Strategic Sourcing and Procurement Transformation Program of Central Office for Purchases Rosa Martelli PwC Government Advisory Srevices - Senior Consultant 1
Central national and local agencies for public procurement VS Central Office for procurement Procurement organizational model for the Central Office for Procurement The role of the Central Office for purchases A case study: the biggest Central Office for purchases in Italy Some examples of procurement reengineering process and goods purchased categories 2
National Central Agency for public Procurement Local Central Agency for public Procurement Central Office for public procurement 3
Art. 33 of the Italian Public Contracts Code (Codice dei Contratti Pubblici) and D.P.R. 207/2010 (Regolamento di attuazione del codice dei contratti pubblici) state that local public entities can decide to purchase goods and services by using local purchasing central agencies (Centrali di committenza). Local purchasing central agencies are allowed to: a) Publish RFP or RFT, selecting the supplier and manage the contract Local administrations are : a) Responsible for the specific contract execution derived from the local awarded procedure; b) The decisional points and expenditure managers of the contract 4
Three possible models to centralize: 1. The local central agency can committ operating on the basis of an ad hoc legislative act (law, decree,..) 2. The local central agency operates on the basis of an upstream delegation of power member subjects 3. The local central agency operates on the basis of delegation of power time by time by member subjects 5
Starting from the selected model of centralization, relationship between member subjects and the local central agency can be qualified as follows: I. Mandatory adhesion: member subjects are forced to buy specific goods/services from the local central agency: capability to know quantitative data but poorly flexible model II. Optional adhesion: member subjects can choose to to buy individually or by using the local central agency: weak use of the local central agency no quantitative knowledge and impossible estimation process (no scale economies); III. Mixed adhesion: mandatory adhesion for specific good and services categories and optional adhesion on some other categories. 6
Procurement organizational models The procurement framework highlights trends taken as a reference from the Procurement Structures with the aim to embrace a transformational path evolving towards models at higher strategic content: Managing all the procurement of goods, services and works on a centralised basis Implementing planning and spend analysis activities, aimed at 12,7% of potential savings (2) Centralizing the activities of strategic sourcing having higher value added while decentralizing to internal customers those with low value added (e.g. emissione OdA) Monitoring the internal and external compliance (internal procedures, SLA and measurment of suppliers performance) ensures 80% of the obtained savings (3) Managing the entire value chain (from planning to speding monitoring) guarantees 4,8% potential savings (1) Procurement trends in evolution Developing internal skills of Buyers according to a mix of technical and commodity-related competences (Commodity Based model), brings savings of about 5-10% (4) Promoting a widespread adoption of integrated e-procurement tools supporting all the phases of the procurement process Putting the Procurement Structure under the direct report of the DG (1) SOURCE: E-Procurement: Trials and Triumphs - Aberdeen Group (2008). (2) SOURCE : Spend Analysis: working too hard for the money - Aberdeen Group (2007). (3) SOURCE : Supply Chain Efficiency - PricewaterhouseCoopers (2006). (4) SOURCE : Unlocking procurement savings through Redesign to Cost - K-Consulting (2009). 7
Procurement organizational models Most frequently adopted procurement organizational models Responsible Expertise Based Buyer 1 Buyer 2 Buyer N Fase 1 Fase 2 Fase N Buyers organization for the procurement phase of the process Responsible Internal Customer Based Buyer 1 Buyer 2 Buyer N Buyers organization for the internal client requiring Client 1 Client 2 Client N Responsible Commodity Based Buyer 1 Buyer 2 Buyer N Merc. 1 Merc. N Merc. 1 Merc. N Merc. 1 Merc. N Buyers organization for the purchased commodity-related category 8
Procurement organizational models Expertise Based Internal Customer Based Strenghts Flexible for corporate organizational (governance of procurement process ensured withouth prejudice to the adopted organizational model) Development of specific skills on slected process determinants (e.g. RFI, RFQ, RFP, contracts, negotiations, etc.) Buyer aligned to the internal client needs Possibility to customize the procurement to the internal client needs High loyalty in between Buyer e internal client (Buyer seen as part of the team ) Natural set up of inter-functional teams Weaknesses Low development of Buyer procurement competences (commodity-related and market expertise remains in the client that de-facto, acts as the Buyer) Uncontrolled expansions of suppliers panel Weak control and potential inefficiencies (organizational models based on experts, tha do not procure, thus making difficult to measure/control the effective contribution) Progressive erosion of procurement competences of the Buyer who progressively becomes more and more a generalist (internal client procures everything but is not an expert) Proliferation of suppliers panel (each internal client has its own supplier) From fragmented volumes derives a minor financial leverage and generally higher prices Commodity Based Strong development of procurement competences of the Buyer on specific commodities and market knowledge Supplier panel consolidation Rationalization opportunities leveraging corporate volumes, thus favoring potential savings Optimized planning of auction initiatives to be implemented Low unequal distribution (difficulty for suppliers to apply different prices to different clients) Buyer less aligned to the clients needs because follows more clients Slide 9
Procurement process management Commitment point http://www.youtube.com/watch?v=apo3fwynaxa
Procurement process management Procurement process and the role of the Procurement Office The procurement structure exercise a complex governace within the entire procurement process (from the initial phases of the spending planning and of the procurement strategy definition). P R O C U R E M E N T P R O C E S S 1 2 3 4 5 Spending planning and demand management procurement strategy Acquisition Supplier and contract managemetn Monitoring & control Needs collection and spending planning Needs optimization and demand management Auction strategy definition Auction documentation preparation Procurement procedure development Contract management Supplier assessment Spending Monitoring & control Compliance managment (internal/external) DIREZIONE ACQUISTI Collaborates Responsible Collaborates Responsible U.O. RICHIEDENTE Responsible Supports Collaborates Supports Responsible Supports Responsible Collaborates Supports Slide 11
Procurement process management The role of the Central Procurement Office The rationalisation strategy is nased on the allocation to the Single Central procurement Office of the following tasks: Centrally procuring goods and services of common standardizable usage Overseeing and governance of the entire procurement process, through: Planning of the spending and needs; Monitoring and control of the overall spending for goods and services Regulating the procurement process and controlling the respect of procedures Promoting and supporting the usage of e-procurement tools Identifying the rationalization opportunities of the spending for goods and services of uncommon use and monitoring of their procurement processes Slide 12
Procurement process management Strategy optimization definition and identification of spending rationalization measures for goods and services procurement By intervening on all procurement phases, is possible to obtain savings of 18-30%, through rationalization leverages Process phases Planning and demand analysis Razionalization leverages Aggregation of procurement volumes Rationalization of procurement needs (e.g.: Hw e Sw IT) % Savings* 6-10% Acquisition Auction strategy (e.g..: heating -20%) Service quality (e.g : print timings of 48 vs 12 hrs from the request: equivalent to -50%) 7-12% Consumption monitoring and contract management Control of ex-ante negoatiated contracts from users (e.g.: food: -7%) Consumption levels monitoring 5-8% *: Average %of savings computed on the basis of PwC projects experiences conducted for national and international clientsof the publica and private sector. Slide 13
Procurement process management Criteria for the selection of the centralization or decentralization Three decision making drivers can be indentified for the selection of the centralization or decentralization of procurement of a specific good: Supplier market (national/local, services and products similarities in the different geographic areas,...) Domestic demand (municipality, dimension and spending frequency,...) Specific categories (unique pieces, technical complexity,...) Criteria for decision Expenditure amount Type of purchase Supplier market Standardization high Centralization level high local low specific Level Goods/services categories low low Slide 14
Procurement process management Goods and services procured by the Single Central Procurement Office Goods and services of common usage acquirable from the Single Central Procurement Office have a value of about 740 M Good and services of common usage Good and services of uncommon usage Location rental Utilities Food Locations and equipment maintenance Professional services * IT services Public lighting Postal spending School transport Cleaning Green maintenance Telecommunication Office material Rental of godds and veichles Furnishing and equipment Other (e.g. fuel) 113 106 91 84 50 61 44 29 29 20 19 19 18 13 12 30 Urban transport management Welfare services Tourism and cultural services Mobility management Social services Tax collection Assurance Environmenatl services Funereal services Temporary jobs Security Other (e.g. Civil protection services) 566 239 122 94 59 48 28 25 13 8 5 41 738 M 1.248 M Slide 15