement addressable spend.

22 22 Table 3.1: Breakdown of 2011 State Spend (in million) These figures are estimates based upon data gathered from a sample of 24 data sources. There are currently over 4,000 sources of spend data across the Public Service, when the financial accounting systems within schools are taken into account and gathering data from these systems is a complex and labour intensive exercise. It was not feasible to extract and collate data from all these sources in the six week timeframe allocated to the review Unclassified Spend There was approximately 1.5 billion of estimates data that could not initially be categorised due to insufficient data. This included grants to schools and universities where the allocation of spend is not discernible from the data. This unclassified spend figure was reduced to 476 million once estimates had been reconciled with other sources of spend data provided by sectors. Figure 3.3: Classified/Unclassified Procurement Spend ( billion) It is the opinion of the review team that the majority of this unclassified spend is likely to be procurement addressable and could be successfully categorised with further work. It is recommended that a follow-on exercise should be completed to identify and categorise this unclassified spend.

23 Spend by Supplier Vendor data is not standardised or maintained consistently across the Public Service resulting in a lack of clarity on supplier numbers, spend by supplier and category both within and across sectors, departments and agencies. During the review we identified some good examples of vendor data management, including the HSE and Enterprise Ireland. It is estimated, based upon the data provided, that there are up to 212,000 vendors supplying to the State. However this figure does not take into account that many vendors may be supplying to multiple agencies and are counted multiple times in this figure. Figure 3.4: Total # of Suppliers by Sector As there is no central management of supplier data or vendor classification it is not possible to easily identify multiple instances of common suppliers across systems and sectors and, as a result, the actual number of vendors supplying to the State is likely to be significantly lower State Contracts Related to the above, there is also no central database for State contracts or standard contract management processes. There are several organisations, such as An Garda Siochana, that have put in place contract repositories and good contract management practices. Examples of where contracts and contract management is decentralised and highly fragmented across organisations, to such an extent that no information on the total number of contracts could be provided, was also in evidence.

24 24 This lack of a standard contracts management process across the State impacts the ability to record and manage contract compliance and manage supply chain risk, including understanding of how State spend is impacting the national economy and how much is being spent with SME s, national companies and multi-nationals. It was also observed that the State has multiple contracts with the same vendors, often for the same goods and services. While this was not explored in detail as part of this review, it is highly probable that prices are not harmonised and multiple prices are being paid for the same good or service at different locations. The findings of the spend analysis was used by the review team to estimate the total State spend that could be addressed by central or sector procurement, and to estimate the range of potential savings that could be delivered by State spend through procurement.

25 25 4 Capability and Capacity Assessment Findings 4.1 Overview This section describes the approach taken to assess the capability and capacity of central procurement functions to realise substantial, and sustainable, savings. It describes how procurement is currently organised within the State, both in the central procurement function and across sectors, and then assesses current capability against leading public and private sector practices using Accenture s High Performance Procurement framework. While the review team interviewed and surveyed a broad sample of customers and procurement resources from across sectors, along with a sample of cross-sector suppliers, the outcomes of the assessment are presented as consolidated findings for the State as a whole. The focus of the review is on identifying substantial savings and the means to deliver these savings through the central procurement functions. Correspondingly, the review has presented capability and capacity gaps in evidence across the Public Service that will present a potential barrier to deliver these savings, and did not set out to compare and contrast the procurement capability of one organisation against another. A common theme that emerged from the assessment is that while there are many examples of good procurement practices within the Irish Public Service when compared to industry and Public Services globally, these practices are not applied consistently across State procurement functions. The key findings impacting the ability of central procurement functions to realise sustainable savings, which are described in more detailed within this section, were as follows. 1. Central procurement functions are not organised in a manner to enable delivery to realise optimal savings for the State: Central procurement functions are not integrated or aligned to common goals and targets NPS lacks the authority to influence senior stakeholders on spend decisions The Procurement Officer role as currently implemented is focused on financial cost control but lacks visibility of supplier, price and specification data Purchasing is devolved in many Departments and operational control is therefore dispersed resulting in lack of control of demand 2. Central procurement functions lack timely access to accurate spend data that is required to inform category management decisions: Procurement information is fragmented across multiple financial accounting systems across sectors and departments No single consistent classification for spend and supplier data. The review identified over 200,000 suppliers but this is likely to be inflated as many are likely to be supplying multiple agencies No automated mechanism to consolidate or manage spend data nationally Central procurement functions lack analytical skills and tools to interpret spend data, identify opportunities and prioritise execution

26 26 3. Procurement lacks a holistic approach to managing categories of spend, suppliers and compliance There are inconsistent approaches to spend portfolio and category management approach in use across central procurement functions Limited centralised visibility of spend has made it difficult to identify category opportunities, prioritise planning and to track implementation and benefits measurement There is no single source for information on supplier performance, nor a state-wide supplier management strategy Fragmented sourcing, ordering and payment processes and systems have restricted central procurement s ability to drive framework implementation and monitor compliance 4. The State lacks monitoring or reporting arrangements that focus on procurement metrics: Today departments and agencies have a focus on financial management but lack visibility of usage and pricing information to monitor spend from a procurement perspective There is no standard definition of a procurement saving or ability to measure and track benefits There are no standard procurement metrics to track procurement performance 4.2 Capability Assessment Approach The review used a holistic assessment framework, based upon Accenture s research into high performance procurement, to assess central procurement capability against the following dimensions: Procurement Strategy Sourcing and Category Management Supplier Relationship Management Purchase to Pay Workforce and People Process and Technology The framework comprises of a clearly defined capability maturity scale (i.e. from basic to leading practices) for each dimension of procurement. A structured, Excel-based survey consisting of 144 detailed questions covering each of the six dimensions was completed by 14 buying organisations. The results of the surveys were then collated for each sector and then compared to a capability maturity scale to determine how each agency s procurement capability should be rated. The project team also conducted interviews with 73 senior procurement staff and procurement customers from agencies across all sectors. Interviews were also conducted with a sample of State suppliers and industry groups to provide an external perspective. Due to the short project timeframe, the project team could not engage all buying groups within the Public Service. A sub-set of agencies was selected from across sectors which accounted for

27 27 the majority of data gathering. Interviews and surveys were prioritised on a sub-set of agencies from across sectors who are the main buyers in the State. Recommendations for capability and capacity developments to enable sustainable savings were informed by qualitative and quantitative public and private sector benchmarks, along with leading practices based upon Accenture s High Performance Procurement research. These were developed in consultation with the Department of Public Expenditure and Reform to ensure that they were aligned to government strategy. The review also took into consideration procurement operating models in use in other countries, including Sweden, UK, Denmark, Canada and US, to ensure that any lessons learned by these governments were incorporated into the final recommendations. A full account of all data sources and assumptions used in the report can be found in the Appendices. 4.3 Procurement Organisation Central Procurement Function For the purposes of this review, the Central Procurement Function is taken to refer to the National Public Procurement Policy Unit (NPPPU); the National Procurement Service (NPS), the Procurement processes of the Centre for Management and Organisation Development (CMOD) and the Commercial Contracts Section of the Chief State Solicitors Office (CSSO). Figure 4.1: Central Procurement Functions National Procurement Service (NPS) was established in 2009 to further develop national framework agreements to allow public bodies to procure commonly used goods with the primary objective of ensuring optimum efficiency and value for money in the public procurement ; to provide professional procurement advice to central government and State agencies; to develop targeted and accredited training and education measures and to further develop E-Procurement tools. It currently sits within the Office of Public Works under the aegis of the Department of Public Expenditure and Reform and has 47 staff. National Public Procurement Policy Unit (NPPPU) was established in 2002 to develop a National Public Procurement Policy Framework designed to drive the development of analysis based and target driven Corporate Procurement Plans. The NPPPU is currently responsible for setting a broad strategic direction for procurement implementation. The unit has responsibility for national public procurement policy, legislation and construction procurement reform. Prior to 2009 the NPPPU was responsible for the development of a

28 28 national eprocurement portal (e-tenders.ie) and the piloting of framework projects to demonstrate the benefits of aggregated arrangements. The NPPPU currently resides within the Department of Public Expenditure and Reform and has 4 staff. Centre for Management and Organisation Development (CMOD) is responsible for monitoring and approving ICT spend in civil and public service bodies, telecommunications policy and infrastructures, egovernment policy and infrastructures, technology research and policy, central ICT procurements and frameworks, and common IT systems including payroll and HR Management. It is a Division of the Department of Public Expenditure and Reform. The centre has 2 staff dedicated to its procurement function. Commercial Contracts Support, Chief State Solicitor s Office (CSSO) is responsible for the provision of legal advice and support to procurement users in contracting goods and services across all sectors. The unit is also responsible for the development and provision of legal templates for use in sourcing and contracting goods and services. The commercial contracts function lies within the Chief State Solicitor s Office, which is a constituent element of the Office of the Attorney General. The unit is responsible for the provision of standard terms and conditions for procurement use in sourcing and contracting with the objective of ensuring compliance to legislation in respect of EU directive and Irish law. The CSSO works with the NPS in the development of Framework Agreements, standard contracts and support materials for end users. The Unit is comprised of six staff. Figure 4.2: Central Procurement Function Spend Breakdown (Not to Scale) The NPPU s role is primarily around the issuance of policy guidelines and circulars with the aim of ensuring that bodies were informed of their requirements under EU law and also best practice around putting tenders in place; they do not have spend under management. The C& AG for example report on the level of compliance with these circulars across the public service. The unit is also tasked with developing and overseeing the implementation of contracts 2 for Public Works and Construction-Related Services. It does not have any spend under its management. However, the NPS and CMOD are more directly involved in spend management. The estimated annual central procurement framework spend is 888 million based upon 2011 figures. Between these groups, there are approximately 50 procurement staff, with 47 of these staffed within the NPS alone. 2 Recent changes here allow optimal risk transfer from public bodies to contractors and consultants by costing for risks as a fixed price lump sum thus giving greater cost certainty at tender stage for capital projects.

29 29 As of 2011, the NPS had put in place framework agreements that covered an estimated 434 million, or approximately 6%, of the State s procurement spend. Of this 434 million, the actual usage of NPS frameworks was 180 million, or 40%, of the total spend under frameworks. The NPS has no role in monitoring compliance and up to very recently bodies were not obliged, or mandated, to comply to frameworks. The NPS has estimated a total saving of 37 million in 2011 alone, or approximately 9% of total procurement addressable spend through more competitive pricing and efficiency savings through centralised procurement. As referred to above, CMOD, amongst other things, is responsible for central ICT procurement frameworks and, while CMOD does not track spend under its framework agreements, based upon total ICT State spend in 2011, it is estimated that 454 million is currently spent against ICT framework agreements or sanction of ICT spend. There has been some coordinated activity between the NPS and CMOD on ICT consumables, and the NPS and NPPPU on procurement policy; however the fragmented structure of the central procurement functions is not optimal to enabling collaboration between these groups. The commercial contracts function lies within the Chief State Solicitor s Office, which is a constituent element of the Office of the Attorney General. The function has a small team of six resources and is responsible for the provision of standard terms and conditions for procurement use in sourcing and contracting with the objective of ensuring compliance to legislation in respect of EU directive and Irish law. The CSSO has worked with the NPS in the development of Framework Agreement standard contracts and support materials for end users. The development of standard terms and conditions is welcomed throughout the procurement community but there is concern both within the CSSO and the procurement community about the lack of understanding of the compliance implications, level of awareness and capability to comply with them and the resulting potential impact of the remedies directive in the event of non-compliance. During the review a number of suppliers across categories and sectors were interviewed, including Swords Medical and Codex Office Products. From a supplier perspective the terms and conditions are seen as too broad and an attempt to cover all risks with heavy risk burden being levied on suppliers. The suppliers were also conscious of the risks involved in tendering for business in the public service with traditionally low levels of contract compliance. Buyers are broadly welcoming of the guidance and standards but are concerned about the lack of education and training required to ensure compliance to legislation. The NPS and CSSO conduct training in standards but this is not co-ordinated and the focus is on fulltime procurement professionals resulting in a risk of part time procurement professionals, e.g. primary school board members, not being aware or compliant to legislation Sector Procurement Organisation Out of an estimated annual addressable spend of 6.9b across the State the central procurement functions are involved in approximately 888m (13%). However the organisation and operation of procurement varies significantly between and within sectors. The HSE and Prison Service, for example, operate their own central procurement functions, while primary and secondary schools have highly decentralised purchasing operations and decision making.

30 30 The procurement organisational structures within sectors are synopsised in the Table 4.1 below: Sector Procurement Organisations Spend (est.) Health Local Government Education Justice and Defence sectors Other Central Government The HSE operates a central procurement function that is supported by 70 resources, out of its total 573 resources who work in procurement and logistics, and has 1.2bn spend under management. Voluntary hospitals, which account for 600m of the total Health spend, have a central Hospital Procurement Services Group (HPSG), that is independent to the HSE procurement function and is supported by 13 resources who currently manage 72m of voluntary hospital spend. While procurement is predominantly managed locally within each of the 34 local authorities, there is some collaboration amongst authorities. The Local Government Management Agency has recognised the potential benefits of improved collaboration and has proposed recommendations for formal structures to enable regional collaboration. Local authorities have begun to collaborate on cross-authority initiatives to improve procurement efficiency, including the national roll-out of LA Quotes e-procurement tool and an ongoing project to harmonise how spend is categorised. Procurement is highly decentralised within the Education sector. Universities have mature central procurement functions in place and actively collaborate on procurement opportunities, while Institutes of Technology operate a central procurement hub. VEC s have a central resource in place to provide support and guidance on compliance with each VEC, and while there is some opportunistic collaboration, procurement operations are pre-dominantly managed at a VEC level. Of the 4,034 primary and secondary schools, there is currently no central procurement oversight or support. Procurement within the Department of Defence is decentralised across military cells, however there is oversight of compliance by a central procurement function and initiatives in place to centrally consolidate all contracts, and dedicated purchasing units within each cell. Under the Department of Justice and Equality, An Garda Siochana and the Irish Prison Service operate mature central procurement functions and good contract usage and control over compliance. The Department also process all invoices out of a shared service in Killarney providing a central source of procurement spend data. Purchasing operations are decentralised across central government with developing central procurement units in key spend areas, such as Department of Agriculture, Food and Marine. Table 4.1: Summary of Procurement Organisation by Sector 3,093m 83 1,142m 108 1,114m m m 66 Procurement FTE (est.)

31 31 There are pockets of leading procurement practice in evidence across the Public Service and the NPS, in particular, has been pro-active in promoting awareness of procurement policies and compliance amongst staff involved in procurement from across sectors. However practices are not standardised or applied consistently across agencies, and maturity of procurement capability also varies significantly across and between agencies. There are estimated to be at least 536 FTE s who are currently working in procurement across the Public Service. However, as the number of resources who have procurement as part of their role is not monitored or recorded by the State, the actual number of resources involved in procurement is likely to be considerably higher. For example, the estimate accounts for a total of 72 procurement resources in the Education sector based upon a tally of procurement resources in the Universities, IT s and VEC s. While the review team could not identify any full-time procurement resources across the 4,034 primary and secondary schools, the estimate does not take into account the time spent on procurement activities on a part-time, ad-hoc basis as this information is not available. Figure 4.3: Spend per Procurement FTE ( m) Based upon these conservative estimates of procurement headcount, the State currently spends 12.9m per procurement FTE. This contrast s with the cross-industry median is 18.1m per FTE and leading is 28.6m. This is based upon Accenture s High Performance Procurement Benchmark that includes public and private sector organisations. Even with consideration for the decentralised organisation structure within the Irish Public Service, there is a clear opportunity to reduce the number of resources involved in non-value adding purchasing activity. As purchasing is devolved in many Departments and operational control is dispersed resulting in lack of control of demand, the ability of central procurement functions to deliver savings through coordinated strategies and initiatives have been hampered by the need to engage with a large, disparate group of stakeholder with different, and sometimes opposing, requirements. Although there is a requirement for each Department to have a Procurement Officer, in practice, this is not always a dedicated role. There is strong focus on financial cost control evident across sectors, however procurement discipline, such as control over contract compliance and what money is spent on, is not as rigorously enforced or applied.

32 Detailed Capability Assessment Findings Overview The summary findings of the central procurement function capability assessment are summarised in the Table below. Procurement Dimension Procurement Strategy Sourcing and Category Management Contract and Supplier Management Requisition to Pay Process Workforce and Organisation Procurement Technology Maturity Rating (Consolidated Average) Summary Observations Lack of integrated procurement strategy and structured planning Incomplete procurement policy coverage and fragmented policy management No agreed standard procurement performance targets or metrics No standard methodology to baseline, measure and report procurement benefits Lack of visibility and categorisation of spend, inconsistent methodology, demand management and category expertise No central access to accurate and timely spend data Lack of consolidated, accurate demand forecasts and demand challenge Lack of engagement with stakeholders on central framework tenders Supplier led model, fragmented contract management and lack of consistent supplier performance scorecard No central visibility or management or contract data No accurate data on total State suppliers Lack of compliance management process to monitor contract compliance and leakage No buying channel strategy Contracts are not integrated into ordering processes No central management or control of spend and vendor master Accountability is fragmented across central procurement - single point of contact not always available due to decentralisation of purchasing operations and control No central list of procurement professionals across the State NPS lacks authority to deliver savings optimally Lack of consistent roles and responsibilities, structure and operational performance management Structured skills training and supplier education Limited cross-sector communities of practice e-tenders platform in place but lack of integration to analytics and operational and financial management systems Table 4.2: Consolidated Public Service Procurement Capability Maturity Rating

33 33 While interviews and surveys were conducted with stakeholders from across the central and sector procurement functions, the assessment of procurement capability has been provided as a consolidated average for the Public Service. As the purpose of the review was to identify substantial savings realisable through central procurement, detailed assessment of procurement capability by sector have not been developed. One of the core findings of the review is that there is wide variation in capability and practices across sectors. Examples of good practices or variations in practices have been highlighted were applicable in an effort to underline the impact of this fragmentation on the ability of central procurement functions to realise these savings. Table 4.3 below provides a high-level breakdown of capability assessment summary findings by sector. However, it is important to note that even within sectors there wide variations in practice and capability. For example within Education alone, Universities do have mature, central procurement capabilities while schools have highly decentralised procurement organisation and limited capability. Table 4.3: Summary Capability Maturity Assessment by Sector Each of the components as outlined in Table 4.3 above are discussed briefly and the findings outlined as the following sections:

34 Procurement Strategy Procurement Strategy is concerned with understanding the following: How objectives are set and how procurement plan to deliver them What policies and procedures are in place to support delivery How central procurement is aligned and planned with sectors What metrics procurement is measured on How procurement measures spend, savings and compliance a. Finding: No integrated procurement strategy and structured planning The NPS has a multi-year strategy that sets out its strategic goals and targets for the forthcoming three years, however this is internal to the OPW and has been developed in the absence of formally engaging other central procurement functions and customers. There is no integrated strategy for Public Service procurement that sets out how the State will manage the total spend portfolio on goods and services to deliver optimal benefits, and ensures that procurement goals and targets of the NPS and CMOD are aligned with customer requirements and Government strategy. The NPS has established a cross-sector steering committee that is tasked with ensuring that NPS strategies and plans are fully informed. However, from our interviews and discussions there is evidence of a lack of clarity amongst end users as to how opportunities are prioritised or sourcing strategies for framework agreements developed. This lack of strategic alignment has led to, but is not limited to, challenges in the following areas: Silo mentality within sectors and missed opportunities to benefit from greater crosssector coordination on sourcing initiatives Duplication of effort between procurement groups, for example there are several initiatives on-going independently to standardise spend categorisations Ineffective management of trade-offs between conflicting objectives between sectors, such as trade-offs between spend aggregation At a sector level, there are pockets of collaboration between purchasing units within and across sectors around common areas of spend, however this tends to be ad-hoc and opportunistic. b. Finding: Incomplete procurement policy coverage and fragmented policy management There are a number of groups across the State that make decisions that directly, or indirectly, impact upon procurement policy, including a number of SME advisory panels and SEAI on energy efficiency. The NPPPU is responsible for managing national procurement policy, in particular policy related to EU Directives and EU Treaty Principles; the NPPPU publish guidance to assist public bodies with their interpretation of procurement rules; however definition of operational procurement policy, that describes how national procurement policies translate to day-to-day procurement operation for the end-users and procurement staff, is decentralised to local purchasing functions. With the roll-out of mandated compliance to NPS frameworks, there is a requirement on central procurement functions to provide guidance and support on operational procurement policy as it relates to categories under central frameworks, along with policy on areas such as savings measurement and reporting which are covered in more detail below.

35 35 For example, while not a Policy Unit in itself, the NPS have been proactive in building awareness of procurement guidelines and EU directives across State purchasing groups and, in a recent survey of procurement staff conducted by the NPS, over 52% felt that they had good, or excellent, knowledge of EU Procurement Directives. However, the survey also identified that 22% also responded to having limited or no knowledge of directives and over 31% had limited or no knowledge of EU Remedies Directives. The penetration of EU procurement guidelines training has not been as prevalent in organisations where accountability of procurement is unclear, such as within primary and secondary schools under the Department of Education and Skills. Also greater awareness of compliance requirements has coincided with increased uncertainty amongst some procurement resources, especially those engaged in procurement on a part-time basis, which is slowing down the implementation of tendering processes. The implications of EU procurement directives and compliance to Irish competition law and the remedies directive have placed a large compliance and administrative burden on procurement within the Public Service. The NPPPU provide general guidance and instructions to the public service through circulars that issue to accounting officers. Compliance with these guidelines is audited both internally by the public body concerned and by the Local Government Audit Service or by the Comptroller and Auditor General. There is a lack of a single owner across the NPPPU, CSSO, NPS and CMOD procurement activity and legal support to define and implement a coherent and comprehensive legal and procurement policy, framework and guidelines to ensure compliance across Public Service procurement. The risk of noncompliance due to lack of awareness is greater outside the permanent procurement resources. c. Finding: Single point of contact not always available due to decentralisation of purchasing operations and control The perception of procurement as being important to delivering value has improved in recent years amongst senior Public Service leadership as a challenging economic backdrop has focused attention on cost reduction. In response, a number of sectors and agencies have been pro-active in developing procurement capability to respond to the current challenging environment, and there are notable examples, such as the Department of Agriculture, Food and Marine, who are building capability to enable improved central coordination and control of purchasing activities. One of the key challenges for a central procurement function, and the NPS in particular, is the lack of a single point of contact within organisations that can support stakeholder engagement, champion procurement strategies and ensure benefits are delivered. Departments are required to have a Procurement Officer, however purchasing operations are still decentralised in many sectors and good procurement discipline, such as contract coverage and control of maverick buying, is not applied with the same rigour as financial cost controls. This has meant that the NPS has had to expend more effort on engaging fragmented customers when developing tender requirement and building buy-in for central frameworks. For example over 250 buyers were engaged in preparation for the National Stationery Framework alone. Recent developments within Local Government, which will simplify the interface with the NPS and drive benefits delivery, are commendable, including the establishment of the National Local Authority Procurement Group (NLAPG) and regional procurement specialists.

36 36 d. Finding: There are no standard procurement performance targets or metrics There is limited or no accurate information on how procurement is performing across the State. Reporting is currently a manual, labour intensive and inaccurate exercise partially due to fragmented systems, lack of data standards and unclear accountability for monitoring. There is no central systematic tracking or reporting of procurement performance against a standard suite of procurement metrics. While the NPS does track coverage, usage and savings under central frameworks, these metrics only cover 6% of State spend and are gathered on an ad-hoc basis. Organisations within the Public Service do track savings and compliance levels locally, however these are not reported centrally, are also typically measured on an ad-hoc basis, do not allow for double counting and are not measured using standard methodologies (e.g. there is no standard savings measurement approach). Reported performance metrics, in general, are focused on compliance, framework coverage and savings. These should be broadened to align procurement with desired behaviours across sectors and drive national procurement strategy. Performance indicators for non-financial benefit, such as including sustainability, SME coverage, supplier performance and employee development, are not systematically tracked or reported centrally making it difficult to effectively target and take action to improve performance. There are notable exceptions, such as NPS and SEAI who are currently working on establishing central monitoring and reporting of energy consumption and savings across the State. e. Finding: No standard methodology to baseline, measure and report procurement benefits While there is focus on cutting costs across the Public Service, there is currently no standard, agreed methodology for calculating and reporting savings realised through deliberate procurement action across sectors. Procurement savings are reported by several agencies, including NPS, HSE and Local Government, however the approach taken to calculating savings varies by agency, resulting in different savings being reported for identical initiatives and potential double counting. For example the NPS have reported savings of 850,000 on State advertising contracts, whereas local government alone has reported a 2.7 million reduction in Advertising spend through the NPS framework. The typical issues we identified in our review are: There is an inconsistent understanding as to the different types of savings There are inconsistent terms and definitions used to describe the different types of savings Savings methodologies that have been established are often based on forecast levels of future expenditure rather than actual Procurement savings are often delivered at the point of sale or purchase which negates the ability for the saving to be captured or realised fully The measurement of savings at the point of invoicing can be costly and time consuming In recent years, the challenging economic and fiscal environment has forced the State to put more focus on procurement savings. Whereas procurement savings where not systematically tracked and reported in the past, purchasing units are starting to report savings. There is a

37 37 requirement for a standard measurement definition to allow confidence in savings reported and an expectation that central procurement functions should provide guidance on these standards Sourcing and Category Management Sourcing and Category Management is concerned with understanding the following: Visibility of accurate and timely spend data How opportunities are identified and prioritised How category strategies are developed and managed What industry and category expertise is available The methodology used for sourcing and implementing strategies How demand and project delivery are measured and managed a. Finding: No central access to accurate and timely spend data The central procurement functions do not have access to reliable, accurate and timely spend data which is critical to identification and prioritisation of category opportunities, and development of sourcing strategies. For example, the most up-to-date spend available to the NPS was gathered through a 2010 survey of State buying organisations requesting a breakdown of the top thirty categories of spend. This data covers only 2.4 billion of the total State procurement spend and does not include information on suppliers, contract coverage or transaction volumes. b. Finding: Lack of consolidated, accurate demand forecasts and demand challenge A symptom of the Public Service top-down annual budgeting process, is that detailed information identifying how budgets will be spend are not systematically produced. The result of this is that procurement does not always have visibility of demand until after key decisions have been made and, as a result, their ability to influence purchasing decisions is reduced. This has meant that central procurement functions do not have access to accurate forecasts of what goods and services will be purchased in the coming year, and are reliant upon incomplete historic spend data to prioritise category opportunities and developing sourcing strategies Limited availability of accurate forecast data, along with decentralised purchasing, has also meant that procurement is not positioned to challenge demand, which is one of the main levers that procurement can use to deliver savings. Mandated compliance to central frameworks, for example, will allow the State to leverage aggregate spend but will not control volumes of spend or purchase of over-specified goods. c. Finding: No central list of procurement professionals across the State Within the central procurement function, the NPS, in particular, has been proactive in engaging stakeholders from across sectors on broader procurement issues or matters, for example they have used bi-annual procurement seminars and the procurement.ie web portal, which is used to provide both buyers and suppliers with information on planned framework tenders, best practice, and upcoming events The State does not maintain a record of resources currently working in the procurement area or on procurement activities. The NPS maintains a repository of procurement

38 38 stakeholders that is manually kept up to date and is used for communications purposes. As sectors and agencies change procurement staff without notifying NPS, the list of NPS stakeholders can frequently become out of date resulting in communications not reaching the required recipient. d. Finding: Stakeholder engagement in central framework tenders While communication under the NPS has improved, information on framework tender timelines are not up-to-date or of sufficient accuracy to allow sector purchasing units to be aligned to their own purchasing plans. Actual dates for key tendering milestones, such as tender publication and forecast award date, are either not communicated or can change without sufficient notification. Local end users maintain their contracts and milestones without updating procurement. System solutions, such as the National Tender Tracker within Local Government, have been deployed within sectors that allow procurement resources to track progress of tenders online and similar solutions should be considered by central procurement functions to facilitate communication and alignment with stakeholders. While the NPS have invested heavily in relation to engaging with sectors, interviews indicated that cross-sector stakeholders are still not routinely consulted on key sourcing and category management decisions impacting customers, including user requirements, award criteria and overall satisfaction with framework and supplier performance. e. Finding: No standard category management methodology, tools and templates The Public Service has dedicated procurement category managers who manage categories of spend within the NPS and HSE, and there is evidence of good category management principles in practice within these functions. However processes and practices are not consistently defined and implemented across category management teams and there is no standard, documented methodology for strategic sourcing or category management currently in place. As a result of varying levels of category management there are lost opportunities to leverage efficiencies in cost, quality and value added services from suppliers due to a focus on local short term needs instead of strategic long term partnering Contract and Supplier Management Contract and Supplier Management is concerned with understanding the following: How is supplier and contract data managed How are suppliers tiered, segmented and categorised How supplier and contract performance is rated, measured and managed How supply chain risk is evaluated and managed How supplier education is managed

39 39 a. Finding: No central visibility or management of contract data The State has no central tools for managing contracts over their lifecycle or tracking usage against contracts. While not in place at the time of writing, the planned upgrade of the etenders system is due to include a contracts management module which will go some way towards resolving this issue. There is no central monitoring and reporting of contract coverage (i.e. the volume of spend that is covered by a contract) and contract usage (i.e. the volume of spend that goes through a contract) for all spend, although there are notable exceptions, including Irish Prison Services, HSE and Garda. The NPS does track the volumes of spend under its own frameworks, currently estimated at 40% contract compliance, on an ad-hoc basis using data provided by suppliers and spend estimates based upon a 2010 survey. As highlighted above, this information does not accurately reflect the overall usage as accurate and timely spend data is not currently available. At the time of writing, the NPS was putting in place a process and tools to track framework compliance and savings more efficiently though issues with data quality still remain unresolved. CMOD also do not currently monitor or report on framework usage and compliance despite recent attempts to request supplier information in order to track compliance. Both the NPS and CMOD procurement activity is supplier dependent for information and as a result there are gaps in the visibility and quality of the information currently available. At the time of writing usage of central frameworks were not mandatory and this has contributed to the low level of compliance, currently 40%. The government has recently decided to mandated the usage of NPS frameworks, except in exceptional circumstances, which will see the Comptroller and Auditor General and individual public bodies becoming accountable for actioning non-compliance. This should help improve visibility of the usage of central frameworks. b. Finding: No accurate, up-to-date data on total State suppliers The central procurement functions frequently and systematically engage national framework suppliers to review and manage framework contract performance, raise any performance issues and, if required, agree corrective actions. There are examples of sectors and buying groups within sectors actively managing suppliers, such as the HSE s use of a metrics dashboard to monitor top supplier performance. The NPS has also conducted surveys with sectors to determine the top suppliers across the State, albeit almost two years ago, and this information has been used to enable cost saving strategies to be targeted at top suppliers. The State does not have accurate data on the total number of suppliers and there is no single central repository for recording, maintaining and reporting supplier master data. Supplier information is dispersed and duplicated throughout Public Service systems. Based upon the sample data gathered as part of this review, it is estimated that there are upwards of 212,000 State suppliers, however due to the limited control over vendor master data across procurement and financial systems it is not possible to deduce the number of duplicate vendors within this data over the short timeframe of the review. Over 61% of respondents to the recent NPS survey stated that they would like to see the creation of an electronic public procurement passport holding supplier details that would not only reduce effort required by local procurement teams in maintaining this data for themselves but would allow greater control in how master data is managed.

40 40 c. Finding: No integrated supplier management approach One consequence of not having accurate and up-to-date supplier information is that the State does not monitor and manage supply chain risk, or gather accurate information on spend with SME s across the State that may inform national policy. While relationships with suppliers under central frameworks are closely managed, the majority of suppliers are not segmented and managed across the State. This results in professional procurement resources being engaged in lower level tactical and operational buying levels instead of of focusing resources on large strategic cross sector spend, suppliers and savings initiatives. The figures illustrated in Figure 4.4 show the number of suppliers per 100m across a range of public service areas and provides a benchmark of best practice. This highlights the lack of segmentation and prioritisation of procurement professionals to larger spend areas. Typically, procurement will segment the supplier base based upon level of spend, criticality of the service and level of risk, This allows procurement to focus on the top suppliers and categories in order to maximise the return on investment. The benchmark illustrates that 228 suppliers is the average number of suppliers per 100m of spend, however the number of suppliers currently active across the state is greater than this. This is partially down to a lack of control over procurement demand but also linked to duplication of supplier data within sectors, as relationships with suppliers are managed locally and remain uncoordinated nationally. Figure 4.4: Number of Suppliers per 100m On a positive note, the National Procurement Service has been proactive in enabling more transparent and open communication with suppliers through the procurement.ie web portal and use of supplier engagement forums. It has also run initiatives to educate suppliers in the public tendering process and provide SME s with the skills to compete in public tenders to the mutual benefit of both the State and SME sector. Although more than 67% of respondents to a recent NPS survey of State suppliers indicated that they had limited or no knowledge of EU Procurement Directive and 75% indicated limited or no knowledge of EU Remedies Directive. This highlights the risk of non compliance across large numbers of suppliers and contracts in the Public Service.

41 Requisition to Pay Requisition to Pay is concerned with understanding the following: How requisition to pay master data is managed across sectors What guidelines and support is provided to end users How compliance and non-compliance are managed a. Finding: No buying channel strategy There are a number of different procurement processes that can be used to manage the sourcing, contracting, ordering, delivery, receipt and payment activities. Procurement organisations typically define standard processes and select the appropriate process depending upon the category of purchase, level of activity and scale of spend. Goods and services can typically ordered using one of the following processes: 1. Purchase Order 2. Non Purchase Order 3. Catalogue Order 4. Non Catalogue Order 5. Purchasing Card Order 6. Cheque Requisition 7. One Time Vendor Expenditure The review found that there is no State-wide buying channel strategy for how goods and services should be bought across the State for all spend. While central procurement functions are responsible for establishing central framework agreements, it is the local contracting authorities that are responsible for putting in place the contracts under these frameworks and for enabling their local end-users to order or call off of these contracts. There are multiple fragmented, non-standard processes and supporting systems across sectors that enable ordering of goods and services by end-users, including paper-based purchase orders, buying portals, p-cards and e-catalogues. This causes additional internal order administration and external supplier administration in dealing with difference departments and agencies supplying the same goods or services. For example p-cards are available to some buyers within local government for low value, ad-hoc purchases, while schools are exploring the use of a PayPal-enabled solution to manage low value, spot buys. b. Finding: Contracts are not integrated into ordering processes There are groups within the Public Service whose contract databases are integrated into their requisition to pay processes. An Garda Siochana, ensures that end users are both aware of what contracts are in place at time ordering and are channelled towards using them This is the exception rather than the rule and, in general, compliance with contracts is dependent upon manual checks by procurement at time of order or retrospectively at time of invoice. Usage of NPS framework agreements was approximately only 40%, but the State is currently mandating their use. As highlighted above, the central procurement functions have limited visibility and control over orders under central frameworks. Responsibility is with contracting authorities to ensure that framework agreements are easily accessible to end users and that local buyers are compliant.

42 42 While this does not prevent enforcement of compliance through central reporting and establishment of clear sector level accountability to deliver compliance, it does mean that the NPS does not have the ability to control demand within sectors. This is one of the key levers that the Public Service can use to deliver savings from its third party spend. CMOD are engaged in the sanction of ICT spend and have a more proactive role currently in supporting end users in the development of appropriate technical specifications. In this role CMOD have the opportunity to be involved at an earlier stage in the procurement process and can positively influence the demand/specification through the sanctioning of spend from existing framework contracts Receipt to Pay While the Receipt to Pay process was not covered extensively as part of the review, there are some general observations related to process efficiency and effectiveness that should be explored in more detail. The NPS is piloting an e-invoicing solution with five organisations (HSE, Defence, LGMA, Justice and Enterprise Ireland) as part of PEPPOL (Pan-European Public Procurement On- Line). e-invoicing is not supported extensively across the State, although there are notable exceptions such as the Department of Justice and Equality. e-invoicing has potential to significantly reduce both internal and external indirect administrative processing costs and also to support greater compliance and supplier performance through more rigid financial approval on satisfactory completion of work against contracts and purchase orders. The Department of Justice and Equality also operates a Financial Shared Service in Killarney for all bodies under its aegis as well as a number of other central government Departments. It is notable that bodies under the Department of Justice and Equality had some of the highest contract compliance levels across the State. Due to limited system integration, there is evidence to suggest that significant manual effort is required to complete of the approval of invoices against purchase orders due to the manual matching of paper based invoices. Finding: No central management or control of spend and vendor master There is no standard classification for spend across sectors (i.e. common classifications for State spend). Goods and services are categorised differently across sectors, and even within sectors, making it difficult for the State to determine where it is spending its money and to identify where there is commonality across sectors. There are examples of classification currently in use, or in development, by purchasing units, however these are not aligned. For example the Department of Agriculture, Food and Marine are currently developing a standard categorisation for their spend as are the local authorities, while the NPS have their own top level categorisation for spend under their management. As highlighted above, the State also does not have a standard vendor classification or have a central approach to managing vendor data. A cursory review of supplier data from across sectors shows multiple instances of the same vendors codified with different vendor ID s and different names. This makes it difficult for the State to understand how much it is spending with any one supplier, manage supplier performance across sectors, or understand where there is risk in its supply chain. In general, master data management is decentralised and controls to ensure the integrity of data is maintained are not rigorously applied across sectors.

43 Workforce and People Workforce and People is concerned with understanding the following: Are there standard roles and responsibilities across State, sector and department procurement Is there a capability assessment and personal development plan in place Are staff managed by objectives Is capacity sized and optimised against spend Are there gaps in the organisation s capability a. Finding: Accountability for procurement policy, strategy and delivery is fragmented across central procurement functions As highlighted above, the fragmented structure of central procurement functions has meant that the procurement objectives and practices of CMOD, the NPPPU and the NPS have not always been fully aligned. There is no one central group accountable for procurement policy, strategy and delivery across the State. b. Finding: NPS lacks the authority required to deliver savings optimally Furthermore, while the location of the NPS within the OPW may have been optimal when the NPS was being set up, the NPS has lacked the authority to influence senior stakeholders on spend decisions, which has undermined its ability to implement category strategies within sectors and deliver savings to the State s bottom line. In theory, the Procurement Officer should be the first point of contact for the NPS within each sector to engage stakeholders and build buy-in for central strategies. While there is good financial cost control in place across the Public Service, the reality has been that purchasing decisions are mostly decentralised and that the NPS has had to engage multiple, fragmented buyers within sectors to implement category strategies and realise savings. For example approximately 4,000 schools have been supported under the Energy framework. c. Finding: Clear career path for procurement within the Public Service is not available In general, procurement is still perceived as an area which offers limited career opportunities and development prospects. For example anecdotal evidence captured through interviews referred to resources within the civil service been encouraged to continue their career outside of procurement having recently finished a Masters qualification in Procurement. Relatedly only 12% of procurement resources identify themselves as having a full-time role in procurement, with 43% indicating that procurement formed only a minor part of their role within the organisation. If the State is to realise the substantial savings that it hopes to deliver from its spend, then it will need to invest in skills development, define clear career paths and position procurement as an attractive place to work.

44 44 d. Finding: No integrated competency development programme The NPS, in particular, has made progress in up-skilling its own people and training procurement staff across sectors in tendering processes and how to be compliant with EU directives. NPS and CSSO have produced a standard contract templates for goods and services that are currently available to all sectors through the Procurement.ie buyer portal that has helped to reduce the effort required to run a tendering exercise and to develop consistency in how the Public Service go to market. However, in a recent survey of procurement staff across the Public Service carried out by the NPS, only 54% of respondents stated that they were using the template and 65% of respondents stated that their own Departments templates were better suited to their needs. The same survey found that less than 23% of resources who procure goods and services as part of their role have a procurement or supply chain qualification, and over 46% have not undertaken any public procurement training within the last 3 years. Standard roles and responsibilities are not defined for procurement across the Public Service and national training programmes have tended to be one-size fits all and focused on compliance. There are many different types of procurement resource currently working within the Public Service from part-time buyers responsible for processing purchase orders to senior category managers responsible for managing national categories of spend. The skills and competencies required to successfully carry-out these roles are very different, and training and development needs should be correspondingly so. e. Finding: Limited cross-sector communities of practice or opportunities for procurement management to engage one another The NPS run bi-annual procurement seminars that are open to Public Service procurement professionals across the State and have been well received. Outside of this event, there is no forum, or structure, currently in place to enable networking and information sharing amongst procurement staff. It has been evident from interviews that there are a lot of initiatives being implemented by some sectors to develop their own internal procurement capability and that, while there is some ad-hoc sharing of lessons learnt and practices between procurement groups, procurement organisations operated largely in isolation from one another. There is a lot of re-invention of procurement practices taking place. Exceptions are in evidence at a sector level, such as the National Local Authority Procurement Group (NLAPG) that was recently established within local government Procurement Technology Procurement Technology is concerned with understanding the following: What standard tools are in place for RFI, RFT, Supplier Addition, Requisition and P/O, One Time Vendor What IT Procurement Strategy is in place to manage the end to end process and provide visibility and control of spend What are the delegation of authorities, authority to contract, approval limits What tools are in place for sourcing, contracting, supplier performance, buying, e- procurement, receipting and payment

45 45 a. Finding: eprocurement systems are fragmented There are a wide variety of systems currently in operation across the Public Service that, to a varying degree, are being used to enable procurement processes within sectors. For example there are over 30 instances of Agresso in use across Local Authorities while VECs use Sun Systems solutions. These systems are highly fragmented with over 4,000 separate instances of financial systems across the State when primary and secondary schools are taken into consideration. In contrast to leading organisations, simple buying is still an overly manual process for the majority of sectors with manual support required to approve, submit requisitions and issue a purchase order to suppliers. Based upon the data gathered and interview feedback, there would seem to be a significant number of administrative staff working across the State supporting transactional procurement activity as part of their role. These resources could be freed up to support other areas of the Public Service through greater utilisation of e-procurement technology, amongst other things. b. Finding: Central esourcing systems are used and further upgrades are in progress The e-tenders sourcing solution, which is maintained by the NPS, is being used by the State to manage above threshold tenders in compliance with EU procurement guidelines. Local authorities have also rolled-out their LA Quotes tool, developed by Kerry County Council, to support requests for quotations nationally. The current version of etenders only supports basic tendering activities, including tender notification, communication and awarding. The system is being upgraded and future versions will support tender appraisal, e-auctions and improved communications management. While not in place at the time of writing, the etenders upgrade is also expected to include integrated contract management and supplier relationship management functionality. However it is also worth noting that there is still a substantial number of tenders that do not go through etenders. Over 30% of respondents to a recent NPS survey of procurement staff stated that 50% or more of the contracts they put out to tender in the last 3 years were not advertised through etenders. c. Findings: No central contract database There is no central contracts database or contract management process, and visibility and control of contracts varies greatly between purchasing groups. An Garda Siochana, for example, use a third party solution to centrally manage their contracts, while the Defence Forces and Department of Agriculture, Food and Marine are in the process of building a consolidated database of all their contracts. The fragmentation of purchasing systems and limited integration between sourcing and ordering systems has meant that, while there is focus across the State on ensuring that costs are being managed, the State does not have the systemised control over buying channels to enforce compliance with contracts and reduce maverick spend. A new version of e-tenders is scheduled for deployment by the end of 2012 that will include integrated contract management module and will go some way to resolving this issue for contracts tendered through e-tenders.

46 46 d. Finding: Basic spend analytics tools are only in use within central procurement functions The large number of fragmented systems has also been one of the main barriers to central visibility of accurate, regular and timely State spend data. Significant manual effort is currently required to extract spend data from across the State s financial systems, cleanse and normalise the data so that it can usefully be analysed. Access to quality spend data and spend analytical tools, which helps procurement understand what is being bought, who is buying it and who they are buying from, is critical to informing procurement strategy and setting realistic targets. The NPS are currently using Microsoft Excel and Suprem to support basic spend analytics. Other procurement technology solutions, such as p-cards and Achilles, which is used for vetting perspective suppliers, are also in use in pockets across the State.

47 47

48 48 5 Recommendations 5.1 Introduction The review of the central procurement function has identified findings that have been consolidated in to a number of common themes across Public Service procurement that need to be addressed in order to ensure and effective and sustainable procurement organisation: Figure 5.1: Summary Observations and Recommendations The above themes are not new to Public Service procurement and have been identified in previous reports, including the PWC Strategy for the implementation of e-procurement in the Public Service report in Actions have been taken including the establishment of the National Procurement Service in 2009 but we have not seen a significant impact on the core underlying themes. In order to ensure the successful implementation of recommendations, we need to address the core issue that is Why has the central procurement function not been successful in implementing procurement policy, frameworks and savings? The report has identified annualised potential savings of between 249m to 637m that can be achieved through a centre led strategic cost reduction programme, but this will require significant investment in the capability and capacity of procurement to deliver the benefit.

49 49 This section will outline the following: 1. Addressable Spend and Savings that can be delivered 2. Capability and Capacity areas that need to be addressed in order to deliver a sustainable procurement organisation: Strategy and Governance Sourcing and Category Management Supplier Relationship Management Requisition to Pay Workforce and Organisation Technology 5.2 Spend and Savings Recommendation for Addressable Spend From a total addressable spend of 6.9bn, as defined in section 3.1, we have identified the following top categories of goods and services: Table 5.1: Total Procurement Addressable Spend (2011) The review conducted a spend analysis and validation of spend using existing financial estimate and procurement spend data together with supplementary contract, pricing, invoicing and supplier data to validate the high level spend categories. UNSPSC, NATO NSC and e-class Medical Categorisation standards were combined to develop a single combined categorisation of spend that was validated with individual departments and agencies for accuracy. The review identified sixteen (16) high level categories of common goods and services that are purchased across the public service. Unclassified spend is not deemed to be a standard category. We recommend a more detailed in depth spend analysis is conducted to provide further granularity given that this was a rapid six week review with multiple data sources.

50 50 In order to effectively manage these categories we recommend that a category assessment be conducted to determine where the ownership of the category should lie. At present there is no clear ownership and responsibility for managing common categories at either a national, sector department or local level and this creates duplication of effort and dilution of spend leverage. Categories of goods and services that have high levels of standardisation, are commonly used across all sectors and that have multiple users, e.g. stationery and office supplies, are deemed suitable to be managed by procurement from a central perspective. Categories of goods and services that are non standard, have single or few users and that require a high level of technical knowledge, e.g. defence supplies and medical suppliers, are deemed to be not suitable to be managed from a central procurement perspective and are recommended to be managed either within the specific sector or department with the usage. A standard category assessment model, in Fig 5.2, outlines the objective method of understanding the characteristics of the demand and supply side of the category. This method enables us to determine whether or not a category is suitable for central management. Figure 5.2: Category Mapping Framework Following the above high level category assessment exercise it has been estimated that procurement addressable spend of 4.3b is suitable to be led from the centre. The balance of 2.4b is deemed not suitable to be centre led and is recommended to be managed within sectors. The categories deemed suitable to be centre led are contained in the Table 5.2 below that shows the level of spend within each category across the sectors.

51 51 Table 5.2: Target Centre-Led Categories The common categories identified are used by all Departments with many buyers and are suitable for a centre led procurement approach. Table 5.3 below describes the categories not deemed suitable to be managed from the centre and to remain managed within Sectors or Departments Saving Opportunities Table 5.3: Target Sector/Department-Led Categories Accenture s approach to estimating the savings opportunities was to conduct a high level analysis of the categories, buyers and suppliers in use in order to determine the following: Category Maturity For each common category it was identified how and what is being bought in order to gauge the level of sophistication and maturity of the category. This was benchmarked against Accenture s Global Category Management Models and market research on category strategies to gauge how mature the categories are from a supply perspective. Buyer Maturity Interviews were conducted for each category which analysed the internal buyers and their contracts to determine the level of sophistication and maturity in their sourcing strategies. For each category the level of contracts in place, percentage compliance, total number of suppliers, requirements gathering approach, sourcing strategy and historical savings achievement was researched. This data was benchmarked against Accenture s High Performance Procurement databases to validate areas of opportunity. Ease of Adoption/Implementation Procurement and key business stakeholders were interviewed to ascertain the level of interaction and support for procurement led initiatives. This was validated against the buyer interviews contract, spend and compliance data captured in

52 52 order to validate the level of co-operation, potential ease of implementation and adoption of procurement initiatives. Following completion of this exercise the project was able to identify saving ranges that are typically achieved across indirect categories in the Public Service. Table 5.4: Breakdown of Estimated Savings Target Range (Annualised) In order to estimate savings the 6.9b addressable spend figure was reduced by removing 476m of unclassified spend. The figure was further reduced by removing 170m from Travel within the Education sector for the school bus scheme that is deemed already contracted with little opportunity for further cost reduction. The revised figure of 6.2b is then considered to be

53 53 80% addressable, from a savings calculation perspective, due to 20% of spend being considered highly fragmented spend with small suppliers across all categories and sectors. The revised figure of 4.98b is used as the basis for savings calculation. Savings ranges have been recommended based upon Accenture s prior experience with public sector strategic sourcing engagements with similar spend and supplier fragmentation. Supporting this is our global category and marketplace knowledge that provides insight into how additional benefits can be derived across common categories. Our calculations have factored in the geographical spread of spend across the country and the current maturity level of buying across sectors. In addition we have factored in the current frameworks, compliance and savings achieved to date. For each category we have estimated a specific low, medium and high savings range that could be achieved through a combination action that we have described as of demand and supply levers. The low range figure is based upon the achievement of 60% contract compliance to the 80% addressable spend figure. The mid range and high range figures are based upon the addition of demand side levels and increase contract compliance to 80% and 90% of the 80% addressable spend target. Typically procurement organisations can achieve up to 60% compliance to frameworks through structured planning and requirements gathering followed by strategic sourcing and contracting. However, there still remains significant leakage to local alternative sources. With a focus on contract compliance and proactive demand challenge internally we typically expect to deliver increased savings ranges up to 80% to 90% compliance Demand and Supply Levers The traditional focus for procurement savings is on third party supplier price and cost reduction. This cost typically represents about one third of the total cost to serve. Additional savings can be achieved through a combination of looking at what, why and how the Public Service conduct certain activity and challeng demand. By addressing the internal and external elements the Public Service can achieve an average of 10% cost reduction through a strategic cost reduction programme. In order to address the immediate and on-going need to reduce and manage cost it has been recommended taking a total cost of ownership approach. Focusing on the third party supplier cost alone will deliver a tactical short term efficiency that is limited in scope and is unsustainable without a significant organisation transformation. Third party cost typically only account for a small percentage of the total cost to serve. Total cost of ownership looks at the end to end business process and addresses the cost to serve from four perspectives: 1. Strategy and Policy Review the requirements from a make or buy decision and consider if there is a better way of doing it. For example, provide this service internally (make) or using third parties (buy). What is the internal total loaded cost added to third party cost over a five year period. Is this a fixed or variable service with changes in technology and innovation? What are the risks involved in doing or not doing this? Is there a way to control this from a policy perspective and reduce the direct involvement? 2. Demand Identify if there is a justified need for this product or service? Can we stop buying it? If there is an on-going justified demand can we reduce the demand or quantity. Implementing a cost conscious culture of challenging demand is very effective in controlling total cost. 3. Specification Following demand challenge is specification review. This is where the Public Service look at what they are buying and standardise the requirements. For example, how many types of stationery pads and blue pens are used and how many types are actually

54 54 needed? By standardising on the specification the Public Service will be able to leverage their spend by increasing buying power. The other area within specification is to lower the average specification. Again, using stationery is a leading branded ballpoint pen required or will a generic pen do the job just as well. Challenging the specification in both these ways will reduce the cost to serve. 4. Price Finally, the total cost from the other three aspects has been addressed. This is achieved through consolidation of suppliers and competitive negotiation. Leveraging National Frameworks and volume through competitive tendering will achieve substantial results for common categories in this area. In summary total cost of ownership is addressed by: Buying Better Buying Smarter Buying Less To summarise the opportunities for savings through supply and demand levers we have compiled an opportunities list highlighting the levers that can be used in each category. Table 5.5: Breakdown of Category Savings Levers Table 5.5, Breakdown of Category Savings Levers, highlights the demand and supply levers for each category of spend identified in the review. The four levers that can be used are Price, Usage, Risk and Process. Each category has specific internal and external market place dynamics and depending upon the category will dictate greater or lesser use of the four levers. For example, Print & Stationery can be influenced by Price and Usage. Price refers to the strategic sourcing and price reduction that can be achieved through tendering. Usage refers to the internal ability to reduce the usage of products through proactive demand challenge and

55 55 limit usage at point of delivery/usage. Price can also be influenced by specification standardisation and rationalisation of the range of products in office supplies. Compare this approach to Medical supplies where there is less opportunity to change specification or usage due to patient needs and clinical product approvals. A detailed category analysis and strategy development is required for each major category and individual sourcing project and during this exercise the specific levers will be determined Sourcing Wave Delivery To implement the identified opportunities it is recommended that the creation of a strategic cost reduction programme sponsored by the CPO governance model outlined above is created. In order to successfully implement the category specific initiatives a phased approach to sourcing projects prioritised by the level of savings potential and the ease of implementation has been suggested. Figure 5.3 Strategic Sourcing Wave Plan is a suggested prioritisation of category initiatives across sectors based on our high level understanding of the spend, opportunities for savings and ease of implementation internally and externally. The review did not consider the departmental and sectoral project dependencies within the six week timeframe. The proposed approach focuses on initial quick wins and improvement in framework compliance in categories where there are typically least amounts of resistance and impact of change on the business. The exception to this is the medical category and this is suggested to start and continue across all phases given the scale and timeline involved in implementing clinical trials and contracts. This approach allows procurement to build momentum before approaching more traditionally resistant categories such as professional fees. The suggested approach takes into consideration that there is also a limit on the level of change that can be taken on by local end user departments before there is an operational service delivery impact. This is the reason why the activity is spread out in three waves covering two years. It is recommended that a detail strategic planning exercise is conducted in order to validate the following recommended approach. The initial six week analysis did not cover a detailed integrated planning and dependency mapping in order to finalise a detailed sourcing plan. This activity should be completed together with a validation of national, sector and Departmental initiatives as part of an overall programme for cost reduction. It is important to note that strategic savings are typically delivered over a number of sourcing waves, prioritised to deliver bang for buck and build momentum. The ability to implement and deliver savings is limited by the capacity within procurement to deliver and the ability of end user Departments to manage the level of involvement and change while maintaining business continuity. This is the reason a senior cost reduction programme governance with sponsorship and participation from senior leadership across all sectors is recommended.

56 56 Figure 5.3: Strategic Sourcing Wave Plan The above sourcing wave is a high level view based upon a high level six week spend assessment. It will require a detail spend assessment at a more granular level with a detailed integration and alignment plan with sectors and Departments before a final plan is executed. 5.3 Opportunity Identification for Non-Addressable Spend During the review of central procurement a data gathering and spend analysis was conducted in order to identify procurement addressable spend. Procurement addressable spend is defined as spend that has the potential to be influenced directly by procurement using either demand or supply strategies to influence price, quantity and or specification. The scope of the procurement review included annual reoccurring operational expenditure but excluded capital expenditure. Capital Expenditure is estimated at 6bn and there may be opportunities to leverage the procurement review for common categories and generate savings within the capital expenditure. We recommend a detailed review of capital expenditure in a separate exercise to determine the opportunity. From an estimated annual reoccurring revenue spend of 9bn we identified an annual procurement addressable spend of 6.9bn following a data gathering, cleansing, mapping and validation with sectors and Departments. The remaining 2.1bn of spend was classified as either non-addressable or addressable but not addressable by procurement. The reasons behind spend being considered non-addressable were either where the spend was clearly not a procurement addressable item, e.g. wages or grants, or where we did not receive granular enough information and were unable to validate the spend. We believe there is spend within this that could be classified as procurement addressable but within a short six week period we were not able to identify the actual category or spend, supplier or buyer. Examples of the spend deemed un-addressable by sector are outlined in Table 5.6 below:

57 57 Table 5.6: Non-Addressable Spend by Sector Addressable spend but not by procurement is a classification we have developed where the spend is a negotiable good or service but managed outside of procurements remit at present. The largest element identified in this category is within the Health Sector where the Department of Health engages in negotiation directly with the market place or where ministerial/legislative intervention dictates the market pricing. In these cases we deem the spend to be negotiable but not by procurement. Recommendations for non-addressable spend: During the review we identified a number of significant spend areas that are addressable but are not influenced or controlled by procurement today. The following areas are examples of where procurement can add value in this category of spend and we recommend they are actioned. 1) General Medical Scheme this category of expenditure relates to the portion of medicines dispensed through pharmacies and doctors under the medical card scheme and is controlled by the Department of Health with direct Ministerial intervention and price setting. This expenditure has three components; drug supply; pharmacy fulfilment or GP prescription and fulfilment. The drug supply comes from the same suppliers as the HSE and we recommend the negotiation and control of this through HSE procurement who specialise in drug procurement. This will allow greater leverage and control of the spend and specifications through HSE clinical engagement and procurement negotiation. In addition the standardisation of drugs and adoption of generic medicines through policy within the scheme would reduce total cost and remove supplier led decisions by GP s on prescriptions. The pharmacy fulfilment recommendation is to challenge the model and to consider alternative fulfilment models, including direct fulfilment either from the HSE central logistics centre or from an outsourced logistics provider. This model would utilise online prescription for patients either from the GP s office, hospital or community care centre and would result in a large reduction in fulfilment cost.

58 58 2) Blood Supply The current blood supply in Ireland is managed and controlled by the Blood Transfusion Service who set the price for blood supply with the Department of Health. To influence this price we recommend competitive price negotiation against international sources and the adoption of cost plus model 5.4 Strategy and Governance In order to address the potential savings and on-going management of spend a strategy is required for procurement that outlines its role in the planning, execution and monitoring of spend and savings. Within our findings we have identified pockets of excellence in procurement across the Public Service within specific Departments and agencies. The challenge however is that there are different customer groups for procurement with very different levels of maturity and associated demands. At the centre, procurement is expected to deliver value for money and savings for the taxpayer with the focus on national framework implementation and benefits tracking. Across sectors there are a variety of requirements, from immature Departments who want an end to end purchasing service to the mature sectors who want additional strategic sourcing capacity, supplier performance metrics and spend analytics. Customer expectations and satisfaction with service levels are very different due to a lack of a consistent strategy and approach to managing procurement services. In order to address these issues we recommend that shared vision for procurement s role in the management of spend be defined, shared and supported. The recommended procurement strategy is for the development of a single, integrated procurement function accountable for policy, sourcing and category management of common categories and support operations. This should have senior leadership and we therefore recommend the appointment of a Chief Procurement Officer (CPO) within a new National Procurement Office (NPO). We recommend the NPO prioritise visibility of spend, creation of the necessary governance and support model and the delivery of strategic savings. The recommended approach has been developed from both interviews conducted with public sector procurement organisations and Accenture s Supply Chain global insight and thought leadership. This included interviews with senior procurement leaders, including the CPO of the UK Cabinet Office, and supply chain leaders in the UK, Canada, Sweden, the Netherlands and the US. This provided context and insight on the lessons learnt and key success factors that were adopted in other geographies. Accenture s global insight and thought leadership in public service procurement was included, specifically Seven Procurement Initiatives that can stretch Public Sector Budgets, Consip Spa spearheads efforts towards high performance in government procurement and High Performance through Procurement in Public Services In the UK and Europe we have compared the procurement strategy to understand both the challenges and approaches taken to ensure effective delivery of procurement. The consistent themes across Public Service procurement organisations have been the lack of governance model; organisational alignment and visibility of spend. In each benchmark discussion the approach taken has been to redevelop the procurement strategy into a strategic centre led organisation focused on common categories of goods and services, supported by visibility of spend through investment in technology and the support and engagement of senior civil servants in key Departments to effect sponsorship of initiatives. Another key learning from other public service organisations is that automation will not solve all issues. In particular, it is limited value to implement fully automated compliance monitoring and

59 59 control on day one. What is effective is having accurate spend categorisation in order to inform sourcing priority, coupled with the effective governance to drive implementation and benefits. Simple reporting measures and accountability from accounting officers are seen to be more effective that trying to automate a compliance monitoring reporting capability initially Operating Model Recommendations To implement the strategy, the procurement function needs an effective operating model. The operating model describes the interactions and responsibilities between the accountable Department, the central procurement function and the sector and Department procurement functions. We have learnt from our findings that the current operating model is not effective and requires restructuring. Earlier we discussed the various stages of procurement maturity. This evolution helps us understand the different procurement operating models and how they support current and future Public Service procurement needs. This in turn helps to identify the most appropriate one for implementation in the Irish Public Service. The key criteria to be met for a procurement operating model are: Accountability The organisation must be accountable for procurement policy and delivery of sourcing and savings. It must be able to achieve its financial and customer goals. Alignment The organisation must be aligned across central support functions with a consistent approach to managing policy and strategy across categories. Clarity The organisation must have clearly defined roles and responsibilities for the central, sector and Departmental procurement functions Enablement The organisation must have the right people, processes and technology to effect delivery. It must be easy to implement and adopt and efficient in operation. Visibility The organisation must have visibility and control of spend. Four procurement operating models were considered and outlined in Figure 5.4 below: Figure 5.4: Procurement Operating Model Options

60 60 Decentralised There is no central procurement function and every Department and sector is focused on its own needs. Procurement reports to the local Department. National policy guidelines exist but local Department policies are put in place to meet local needs. Procurement functions reside in local Departments or sectors and there is limited co-operation across sectors. Hybrid Decentralised A central procurement function exists but is limited to policy coordination and category strategy advice. Sectors and Departments have their own procurement functions who report within sectors and sourcing and buying is done within the sectors. There is limited co-operation between category buyers across sectors. Procurement operations are managed within sectors and Departments. Hybrid Centralised A central procurement function exists and has accountability and responsibility for policy and sourcing for common categories of goods and services. Procurement is a centre led model with sectors limited to sourcing proprietary categories against central policy and procedures. Sector procurement reports within the sector but has a dotted line to the central procurement function. The central function manages common categories of goods and services with cross sector category implementation teams. In addition the central procurement function provides an operational shared service for Technology, Reporting, Compliance, Master Data Management, Training and assisted buying centres for local adhoc purchasing. Centralised A single centralised procurement function exists for all sectors and is housed in a single location. All strategy, policy and delivery are managed from the centre. An additional variation of the operation model would be to outsource the procurement function. This model is described below but is not recommended at this point in maturity. We would recommend reviewing this following the completion of the procurement roadmap. This is described below. Outsourced The central procurement function would retain strategy and policy with delivery outsourced to a third party. Procurement is process driven with client relationship management, demand management, strategic sourcing, assisted buying and operational shared services managed by a third party. Procurement manage the service level and performance against a balanced scorecard. The central procurement review identified the current operating model at a national and sector level as a Hybrid Decentralised. Of the operation model options described above, we recommend the Hybrid Centralised model because it provides the ability to drive efficiencies from the central function, leverages buying power and removes duplication of effort across procurement functions. Sector and Departmental procurement officers retain their responsibility for procurement service delivery within their sectors and the central functions provide service levels to support them. A fully centralised model is not recommended as it would result in implementing a one size fits all approach. This model is not likely to be effective considering the scale and complexity of the Public Service. It could also lead to a reduction in the local knowledge and engagement on the ground with a single procurement function physically located in the centre. A decentralised model is also not recommended as it could reduce the ability to develop a common approach to procurement and to provide leadership and direction on strategy, policy and strategic sourcing. Decentralised models focus on local needs and dilute efficiencies in price, service level and create duplication of effort in procurement.

61 61 The hybrid decentralised model is currently in operation and lacks ability to deliver against common categories Recommended Procurement Operating Model The recommended procurement operating model is a Hybrid Centralised Model. The model envisages the following elements: Establishment of a new CPO accountable for national procurement strategy, policy, implementation and compliance The CPO role should be established as an office under the aegis of the Department of Public Expenditure and Reform. A Policy and Compliance function responsible for policy, guidelines and compliance for procurement at an EU, National, Sector and Department level. A Centre Led Strategic Sourcing and Category Management Model with responsibility for common categories of goods and services across all sectors. The model would provide a central procurement function responsible for strategic planning, category expertise & leadership, demand management, framework delivery, savings target and performance management responsibility. A Procurement Operations function with responsibility for procurement technology, master data management, reporting, communications, training and development, operational helpdesk, assisted buying centres of excellence and compliance monitoring Sector and Department Procurement responsible for proprietary categories of goods and services Sector and Department Procurement would continue to report within sectors but have a dotted line responsibility to the CPO for policy, strategy and implementation compliance National Procurement Office (NPO) Organisation Structure We recommend the establishment of a new National Procurement Office (NPO) as a separate office under the aegis of the Department of Public Expenditure and Reform. This will provide procurement with the credibility and support required in order to drive strategic cost reduction across sectors. We recommend that the NPO be responsible for procurement strategy and policy, sourcing and category management and procurement operations support. This will ensure alignment across procurement functions and address the gaps identified in our findings. In order for procurement to be effective it requires senior stakeholder engagement and involvement in early planning discussions with senior officers across sectors. We have recommended a governance model that will require significant interaction between procurement leadership, policy and category management functions and senior department officials in D/PER and across sectors. For this to be effective we recommend the NPO is setup as an agency located in Dublin. The location will also facilitate greater sponsorship participation.

62 62 Recommended NPO Organisation Structure: Figure 5.5: Recommended Central Procurement Organisation Structure Policy and Compliance Function We recommend the establishment of a central policy and compliance function that combines the existing central Policy Units and is responsible for the development and implementation of national procurement policy, including the incorporation of EU directives, national policies and sector requirements into operational policies, including sourcing guidelines and specific policies on SME participation and sustainability. The unit would also be responsible for construction policy and the development of specific strategies and policies on SME participation and sustainability. We recommend the development of SME participation targets, including the indirect supply chain through the targeting of percentage of suppliers supply chain to be with SME s. We recommend the adoption of open competition as a preferred policy for competitive competition and to allow SME participation. We recommend that sectors and Departments maintain their ability to develop additional specific policies to complement national policy but that they cannot contradict national policy Sourcing and Category Management Organisation Following our identification of common categories of goods and services we recommend that the sourcing and category management function takes full responsibility for the development and management of sourcing strategy, strategic planning and management of national procurement frameworks within those categories.

63 63 Category managers should be appointed for the key categories outlined below and provide leadership and direction within their category. Figure 5.6: Recommended Central Category Management Structure Within central government we recommend that ICT category procurement is led and managed within the NPO with the CMOD organisation maintaining the technical specifications and approval from an IT perspective. We further recommend the adoption of the best practice sourcing approaches with CMOD be extended across all categories to achieve maximum value for money. NPO Category Managers should have deep category expertise and create cross sector category teams working with the sectors procurement teams. They should complete detailed planning and create a project pipeline with target projects, savings and timelines for delivery. We recommend that sector procurement teams retain responsibility for national framework implementation but that they take direction from the category manager in the NPO and participate in the category team in developing requirements, defining sourcing strategy. They should work as a team in completing tender, evaluation and framework completion. The adoption of these strategies, and roles and responsibilities will remove the duplication of effort across procurement functions today. In addition we recommend the consolidation of all procurement groups and resources within sectors to avoid duplication of effort and working at cross purposes. In parallel to the development of formal category strategy and plans we recommend the implementation of a demand management approach to spend. Category managers and category councils should be tasked with developing and implementing demand side levels for total cost reduction, including demand challenge, specification change, product substitution and internal controls and policies to influence behaviour and reduce cost Procurement Operations Following our review we identified the need to provide standard processes, standards technology and operational supports from the central procurement function. We recommend the setup of a procurement operations function within the NPO with responsibility for: Development of procurement technology strategy, including definition of information technology requirements and the development and implementation of systems to support procurement across all sectors

64 64 Development of savings definition, measurement and the implementation of tools to track savings Development and implementation of procurement reporting and compliance, including metrics definition and reporting Development and implementation of supplier and contract databases across all sectors. Procurement training and communications, including the development of the curriculum and management of training programmes Development of business requirements definition, development and implementation of all common procurement processes and systems including e-sourcing, project pipeline, contract administration, e-auctioning, e-procurement, master data management, pcards, savings database, supplier database, categorisation, portal and content management and spend analytics We recommend the immediate prioritisation of spend analytics, a contract database repository, categorisation definition and a pipeline project plan. These recommendations are prioritised as they are the foundation for a successful procurement organisation. Without visibility of spend a procurement function is not in a position to define spend management prioritises, monitor contract performance, contract compliance levels and to gathering detail requirements for contract renewals or new spend initiatives The report has already identified potential savings but in order to start the strategic sourcing projects the procurement organisation needs to have granular spend usage information that is accurate and timely. The prioritisation of spend analytics, contract database creation, categorisation data management and pipeline planning will enable the successful implementation and monitoring of performance against the plan We recommend the redevelopment of procurement training. This should move from the current approach of raising the overall level of knowledge to specific targeted professional procurement development to address gaps in capability. We recommend a future capability and capacity detailed analysis is conducted and specific training and professional development programmes are put in place for central, sector and local fulltime procurement resources Figure 5.7: Recommended Central Procurement Operations Team Structure

65 65 As part of our review of current operations we identified a number of sector specific initiatives aimed at improving procurement co-operation and support for tactical and operational needs Sectors have started to develop geographical approaches to common categories of supply from a procurement support perspective. These initiatives are welcomed but there is a lack of cross sectoral co-ordination to these initiatives. Sectors are looking to the centre for direction and strategy We recommend a phased approach to procurement shared service operations due to the size and complexity of the challenges With the development of national frameworks and adoption uplifts there will be a need to start providing additional tactical support for lower level sourcing projects. Initial sectoral procurement initiatives will look to support these initiatives but over time there will be a duplication of effort across sectors in local areas and there is an opportunity to extend common procurement support services across sectors, reducing duplication and allowing additional procurement support to local areas. To put this into perspective each geographical region in Ireland has either a County Council, Urban District Council or City Council who buy common categories of goods and services. Administrative offices, local depots, Fire Stations and local libraries have common needs for goods and services such as IT equipment, consumables, maintenance, print and stationery and utility services. These are supported through local authorities procurement who tender and implement supply agreements. Local administrators act as part time buyers in managing the locally appointed suppliers performance and issues. In parallel to local authority procurement there are HSE community care centres and local hospitals, Education local primary and secondary schools, Justice local Garda Stations, Social Protection welfare offices, Central Government agency offices for the revenue commissioners, port authorities, customs offices and National Roads Authorities all with the same need for goods and services from common suppliers. At present all these local needs are supported from multiple sectoral or central procurement functions with duplication of effort. Within sectors there are good initiatives underway to develop cooperation from a tactical and operational buying perspective but there is a need to co-ordinate and co-operate across sectors for common needs. In the medium term we recommend planning for cross sector geographical assisted buying shared services through a number of regional buying centres. This model would provide standard purchasing helpdesk support, adhoc spot buying project support and provide on-going contract compliance monitoring. Examples of the types of services would be purchasing card implementation and support for schools, local ICT maintenance and support contracts for garda and local authorities, local hospital IT hardware and consumables Sector Procurement Recommendations Within the Health sector, we recommend as an immediate priority the centralisation of procurement resources across the HSE and HPSG into a single procurement unit within the Department. Health sector central procurement should prioritise the adoption of NPO led common category initiatives and focus their sector specific sourcing on medical specific categories. Within health there is substantial opportunity to reduce total cost to serve but we recognise the capacity constraints within the current procurement function

66 66 We recommend the immediate benchmarking of medical specific spend on large spend areas such as drugs and medical devices and the development of targeted cost reduction initiatives utilising internal and external capacity. Consideration should be given to alternative commercial models to incentivise the delivery of service and cost reduction Within local government we recognise the development of a centralised approach to managing common categories and recommend the creation of a local authority procurement function within the CCMA s remit. We recommend that the local authority central procurement function be responsible for participation with the NPO strategic sourcing function for common categories and take direction from the centre. In addition we recommend the local authority central procurement function be responsible for sector specific procurement policy and the sourcing and category management of non-common categories, including the setup and management of regional geographic buying centres Within Education we recommend the Department of Education and Skills procurement function takes responsibility across the sector with responsibility for procurement across primary, secondary and third level education as well as the central Department We recommend the development of a supplier segmentation model for the education sector with the establishment of a sector procurement team to conduct the sourcing and category management of non-common categories. We also recommend the sector procurement function has responsibility for participating with NPO strategic sourcing category teams, including requirements gathering, tender participation and implementation delivery We recommend the appointment of dedicated fulltime procurement officers for primary, secondary and VEC schools/colleges reporting into the Department of Education and Skills central procurement function. This reporting line is recommended to ensure objectivity and accountability. We recommend the resources are embedded across the primary and secondary school functions, specifically the ACCS, CPSMA and the JMB for secondary schools For education we recommend the implementation of purchasing cards for common items as a priority across the sector to enable visibility of spend. In addition, we recommend the prioritisation of common consumable items and ICT maintenance and support sourcing and the implementation of vendor catalogues to provide more efficient and effective procurement Within Justice and Defence we recognise the procurement compliance and operational finance shared services creation. We recommend the establishment of a sector procurement function with responsibility for sourcing and category management across the sector. The function should be responsible for participation in NPO sourcing initiatives and requirements gathering, tender evaluation and implementation across the sector Across central government we recommend the appointment of a procurement officer with responsibility for the co-ordination, planning and execution of common initiatives across central Departments. This is a key role that will avoid the NPO having to deal with 16 Departments and their agencies on an individual basis and avoid getting involved in lower level tactical and operations support issues. The central government procurement officer would be responsible for all procurement co-ordination, including requirements gathering, participation in category teams and the implementation of frameworks across central Departments and agencies

67 67 We recommend that sector procurement functions retain category ownership for non common categories and that they are responsible for category strategy, sourcing strategy, sector sourcing and framework implementation against policy Recommended Governance Model For procurement to be successful it requires the appropriate level of senior sponsorship and engagement at all stages of the budgeting, planning and procurement process. From our findings we have seen how a lack of awareness and understanding of procurements role and value can lead to a lack of support from senior leadership for procurement. This results in procurement being ineffective in influencing large spend decisions, leading negotiations and delivering savings in time, quality and cost to the Public Service. The central procurement functions were set up without a proper governance model resulting in a lack of engagement and compliance with framework contracts. There is a lack of senior sponsorship for procurement or forums for procurement to engage leadership in cost agendas. For procurement to be effective the establishment of a procurement board is required, chaired by the sponsor and attended by senior leadership from each sector together with the Chief Procurement Officer. Through the establishment of a cost focused forum under the aegis of the broader reform agenda, procurement can establish the right level of engagement and support to drive change and deliver benefits at a strategic level. To support the implementation of strategic cost reduction we recommend the creation of category councils. These would be sponsored by procurement board members with permanent Principal Officer representatives from the relevant sectors with responsibility for spend in that area. The relevant NPO Category Manager would be a permanent member and we would expect a technical lead from the relevant area, e.g. CMOD for IT. The role of the category council is to develop the category management strategy, including policy setting, demand management, sourcing strategy and executive decision making on strategic sourcing initiatives, including implementation and compliance measurement. The category council report up to the governing procurement council on performance, approvals, escalations and decisions Procurement functions at the central and sectoral level need alignment and a governance model to ensure the required co-ordination of policy, procedures, operational support and talent management. We recommend the establishment of a procurement council, chaired by the CPO, and attended by the procurement leadership from sectors together with the central policy, sourcing and category management and procurement operations leads Procurement governance requires senior civil service sponsorship and mandate for procurement involvement in the early planning stages of spend. Procurement need to have an effective communications and planning forum with senior leadership across government Departments to ensure involvement and compliance to strategic initiatives

68 68 The recommended governance model adopts six principles: Figure 5.8: Procurement Governance Framework 1. Vision and Purpose A clear shared vision for procurement and the objectives of the governance model within the context of the broader Public Service reform 2. Sponsorship and Mandate Clearly defined executive sponsorship at ministerial and Secretaries General level which champions and endorses the governance and authority 3. Membership A procurement board representing leadership across the Public Service with defined roles 4. Process A set of processes that enable the initiation, review and approval of category specific initiatives across all sectors and measures progress 5. Structure The category councils and relationships with Departmental agencies and board, roles and responsibilities in order to deliver the objectives and targets agreed at the procurement council 6. Sustainability The methods followed to embed the councils into the Public Service and enable the on-going delivery and management of spend We recommend the NPO is sponsored by the Minister of State with responsibility for Procurement and the Secretary General of the Department of Public Expenditure and Reform. We recommend the creation of a procurement board to govern the overall sustainable procurement programme, chaired by the sponsor with permanent representatives from Assistant Secretaries General from each sector with responsibility for procurement. The CPO is also a permanent member.

69 69 Figure 5.9: Procurement Board We recommend the procurement board is given the accountability for procurement strategy and objective setting, target setting, strategic cost reduction programme setting and performance measurement. The procurement board should be used as the vehicle for ensuring objectives, targets and performance metrics are set and managed. We recommend the council meets monthly to review the strategic cost reduction programme, individual project initiatives, approve decisions and resolve escalations impacting the programme The Procurement Board should be responsible for procurement metric definition, measurement and performance tracking. Our findings from Public Service benchmarking have identified a number of key metrics that are recommended at a procurement board level: o Addressable Spend v Spend Under Management by Procurement (Frameworks) o Spend Under Management v Contract Compliance/Adoption o Spend Under Management v Savings o Addressable Spend v SME Spend o Addressable Spend v Sustainable Spend (Green) o Days to complete procurement project Category Councils should be setup for each major category of spend and be responsible for the planning, target setting and alignment of spend across sectors. Category Councils are led by a member of the Procurement Board with the NPO Category Manager providing the category

70 70 insight, strategy and savings target. The role of the council is to ensure the planning, alignment and implementation across the sectors. The Category Managers role is to lead the cross sector procurement team in the development and execution of category sourcing strategy. The team consists of the procurement officers across sectors and are responsible for the category plan, project requirements gathering, supplier selection, negotiation, contract implementation and savings recording Figure 5.10: Category Council The role of the procurement council is to act as the leadership team for procurement in the Public Service, ensuring strategy, objectives and targets agreed by the Procurement Board are operationalized and that there is a management operation plan with joint accountability and responsibility. The procurement council should be responsible for ensuring policy, procedures, systems, resources and service levels are effective and deliver against current and future organisational needs

71 Category Management Approach Figure 5.11: Procurement Council With the implementation of a strategic cost reduction programme it is important to ensure that the benefits are sustainable. We recommend the adoption of a Category Management model for the management of spend and suppliers. Category Management is the on-going process of managing the products, services and suppliers selected for each category, led by a category manager. From our findings we have learnt that there is limited category management in operation across the Public Service. A holistic approach to managing supply across sectors on a category basis, not a local, Departmental or sector level. At present there are national and sector framework contracts in place and limited category management activity supporting this. Category management combines strategic planning, demand management, cross sector category led sourcing teams, contract compliance and supplier performance management into a structured model for end to end supply chain management. We recommend that strategic sourcing and category management be centre led with cross sectoral category teams working under the leadership of the central category manager for common categories. Examples of this are Energy Supply, ICT, Travel and Print and Stationery. The central category manager is responsible for establishing the cross sector category teams

72 72 consisting of procurement officers from each sector procurement team with responsibility for spend in that category within their sector. We recommend the development of category managers within the NPO and the commencement of detailed category strategy plans, industry and market analysis in order to define the sourcing projects and savings plans. For sector specific categories we have identified the categories as either being suitable for cooperation or local requirements. For categories that are suitable to co-operation we recommend the category being led by the largest buyer with a national framework being implemented by the category team consisting of the relevant Departmental buyers. The reason for the largest buyer being recommended is that they will have the greatest leverage either in volume or value and is a more successful model that is in operation in an informal way today across sectors where co-operative buying is conducted. We recommend national frameworks be used for this co-operative procurement in order to allow State wide access to the category if required. An example of this category is within Medical, where laboratory supplies, testing and chemicals are used within the health sector, Universities, Garda and Prisons and Agriculture. HSE procurement would lead this category from a procurement perspective with support and input from procurement in the other Departments. The technical category lead would be provided by the most knowledgeable area with input from all other relevant departments following the Category Council model already described in Figure Strategic Sourcing Methodology Recommendation We recommend the adoption of a seven step Strategic Sourcing Methodology across all sectors and categories, whether centre or sector led. This will ensure consistency in approach to planning, requirements gathering, sourcing strategy determination, sourcing and contract execution and implementation. Our findings highlighted a number of different approaches and processes to sourcing and contracting. While some elements were well documented, the broader Public Service did not have a single consistent process other than EU Public Service Procurement Directives requiring openness, transparency and equity. We recommend the development of a consistent, fact based, objective evaluation and awards process covering the broader seven step methodology.

73 73 Figure 5.12: 7-Step Strategic Sourcing Process EU Public Procurement Directive Compliant Sourcing Methodology Figure 5.13: Strategic Sourcing Process (EU Compliance)

74 Supplier Relationship Management Our findings identified a number of different supplier management processes across sectors with different levels of maturity. At a national level there is no standard process for supplier relationship management where suppliers are segmented and there is an objective structured approach to relationship and performance management. We recommend the implementation of a segmentation model for suppliers where suppliers are grouped according to level of spend, criticality of the service and level of risk associated with the supply. The Boston Scientific supplier segmentation model is recommended as a guide to completing the segmentation. Figure 5.14: Supplier Segmentation Model We recommend that all suppliers and categories, whether centre or sector led, are segmented with common categories managed from the NPO and proprietary categories managed within the sectors. Typically a segmentation of suppliers will result in a pareto type distribution of spend and suppliers with 80% of spend being with the top 20% of suppliers. Strategic procurement resources should be focused on spending most of their time and effort with the largest areas of spend and the key suppliers within those. This will enable the development of more strategic supplier relationships, development of good will and deep product and supplier insight that provides a more competitive framework for tendering. We recommend that Tier 1(Partners) and 2 (Strategic) suppliers, identified through segmentation, are managed from the central category management team with category managers appointed by supplier. It is not practical for senior strategic procurement resources to manage the smaller tiers of spend as the volume of suppliers grows exponentially and will require tactical and operational type support from procurement within sectors and local departments. We recommend that the NPO strategic sourcing and category management own the strategic supplier relationship for common categories across all sectors for Tier 1 and Tier 2 suppliers. We recommend that a structured strategic supplier management process is developed, including development of standard supplier performance metrics for contract delivery, project delivery, quality, innovation and savings. The model should outline the different relationship levels, activities, meeting format and frequencies.

75 75 We recommend the development and implementation of a supplier performance dashboard is put in place to provide visual measurement of suppliers across categories using the standard metrics defined within the supplier relationship management model. 5.7 Requisition to Pay The focus of the procurement review was not to assess the current procure to pay processes or infrastructure, it did cover the framework compliance capability, master data management and visibility of spend achieved through procure to pay data sources. Our findings have identified over 4,000 independent financial accounting systems across the Public Service with no procurement common standards for categorisation, mapping and spend analysis. 5.8 Master Data Management We recommend a holistic approach to developing master data management, informing strategic sourcing and enabling the capture of buyer and supplier data to manage and monitor compliance. From our findings we confirmed: no current industry standards for spend categorisation are in use across the Public Service no process or standard tools to gather spend data across sectors from the financial, procurement and inventory systems in operation no master data management strategy for procurement data resulting in our review having to gather data manually from Departments and to build a categorisation to enable accurate visibility and clarity of spend categories We recommend the adoption of industry standards for spend data across the Public Service. For health care we recommend the adoption of the UK NHS e-class categorisation or similar classification that is in operation across Europe for common categories of medical supplies. For defence we recommend the adoption of the NATO Supply Classification (NSC) that provides an industry categorisation for common military and defence materials. For the remaining common categories of goods and services we recommend the adoption of the United Nations Standard Products and Services Codes (UNSPSC) as it is the global standard for common goods and services across multiple sectors and industries. In order to achieve accurate spend visibility we recommend the adoption of the above industry standards and the creation of a master data management team to setup and maintain the industry coding and mapping of data sets across the public service. We recommend the acquisition of a system agnostic master data management tool that will allow the mass data extraction, mapping and validation across the 4,200+ systems that we identified during our review. The first priority is to develop a baseline technical architecture allowing the development of a technology interface to extract data from all financial and procurement systems on an automated basis. We recommend the engagement of CMOD technical architecture skills to baseline the landscape and to develop the requirements for investing in the technology. The next recommendation is to provide supplier data feeds for framework agreements to enrich the internal data and provide a holistic picture of spend, showing actual spend and category and combining this with contract and non -contract data from framework providers. The Initial priority

76 76 should be to focus on Tier 1 and 2 suppliers identified through the segmentation exercise. This strategy will avoid the required procure to pay detail integration and upgrading to show contract data and remove the complete supplier dependency for data. The combination of these two data sets will provide the necessary data sets to build a spend cube for spend analytics. In the medium term we recommend considering developing standard procure to pay processes and tools within the shared services environment, building upon the success of the central government financial shared services. By using this approach procurement can develop standard sourcing and buying processes, enabling the increase of contract compliance. This activity should be a second priority to establishing governance, spend visibility and embedding strategic cost reduction programmes. Developing a common vision and process for managing these activities will allow a phased adoption of a common platform for purchasing across the Public Service. 5.9 Technology Our findings across procurement have identified a need for a strategy and ownership of all procurement technology across the Public Service. Our initial recommendation is to appoint a technology procurement owner responsible for base lining existing procurement systems and for the development of a procurement technology roadmap across sectors. We recommend initial prioritisation of accurate data capture and categorisation. This will allow strategic cost programmes to capture the required spend visibility to make informed decisions on priority spend projects. This approach will avoid large scale ERP and local financial accounting system replacements. Our recommendation supports the best practice approach taken in both private and Public Service organisations where the return on investment and time to deliver large scale p2p process reengineering is too high. We recommend immediate investment in a spend analytics solution to develop a single and accurate procurement addressable spend picture. The largest single dependency on procurement is spend visibility and it is imperative that immediate steps are taken to maintain the manual spend analysis developed from the review and to develop the detailed functionality and technical specifications for a supplier solution to be acquired. We recommend a spend analytics project team is created from across sectors, led by a senior procurement manager from the NPS and supported by a senior manager from each sector and CMOD. The team should be tasked with developing business requirements within six weeks and conducting a request for information (RFI) in the marketplace, leading to defined requirements for a full tender and solution provision within six months. We recommend that the NPO owns and maintains the spend analytics solution and that it is implemented across all sectors, providing the necessary detailed information to allow national, sector and local Departments analyse and inform their procurement decision making. The NPO should provide the on-going spend analytics service to all sectors. Our findings have identified a number of independent local spend and contract databases, ranging from simple spreadsheet s to more structured contract listings from SAP and Oracle ERP systems. We have also identified core usage databases including the SEI database on energy which is a key database for developing spend and usage data for energy contracting. We recommend the development and implementation of a single supplier and contract database across the Public Service. Initial priority should be given to on-boarding Tier 1 and 2 suppliers

77 77 and contracts, including all existing national, sector and Departmental frameworks. The database should be used to develop the initial sourcing project pipeline and should be owned and maintained by the NPO procurement operations function who provide a service to sectors and Departments. In order to conduct strategic sourcing and the implementation of framework agreements there is a need to provide a single and consistent process and technology for the execution of sourcing projects. Procurement across all sectors needs a standard tool to initiate and deliver sourcing and contracting projects. We recommend the NPO set up a project team, again consisting of CMOD and sector procurement managers to develop standard business requirements and to engage the market in an initial Request for Information (RFI) in order to develop final specifications for a tender for the provision of a solution Savings Definition and Measurement The final key recommendation from procurement technology is the development and implementation of a savings database. In order to have a clear understanding of the sourcing performance, the saving definition, measurement and tracking processes need definition and adoption. Over the past decade, many organisations in both the Public and Private Sector have understood the potential value that procurement can bring. Many of those organisations have started a journey of transforming the way in which procurement is undertaken and have invested in increasing both the capacity and capability of procurement. In return for this investment, organisations are seeking a return in the form of cashable savings and within a timely payback period. Building the case for change for procurement is compelling but evidencing the actual return is more challenging. The ability of procurement to show the real value of its activity will shape the agenda for the next decade. Our findings have identified that there are no standard definitions or measurement for savings across all sectors. There is a need to define and implement a standard definition and measurement process. The typical issues we identified in our review are: There is an inconsistent understanding as to the different types of savings There are inconsistent terms and definitions used to describe the different types of savings Savings methodologies that have been established are often based on forecast levels of future expenditure rather than actual Procurement savings are often delivered at the point of sale or purchase which negates the ability for the saving to be captured or realised fully The measurement of savings at the point of invoicing can be costly and time consuming From our experience the key enablers to tackling these issues are as follows: A strong procurement governance framework that approves targets and monitors performance A methodology for procurement savings including: o The establishment of a baseline from which to measure savings from o Clear definitions of savings

78 78 o A continuous update of worked examples across all categories and all savings types and definitions Integration of relevant finance processes into the savings methodology e.g. budget planning process The ability to report the various stages of savings including: o Forecast o Agreed/enabled o Delivered The ability to report savings at different levels across the Public Service, including: o National Frameworks o Sector Frameworks o Local Department Contracts In order to have a clear understanding of the sourcing performance, the saving definition, measurement and tracking processes need definition and adoption across all sectors Savings Calculation Methodology For savings measurement, tracking and reporting to be credible we recommend the definition, agreement and implementation of the following key activities: Figure 5.15: Savings Calculation Methodology

79 79 Definitions The following are types or categories of benefits that are included in savings calculation: 1. Price includes benefits from improvements in unit price, market basket price, discounts, indices or other pricing arrangements based on improvement in negotiated pricing associated with the award scenario recommended by the Project team. Savings due to price reduction are calculated by multiplying the anticipated volume for the contract term by the change in unit price under the approved award scenario 2. Usage includes projected benefits from standardisation, product specification improvement, demand management, and other operational improvements identified (e.g. yield improvements, carrying costs, shrinkage, damage, spoilage, reduced inventory levels, cost of funds, transportation costs) 3. Process includes additional benefits from process improvements directly associated with a project team effort. This savings result is generally calculated by subtracting the new or improved process costs identified from the relevant historical process costs. A process saving will occur where a reduction in FTE and an accompanying implementation plan to manage that reduction has been put in place. For example, a process saving would not be counted where 30 minutes of an FTE s time is saved each week, but will be counted where there is potential to realise a saving 4. Other includes any other measurable benefits that do not fall within the Price, Usage or Process categories but nevertheless impact Client benefits. Examples might include preventions, recoveries and working capital improvements (i.e. payment terms (subject to the Client s prompt payment policy), inventory reductions, etc.) 5. Cost Avoidance includes benefits related to Spot Buys and the rejection of unsubstantiated price increase requests from suppliers that otherwise would have been accepted We recommend that savings are tracked across each stage in the sourcing process to provide a consistent and accurate benefit tracking. This following diagram describes our recommended approach: Figure 5.16: Savings Calculation Process

80 80 We recommend the NPO develops standards and engages the marketplace for the provision of a savings database. Our experience in dealing with public and private sector procurement organisations has seen the initial establishment of savings definitions together with savings targets by category on an annual basis. Initially organisations implement a manual recoding and reconciliation process with the gradual automation of the process and potential incorporation of the savings with the strategic sourcing, contracting and reporting module of a dedicated We recommend the initial prioritisation of savings definition and initial manual reporting within the NPO. With the introduction of automated spend visibility and reporting we recommend the development of savings reporting that combines savings project targets, supplier contract data and transactional order information. In addition to the NPO recording savings we recommend the implementation of mandatory monthly key figure reporting from Secretaries General to the CPO. This should contain key data including total prior month spend, total prior month framework spend and total prior month spend with SME s. This will allow the NPO to provide a simple consolidated monthly spend and ensure support for Frameworks across sectors People and Workforce Procurement needs to have the required capability within its workforce and to be organised and structured in an effective and efficient organisation structure. Our findings have identified gaps in the capability and between support functions to enable effective delivery. With the introduction of a NPO organisation and the development of a category management approach to spend management we recommend the development of standard roles and responsibilities for the procurement organisation. In addition we recommend the development of a competency framework where roles are aligned to competencies with level of skill and experience. Procurement should have standard role definitions and competencies ranging from departmental procurement officers, sectoral procurement leads, central category management, central policy and compliance and procurement operations. From our findings we learnt that training and development in procurement is a broad brush approach to provide the same level of education in the procurement discipline but is not aligned to competencies. We recommend the adaptation of the current training and professional development programme to requirements approach to building a high performance procurement organisation. We recommend that a detail workforce planning and competency framework is developed for central and sector procurement and the completion of a detail capability assessment of the current and future roles to identify the training needs. Across the Public Service there are currently over 400 resources employed in procurement activity. While there are different levels of skills and expertise the total workforce deployment is not optimised. We recommend the completion of a detail workforce planning exercise on completion of the detail spend analysis and sourcing project planning. This will enable the correct sizing of the future NPO organisation and allow the prioritisation of procurement resource redeployment,

81 81 upskilling through training and supplementing of resource either through recruitment or contracting temporary support to deliver strategic initiatives. It is important to note that not all categories have the same level of complexity and strategic procurement resource support. For example, Energy and Office Supplies have very different market place and buyer characteristics that will dictate greater or lesser resource support. In addition, there is currently a high level of buyer duplication of effort both within sectors and across sectors with procurement resources working on similar categories and with the same suppliers. From a global perspective our benchmark of 18.9m spend per procurement FTE would estimate 227 procurement resources are required to manage the 4b of common categories of spend. At present there are 400+ procurement resources across the Public Service but they are not all aligned to a consistent category management model. Training and professional procurement development should be targeted at prioritisation of the strategic sourcing capability and analytics in order to support the reform cost reduction agenda. Our findings also established a procurement attrition and knowledge loss issue due to no formal procurement career path in the Public Service. We recommend the development of a procurement career path within the central and sector procurement organisations in order to sustain the benefits identified. Without continuity of procurement capability and professionalism the Public Service will not be able to achieve or sustain the benefits identified.

82 82 6 Implementation Roadmap The procurement review has identified substantial savings that can be achieved through a structured approach to cost reduction, including demand management, strategic sourcing and on-going contract and supplier performance and compliance. We have detailed our findings and recommendations on the current capability and capacity of procurement and recommended the short, medium and long term improvements required in order to deliver and sustain benefits. It is important to recognise that not all benefits can be delivered in the short term and that parallel capability development will be required while delivery of sourcing and savings is in progress. Our suggested implementation roadmap is built upon the key principles of addressing immediate opportunities while developing the building blocks of people, process and technology to ensure sustainable progress. The findings and recommendations within this report are based upon a rapid review of procurement and it is important to highlight that a detail planning and design project is required in order to develop the detail implementation plans and ensure alignment and understanding of dependencies. Our suggested implementation roadmap is phased as follows: Figure 6.1: Proposed Implementation Roadmap