Transcript Legal Aspects & EU Procurement

South West Employers
Obtaining Value for Money & EU Procedures
Trainer:
Date:
Activity 1 - Icebreaker
How many points do you have? _______
Is a middle child
Likes to eat
Japanese food
Is wearing pink
Plays a team sport
Speaks another
language
(1 point)
(1 point)
(1 point)
(1 point)
(1 point)
Wears glasses
Is over 6’ tall
Has less than four
letters in his/her
first name
Has a last name
that starts with a W
Has green eyes
(1 point)
(1 point)
(1 point)
(1 point)
(1 point)
Owns a Vauxhall
car
Likes classical
music
Preferred Maths to
English in school
Knows someone
famous
Has red hair
(2 points)
(2 points)
(2 points)
(2 points)
(2 points)
Has more than 2
children
Has made a
parachute jump
Has visited more
than 10 countries
Has more than 7
letters in his/her first
name.
Has a birthday in the
same month as me
(3 points)
(3 points)
(3 points)
(3 points)
(3 points)
One unusual fact I have found out about someone here is? ____________________________ (5 points)
Activity 2 - Groundrules

Groundrules help to create a positive and
safe learning environment. Discuss and
agree a list of between 3 and 5 rules that
all participants are comfortable with
Objectives

At the end of the session, participants will have knowledge
and an understanding of:

Procurement techniques that will assist in the achievement of
obtaining value for money
 Defining
 Having
an awareness of the procurement cycle
 Applying
 Tools
value for money (VFM) & ‘best value’
a category management approach
and techniques that will assist with obtaining best
value
 Hints
and tips
Sections
1.
Tools and techniques
Definitions
Value for Money

A concept associated with the
economy, effectiveness and
efficiency of a service, product or
process, i.e. a comparison of the
input costs against the value of
the outputs and a qualitative and
quantitative judgement over the
manner in which the resources
involved have been utilised and
managed.
Best Value

Best Value provides the statutory
basis upon which authorities plan,
review and manage their
performance in order to deliver
continuous improvement in all
services and to meet the needs
and expectations of service users
while having all regard to value
for money

Under LGA 1999 s.3, FRAs have
a best value duty towards the
inhabitants of the local area they
serve
Realising benefits – the 3 E’s

Economy

Efficiency

Effectiveness

Reducing the costs of the operation.
Doing the same things, but cheaper

Getting higher outputs from the same
staff and the same resources. Doing the
same things, but better

Providing the right services and
solutions. Doing different and better
things
Procurement cycle
Define & review
need
Exit &
termination
Manage
contract
performance
Manage
implementation
and transition
Develop
specification
Implement
Planning
Determine
procurement
strategy
Contract award
Invite
Enquiry
Pre-qualify
suppliers
Negotiate?
Evaluate
tenders
Issue RFQ or
ITT
Application of pricing/profit analysis
Application to obtaining best value:
 Understand supplier’s pricing
1. Supplier pricing / profit analysis
and value equation
 Monitor & assess the
2. Supplier category analysis
competitiveness of supplier pricing
 Supports better supplier appraisal,
3. Whole-life costing
tender evaluation and sourcing
decisions
 Supports negotiations and price
reduction activities
What is profit?
Profit
Mark-up (%)
Margin (%)
Materials +
Price
Costs
Labour +
Overheads
The supplier’s profit is the difference between the price
a product is sold for and the cost of producing & selling it.
Pricing theory: (In)elasticity of demand
Elasticity of Demand
Inelasticity of Demand
price
price
p1
p1
p2
p2
quantity
Volume has limited effect on price
quantity
Volume has major effect on price
Supplier’s perspective

The strategy used for providing prices by suppliers
depends on what they want to achieve:
 Increased
volume
 Improved
profitability (ROI)
 Competitive
parity
Pricing models in practice
Pricing Model:
1. Premium Pricing
2. Market Pricing
3. Skimming
4. Cost-based Pricing
5. Marginal Pricing
6. Penetration Pricing
7. Loss leaders
Example in use:
Activity 3 – Markup and margin
Split into small groups
Read through each of the scenarios, calculate
the contract value and explain how the
requirements should be procured
Feedback your answers to the wider group and
discuss your findings
Application of pricing/profit analysis
1. Supplier pricing / profit analysis
Application to obtaining best value:
2. Supplier category analysis
 Assists with segmenting the
supply base in order to manage risk
3. Whole-life costing
 Helps decide where to allocate
effort and resources
 Enables procurement to be
managed in ‘categories’
 Supports a better understanding
of relationships
 Supports procurement and price
reduction activities.
Category management approaches

Expenditure is ‘grouped’ into categories

Provides aggregation around key markets with their specific
characteristics

Examples: IT, construction, professional services, equipment

Allows specialist knowledge and expertise to develop

Allows focused market strategies to drive value for money

Two classic approaches:

Pareto (ABC) analysis

Kraljic (supply positioning)
Pareto Analysis or ABC Analysis
Inventory investment
100%
90%
75%
A
B
10%
C
25%
Inventory range
100%
%age of items
%age value of annual usage
Inventory management
Class A items
About 20%
About 80%
Close control
Class B items
About 30%
About 15%
Regular review
Class C items
About 50%
About 5%
Infrequent review
Kraljic’s ‘purchasing portfolio’ matrix
Non-critical

Empower the end user to undertake the purchase themselves

Focus on reducing the cost of processing

Automate processes: Purchasing Cards, e-Procurement,
Online catalogue

Call-off arrangements, umbrella contracts

Single supplier/one stop shopping?

Medium/long term contracts

Create service contracts and use SLAs

Minimal formality

No goods-in checking, deliver direct to user, consolidated billing,
supplier generated management reporting, no stocking, prompt
service
Leverage

Short/medium term relationships

Standardise inputs/switch suppliers

Use purchasing leverage

Supplier/source research

Price intelligence / forecasting

Collaborative procurement with other FRS regions

Consortia buy? Empower procurement

Keep switching costs between suppliers low

Make sure you have a sound contractual base
Bottleneck

Medium/long term relationships

Know suppliers business

Seek alternatives/substitutes

Build contingency plans

Search for other frameworks

Encourage/support new suppliers?

Hold stock

Compensation agreements?
Strategic

Long term relationship

Partnerships/alliances

Willingness to share risks and benefits

Cost transparency and lean relationships

Total cost of ownership focus

Cross functional teams/communication

Plan for the worst! (amicable or adversarial)
Framework Agreements

Act as ‘call-off’ arrangement for 1, 3 or more suppliers

No commitment to specific volume – ideal where demand not
really known

If pre-existing, considerable time/efficiency advantages – no
full tender – however can be time-consuming to set up

Maximum length: 4 years

Examples: stationery, spares, consultancy

Examples of framework suppliers are Buying Solutions and
Pro5

Risk that suppliers can consider the mini competition
as a ‘double tender’
Activity 4 – Relationship strategy
Split into small groups and use the information provided to:
1.
identify the type of relationship with each of the 5 suppliers
2.
determine whether it should be changed
3.
highlight the specific factors that need to be considered in order to
obtain value for money
Application of pricing/profit analysis
1. Supplier pricing / profit analysis
2. Supplier category analysis
Application to obtaining best value:
3. Whole-life costing
 Helps focus on the total cost
of acquisition
 Considers the whole life cost in
terms of buy, own, use & dispose
 Helps focus on cost elements
that add cost but not value
Whole life costing (WLC)
“A method of project economic evaluation in which all costs arising, and
benefits accrued, from installing, owning, operating, maintaining and ultimately
disposing of a project are considered to be potentially important to that
decision”
(ISO 15686)
Price
Inspection
Support
Maintenance
Delivery
Inventory
Research
Training
Defects
Handling costs
Repair
Disposal
Consumables
Delay
Whole life costing elements
Whole Life Cost
Buy
Own
Use
Price
Fuel/Energy
Delivery
Consumables
Specification
Spares
Tendering
Quality
Install
Opportunity cost
Depreciation
Taxes
Break Fix
Maintenance
Operators
Commissioning
Training
Visits
Upgrades
Dispose
Removal
Transport
Decommissioning
Waste disposal
Capital Gains Tax
Activity 5 – Whole Life Costing
Split into small groups and use the information provided to:
1.
Calculate the whole-life cost of each of the printer options
over a three-year life period
2.
Recommend which represents value for money (and why)
3.
Discuss what other factors need to be taken into account
Achieving Value for Money
1.
Make determined efforts to find, investigate and
assess new sources of supply
2.
Carry out continuous benchmarking exercises
3.
Ensure the use of the competitive tendering
processes
4.
Understand suppliers pricing models and
endeavour to obtain open book accounting to
enhance cost analysis
5.
Focus on obtaining the right balance between
quality and whole life costing
Objectives

At the end of the session, participants will have knowledge
and an understanding of:

Procurement techniques that will assist in the achievement of
obtaining value for money
 Defining
 Having
an awareness of the procurement cycle
 Applying
 Tools
value for money (VFM) & ‘best value’
a category management approach
and techniques that will assist with obtaining best
value
 Hints
and tips