analyses of commodiry procurement spend

8/11/2019 Analyses of Commodiry Procurement Spend

1/14

P:\Business Development\Publications\Procurement Toolkit\To upload\Procurement Reform Toolkit - 2.1.b Analysis Of Commodity Procurement Spend User Guide.DOC Page 1 of 14

ProcurementReform

Toolkit

Smarter Buying Guidelines

2.1.b Analysis of Commodity Procurement Spend User Guide

WHY ANALYSE?

Agencies buy commodities ranging in price from very expensive items (like tractors) to very low priced items(like pens and pencils). In this document commodities refers to both goods and service purchases.

Expensive items are usually sent out to competitive tender and are covered by internal procedures andprocesses that guide staff. The purchase of low priced items however may not be as well controlled.

Recent analysis of one agencys spending revealed that although the purchases they made for under $100

made up less than 1% of their total spend, it represented 33% of their invoices an inefficient approach tobuying.

Analysis of commodity based procurement spend in your agency may reveal examples of this sort of buying.Where possible, agencies should seek to rationalise the number of suppliers they do business with andreduce the amount of purchasing done in a piecemeal fashion. By aggregating their spend with fewersuppliers agencies will enjoy savings through volume discounts. By standardising the range of itemspurchased these benefits can be even further enhanced

HOW DOES IT WORK?

Conducting the analysis of commodity based procurement spend is relatively simple. Everything that isbought by your agency is paid for in some way and details of such payments are recorded somewhere withinan agencys financial systems. For smaller agencies there may be just one system that holds thisinformation but larger agencies may have a number of systems that capture information at a transaction leveland pass the information upwards in a summarised format. The information required to feed the commodityanalysis is most likely to come from the agencys finance systems.

THE STEPS TO ANALYSIS

1. Start with the Chart

The agency Chart of Accounts, that is. Obtain a copy of your agencys chart of accounts and identifythe accounts that primarily relate to your goods and services spend. These accounts will cover thecommodities that you will be analysing. Leave out the accounts relating to payroll-related expensesand any other accounts that do not relate to the goods and services spend.


2/14

Smarter Buying Guidelines2.1.b Analysis of Commodity Procurement Spend User Guide Procurement Reform Toolkit

2. Categori se the Commodi ties

Based on the accounts used for goods and services, the next step is to categorise the commoditiesyour agency uses into high-level groupings. For example, does the account cover informationtechnology or fleet related purchases? This will capture the total spend in high-level groups and willindicate which categories are likely to lead to the greatest potential for savings.

For the purpose of the analysis, and the resulting report, it is suggested to group the selectedcommodities based on similar purchase types. This can be achieved by grouping the financial chart ofaccount information into categories. Some suggested categories are outlined below:

- Construction and Infrastructure

- Facilities Management and Maintenance (Buildings, Road & Rail)

- Property Related

- Transport of Goods and People

- Technical, Scientific and Specialist- Information Technology and Telecommunication

- Corporate Goods and Services

- Other

Suggestions for allocation of goods and services within these categories are provided in Appendix A:Mapping of Account Codes to High-Level Goods and Services Groupings . However, agencies shouldadapt these categories to reflect their own purchasing profile, particularly in categories such asTechnical, Scientific and Specialist. It is also recommended that agencies use the Other categoryonly when every other option has been exhausted.

3. What you Need from your Financial Management Information Systems (FMIS)

You will need to capture information at the transaction level. FMIS reports should include the followingfields as minimum data requirements and the reports should be at a line item or similarly detailed level:

- Supplier Name and other details, including the suppliers location, where available. Thesuppliers details are a key component of the analysis within an account or commodity group.

- Reference Number this may be the purchase order or invoice number recorded in the FMIS.Producing report at transaction level will assist in identifying the number of invoices or purchaseorders sent to a supplier.

- Account Codes to establish what is being purchased and to assist in grouping commoditiesin categories.

- Cost Centres to identify who is making the purchase.

- Expenditure ($) how much was spent? It is suggested that you use the GST exclusiveamount.

- Transaction Date this will help to identify if there are seasonal or other trends in purchasing acommodity or from a particular supplier.

Additional information, such as description fields, project codes or contract numbers, will be useful ifavailable.

Refer to Appendix B: FMIS Report, including some basic analysis for an example of the analysis thatcan be performed using the information from the FMIS report format described above.



3/14


4. Run the FMIS Reports

Now that the information required from your FMIS has been defined, select a time period for thereport. Consider the following issues when selecting a time period:- The period for analysis should be recent.

- The analysis should span a sufficient period to allow the detection of trends. A 12 month periodis preferable to capture a complete annual cycle of purchasing.

- Be aware of any unusual buying behaviour during the analysis period and consider this duringthe in-depth investigation. If this is not known ahead of time, it will become apparent in thereport results.

Once the FMIS reports have been run, transfer or copy the results into an Excel spreadsheet. Use aseparate spreadsheet for each commodity group or category. This will provide a convenient platformfor sorting, arranging and analysing the results. Create a table where the columns are headed withthe data fields defined above. In order to keep track of the work and provide a ready reference, createa separate spreadsheet to list the accounts in the categories and the associated expenditure.

5. Cleanse the Collected Data

Review the financial reports or spreadsheets for each category to identify any obvious errors. Thisincludes payments incorrectly posted to the wrong account. This step will help in the analysis processby removing anomalies that may contaminate the final reports. Keep track of these changes and,where possible, allocate the changes to the correct category.

6. Rank the Result sIts time to prioritise the commodities for analysis. It may be that looking at the reports at this stage willsuggest further opportunities for grouping by commodity categories. Sort the categories by looking forcommodities with a high spend, a large number of suppliers and/or a large number of invoices. Selectthese commodities for analysis first, as they tend to offer a higher potential to aggregate expenditure,reduce administrative processes, minimise risk and rationalise suppliers. Also, the larger the numberand range of commodities analysed the greater the opportunities for identifying savings.

7. Analyse the Procurement Activi ty

The next step is to analyse the information for a specific commodity. This involves examining the datain several different ways to develop a detailed view of the procurement activity for the commodity. Useof the Pivot Table facility in Excel will help in the process. The following are the suggested queriesthat will assist in the analysis:

- Suppliers The supplier field is the primary field used to sort and analyse the commodityinformation. Check to see if duplicate entries exist for a supplier. Add the total number ofsuppliers for the commodity and calculate the average income received by each supplier.

- Expenditure For each supplier add a field to calculate the total amount received by thesupplier as a % of the total spend on this commodity.

- Invoices For each supplier total the number of invoices and calculate the average invoicevalue. This will identify opportunities for rationalising the number of supplier invoices and willindicate if the supplier is issuing a lot of low-value invoices. This result suggests that are a large

amount of piecemeal purchasing is occurring.- Location Examine the supplier data to determine the number of regional vs. metropolitan

suppliers and the amount of expenditure on regional vs. metropolitan suppliers.



4/14


8. Profile the Spending on the Commodity by Supplier

Now that the initial data analysis is complete, the supplier information for the commodity is profiled.This involves preparing a table to identify the key suppliers and those that are only being usedsporadically. Create a copy of the original commodity spreadsheet for use in the subsequent analysisexercises.

The suggested format for the profile is to rank the suppliers by their total expenditure for thecommodity. A useful standard to use is to rank the suppliers accordingly:

- Top 1% Supplier Group




- Remaining 80% Suppliers

That is, where a commodity has a 100 suppliers, the supplier with the largest amount of spend is inthe Top 1% Supplier Group. The next four suppliers make up the Top 5% Supplier Group, and so on.

Examine the supplier profile table for the commodity. Is the spend for the commodity shared betweena few suppliers, or spread across many? What percentage of the spend is received by the topsupplier groups and what do the remaining 80% supplier group receive? Do the results suggestaggregation opportunities?

Keep track of the suppliers in the top supplier groups. You may discover that several commoditieswithin a particular category or group of categories may be available through one supplier. This maypresent an aggregation opportunity by supplier rather than by commodity. Refer to Appendix C: FMISReport, including some basic analysis for an example of an in-depth analysis.

9. Analyse Spending Activity by Cost Centre

The objective of this exercise is to show the distribution of the expenditure on the commodity acrossthe agencys cost centres. You will need to decide if it is more appropriate to analyse the commoditybusiness unit or project or division.

Similar to the supplier analysis, rank the spending by cost centre (or business unit, etc.). This willindicate who is procuring the commodity and whether the purchasing is centralised or evenlydistributed between a number of cost centres, etc. The facts gathered in this and the previous stepwill assist in developing recommendations for the commodity.



5/14


10. Look at the Existing Formal Buying Arrangements

The Department of Finance (Finance) manages some sixty common use arrangements, ranging fromfleet vehicles, personal computers and stationery to air travel booking, waste management andrecords storage services. Common Use Arrangements (CUAs) are whole-of-government standingoffer arrangements, awarded to a single or a panel of suppliers for the provision of specific goods orservices commonly used within Government.

In addition to the CUAs, larger agencies may have established their own contract for a commonlypurchased commodity.

Look for existing formal arrangements that are applicable to this commodity:

- Agency Specif ic Contracts Is the contract established by the agency being used correctly?What is the extent of off-contract purchasing?

- Common Use Arrangements Information on the existing CUAs is available from the DTF

website, including the contracted suppliers. Compare the list of Common Use Arrangementssuppliers for the commodity with the report to see the extent of the contract usage.

- Analyse how the remaining procurement is being done . For example, is the purchasingmainly piecemeal, or was the purchasing for this commodity a one-time event.

11. Talk to the People Who Know

Review the findings of the analysis and consider recommendations for improving the buying behaviourfor the commodity. Some tips are outlined below. But be sure to consult with your agency specialistof procurement people prior to finalising any list of proposed actions if you havent before. They willhelp to provide a reality check on any proposals and are sure to have useful suggestions of their own.

12. Make Recommendations for Each Commodi ty

For example:

- Maximise the use of existing agency specific or government-wide CUAs.

- Establish new standing offer or period contracts for those things that are purchased repeatedly.

- Formalise contractual arrangements with large spend suppliers (or an alternative). This may befor an individual commodity or a number of different commodities sold by the supplier.

- Implement invoice rationalisation mechanisms. Invoicing could be simplified with a regularlyused supplier if a monthly account is established.

- Where it makes sense (probably for the lowest spend suppliers) explore opportunities toaggregate the supply of the commodity through fewer suppliers. It may also be possible to buya number of different commodities through one or two suppliers leading to other aggregationopportunities.

- Try to standardise the range of different models purchased for the same commodity. Moving toan agency-wide standard for purchasing some items, such as business machines, can deliveradditional benefits such as maintenance and training costs.

- Encourage buying behaviour to move from low-value, piecemeal transactions to planned bulkpurchases of the commodity.



6/14


WHAT NEXT?

The financial information has been collected and sorted. The major suppliers for commodities have been

identified. Recommendations have been developed for commodity groups. What next? Strategies specificto your agency are now required to implement the recommendations. Set a target for each commodity anddevelop a mechanism to measure progress. The following are suggested steps to get the best result fromthe analytical work.

i. Establish a Project Group

Although achieving the savings targets is every managers responsibility, its suggested that agenciesappoint a champion to co-ordinate and monitor progress. Establishing a project group withrepresentatives from across the organisation can further facilitate this. One approach to tackling thechallenge is to improve buying behaviour on a commodity-by-commodity basis or for all purchasingacross a directorate. Regular meetings will provide opportunities for knowledge sharing and adiscussion forum.

ii. Develop an Act ion Plan

Just as an early step of the analysis work was to prioritise the commodities, developing a plan toimplement those actions is a priority. The development of the action plan can be co-ordinated throughthe project group.

iii. Set Savings Targets and Regularly Monitor Progress

Keep in mind that there will be different savings potential for different commodities. Set a stretchtarget, in order to maximise the benefit of the savings for the agency. The next challenge is

monitoring progress and there are a number of options for this. One is to set a target at the level ofcommodity group and regularly report on the expenditure by account. Apart from cost savings,another objective is to rationalise suppliers to reduce piecemeal spending. A method for reportingpiecemeal spending is detailed at Appendix D: Monitoring Piecemeal Purchasing .

iv. Let Everybody Know

Make everyone aware that better buying behaviour is an agency priority. Keep them informed of theprogress of the project team. Finance has developed an extensive information resource for agencieson smarter buying behaviours. This includes training through the Professional Procurement Seriesand regular reports on agency Buying Behaviour .



7/14


Appendices

APPENDIX A: Mapping of Account Codes to High-Level Goods & Services GroupingsThe following is a suggested grouping of financial accounts

Construction& Infrastructure

Construction and demolition materials and services Land administration charges Maritime infrastructure Site supervision services Transport infrastructure

Facil iti es Management& Maintenance

Air-conditioning systems Maintenance and repairs to buildings and premises, roads and rail, etc.

Property Related Cleaning services and materials Gardening and land maintenance Environmental services Waste/rubbish disposal costs

Transport ofGoods & People

Aircraft, vessels, motor vehicles and related expenses Fleet management Fuel & oil Freight, cartage and courier Travel, accommodation and meals Postage and postal services Taxi fares Towing

Technical,Scientific & Specialist

Agriculture, horticulture, plants and animals Educational products, publications and training Health and medicine goods and services Law, order and safety goods and services Food and tobacco supplies Catering

Information Technology& Telecommunications

Information technology expenses, including equipment, consumables,maintenance, software, licences and services

Telecommunication goods and services Electronic and electrical products

CorporateGoods & Services

Advertising, marketing and promotions Professional services Events, functions and programs Stationery, office equipment, furniture and fittings Memberships Printing, binding and copying charges Uniforms, clothing and footwear Departmental hospitality and entertainment

Other This category should only be used only when every other option hasbeen exhausted.

Non Goods & Services Expenses unrelated to procurement



8/14


APPENDIX B: FMIS Report (including some basic analysis)

The report shown below is based on FMIS data and forms the basis of the more detailed analysis of thissample commodity.

This sample is based on a summary of an agencys expenditure on cleaning materials over a twelve-monthperiod.

No SupplierGroup Range Trading NameTotal

Expenditure% of Total

ExpenditureNo of

Invoices% of No ofInvoices Location

Aver ageInvoiceSpend

1 Top 1 Group Bunzl Limited $147,137 19.63% 207 12.91% Metro $711

2 Top 5 Group Boise Office Solutions $81,309 10.85% 411 25.62% Metro $198

3 Top 5 Group Jasol Australia $44,000 5.87% 46 2.87% Metro $957

4 Top 5 Group South West Distributors $43,044 5.74% 17 1.06% Regional $2,532

5 Top 5 Group Northern Paper Distributors $35,988 4.80% 64 3.99% Regional $562

6 Top 10 Group Goldfields Cleaning Supplies $35,072 4.68% 37 2.31% Regional $948

7 Top 10 Group Amcor Packaging (Australia) P/L $34,638 4.62% 17 1.06% Metro $2,038

8 Top 10 Group Johnson Diversey $34,179 4.56% 45 2.81% Outside WA $760

9 Top 10 Group Midwest Chemical & Paper $32,030 4.27% 81 5.05% Regional $395

10 Top 10 Group Klen International $25,793 3.44% 52 3.24% Regional $496

11 Top 20 Group Broome Progressive Supplies $23,358 3.12% 96 5.99% Regional $243

12 Top 20 Group Peerless Emulsion (WA) PTY LTD $18,061 2.41% 33 2.06% Metro $547

13 Top 20 Group ABCO Products $17,307 2.31% 32 2.00% Metro $541

14 Top 20 Group Chemform $15,104 2.02% 28 1.75% Metro $539

15 Top 20 Group Food Packaging Australia $12,013 1.60% 14 0.87% Metro $858

16 Top 20 Group Foodlink Food Service Pty Ltd $11,545 1.54% 14 0.87% Metro $825

17 Top 20 Group Southway Distributors $11,421 1.52% 14 0.87% Regional $816

18 Top 20 Group Dyson's Packaging Pty Ltd $9,793 1.31% 19 1.18% Metro $515

19 Top 20 Group Bunnings Building Supplies Pty Ltd $7,442 0.99% 20 1.25% Metro $372

20 Top 20 Group P&R Edwards $6,846 0.91% 9 0.56% Metro $761

21 Top 20 Group Statewide Cleaning Supplies Pty Ltd $6,588 0.88% 17 1.06% Metro $388

22 Remaining Group Great Southern Packaging Supplies Pty Ltd $6,175 0.82% 11 0.69% Regional $561

23 Remaining Group Parrys Merchants.Com $5,827 0.78% 17 1.06% Regional $343

SUB-TOTAL $664,670 88.68% 1,301 81.25% N/A $510

Suppliers Number 24 to 96 have been removed from this report for ease of reading.

No Supplier GroupRange Trading NameTotal

Expenditure% of Total

ExpenditureNo of

Invoices% of No ofInvoices Location

Aver ageInvoiceSpend

97 Remaining 80% Jim Kidd Sports $64 0.01% 1 0.06% Metro $64

98 Remaining 80% The Farm Shop (WA) 1999 PTY LTD $55 0.01% 1 0.06% Metro $55

99 Remaining 80% K Mart Australia Limited $40 0.01% 1 0.06% Metro $40

100 Remaining Group Maddisons Store $28 0.00% 1 0.06% Metro $28

101 Remaining Group Retravision $25 0.00% 2 0.12% Metro $12

102 Remaining Group Betta Electrical $24 0.00% 1 0.06% Metro $24

103 Remaining Group Paper Plus Office National $22 0.00% 3 0.19% Regional $7

104 Remaining Group Roebourne Supply Mart $18 0.00% 1 0.06% Regional $18

105 Remaining Group Coles Supermarkets Australia Pty Ltd $17 0.00% 1 0.06% Metro $17

TOTAL $749,495 100.00% 1,604 100.00% N/A $467.27



9/14


APPENDIX C: FMIS Report , including some basic analysis

Below is an example of an in-depth analysis, including the resulting recommendations, for an agencysexpenditure on printing and publication.

Printing and Publication

An analysis of Agency Xs expenditure on printing and publications was undertaken as the data revealed amedium spend in these account codes and a high number of lower value payments. The following Agency Xaccount codes are included in this spend area:

Printing and publication printing contract

Printing and publication publications

Printing and publication other

Spend on this Commodity

Agency X has spent $881,446 in the review period on printing and publications. A total of 499 invoices wereissued during this period, which equates to an average invoice spend of $1,766.

The Average Invoice Spend per Supplier Category is shown below. The Average Invoice Spend falls sharplyfrom $8,547 for the Top 1 Supplier Group to $682 for the Remaining Suppliers

Average Invoice Spend per Suppl ier Category

Supplier Category TotalExpenditure% of Total

ExpenditureNumber

of Invoices Average

Invoice Spend

Top 1 Supplier Group $273,498 31% 32 $8,547




Remaining Suppliers $123,525 14% 181 $682

TOTAL $881,446 100% 499 $1,766

Average Invoice Value per Suppl ier Percent ile Category

$8,547

$4,078

$2,683 $2,383

$682

$-

$1,500

$3,000

$4,500

$6,000

$7,500

$9,000

Top 1 Supplier Group




RemainingSuppliers



10/14


Suppliers for this Commodity

There were 109 suppliers for this commodity. The average income per supplier is $8,087. However, the topsupplier received a total of $273,498. Other suppliers in the top 5 Supplier Group received a total of $35,551to $66,934. By comparison the Remaining Group of Suppliers received between $9 and $2,632.

The data reveals that at least 12 of the 109 suppliers were identified as regional suppliers that received atotal income of $8,226 (1% of total expenditure).

The Average Supplier Income per Supplier Category is shown below. The Average Supplier Income fallssharply from $273,498 for the Top 1 Supplier Group to $1,404.

Average Suppli er Income per Supplier Category

Supplier Category TotalExpenditure% of Total

ExpenditureNumber

of Suppliers Average

Supplier Income





Remaining Suppliers $123,525 14% 88 $1,404

TOTAL $881,446 100% 109 $8,087

Average Supplier Income per Suppl ier Percent ile Category

$273,498

$100,317$63,058

$36,091$1,404

$-

$50,000

$100,000

$150,000

$200,000

$250,000$300,000





RemainingSuppliers



11/14


Cost Centre Expenditure on this Commodity

Analysis of Agency Xs cost centres has revealed that 11 cost centres have paid for publications. Theapplicable cost centres and the expenditure amounts are contained in the table below.

Agency X Bus in ess Uni t Descr ip tion Total Ex pendi ture % of Total Ex pendi ture

Cost Centre 1 $510,993 57.96%Cost Centre 2 $185,266 21.04%Cost Centre 3 $76,028 8.64%Cost Centre 4 $35,034 3.97%Cost Centre 5 $28,028 3.18%Cost Centre 6 $28,002 3.18%Cost Centre 7 $11,203 1.27%Cost Centre 8 $3,445 0.39%Cost Centre 9 $3,202 0.36%Cost Centre 10 $246 0.03%TOTAL $881,446 100.00%

Based on this data the largest proportion of expenditure comes from Cost Centre 1 representing 58 percentof spend.

The distribution of the overall expenditure suggests that procurement of this commodity is relativelycentralised, as over 87% of the spend is with only 3 cost centres.

Common Use Arrangements for this Commodity

As of 1 March 2005 a mandatory Common Use Arrangement for printed stationery and photocopyingservices was established. This Contract, CUA 8404, includes photocopying and the production ofletterheads, With Compliments slips, business cards and printing onto record files.

Agency Speci fic Contrac ts

Upon review of the contract list and the warehouse data it appeared that 12 Agency Specific Printingcontracts were active during the relevant period. These include:

ContractNumber

ContractDescription Supplier

TotalContract Price

ContractPeriod

RFT 15/04 Publication of Manuscripts Supplier 1 $55,000 01/11/04 01/11/05

RFT 19/04 Printing of public education material Supplier 2 $100,000 01/08/04 12/01/06

RFT 95/05 Design Production and PrintManagement of annual business plansannual reports and strategic plan

Supplier 3 $100,000 19/04/05 18/04/07

RFQ 03/04 Printing of Business Cards Supplier 4 $50,000 12/11/04 17/05/07

It was noted that 4 of the top 20 suppliers provided goods and services under Contracts established throughRFTs or RFQs.



12/14


Remaining Purchases

As there was no Common Use Arrangement available during the period covered by the report and therewere only four agency specific contracts it appears that a large volume of transactions was undertaken on aone-off basis, indicating piecemeal buying.

Recommendation for this Commodity

The efficient use of the new mandatory CUA will provide significant savings opportunities and assist insupplier consolidation. Under this new Common Use Arrangement savings will be achieved with thepurchase of the Agencys letterheads, With Compliments slips, business cards and record files.

It is recommended to closely examine whether publications can be produced using photocopyingservices offered through the new mandatory Common Use Arrangement 8404 instead of printingservices. Cost savings between 10-20 percent could be achievable through process changes. Thefollowing publications could be considered for photocopying:

- annual reports and business plans- training course materials

- some of the Agencys PR material

It is recommended that the Agency examine which of their publications can be produced anddistributed as soft copy material to further reduce printing costs. It is noted that other Departmentshave used a similar practice to reduce costs. For example, the Department of the Premier andCabinet ceased printing all employment opportunities in its Intersector magazine after converting thispublication to an online brochure. It might be possible to print fewer copies of the business plans andannual reports.

Currently there are a total of 100 suppliers for this commodity. Of this total, 20 are regional and/or

specialist suppliers. However, the remaining 80 suppliers represent opportunities for supplierconsolidation. It is recommended that an Agency Specific Contract be established for all of the Agencys non- CUA printing including the printing of any publications.

Overall, Printing and Publications is considered as a commodity that offers substantial saving opportunities.Through the use of the new CUA 8404, changes in business processes (printing instead of copying) andsupplier consolidation savings overall savings in the order of 10-20 percent should be achievable.



13/14


APPENDIX D: Monitoring Piecemeal Purchasing

What is Piecemeal Purchasing?

Piecemeal purchasing is often unplanned purchasing and it can take a number of forms. It can meanmaking a one-off or several low value purchases from a non-contracted supplier. It can also mean issuing anumber of low-value purchase orders to a contracted supplier, rather than sending a single purchase order.In any case, this is not the most efficient way to purchase.

This is particularly the case when the piecemeal purchasing is taking place instead of from a contractedsupplier. A major risk of piecemeal purchasing is that it often involves paying retail rates for items that areavailable through established contracts.

Paying a larger number of low-value invoices represents a significant administrative cost to agencies. Agencies can benefit from reducing the volume of invoice processing they do and they can do this byreducing the amount of piecemeal purchasing. This can also be achieved by reducing the number ofinvoices from regular suppliers. Establishing a regular invoicing cycle with suppliers on a monthly orquarterly basis can deliver benefits to both agencies and suppliers.

How do I Reduce Piecemeal Purchasing?

The first step is to achieve an understanding of the amount of piecemeal purchasing being made by youragency. See below on one method to measure and monitor piecemeal purchasing. The second is to use therecommendations described in the main body of this document to create a framework that will assist toreduce piecemeal purchasing.

Measuring Piecemeal Purchasing

i. Use the work from the Commodity Analysis Procedure to identify the number of purchase orderscreated or invoices paid in the following ranges:

Group A Group B Group C Group D Group E Group F

$0$500 $501$999 $1,000-$5,000 $5,000$9,999 $10,000$20,000 $20,000$50,000

The results of the analysis can be further sorted by commodity. It is likely that some commodities willhave more piecemeal purchasing than others. It may be that the analysis reveals an amount ofunavoidable piecemeal purchasing. A certain amount of piecemeal purchasing is inevitable. However,if purchases are regularly being made from a non-contracted supplier, the following aggregationstrategies should be pursued:

a. Identify the suppliers receiving the most purchase orders for aggregation in a formal contract

arrangement.b. Also look for suppliers providing goods and services across a range of commodities. Is it

possible to consolidate these within an agency-specific arrangement? Are these items alreadyprovided under another arrangement?

ii. Now that the extent of the piecemeal purchasing is understood, direct staff to make every effort toreduce the number of low-value purchase orders sent. This will mostly be the purchase orders inGroups A and B. To further reduce the administrative costs of issuing purchase orders and sendinginvoices, consider the greater use of purchasing cards for low value purchases.



14/14


iii. Plan your purchasing. Piecemeal purchases are often unplanned purchases. For instance, make bulkpurchases of office consumables, such as stationery, toner, furniture or paper. Also, considerchanges to internal purchasing practices. Is there a central point or person responsible for orderingoffice consumables? Centralising the purchase of common office consumables will reduce piecemealpurchasing.

iv. Measure the progress made in reducing piecemeal purchasing by running the financial report atregular quarterly intervals and comparing to the original report. A positive trend will see the number ofinvoices or purchase orders in Groups A and B diminish, while the value of purchases in Groups Cand above increases.

analyses of commodiry procurement spend

Documents