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Value Management in Procurement
Chris Tiernan Managing Partner [email protected] Carolyn Jacks Partner [email protected] Grosvenor Consultancy Services LLP CIPS Central London Branch 15 July 2015 ©2015 Grosvenor Consultancy Services LLP
Grosvenor Consultancy Services LLP
• Founded 1989 – consultancy and interim specialists • Has advised >200 private, public & charity sector
organisations on contracting for and managing IT & service suppliers: www.grosvenorconsultancy.com
• Outsourcing & off-shoring have had mixed successes: – costs & quality – innovation & agility – many services taken back in-house – what of cloud? – CIPS Harrow Jan 2015
• Grosvenor’s Value Management established to address issues, like:
– What do enterprises really want?
CIPS Harrow Feb 2013
Questions to Address
• What exactly is “value” for different types of enterprises and who benefits from it?
• Given limited budgets, how are cases for incurring expenditures made and evaluated to identify the best opportunities?
• What is the difference between investments and costs and should they be managed differently?
• How is progress towards delivering additional value monitored and assessed?
• Who should be held responsible for delivering additional value?
• What traps do suppliers set which reduce the value which can be achieve?
Procurement Processes
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• [Sourcing Strategy] • Prepare SoR & questionnaires • Go to market • Receive proposals • Clarify proposals • Evaluate proposals • Select preferred supplier(s) • Do due diligence • Get approvals • Draft contract • Negotiate & sign • Transition to supplier(s) • Supplier & contract
management • Delivery of goods & services • Monitor market
Why are we doing this?
What have we achieved
for whom?
Creating Enterprise Value
Customers
Donors
For-profit Not-for-profit
Commercial companies
Membership bodies
Government bodies
Charities Protection
rackets
Services for members, citizens
& beneficiaries
Tax payers
Increase in shareholder value
How Value Arises
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Today: from the day to day operations of the enterprise
Future: from changing the ways people interact with the enterprise and work in it so that they create more value from future day to day operations
Optimising On-going Value - Example
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£
Quality/ Quantity
Sales
Service delivered
Projects and Services
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Projects Services
• Limited duration • Delivery risks • Budget limited • Investments • Need to maximise RoI within funds
• On-going • Service risks • Recurring spend • Costs • Need to minimise costs within service levels
The Journey to Additional Value
Business case
Business Change Investment Business Benefits
Service Creation Investment Service Running Costs Value Business case regularly updated & reviewed Vision
Value
+
-
Breakeven point
New capabilities
Improved business performance
Value creation
Investments
Maximising Return on Investment
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RoI
Investment
Types of Procurements
• Commodities with industry standard specifications • Universal services, e.g. cleaning, security guarding • Assets with unique definable specifications • Existing services involving assets & third parties • New services involving third parties &/or TUPE • Projects with unique definable deliverables • Projects with evolving requirements • Professional services with detailed specifications • Professional services with high-level objectives
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Complexity
Business Benefits Identification
• Which of these are business benefits* for those the enterprise exists to serve: a. Freeing up premises b. Reducing staff numbers c. Improving productivity d. Reducing inventories e. Lower supplier charges f. Better management information g. Enhanced customer services h. Greater flexibility?
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* Increase shareholder value for for-profit enterprises or increase quantity/quality of services for not-for-profit enterprises
Business Cases
• Critical to link expenditures to desired value • Not just requests for spending approval • Need commitments on value delivery • Need to follow consistent format for comparability • Need to be updated as work progresses • Critical management tool to determine whether to:
– continue as is – change or – abandon work
• Basis for determining success & learning
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Critical Success Factors
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Carolyn Jacks Partner Co-founder of Grosvenor
Critical Success Factors
• Having realistic expectations • Appointing competent suppliers • Agreeing high quality contracts • Proactively managing suppliers • Having robust change management
• Success = HRE*ACS*AHQC*PMS*HRCM%
50%*50%*50%*50%*50% = 3%
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80%*80%*80%*80%*80% = 33%
Critical Success Factors
• Having realistic expectations • Appointing competent suppliers • Agreeing high quality contracts • Proactively managing suppliers • Having robust change management
• All of the above need to be achieved to a high
standard and they all apply to all stages • Expertise is knowing what the words in orange mean
and what is required in the particular context
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Having Realistic Expectations
• Typical expectations: – reduce costs – improve quality, skills & consistency of supply – decrease management effort – effect transformation in business and/or IT
• Reality testing: – need to understand how the supplier will achieve these
and the underlying economics – what will happen if the supplier is squeezed too much? – question suitability of output based contracts, risk/reward
and partnerships • Remember there are also costs for undertaking the
project & managing the service provision
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Are we likely to get what we are
seeking?
Appointing Competent Suppliers
• Detailed specifications of requirements • Comprehensive questionnaires • Evaluation criteria • Understanding suppliers’ proposals and clarifications • Checking suppliers’ due diligence on you • Checking out suppliers’ references & procedures • Interviewing their staff and rejecting/changing them if
unhappy with them
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Will we have capable people
delivering?
Agreeing High Quality Contracts
• Cater for all circumstances which typically arise over the term and beyond
• Most of the contract is services, charges and procedures related with very little legal input
• Those who will receive and deliver the services must be fully involved in contract negotiations
• In years to come, the contract must be clear to those not involved in drawing it up
• Invariably specialist drafting skills are vital for the schedules which lawyers do not necessarily have
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Is the plan viable?
Proactively Managing Suppliers
• Customers must have their own processes in place • Invariably takes more internal resource than planned • Balance between “getting along” and getting vfm • Regular information and reviews are critical • Contract should be consulted regularly by both sides • Do not accept poor quality or do the supplier’s job for
it (legal implications) • Always have Plans B to Z ready
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How will it be managed?
Robust Change Management
• Change is often a major source of profit for suppliers • An agreed process is necessary but not sufficient • The contract is the baseline • Every variation is likely to affect the contract or
something referenced • Consider up front change costs and the on-going
effects of those, pluses and minuses • The more changes with pre-agreed effects, the
better your control of charges and quality • Keep the contract up to date
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Change is inevitable
Caveat Emptor
• Discounts for commitments & financial engineering • Suppliers hiding behind confidentiality • Actions vs achievements • Properly designing & assessing pilot projects, trials,
proofs of concepts, etc. • What did the suppliers really do for their referenced
customers? • How will your customers judge their success? • Who is holding whom to account for success? • Suppliers need MORE management than managing
in-house resources
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VM in Procurement Conclusions
• what “value” is for your enterprise • how value arises & for whom • how what is being procured affects value creation • how the procurement processes affect value creation
– the Critical Success Factors • how suppliers’ business practices affect overall value
created
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Need to understand:
For more information: [email protected] [email protected]
Downloadable papers from: www.grosvenorconsultancy.com
Thank you