Guidance for Corporate Procurement Planning
in the Local Government Sector
October 2007
Contents
Introduction
Page 2
Basic Format for a Corporate Procurement Plan
Page 3
SUPREM-based Expenditure Analysis
Page 5
Supplier and Transaction Analysis
Page 13
1
Introduction
In July 2005, the Department of Finance issued the National Public Procurement
Policy Framework requiring all public bodies, including all City and County
Councils, to produce annual Corporate Procurement Plans from 2006 in their
organisations, as part of a wider programme of public procurement reform. This
Department informed all City and County Councils of this corporate governance
requirement in Circulars PPP 3/06 and PPP 5/06.
The Local Government Strategy for e-Procurement, which was approved by the
County and City Managers’ Association (CCMA) in April 2003, estimated that total
procurement savings of €60m per annum could be achieved on full implementation
of the Strategy.
As these are substantial savings, which could be re-invested in the delivery of front
line services, it is now imperative that all local authorities proceed to prepare and
implement their first annual Corporate Procurement Plan. These Plans will identify
the steps required to achieve greater value for money through procurement
modernisation.
Objectives of Corporate Procurement Planning
The objectives of Corporate Procurement Planning in the local government sector are
to achieve greater value for money by:
 Ensuring that purchasing within all local authority organisations is carried out
in a co-ordinated and strategic manner,

Reviewing and, where possible, streamlining the administration of existing
purchasing processes e.g. by using available e-procurement tools to achieve
financial and staffing savings,

Utilising the buying power of the local government sector to achieve greater
value for money when purchasing goods and services in the marketplace.
Guidance Document
The Department of the Environment, Heritage and Local Government has produced
this basic guidance document to assist County and City Councils with the preparation
of their first annual Corporate Procurement Plan. It is not intended to be overly
prescriptive, as individual Councils will have differing purchasing approaches
depending on issues such as supply needs, supplier availability and security of supply.
It is ultimately a matter for local authority management to determine the specific
value for money purchasing strategies for their organisations.
2
Basic format for Corporate Procurement Plan
A suggested format for a Corporate Procurement Plan is as follows. Councils may
adopt a different format but are asked to consider the issues raised below in their
Plans:
Executive/Management Summary
Summarise the background to the preparation of the Corporate Procurement Plan, the
analysis undertaken and the recommended purchasing reform measures. The
Executive/Management Summary should ideally be no longer than four pages.
Introductory Chapter
Provide an overview of annual expenditure in the local authority and give an outline
of existing areas, where purchasing decisions are made. Note that the expenditure to
be analysed, for the purposes of producing Corporate Procurement Plans, excludes
capital funding for contracted out infrastructural projects and direct Council staffing
costs. All other expenditure, including goods and services procured under existing
contracts and materials purchased for direct labour works, should be reviewed.
Expenditure and Risk Analysis Chapter
Expenditure and Risk Analysis – Using a basic analytical tool such as SUPREM (See
p.5.), produce an expenditure and risk analysis for the local authority, in consultation
with colleagues in the various purchasing areas of the authority. The SUPREM model
will locate each expenditure type in one of four quadrants, with basic generic
recommendations for purchasing strategies for each quadrant, based on international
experience.
Transactions and Suppliers Analysis (see p.13.) – Using the local authority’s
Financial Management System e.g. AGRESSO, produce an analysis of the number,
type and size of transactions and number of suppliers for each expenditure category.
This analysis will give an indication, for example, as to whether there are too few or
too many suppliers, from the perspective of both value for money and security of
supply. It will also indicate whether the small value of some transactions may be less
than the cost of processing them. This could indicate a need for consolidation of
transactions to reduce the number of suppliers’ invoices in some cases.
Organisational Analysis Chapter
This exercise should examine the scope for reducing the processing effort involved in
purchasing goods and services thus freeing up existing staffing resources for
redeployment to front line services. Potential staffing and other savings should be
estimated, where possible. Procurement Co-ordinators should consult with colleagues
in the various purchasing areas to identify duplication or other inefficiencies involved
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in the purchasing processes. Consideration should also be given to utilising the
various e-procurement tools developed by the Local Government Computer Services
Board (LGCSB) to streamline existing manual purchasing processes. Remember
though, electronic solutions should only be introduced after manual processes have
been reformed as automating a bad system simply results in a bad electronic system.
Finally, but importantly, it should be verified that existing purchasing procedures and
processes across the local authority comply with procurement legislation (see
Department
of
Finance’s
2005
Guidance
available
on
www.environ.ie/en/localgovernment under Procurement Modernisation).
.
Specific Goals Chapter
The various analyses exercises will indicate potential areas for procurement
improvements. Procurement Co-ordinators should re-consult with colleagues in the
various purchasing areas of the authority as well as senior management, based on the
analyses findings, and consider various measures to be taken to realise these
improvements. Specific Goals should be set out to achieve this. These Goals should
consist of specific measurable targets and a timeframe for their achievement. The
starting point for the following year’s Corporate Procurement Plan will be to review
progress on achieving these targets.
Appendices
The more detailed data, which was generated for the Analysis chapter, should be
located here to avoid clogging up the Analysis chapter with too much detail. Also, any
commercially sensitive information, which the Council cannot make publicly
available, should be located in the Appendices as the main Corporate Procurement
Plan must be published on the Council’s website.
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SUPREM Expenditure and Risk Analysis
Introduction
SUPREM – the Supply Positioning and Risk Evaluation Matrix – is a basic analytical
tool developed to assist the corporate procurement planning process. This has been
put in place by the Department of Finance and it is offered, free of charge, to any
public body that wishes to register for access. Please complete the attached SUPREM
application
form
(http://www.environ.ie/en/Publications/LocalGovernment/ProcurementModernisation/FileDownLoad,1
5715,en.pdf)
and return it to the National Public Procurement Policy Unit (NPPPU) of
the Department of Finance to get login access.
Factors influencing procurement
The two main factors that influence the nature of procurement in any organisation are:
1. the ‘difficulty in securing supply’, which means:

the degree to which the goods or services present risks, or are critical to the
operation of the organisation, as well as

the extent to which a competitive supply market exists for those goods and
services, and
2. the relative expenditure for the goods and services, as against the total
procurement expenditure of the organisation.
The SUPREM matrix provides a profile of an organisation's procurement activity, by
mapping the various categories of expenditure on goods and services in a fourquadrant, colour-coded matrix, whose axes relate to the level of expenditure and the
relative difficulty of ensuring supply (that is, the level of risk involved) of the
categories in question. It then recommends generic procurement strategies that could
be adopted for expenditure in each of the four quadrants, based on international
experience.
Weighting of risk factors
SUPREM requires that a weighting be given to five risk factors for each category of
expenditure, in order that an appropriate overall risk weighting can be applied to each
category as part of the mapping process.
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The risk factors and weightings to be considered for each category of expenditure are:
Factor
Weighting
Strategic
Importance
Easily
Substitutable
Not
Important
Low
Importance
Moderate
Importance
Important
Critical
Supply Failure
Impact
Procurement
Relationship
Complexity
Supply Failure
Probability
Nature of Supply
Market
Very low
Low
Medium
High
Very high
Critical
Very easy
Easy
Slightly
complex
Moderately
complex
Complex
Highly
complex
Very low
Low
Medium
High
Very high
Certain
Highly
favours buyer
Moderately
favours
buyer
Slightly
favours
buyer
Slightly
favours
supplier
Moderately
favours
supplier
Highly
favours
supplier
LOWER
RISK
HIGHER
Typically, issues to be addressed when determining the weighting for each risk factor
would include:
Strategic Importance: How important is the good or service to the business
objectives of the organisation? For example, in the context of a hospital, surgical
supplies will be very important while office furniture will be relatively unimportant.
Impact of Supply Failure: If the existing supply of the good or service is interrupted
what will be the impact on day-to-day business operations? Can an alternative supply
option be quickly identified and accessed?
Probability of Supply Failure: Although the impact of supply failure may be great,
how likely is it that supply will fail? For example, in the context of a hospital, an
electricity supply failure would have a significant impact but anything other than a
short period of supply failure is unlikely and generators are generally in place for such
occasions.
Nature of Supply Market: Does the balance of power lies with the purchasers or
with supply market? Is it a highly competitive market place? Is your organisation a
significant purchaser relative to the market size?
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Complexity of Procurement Relationship: How difficult is the purchasing process
for this good or service? For example, procuring the building of a new road compared
to procuring office furniture.
The supply-positioning matrix automatically generated from the application of
SUPREM will be dependent on the answers supplied during the process of assessing
the risk criteria.
How to carry out a SUPREM analysis
Step 1 – Generate an expenditure report for a calendar year
In order to undertake a supply positioning exercise, you will first need to know how
much money is spent on each ‘category’ of expenditure. The term category refers to a
group of goods or services that contains similar items, usually based around the
supply market (for example, office products might include copier paper, pens,
envelopes, etc, etc). This will ensure that the ‘picture’ presented by the mapped
matrix can be more easily and logically analysed. Of course, it’s up to you to decide
the level at which a category exists (for example, could copier paper itself be
considered a category?) but, usually, there will be an obvious level at which analysis
will be meaningful. The expenditure categories used for the example below were
chosen at random for illustrative purposes only.
The information required can usually be ascertained from your Financial Management
System – you need the amount spent on each category over a specific period of time –
typically, a calendar year. While an expenditure report can be can be run in Agresso
(Agresso Financials / General Ledger / Enquiries / General Ledger Transactions –
right click and select Open Browser), you will have to run the enquiry for each
individual month, including the opening and closing months. One of the best ways to
collate this information for subsequent use in SUPREM is to paste the data into an
Excel spreadsheet.
Step 2 – Input expenditure data into SUPREM and weight the risk factors for each
expenditure category
You should then input this information into the SUPREM analysis tool. For each
expenditure category, simply enter the overall expenditure for the period under
examination e.g. the calendar year. Also, for each expenditure category, apply a
weighting for each factor. This is something that should not be done in isolation,
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because the weighting applied might be too subjective. Prior to carrying out the
weighting exercise, you should consult with experienced people in the relevant
purchasing areas for each category – e.g. roads or water engineers, who are likely to
have a good understanding of the issues surrounding purchasing goods and services in
their respective areas. You should select the appropriate weighting with their
assistance.
Category
Total
Expenditure
Heat Light & Power
€225,000
IT Hardware
€175,000
Insurance
€165,000
Furniture & Fittings
€145,000
Postage
€140,000
Office Supplies
General
Maintenance
€135,000
Printing
Specialist
Consultancies
€130,000
Telephones
€110,000
Cleaning
€108,000
Vehicle Fuel
€100,000
€132,000
€125,000
Safety Materials
Telephone Data
Lines
€98,000
Training
Professional
Services
€72,000
IT Consumables
Specialist Plant
Hire
€63,000
Catering
€60,000
IT Consultancy
€38,000
Advertising
€30,000
Couriers
€24,000
Landscaping
€16,000
€82,000
€66,000
€61,000
Strategic
Importance
Select
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Supply
Procurement
Supply
Failure
Relationship
Failure
Impact
Complexity Probability
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Remember that the weighting for certain expenditure categories is likely to differ
across Councils based on local circumstances. For example, some Councils may not
have many quarries in their areas so could have more logistical difficulties in
procuring raw materials.
8
When all of the expenditure has been input and all weightings selected, SUPREM will
automatically generate a supply positioning matrix locating each expenditure category
in one of four quadrants, for which generic procurement strategies are suggested.
Generic SUPREM Matrix
The SUPREM matrix below shows the quadrants where the expenditure/risk
combination will position the categories of goods and service for which you carry out
the supply positioning exercise. SUPREM will automatically position the expenditure
category within one of these four quadrants when it generates the Report, once you
have completed inputting the information.
In the completed example below, you can see how certain categories of goods and
service might be positioned across the matrix quadrants following a supply
positioning exercise. The expenditure categories and their location in particular
quadrants in the example below are for illustrative purposes only and should not be
interpreted as being the standard table that should be generated by this exercise.
9
Completed SUPREM Matrix – Example
DIFFICULTY IN SECURING SUPPLY
Q3
Q4
● Specialist Consultancies
●Professional Services
● IT Consultancy
● Insurance
● Specialist Plant Hire
● Telephone Data Lines
● General Maintenance
Q1
● Advertising
● IT Consumables
● IT Hardware
●Heat Light
& Power
●Training
● Office Supplies
● Cleaning
● Catering
●Telephones ● Furniture & Fittings
● Printing
RELATIVE EXPENDITURE
Landscaping
●SafetyApproaches
Materials ● Postage
Step 3 – Consider ●Generic
Strategic
for expenditure categories
● Couriers
●Vehicle Fuel
Q2
There are certain generic strategic approaches to improving the procurement
of goods
and services based on their location in specific quadrants.
DIFFICULTY IN SECURING SUPPLY
Q3
Q4
ENSURE
MANAGE THE
CONTINUITY OF
SUPPLIER BASE
SUPPLY
MINIMISE
DRIVE TOTAL
TRANSACTION
COSTS DOWN
COSTS
Q1
RELATIVE EXPENDITURE
10
Quadrant 1 (Green)
In the Green (bottom left) quadrant (Quadrant 1), total purchases of goods and
services would generally constitute a small percentage of the agency’s overall
expenditure (typically around 5%). These goods tend to be relatively low cost items
that are easy to source from a wide range of suppliers. Typically, there would be a
large number of transactions each with a low monetary value, and the associated costs
of managing these are high. A primary aim here should be to minimise the time spent
(and, therefore, the costs generated) in processing transactions and also to reduce the
volume of paper used in producing orders, invoices, confirmations, and so on. An
initial simple step could be to ask suppliers of low value items to submit a smaller
number of invoices for larger amounts over longer time periods. This would reduce
transaction administration costs, which in some cases may be costing more than the
items procured. Another approach could be to reduce the number of administrative
steps in the procurement process by using some of the e-procurement tools developed
by the Local Government Computer Services Board (LGCSB). As the goods and
services in this quadrant are readily available, tendering and then buying from
competitive local suppliers is often an effective strategy for minimising transaction
costs. It is important to ensure though that value for money and procurement
legislative requirements continue to be observed under any new purchasing process
for goods and services in this and all quadrants. Reducing the time and effort that has
to be expended here will allow procurement staff to focus better on the areas of higher
spending and higher risk.
Quadrant 2 (Blue)
In the Blue (bottom right) quadrant (Quadrant 2), where a relatively large percentage
of the organisation’s procurement expenditure normally lies (typically 20%-30%),
expenditure is mainly on items with a higher value but which are still relatively easy
to source. These goods are in common use across the organisation, but are not
‘mission critical’. There would still be a relatively high number of transactions, but
their higher value provides an opportunity to drive down total costs. For example, the
generic strategy choice could be to use your buying power with suppliers to secure
volume discounts.
This leverage might be exercised, for example, through co-
ordinating the purchasing of similar goods and services used in several areas within
the same local authority. There could also be collaboration with other Councils on a
shared services basis, where appropriate, to obtain better financial terms through bulk
11
purchases. Again, as in quadrant 1, the number of transactions should be minimised
to help reduce administrative costs.
Quadrant 3 (Red)
In the Red (top left) quadrant (Quadrant 3), again the collective value of the goods
procured is comparatively low (typically 1%-5%). Here we find items that may be
relatively low in value, but which can be more difficult to source because there are
fewer potential suppliers or the items are more specialised or complex. Failure to
secure the supply of these items could lead to a failure in service provision. The
priority with these more ‘specialist’ purchases is to ensure continuity of supply, thus
reducing the organisation’s vulnerability to supply shocks. One generic strategy is to
actively monitor the supply market, as it might be possible to find alternative sources
of supply or substitute products. Another is to better manage the internal demand for
the items concerned, in order to reduce the overall reliance on the goods or services
involved.
It is also vital that requirements are accurately specified in the first
instance, in order that the correct type and quantity of goods or service are procured.
Contingency plans to deal with supply interruptions are an important strategy element
here.
Quadrant 4 (Yellow)
In the Yellow (top right) quadrant (Quadrant 4), typically the highest expenditure area
(typically 50%-60%), goods and services tend to be of higher relative value and may
also be more difficult to source. Often they are part of a larger ‘package’ of services
(e.g. operation of a waste water facility). Supply failure here would have extensive
repercussions for service delivery, and so it is crucial to develop strong long-term
supplier relationships and to manage these effectively. It is essential from the outset
to be very clear when specifying your requirements to avoid cost and time over-runs
arising from contractual changes, and to ensure that the selection criteria for choosing
suppliers is robust and appropriate. Procurement expertise and contract management
skills are also crucial in these categories.
Step 4 – Determine and implement specific procurement approaches
The SUPREM analysis exercise will identify potential areas for procurement
improvements. Councils may need to carry out further transaction and supplier
analysis of certain expenditure areas in order to identify specific areas for change.
Procurement Co-ordinators should re-consult with colleagues in the various
purchasing areas of the authority as well as senior management, based on the analyses
findings, and consider various measures to be taken to realise these improvements.
12
Specific Goals should be set out to achieve this. These Goals should consist of
specific measurable targets and a timeframe for their achievement.
Supplier & Transaction Analysis
Supplier Analysis
Supplier analysis is used to understand the relationship that the organisation has with
its suppliers. Specifically, it concentrates on identifying the number of suppliers, the
value of business with each, the range of goods with each and/or the number of
transactions and contracts with each. It is also important to understand the nature of
the supply market for particular goods and services from the perspective of value of
money and security of supply e.g. are there too many or too few suppliers. This
analysis can be used, for example, to reduce or increase the number of suppliers
where appropriate, to co-ordinate the purchasing of similar goods and services used in
several areas within the same local authority to maximise purchasing power, and to
examine supplier invoicing arrangements with a view to achieving process
efficiencies and cost reductions.
Supply Market Issues
A major issue to be considered is whether there are too few or too many suppliers for
a particular good or service.
If there are too few suppliers for a particular item;
 there is a danger that security of supply could be affected
 there may not be sufficient market competition for a particular good or service
in terms of ensuring value for money
If there are too many suppliers for a particular good or service;
 it is possible that purchasing within the organisation is too fragmented and that
greater value for money could be achieved by co-ordinated bulk purchasing of
certain goods and services from less suppliers at a lower price.
 a large number of relatively small invoices from a large number of suppliers
could be pushing up the organisation’s transaction processing costs
Councils have an opportunity each year to review their supplier base when compiling
their Annual Quotation Books (whether manually or via the LAQuotes system). This
is a good time to assess whether sufficient suppliers are making competitive bids to
supply particular goods and services. It could indicate a need to encourage new
suppliers, locally, nationally and internationally, to bid for such contracts to achieve
greater value for money. Remember though, that the cost of transporting and storing
goods must also be taken into account when comparing relative procurement costs for
different suppliers.
13
Transaction analysis
Transaction analysis is used to understand the organisation’s interaction with its
suppliers, and in particular, its ordering and payment habits. It involves identifying
the overall number of transactions, the number of transactions per supplier, per
expenditure category and the value and frequency of such transactions. This type of
data can be used to identify opportunities for cost savings by streamlining
administrative processes.
A simple analysis (see below) might look at the organisation’s expenditure and
number of transactions with each supplier, and the category of goods of service
provided by the supplier. Using Excel, this data can be sorted in a number of ways –
highest expenditure, most transactions, number of suppliers in a particular category,
etc – all of which will present a simple picture of the organisation’s procurement
profile. Understanding how much the organisation spends, with whom and on what is
the first step to improving the procurement function’s effectiveness.
Supplier
Number
01223
00075
01101
00958
00632
00454
00777
01201
Supplier Name
Category of Goods
Smith & Son
Acme Inc
Murphy Brothers
Capital Corp
Direct Office Products
Contract Caterers
Vista Safety Gear
Keegan Oil
Maintenance
Cleaning
Skip Hire
Cleaning
Stationery
Catering
Safety Materials
Heat Light & Power
Expenditure
€12,000
€9,500
€15,000
€9,500
€9,000
€11,000
€2,500
€15,000
No of
Transactions
28
30
47
40
105
18
25
12
Other quick analysis areas are how many transactions are carried out within specific
value ‘bands’, and the average value of transactions with each supplier (see tables
below). It has been estimated that it could cost in excess of €80 to process a single
procurement transaction from purchase to payment. This estimate quite properly
takes into account salary and overhead expenses. For invoices of less than €80, it is
likely that it costs approximately the same, if not more, to process the transaction than
the value of the item itself. Therefore, the organisation should look to reducing the
number of transactions by the use of consolidated invoices, and reducing the number
of suppliers, where appropriate. Also, for occasional purchases of smaller items, it
might be more cost effective to purchase from a local supplier using a low value
purchase card, subject to appropriate controls.
Transactions
Value
<€100
€101 - €250
€251 - €500
Number
410
255
126
14
€501 - €1000
>€1000
115
94
Category
Maintenance
Heat Light & Power
Insurance
Cleaning
Stationery
Postage
Vehicle Fuel
IT Consumables
Couriers
Safety Materials
Expenditure
No of
Transaction
Transactions Average Cost
€86,000
109
€788.99
€48,000
24
€2,000.00
€24,000
12
€2,000.00
€22,000
90
€244.44
€15,000
115
€130.43
€12,700
24
€529.17
€10,000
108
€92.59
€3,600
52
€69.23
€3,500
92
€38.04
€3,500
36
€97.22
Conclusion
It is important that Councils review their transaction processing costs and their
supplier base on an annual basis as part of their Corporate Planning Process. While it
is essential that security of supply is ensured, this must be balanced against the need
to achieve value for money by using the Council’s purchasing power in the
marketplace. More detailed guidance on developing a Corporate Procurement Plan is
contained within the Department of Finance’s “Procurement Capacity Building –
Training Material”, which is available on www.environ.ie/en/localgovernment under
Procurement Modernisation.
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