Gwerth Cymru (Caffael)
Value Wales (Procurement)
Drafting a Procurement Strategy
A Guide by PMMS Consulting Group
PMMS CONSULTING GROUP
Email: pmms.uk@pmms-group.com
Page 1 of 41
Updated August 2007
Draft V1
Contents
This report provides guidance to the Welsh Public Sector on the development and
implementation of ‘Best Practice Procurement Strategy.’
Background and Methodology
3
Purpose
3
Best Practice Procurement Documentation
4
Procurement Strategy and Strategic Procurement
5
Core Components of a Procurement Strategy
6
Where Do We Start?
13
Communicating the Strategy
13
Appendices
A
B
C
D
E
F
G
Benchmarking Procurement Performance
Pareto Analysis and Supply Positioning
Sustainable Procurement Process and Tools
Sustainable Procurement Assessment Framework
Structured Approach to Strategic Procurement
Procurement Organisation Models
Model Action Plan Template
For further information regarding this report, please contact the Value Wales Policy mailbox
vwpolicy@wales.gsi.gov.uk.
© PMMS Consulting Group 2007
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Background
1.1.
The commitment to more effective and sustainable procurement and the achievement
of 3% efficiencies, first set out in ‘Better Value Wales’ was reinforced through
‘Making the Connections’, ‘Delivering the Connections’ and, most recently, Sir
Jeremy Beecham’s report ‘Beyond Boundaries – Citizen-Centred Local Services the
Wales’.
1.2.
The Value Wales organisation was established through ‘Making the Connections’ as
a catalyst for change to seize value for money opportunities through smarter
procurement, streamlining support functions and maximising value from capital
investment. The procurement arm of Value Wales was charged with building on the
work of the Welsh Procurement Initiative to implement smarter procurement. Its
mission is to ‘work in partnership with the Welsh public sector as a catalyst to
improve the value for money obtained from its procurement activities, thereby
supporting the delivery of public services while benefiting the economic,
environmental and social landscape in Wales’. Efficiency, sustainability and
improving competitiveness of the Welsh economy therefore lie at the heart of public
sector procurement in Wales.
1.3.
To procure more smartly, each organisation needs a Procurement Strategy which
identifies the actions that organisation will take in pursuit of the policies and
efficiencies set out in ‘Making and Delivering the Connections’.
2.
Purpose
2.1.
The purpose of this document is to:
 Provide a framework which organisations can use to build an action based
procurement strategy which addresses identified gaps in procurement capability
and performance.
 Facilitate adoption of best practice sustainable procurement and beneficial
collaboration across the Welsh public sector through implementation of the
model procurement strategy.
2.2.
Strategy actions are linked to the ten components of an effective procurement
organisation. The underlying rationale for the ten components is described in Section
5 and Appendix A. Although addressed separately for the sake of clarity, there is in
reality a high degree of interdependence between components. For example, there is
little point in documenting the application of analytical procurement tools if staff do
not receive training in their use and decision makers are not prepared to support
changes to current practice which might arise from their use. As a result of this
interdependence, it is often possible to identify single actions which will address
numerous gaps in capability and performance across a range of components. In this
way we can devise an integrated procurement strategy which addresses functional
issues such as the means of generating appropriate procurement management
information along with cross cutting themes such as sustainability.
© PMMS Consulting Group 2007
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3.
Best Practice Procurement Documentation
3.1.
A ‘Procurement Strategy’ is but one part of the suite of documents needed to define
and guide application of best practice procurement. The full suite comprises:
Procurement Policy
and Vision
Level 1
Level 2
Level 3
Procurement
Processes
Operational
Procedures
Procurement
Strategy
Standard
Documentation
Policy & Vision
Procurement
Guidance
Supplier
Guidelines
Procurement Planning
Framework
Internal Customer
Guidelines
Operational
Tools &
Techniques
Level 1 contains the organisation’s Procurement Policy endorsed at Executive
Management Team level. It will also include a role statement for Procurement
together with a statement of Procurement’s remit. It highlights the importance of
Procurement as a strategic business process, briefly describes how the organisation
purchases and sets ethical boundaries. It sets out the organisation’s approach to wider
public procurement policy including, for example, private public partnerships, cross
sector collaboration, sustainable development, health and safety, equal opportunities,
racial equality and fair trade. It should be a slim, high quality and easy to read
document.
Level 2, the ‘Procurement Planning Framework,’ comprises the ‘Procurement
Strategy,’ procurement processes and associated guidance.
 The ‘Procurement Strategy’ sets out the means by which procurement policy
objectives will be achieved through prioritised ‘action plans’. These will identify
specific tasks and associated timescales for completion.
 The procurement process provides a structured approach and a ‘route map’ for
undertaking excellent tactical and strategic procurement together with guidelines
on when to employ the full range of strategic procurement tools and techniques.
Linkages with other related processes, principally project management, the
Gateway Review Process and the Sustainable Procurement Assessment
Framework, will also be addressed.
Level 3, ‘Operational Documentation’ comprises:
© PMMS Consulting Group 2007
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 Tools and techniques which describe in detail both the theory and application of
the various tools and techniques referenced in the ‘Procurement Planning
Framework.’
 Standard Documentation such as standard terms and conditions, control
documentation (e.g. approvals sign-off sheets), contract templates etc needed to
support the ‘Procurement Planning Framework’.
 Operational Procedures containing instructions on how to use the purchasing
system, make payments, seek authorisation etc.
 Internal Customer Guidelines where the organisation has a Procurement
Function which provides a service to other departments. These map the
procurement process from the perspective of the internal client and describe how
the Client and Procurement can best work together to deliver the Client’s needs.
 Supplier Guidelines which explain how the organisation will purchase, how
suppliers can sell to the organisation and maps the procurement process from the
supplier’s perspective. This document should be included on the organisation’s
web site.
Documentation should be written in plain English, should be concise and should not
foster a bureaucratic approach. Internal Customer Guidelines and Supplier
Guidelines in particular must be succinct, attractively presented and easy to read.
This guide addresses the ‘Procurement Strategy’ component of the above suite of
documents. The ‘Procurement Strategy’ should be concise, typically no longer than
10 sides of A4.
4.
Procurement Strategy and Strategic Procurement
4.1.
These terms are often confused.
A ‘Procurement Strategy’ is the means by which Procurement Policy will be
achieved. In essence, it is about organising resources and developing processes and
skills in order to maximise procurement contribution to business goals. Often the
Procurement Strategy is, in effect, a plan for change.
‘Strategic Procurement’ is the development of ways of proactively approaching,
interacting with and managing the supply market which take account of:
 The nature of the purchase
 Business needs
 The nature of the supply market both now and in the future
Strategic procurement is about the application of best practice procurement skills to
individual procurements. The objective is to obtain maximum supplier contribution
to business goals.
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5.
Components of the Model Procurement Strategy
5.1.
The core components of the ‘Model Procurement Strategy’ are drawn from a
condensed version of the PMMS Performance Benchmarking Methodology. This
methodology is based on experience of benchmarking over 140 organisations
worldwide in both the public and private sectors and has been used under licence to
undertake procurement fitness checks for Assembly Sponsored Public Bodies, and
Higher and Further Education Institutions. The PMMS methodology pre-dates the
European Foundation of Quality Management (EFQM) based Procurement
Excellence Model but maps to each element of the EFQM model as identified below.
The PMMS methodology is illustrated in Appendix A.
5.2.
Crucially, the PMMS methodology utilises the strategic and tactical procurement
processes and supporting tools and techniques presented through the Value Wales
short course training programme. The ‘Model Procurement Strategy’ is therefore
wholly consistent with the Value Wales training programme, supporting procurement
competency framework and the procurement fitness check methodology.
5.3.
The Model Procurement Strategy addresses:
 Issues to be covered within each of the components of the ‘Procurement Strategy’
 The Gap between current position and desired future position for each
component. Benchmarking against recognised best practice (Fitness Checks) is
necessary to establish the gap.
 Prioritised actions and timescales to address the Gaps.
 Targets to be achieved such as the 3% minimum procurement efficiency target set
by ‘Making the Connections’.
 Measurement of procurement performance, including contribution to sustainable
development, using a Balanced Business Scorecard.
5.4.
The ten components of the ‘Model Procurement Strategy’ are:
5.4.1. Expenditure Profile (EFQM Category - No Equivalent)
 The primary issue here is to understand the scale and importance of procurement
activity in terms of amount of expenditure with suppliers, nature of purchase and
associated business, sustainability and market risks.
 Expenditure Analysis, Pareto Analysis, Category Analysis, Supply Positioning
and application of Sustainable Procurement Risk Assessment, the tools used to
understand the current position, are illustrated in Appendices B and C. Successful
use of these tools, which relies on informed but subjective judgements, requires
training, experience and involvement of stakeholders.
 The above analyses facilitate understanding of how the organisation spends its
money and on what. The extent to which the Procurement Process differentiates
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beneficially between categories of expenditure will be apparent as will
‘Procurement Function’ input to high impact procurement.
5.4.2. Contribution and Influence (EFQM Category - Leadership)
 The primary issue here is to ensure that the Executive Management Team
benefits from and supports effective procurement input so that best practice
procurement is applied to all areas of significant spend.
 The degree of integration of ‘Procurement Strategy’ and wider corporate policy
such as ‘Sustainable Development’, stakeholder feedback and data on contract
leakage and advice sought by stakeholders are methods of assessing
‘Procurement Contribution and Influence’ in the medium to long term. The
Sustainable Procurement Assessment Framework (SPAF), Appendix D, can be
used to gauge an organisation’s current sustainable procurement capability.
 Improvement actions may embrace combinations of recruitment, re-positioning
of procurement resource, ensuring appropriate segregation of authorities, setting
delegated authority levels and establishing corporate procurement performance
measures.
5.4.3. Purchasing and Process Control Framework (EFQM Category - Processes)
 The primary issue here is to ensure that the ‘Best Practice Procurement
Documentation’, Section 3, is put in place and that procurement process
differentiates between tactical and strategic procurement of high and low value see Appendices B and C. Procurement and project management processes must
be mutually supportive and consistent with the ‘Gateway Review’ process. Audit
standards, the keeping of appropriate supplier records and delegation and
segregation of procurement authorities also need to be addressed.
 Data on allocation of procurement resource, benefits derived and risks mitigated
together with stakeholder feedback are all measures of the effectiveness of the
procurement process.
 Improvement actions may embrace re-engineering of the procurement process,
removal of perceived barriers through skills development and redrafting of
procedural and guidance documentation. Integration of procurement and project
management processes and the role of procurement in major projects may be key
improvement areas.
5.4.4. Organisation, Internal Relationships and Cross Sector Collaboration(EFQM
Categories - Partnerships and Resources)
 The primary issue here is to match procurement organisation structure to business
need, organisation culture and procurement function maturity. Viable
organisation models are compared in Appendix E. Other key issues to be
addressed in this section are coordination of devolved procurement resource
(including service line staff with procurement responsibility,) relationship with
internal customers, prioritisation of collaborative opportunity and participation in
beneficial collaborative procurement and projects.
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 Stakeholder feedback, extent of Procurement responsibility for process
leadership, use of mutli-functional teams for high impact procurement and
benefits of collaboration internally and externally are measures of effectiveness
of organisation structure and relationships.
 Improvement actions may embrace re-structuring of the procurement function or
re-positioning of procurement resource, creation of procurement networks
internally and externally and associated communications and coordination
framework.
5.4.5. Supplier Relationship Management (EFQM Categories - Partnerships and
Resources)
 The primary issue here is to establish a migration plan which will enable supplier
assessment, selection and subsequent relationships to be matched to the value,
business risk and sustainability characteristics of the purchase. Ultimately
relationships with suppliers will span from the low engagement contractual end
of the spectrum (Tactical Acquisition) to high engagement collaborative
relationships (Strategic Critical). Supplier performance monitoring and
management will also be addressed in this section. Planned adoption of the Rethinking Construction agenda should be supported within the procurement
strategy.
 Extent to which relationship management plans are in place (addressing desired
results, attributes of the relationship, personal qualities to ensure success,
development needs); use of ‘Supply Positioning’; Sustainable Procurement Risk
Assessment; ‘Supplier Preferencing’; Performance Monitoring techniques are
measures of the quality of supplier relationship management.
 Improvement actions may embrace internal and external facing process reengineering, training and skills development, marketing of the new approach,
prioritised supplier development programmes and implementation of agreed
performance monitoring systems.
5.4.6. Effective Use of Available Technology (EFQM Categories - Partnerships and
Resources)
 The primary issue here is the extent to which systems effectively support the
procurement process (including application of procurement tools and techniques),
provide appropriate procurement management information, facilitate
communication and enable efficient and effective trading with suppliers.
Ensuring that staff are trained to operate the system, have appropriate access and
are able to take full advantage of its functionality is essential.
 The extent to which procurement management information needs are satisfied by
technology, utilisation of existing functionality and process related cost
reductions are measures of the effectiveness of technological systems.
 Improvement actions may embrace acquisition of new systems or, often, simply
taking full advantage of existing functionality. Procurement E-strategy must be
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consistent with wider organisational E-strategy and should consider both internal
needs and engagement with collaborative initiatives.
 The Value Wales procurement card is an easily implemented E-Procurement tool
which substantially reduces the process cost of low value transactions, accelerates
the procurement of low value goods and services and provides high quality and
detailed expenditure data.
 E-Tendering, e-Auctions and associated e-Evaluation tools, which can shorten
timescales and, used appropriately, drive tactical savings, are readily available via
Value Wales.
5.4.7. Staff Capability and Development (EFQM Category - People)
 Key issues here are the qualifications, experience and skills of those engaged in
significant procurement activity. Quality of training and skills development
coupled with attractive career progression and benefits package are also key
issues.
 Qualifications held, the extent to which development plans related to required
competencies are in place, availability of training opportunity and evidence of
staff progression are measures of staff capability and development.
 Improvement actions may embrace staff competency assessment and use of the
Value Wales training and skills development programmes alongside the Value
Wales competency framework, re-positioning of the procurement resource and
re-engineering of the staff performance appraisal and career development
planning system. Exposure of staff such as engineers and IT professionals to
broader procurement concepts will also be a feature of any improvement plan.
The above components constitute the ‘Enabling Foundation’. They are the essential
building blocks necessary to underpin any high performing procurement operation.
The eighth category addresses application of strategic and tactical procurement
practices.
5.4.8. Structured Approach to Effective Purchasing (EFQM Category - No Equivalent)
 The key issue here is the application of procurement tools and techniques to aid
understanding of markets, suppliers and scope to achieve sustainability benefits
in order to optimise strategy and outcomes for individual procurements. A
structured approach which, for high impact procurement, engages key
stakeholders through multi functional teams is essential to ensure full
understanding of business need and to generate stakeholder buy in. This
structured approach should extend to cross sector collaborative procurement. The
PMMS ‘Structured Approach to Strategic Procurement’ is illustrated in Appendix
E.
 Evidence of systematic gathering of market intelligence, use of appropriate tools
and techniques, benefits achieved, procurement strategies which do not rely
exclusively on leverage and stakeholder engagement and feedback are measures
of the extent to which a structured approach to effective purchasing are in place.
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 Improvement actions may embrace training in the use of tools and techniques,
coaching of key staff, marketing of the procurement message to key influencers
and other staff internally and suppliers externally.
 The key procurement tools and techniques needed to devise a strategy for an
individual procurement (i.e. to do strategic procurement) are illustrated in
Appendices B, C and E. Successful use of the tools, many of which rely on
informed but subjective judgements, requires training, experience and
involvement of stakeholders.
5.4.9. Sustainable procurement (economic, environmental and social impact of
procurement decisions)(EFQM Category - No Equivalent)
 Key issues here are the extent to which the Assembly and organisation policy
regarding sustainable development is reflected in procurement policy and
whether procurement process effectively translates policy aspiration into
meaningful procurement outcomes.
 The public sector in Wales has a duty under Section 121 of the Government of
Wales Act 1998 to promote sustainable development through the exercise of its
functions. The National Assembly for Wales’ Sustainable Development Scheme
provides an over-arching framework, and seeks to align procurement policies as
far as legal requirements allow with sustainable development objectives. Value
Wales has established the ‘Sustainable Procurement Programme’ to support
member organisations in their pursuit of more sustainable procurement.
 The Sustainable Procurement Assessment Framework (revised 2006), produced
in conjunction with Forum for the Future, sets out key milestones on the path to
full sustainable procurement capability. It enables organisations to determine
their current capability and the steps they need to take to improve. The
framework is included at Appendix D and can also be found on the ‘Procurement
Route Planner’ component of the Buy4Wales website.
 ‘Sustainable Procurement Risk Assessment’ (SPRA) templates produced in
conjunction with the Environment Agency Wales are also available via the
‘Procurement Route Planner’ and are included at Appendix C. The SPRA
provides questions and suggestions which help ensure a sustainable approach to
procurement. Training in the use of the templates is available through the Value
Wales training programme.
 ‘Opening Doors – The Charter for SME Friendly Procurement’ sets out the steps
the Welsh public sector will take to ensure that SMEs are able to compete on a
level playing field for public sector work.
 The Procurement Strategy should describe the steps to be taken to ensure that the
organisation benefits fully from and implements the commitments given through
the above policies and supporting guidance.
 Decisions based on whole life cost as opposed to initial price, sustainability risks
mitigated or opportunities exploited, savings achieved simultaneously with
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sustainability risk reduction, proportion of external expenditure with SMEs
offering the ‘most economically advantageous’ solution and identification of
developing world supply chain issues are measures of ‘Sustainable Procurement’
success.
 Improvement actions should be based on the above mentioned guidance and be
incorporated within the organisation’s Procurement Strategy. This aspect of the
strategy may need to be marketed vigorously to staff who should be offered the
opportunity to attend the one day Value Wales training course run in conjunction
with the Environment Agency.
5.4.10. Results (EFQM Categories - People, Customer and Society Results; Key
Performance Indicators (KPIs))
 Key issues here are:



Fully defining real business need taking into account stakeholder needs and
relevant policy objectives and constraints.
Linking performance measures to achievement of agreed business needs.
Establishing a framework of KPIs to provide procurement performance data
at corporate, departmental and project levels.
 Improvement actions may embrace use of the Balanced Business Scorecard as the
framework of Key Performance Indicators (KPIs). Measurement should embrace
a range of hard and soft issues which demonstrate procurement’s full contribution
to business goals. A typical scorecard is given below:
Quality of Process & Systems


Purchasing Planning
Framework
Supplier Assessment &
Selection
Suppliers
 Supplier Performance
Assessment
 Supplier Development
Programme
Business Contribution
Contribution to financial
performance
Total Cost of Ownership
Performance
Benchmarking
Internal Relationships &
X Sector Collaboration
Development of specific
Procurement Plans with key
Internal Customers
 Customer Satisfaction
Metrics are normally a mix of output measures (e.g. savings classified as cash and
costs avoided) and utilisation rates (e.g. strategic tools in use as a proportion of
planned usage). A small number of global performance measures should be used for
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corporate reporting purposes whilst business specific measures will be used to drive
improvement programmes.
5.5.
Examples of metrics are:
Quality of Process and Systems
 Order and payment process costs.
 Proportion of low value transactions undertaken electronically or by credit card.
 Utilisation of specified procurement tools and techniques as a proportion of
planned usage.
 Proportion of procurement resource allocated to each quadrant of the ‘Supply
Positioning’ matrix
 Instances of non compliance with agreed process
Business Contribution
 Savings achieved in terms of:
current cost compared to historic cost for the same purchase.
costs avoided such as delayed application of index related increases.

additional services or value included within the original price such as initial
planning undertaken free of charge.

Reduced whole life costs including invest to save projects.
Savings achieved on cross sector collaborative projects.
Major project out-turn cost compared to tender cost.
Value of outstanding contractual claims against the organisation.
Proportion of the total value of contracts awarded to SMEs.
Examples of environmental gains which also reduce costs.
Sustainability risks avoided or mitigated e.g. reduced emissions from fleet
vehicles, reduced volumes of packaging of IT equipment and furniture.








Suppliers
 Proportion of suppliers providing a satisfactory level of service
 Value of relationship driven cost reduction as a proportion of total expenditure
e.g. post award project savings arising from value management exercises or
process changes introduced jointly or by suppliers.
 Number of supplier development and relationship management plans in place as a
proportion of planned numbers.
 Number of contracts won by Welsh businesses.
Internal Relationships and Cross Sector Collaboration
 Customer feedback via questionnaires
 Procurement resource engaged in cross sector collaboration as a proportion of
planned engagement.
 Proportion of external expenditure above the de-minimus level subject to
meaningful procurement input.
 Proportion of procurement processes where procurement is responsible for
process leadership.
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 Proportion of internal customers that produce a forward procurement plan which
they share with procurement.
6.
Where do we start?
6.1.
The start point is to know where the organisation currently stands in comparison with
a reliable view of best practice and how the function is viewed by stakeholders and
customers. The organisation can then determine how far it needs to progress towards
best practice, what needs to be done in order to progress, how long it will take to get
there and whether action is needed to alter perceptions of its performance.
6.2.
Each organisation needs to establish a process which will achieve the above.
Benchmarking against recognised best practice is a proven method for establishing
the gap. In some sectors Value Wales has supported the use of procurement fitness
checks to establish the baseline, assess the gap between current and desired position
and identify actions to close that gap. The PMMS benchmarking process has been
used to undertake fitness checks in the ASPB, and Higher and Further Educations
Sectors. The process is illustrated in Appendix A. Local Government has used the
IDeA Procurement Excellence Model.
6.3.
Organisations may also utilise other benchmarking processes or sectoral
collaborative initiatives to assess their position. The Procurement Excellence Model
(derived from the EFQM model) can be used as an internal assessment tool, and
maps well against the PMMS Procurement Strategy headings. It is recommended that
organisations consult internally with stakeholders to agree the procurement
function’s strengths and weaknesses and set priorities for change. This is particularly
important to ensure that the organisation has in place the resources to deliver the
eventual action plan, and that the plan is consistent with the overall organisational
objectives.
6.4.
Once an action plan is agreed, the organisation can then measure progress against it.
Further fitness checks would normally be conducted towards the end of the
anticipated implementation programme to determine how well the new strategy is
being implemented and whether further improvement should be sought.
6.5.
It is envisaged that most procurement strategies will be implemented progressively
within three years.
7.
Communicating the Strategy
7.1.
The success of the strategy will depend on the extent of organisational buy-in. In
addition to consulting during its creation, it is important to effectively communicate
both its purpose and how it fits into the overall organisational objectives.
7.2.
A communications plan should be developed which identifies and segments the
target audience so that each group receives the information it needs, at the right time
and in the most effective way. It should be noted that e mail and printed circulars are
the least effective means of communication. Face to face communication is the most
effective. Information to be communicated should therefore be prioritised in order to
determine the most cost effective means of communication.
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7.3.
Executive management commitment and support must be evident when
communicating key information.
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APPENDIX A
BENCHMARKING PROCUREMENT PERFORMANCE
(Procurement Fitness Health Checks)
1: METHODOLOGY
‘Procurement Strategy Guidance’ is based on a simplified PMMS evaluation methodology
which defines supply chain and purchasing operations in terms of eight separate but interrelated areas of activity which together make up the Purchasing Excellence Profile below.
This methodology will be used for VALUE WALES supported ‘Procurement Fitness
Health Checks.’
PMMS Purchasing Excellence Profile
1.
2.
3.
4.
5.
6.
Contribution and Influence
Purchasing Process & Controls
Organisational and Internal Relationships
Supplier Relationship Management
Effective Use of Available Technology
Staff Capability and Development
7. Structured Approach to Effective Purchasing
Enabling
Foundation
Strategic Procurement
8. Sustainable Procurement

The first six areas are known as the Enabling Foundation and represent the essential
building blocks necessary to underpin any high performing procurement operation. The
seventh category measures the extent to which excellent sourcing practices (both
strategic and tactical) are employed, their business impact and how securely these are
embedded within the organisation. The eighth category examines how effectively
environmental issues are addressed by the procurement process and the organisation’s
commitment and ability to implement the process.

Based upon a programme of structured interviews (with Procurement staff, key internal
customers/stakeholders and, where appropriate, selected suppliers and/or
customers/clients), together with analysis of available information and data, purchasing
performance in each of the eight categories can be rated against best practice. PMMS’s
definition of ‘best practice’ is based upon its extensive international consultancy and
benchmarking experience.

An overall performance benchmark rating can then be built up for the eight categories to
clearly show how the Client’s procurement operation compares with both best practice
and the PMMS Database. A rating is then assigned in terms of Unclassified (on a scale of
1 to 9), Bronze, Silver and Gold Standard. The Gold Standard corresponds to a
benchmark score of about 60% of very best practice which would place the organization
in the top quartile of the PMMS database. The Silver standard corresponds to a score of
about 40% of very best practice which would place the organization at the bottom of the
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second quartile whilst a bronze standard (20%) would place the organization at the top of
the bottom quartile.

A ‘gap analysis’ is then undertaken to clearly identify the ‘gaps’ between the Client’s
current procurement operation and best practice. As a result, Client specific
Recommendations for improvements are made which are underpinned by definitive
and prioritised Action Plans and targets.
Within the eight categories, the more detailed areas – or ‘pulse points’ - which are
assessed are shown below:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The role and contribution of Procurement
Purchasing Policies and Procedures
The end to end purchasing process
Documentation and Controls
Terms and Conditions
Handling low value transactions
Managing commercial risk
Organisation and structure
Internal relationships
Measuring procurement performance and contribution
Developing and managing supplier relationships
Supplier and supply base information
Supplier performance measurement and management
Supplier development
Purchasing systems strategy
Knowledge management
Use of information technology, including e-procurement
People quality, competencies and training/development
Procurement and procurement strategy planning
Use of procurement tools and techniques, including negotiation
The effective implementation of procurement strategies
The key steps in the evaluation process are illustrated below.
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2: PROCESS
Kick-off Meeting
‘Diagonal Slice’:
• Procurement
• Internal Customers
• Stakeholders
• Key Clients
Structured Interviews
• Metrics
• Processes
• Relationships
Data Collection & Analysis
‘Snapshot’ of today’s
purchasing operation
Performance assessed against PMMS Procurement Excellence
Profile
Preliminary Findings &
Conclusions
Interim Review
Performance
Benchmarking Analysis
‘Gap’ Analysis
Recommendations &
Action Plans to deliver
Client Report/Presentation
Final Review
From a thorough understanding of the Client’s current procurement operation and the use
of the PMMS Purchasing Excellence Profile, detailed Recommendations and prioritised
Action Pans are developed to reflect both the issues/’gaps’ identified and the Client’s
business needs. The following implementation time frames are typical:
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Immediate
0 - 3 months
Short Term
3 - 12 months
Medium term
1 - 2 years
Longer term
2 - 3 years
The final report and/or presentation comprises:







An Executive Summary
Detailed ‘snapshot’ the Client’s current purchasing operation
Comparison with best practice and the PMMS ‘Purchasing Excellence
Profile’
‘Gap Analysis’
Detailed recommendations for improvements and identification of potential
benefits
Prioritised Action Plans
A ‘Business Case’ for implementation
© PMMS Consulting Group 2007
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APPENDIX B
PARETO ANALYSIS AND SUPPLY POSITIONING
Supply Base Analysis - Use of the ‘Pareto’ Principle
The ‘Pareto’ Principle, sometimes known as the 80:20 rule, is used to identify an
organisation’s expenditure profile with suppliers. Annual expenditure with each supplier is
tabulated, starting with the largest supplier first. Cumulative supplier (spend with a
particular supplier added to expenditure with all preceding suppliers) is then calculated and
Cumulative No of Suppliers
0
5
10
15 suppliers
20 to produce
30
100 curve:
plotted against
cumulative
numbers
of
the50following
Cumulative Spend
0
23
47
67
80
92
98
100
SUPPLY BASE PARETO ANALYSIS - CLASSIC 80:20 CURVE
120
100
100
90
80
Series1
60
80
Series2
Cumulative Value (%)
40
70
20
60
0
0
1
50
2 2
3
44
56
6
8
7
10
8
20% of Suppliers account for 80% of
Spend
40
 50% of Suppliers account for just 2% of
30
Spend - ‘The Tail’
20
10
0
0
10
20
30
40
50
60
70
80
90
100
Cum ulative Suppliers (%)
In the classic ‘Pareto’ shown above, the largest 20% of suppliers account for 80% of all
expenditure with suppliers whilst small suppliers comprising 50% of the supply base
account for only 2% of supplier spend. The actual shape of the curve will vary from
organization to organization.
A similar result will be obtained if cumulative value is plotted against cumulative number
of transactions.
The analysis clearly differentiates the small suppliers from the large. It enables assessment
of the cost of processing low value orders and thus identifies where processing efficiency
savings can be made.
The analysis identifies areas where the organisation should focus procurement attention.
There is little point in focusing attention on the 50% of small suppliers forming the tail in
the above diagram, where good or poor procurement would have only marginal impact on
overall costs. However, this analysis fails to take account of low value purchases which are
critical to successful business outcomes and/or where the buyer has little influence in the
market for that particular commodity or where the market is not inherently competitive.
The Pareto analysis also fails to differentiate between high value commodities where
playing the market will achieve best value and circumstances where it will not.
© PMMS Consulting Group 2007
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The technique used to combine Pareto analysis with an analysis of business and market risk
is called ‘Supply Positioning’.
Supply Positioning
Supply Positioning is used as a key tool in analysing and understanding the current supply
marketplace.
The Supply Positioning technique provides a mechanism for discriminating between the
various goods and services which are purchased and for developing specific procurement
strategies to meet the needs of the organisation with respect to each item or class of items.
It can also be a very powerful tool in working with the internal Customer to fully explore
and understand the nature of the particular purchase.
Setting up the Supply Positioning Analysis
The first step in developing a Supply Positioning analysis is to list all the goods and
services which are purchased i.e. the various purchasing Categories and Sub-categories.
The second step is to plot each of these items on a two dimensional chart in which the xaxis represents the relative cost of the item (or category) and the y-axis represents supply
exposure or potential vulnerability.
X
X
X
1. Market difficulty
2. Complexity of switching
3. Business impact
4. Sustainability risk (considered separately)
X
X
X
X
X
X
Relative Cost
Risk/Exposure
The positioning on the y-axis of a purchase/category is a function of three considerations,
namely:
1. The extent of real market competition. If the supply market is truly competitive with
many suppliers eager to win the business, the purchase would be positioned low on the
Risk/Exposure axis. As the market becomes increasingly constrained (e.g. because of
few suppliers or the operation of cartels), the purchase will be positioned progressively
higher.
2. The difficulty and complexity of switching suppliers or product. The easier the ability
to ‘switch’, the lower the positioning on the Risk/Exposure axis.
3. The potential business impact if there is a disruption, for whatever reason in the supply
chain e.g. the supplier going out of business, industrial action, a fire at the production
© PMMS Consulting Group 2007
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facility etc. ‘Business impact’ can represent loss of profit, disruption to a key new
product development programme, environmental impact, PR impact, the impact on
relationships with key customers, government or shareholders etc. The larger the
potential business impact, the higher the positioning on the y-axis.
4. Sustainability risk is considered separately to ensure clarity of analysis. Sustainability
risk is a relatively new concept and is addressed in Value Wales (Procurement)
Sustainable Procurement Guidance. No further references are provided in this section.
The complexity and nature of typical supply chains needs to be considered when assessing
market competition and the ease of switching supplier. Similarly supply chain impacts in
terms of environmental risk and exploitation of developing world labour must be taken into
account. These ‘sustainability’ risks should be assessed separately using the ‘Supply
Positioning’ methodology with market risk replaced by sustainability risk. A clear picture
of the three core elements of risk viz market, business and sustainability will then be
available. Assessment of sustainability risks is a developing science and will be addressed
in subsequent guidance dealing with ‘Sustainable Procurement Strategy.’
In each case organisations must define the y-axis according to its own situation and needs
taking account of wider public sector policy.
% of Total Expenditure
The positioning on the x-axis is determined by what proportion of the total expenditure
(annual spend) is associated with the particular purchase or category under consideration.
Typically, the vertical line dividing Tactical Acquisition and Strategic Security from
Tactical Profit and Strategic Critical is positioned at 0.3 – 0.5% of total expenditure.
Another way of looking at the positioning of the vertical dividing line is that the sum of all
of the expenditures associated with purchases/categories to the left of the line (i.e. Tactical
Acquisition and Strategic Security) typically should represent 5 – 10% of total spend. Thus
50% to 70% of suppliers in the ‘tail’ identified on the ‘Pareto’ curve will be captured to the
left of the divide line.
This initial positioning can be the subject of vigorous discussion as individuals may well
hold different views as to the relative importance and exposure of some items. This debate
can be extremely beneficial in arriving at the agreed positioning and is why it is
recommended that the Supply Positioning analysis be a joint activity wherever possible
between Procurement and Internal Clients, often via a multi-functional team approach.
Supply Market Segmentation
With the initial positioning complete, the next stage is to segment the market by dividing
the chart into four quadrants.......
© PMMS Consulting Group 2007
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1: Market difficulty
2: Complexity of
switching
3: Business impact
STRATEGIC
SECURITY
STRATEGIC
CRITICAL
TACTICAL
ACQUISITION
TACTICAL
PROFIT
% of Total
Expenditure
It will be seen that each of the four quadrants has been assigned a name which in part
describes the nature of the purchases positioned within them.
Thus the items in the bottom left quadrant will be of low value and with a low business
exposure because they have no special quality, safety, reliability or environmental
implications and there are probably many suppliers in the market able to meet your
demand. These items are classified as
Tactical Acquisition.
The items in the top left-hand quadrant are also of low value but in this case, there are
quality, safety, reliability or environmental considerations together with a shortage of
product or suppliers. Included in this category, which is called Strategic Security, might
be goods obtained from a monopoly supplier or items with very tight or ‘bespoke’
specifications. These items are critical to the operation but are low in cost.
The bottom right quadrant contains items which are of relatively high cost but where there
are no quality, safety, reliability or environmental issues and where there are likely to be
plenty of suppliers. These items are classified as Tactical Profit.
Finally, the items positioned in the top right quadrant are classified as Strategic Critical.
They are high cost and either have significant quality, safety, reliability or environmental
considerations or are sourced from a difficult market in which there are relatively few
supplies and suppliers. As the name implies, these are critical to the overall profitability
and/or competitiveness of the organisation.
Purchasing Goals
It will be seen that purchases positioned in the four quadrants have considerably diverse
characteristics. Not surprisingly, the purchasing goals and objectives will be quite different
in each of the quadrants......
© PMMS Consulting Group 2007
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STRATEGIC SECURITY
ENSURE
SUPPLY
1. Market difficulty
2. Complexity of
switching
3. Business impact
STRATEGIC CRITICAL
MANAGE
SUPPLIER
TACTICAL
ACQUISITION
TACTICAL
ACQUISITION
MINIMISE
ATTENTION
TACTICAL PROFIT
DRIVE
PROFIT
Relative
Cost
There will be a myriad of purchases which fall into the category of Tactical Acquisition.
These items, being of low value and carrying low business risk, are those on which the
minimum amount of time should be spent. The objective will be to automate, simplify
and/or delegate the purchasing processes as far as is possible and to minimise the attention
which they need to be given.
Strategic Security purchases, whilst being of low value, are nevertheless critical to the
sound operation of the business. Here, the major goal will be to ensure supplies, albeit
even at some price premium if necessary, since overall the business will be insensitive to
the cost of these items. Nevertheless, these items should be kept under frequent review to
ensure that they do not become a major cost item (and thus move to the right) and efforts
should be made to find ways of being able to reposition Strategic Security purchases into
the Tactical Acquisition quadrant, for example, by moving away from a bespoke
specification to a proprietary product. Buyers will need to keep close to the supply market,
watching out for movements in the supplier base and technical innovations.
Tactical Profit items are of high cost but have no major complications with respect to
quality, safety, and reliability. In addition, there will be an adequate number of suppliers
operating in a competitive marketplace.
It is in this area that buyers can seek out
opportunities to cut cost and thus improve profit through using innovation and competition.
With a competitive supply market, they can afford to take risks and ‘wheel and deal’.
Buyers will need to be very knowledgeable of the supply market within which they are
operating. It is in this quadrant that a buyer’s negotiating skills can be used to particular
advantage.
The situation in the last category, Strategic Critical, is quite different. These purchases are
of high cost and so every effort has to be made to reduce their financial impact but, at the
same time, it is not possible to trade in the manner suggested for Tactical Profit. It will be
essential to ensure availability of supply but close price management will also be
necessary. All such purchases must be kept under continuous review, hopefully with the
objective of finding new suppliers or overcoming some of the special considerations which
prevent the use of competition. Buyers will need to keep in very close touch with the
© PMMS Consulting Group 2007
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supply market, monitoring supply/demand balances and vendor dependencies. Buyers will
spend considerable effort in managing and developing existing suppliers to ensure that they
are capable of meeting demands (currently and in the future) and to progressively improve
supplier performance and contribution.
Purchasing Action Scenarios
The foregoing has concentrated on the differing goals and objectives within the four Supply
Positioning quadrants. It is now possible to develop the concept further to examine the
appropriate purchasing actions which might be taken in support of these goals..........
STRATEGIC CRITICAL
STRATEGIC SECURITY
1. Market difficulty
2. Complexity of
switching
3. Business impact

Long term contracts

Stockholding

Alternative products

Price indexation
TACTICAL ACQUISITION








Detailed market & supplier
knowledge
Purchase Price & Cost Analysis
(PPCA)
Manage/develop supplier
Contingency planning
TACTICAL PROFIT




Purchasing Cards
Call-off Contracts
User Purchasing
e- purchasing
Short Term Contracts
Framework Contracts
Market Knowledge
Flexibility
Relative
Cost
Taking the quadrants in the same order as before results in the following:
Tactical Acquisition
The main objective here is to simplify as far as is possible the entire sourcing process and
have as few people as possible involved in it. This can be achieved in a number of ways:

Allowing Clients to make direct one-off purchases without the need to refer to
Procurement. Thus, instead of completing a Requisition to be passed to Procurement
for action, the Client may complete a simplified Purchase Order. Procurement’s role is
to create and implement a simplified Purchase Order process which is easy to use but at
the same time creates records of the transactions control purposes and subsequent
analysis.
© PMMS Consulting Group 2007
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
The creation by Procurement of ‘Call-off Contracts’ or ‘Blanket Orders’ which enable
Clients to easily place orders directly with selected suppliers but where all prices, terms
and conditions have been previously agreed.

Purchasing Cards enable nominated users to purchase small items directly up to a
prescribed maximum value per transaction and/or up to a prescribed maximum monthly
expenditure level. Details of all purchases are provided on a monthly basis to card
holders and their managers for control purposes.

e-ordering (or e-purchasing) enables users to place orders directly via their PC with
selected suppliers utilising screen based supplier catalogues.

Grouping together a number of small items into a larger package and establishing one
supplier to handle all of them. For example, an office facility could group together
cleaning, gardening, pest control and janitorial supplies into one service contract.

Streamlining payment systems, if possible eliminating the need for invoices. Systems
could include providing users with Purchasing Cards, e-purchasing (see above) or
monthly payment to the supplier on delivered quantities without the need for the
supplier to invoice.
Providing suitable control mechanisms are put in place, all of the above approaches can be
satisfactorily accomplished without undue risk or exposure.
Overall, the emphasis in this Tactical Acquisition area should be to make it as easy as
possible for the user to obtain the goods or services required using simple, low cost
procedures and systems. Procurement’s role is primarily to work closely with internal
Customers to develop and put in place such user friendly processes thereby ensuring that
the procurement focus is directed to those areas where Procurement’s involvement and
expertise really can contribute to corporate performance.
In line with the theme of minimising attention, the mental set for Tactical Acquisition
purchasing should be ‘Let it go!’
Strategic Security
In the Strategic Security quadrant, the emphasis should be on longer term contracts with the
use of indices and formulae to fix prices and the setting up of buffer stocks to achieve
security of supply. Both indexation and buffer stocks are reasonable propositions in this
scenario where the annual cost of items is very low and thus the search for competitive
value for money is not paramount.
Examples of Strategic Security purchases could be bespoke software, spares, safety
equipment, specialist consultancy services or key product components.
In line with the theme of ‘security of supply’, the mental set for Strategic Security
purchases should be ‘Reduce the Problem’.
Tactical Profit
In contrast, the priority within the Tactical Profit category will typically be on shorter term
contracts to enable the buyer to constantly seek out and take full advantage of lower cost
© PMMS Consulting Group 2007
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suppliers. Buyers will pursue a very active sourcing policy to find new suppliers or new
products. They will be driven by the need to make a significant contribution to corporate
profit by reducing costs in this premium area.
It should be noted that shorter term contracts are not always appropriate for Tactical Profit
purchases. An example here could be in-house catering. This is usually a Tactical Profit
purchase because of the number of catering companies capable of providing this service
and the relatively low associated business risk. However, there is a fairly steep learning for
any new supplier as it becomes familiar with the requirements of the organisation and its
staff. As such, this is not a contract that lends itself to a change of supplier every year and
this type of in-house catering contract could typically be of (say) 3 years duration.
Typical Tactical Profit purchases could include travel, temporary staff, vehicles and
company cars, in-house catering, energy/utilities, building maintenance, petrol and DERV
for company vehicles, PCs and telephone tariffs.
Overall, the emphasis in the Tactical Profit quadrant will be to assist margin; that is to take
full advantage of market competition to obtain competitive purchase prices in order to
increase corporate profitability. Sourcing can range from local to global.
In line with a theme of ‘wheeling and dealing’ to maximise profit, the mental set for
Tactical Profit purchases is ‘Trade’.
Strategic Critical
The Strategic Critical category will require the highest level of procurement skills. In some
circumstances, long term contracts may be very suitable, but in others medium term
contract lengths would be preferred. Buyers will need to obtain detailed information on
individual suppliers and be seeking to continuously develop them to mutual advantage. It
is in this area where the ‘partnership’ concept (or ‘strategic alliances’) can most effectively
be employed. Price will need to be closely monitored and controlled using Purchase Price
and Cost Analysis (PPCA). All of the purchases will need to be kept under continuous
review to ensure that suppliers can continue to supply and that prices are kept within
reasonable bounds.
Overall, the emphasis in this Strategic Critical quadrant will be to assist competitiveness.
This is wider than just price advantage and would include rapid product innovation, earlier
time to market and superior product quality. Sourcing can be national, regional or global.
In line with the theme of ‘managing the supplier’, the mental set for Strategic Critical
purchases is likely to be ‘Searching’.
Application of the Supply Positioning Tool enables an organization to determine the right
generic approach to procurement of each commodity purchased. It provides the means by
which an organization is able to differentiate its approach to procurement and is the
foundation of an effective ‘Procurement Strategy’. However achieving the outcomes
targeted through the ‘Procurement Strategy’ will very much depend on how effectively the
organization engages with suppliers in each quadrant of the model. Skillful application of
the full range of procurement tools and techniques is required to ensure success.
© PMMS Consulting Group 2007
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APPENDIX C
SUSTAINABLE PROCUREMENT PROCESS AND TOOLS
Sustainability can be considered at many stages in the procurement process.
Gateway Review Process
(for procurement projects)
Procurement Process
Strategic Procurement Plan
Establish basic business need
Develop programme or project brief
Corporate supply positioning model
Indicative costs & timescales
Assess primary risks
Gate 0
Strategic Assessment
Develop Business Case
Gate 1
Business Justification
Identify and appraise options
Preferred solution identified
Reliable costs & benefits assessed
Outline risk management plan
VFM established
Sustainability Components of the
Procurement Process
Project Centred Procurement
Need for sustainability expertise identified
Environmental Impact Assessment (opportunities &
risks) identified for each solution
Non Project Centred Procurement
Supply Positioning of broad commodity area
Corporate Sustainability Supply Positioning
Common
Initial whole life costing for comparison of options &
business case
Develop Procurement Strategy
Phase 1
Market analysis
Procurement strategy options & selection
EC Procurement route
Reverse Marketing
Gate 2
Procurement strategy
Competitive Procurement
Phase 2
Prequalification
Invite & evaluate tenders
Final business case
Award contract if funds available
Gate 3
Investment Decision
Award &Implement Contract
Phase 3
Management plans prepared
Business ready for service?
Business case still valid?
Gate 4
Readiness for Service
Sustainable Procurement Risk Assessment guides for
goods and services
Sustainability specification vs selection & award
criteria
Talk to suppliers – market proposition & build
influence
Detailed Sustainability components of specification
Sustainability pre-qualification questionnaires and
assessment
Detailed quality price selection criteria
Whole life cost comparison of tenders and final
business case - use discounted costs and benefits
where appropriate
Manage Contract
Phase 4
Actual costs and
benefits
Lessons learnt
Develop future plans
Gate 5
Benefits Evaluation
Sustainability impact monitoring
Sustainability lessons learnt
Skills & process development needs identified
Supplier development
Closure
Integration of Sustainability into the Procurement Process
Fig 1
Opportunities to take account of sustainability are mapped to four phases of the
procurement route planner and the five decision review points of the project centred
Gateway process as shown in Fig 1 above. This guideline addresses application of
sustainability tools and techniques to these four procurement phases but, for the sake of
completeness, includes an overview of sustainability components of a typical forward
planning process (the Strategic Procurement Plan).
© PMMS Consulting Group 2007
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Forward Planning of Procurement Programmes

Strategic Procurement Plan
An organisation’s ‘Strategic Procurement Plan’ is influenced by many factors including
business plans (the forward look) and application of supply positioning across historic
supplier spend (the backward look).
Sustainability is taken into account at this stage through application of the
Sustainability Supply Positioning tool
Each commodity is positioned in relation to:



Sustainability risk
Scope to do more than is currently done
Extent to which CCW (individually or in collaboration with others) can influence
key suppliers.
The methodology used to assess sustainability risk and scope to do more is that
recommended by the Government sponsored ‘Sustainable Procurement Task Force’ in
their 2006 report ‘Procuring the Future – Sustainable Procurement National Action
Plan’.
National top priority commodities based on the Task Force analysis of UK public
sector expenditure are:
C o m m o d ity
C onstruction - building and refit
C onstruction - operation and m aintenance
C onstruction - highw ays and local roads
H ealth and social w ork
Pharm aceuticals
C onsum ables - office m achinery and com puters
W aste
Post, telecom m unications, radio and T V
T ransport - business travel
IT services
Energy
F ood
T ransport - m otor vehicles
Pulp, paper and printing
F urniture
U niform s/clothing and other textiles
C hem icals
C onsum ables - w hite goods
T o tal
Pu b lic E xp en d itu re
£m
M arket S h are
22,252
(com bined)
21,290
8,927
6,503
4,529
4,214
3,763
3,569
3,544
3,154
2,191
1,664
1,163
1,022
490
125
H igh
H igh
H igh
H igh
H igh
H igh
M ed
M ed
M ed
M ed
M ed
H igh
H igh
M ed
M ed
M ed
88,400
C /F T o tal Pu b lic P ro cu rem en t S p en d o f ab o u t
150,000
An organisation’s influence in the markets in which it buys is measured using the
Supplier Preferencing tool..
The combination of the National top priority commodities and the highest priorities for
an organisation enables the organisation to identify those aspects of it’s expenditure
© PMMS Consulting Group 2007
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where it (individually or in collaboration with others) can have the greatest impact in
terms of the three components of sustainability:



Environmental
Economic
Social.
The procurement function should lead the application of supply positioning (including
sustainability) and supplier preferencing at the corporate level working with the front
line staff with most involvement in each of the commodity areas.
In terms of sustainability, the purpose of this stage of the procurement planning process
is to understand where an organisation has most potential to leverage positive change
through the money it spends with suppliers by focussing attention on commodities
where:
Expenditure is high
Sustainability risk is high
Lots of scope to do more
Able to influence suppliers
Organisations should seek to exert influence at two levels:


By working with others to identify improvement opportunities for common top
priority commodities. Improvement could take many forms including standardised
specifications, joint supplier development, aggregated expenditure, encouragement
to innovation etc

For specific procurements, to apply procurement tools and techniques to each of the
four phases of the procurement process taking account of any environmental impact
assessment conducted at the business case stage for infrastructure project related
procurement.
Develop Business Case
The second stage of the Procurement Process, the Business Case, deals with the
justification of expenditure, usually on projects. Estimated costs of the project will
include an allowance for any goods and services which need to be procured. When the
business case is approved, a firm start date is scheduled in the forward programme.
© PMMS Consulting Group 2007
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For non project spend, approval to commit in house resource to a procurement exercise
is given by a manager with appropriate delegated authority.
For project related expenditure, preliminary environmental impact assessments are
often included in the business case for each project. Where conducted these
assessments provide more detailed sustainability insights which may influence our
understanding of priorities gained through the Sustainability Supply Positioning
analysis described above.
The Four Phases of the Detailed Procurement Process
Procurement starts in earnest once resources are committed to a project or commodity. The
following tools help identify actions which can be taken to improve sustainability outcomes
in relation to specific procurements and to ensure that wherever possible we procure on the
basis of whole life cost.
Sustainability can be taken into account at each of the four phases of the procurement
process. Fig 1 uses terminology linked to the Office of Government Commerce Gateway
Process which maps to the four phases of the Value Wales Procurement Route Planner, as
follows:
Phase

Procurement Route Planner
Gateway
1
Planning
Develop Procurement Strategy
2
Tendering and Bidding
Competitive Procurement
3
Contract Award
Award and Implement Contract
4
Contract management
Manage Contract
Phase 1: Planning

Use the Sustainable Procurement Risk Assessments (SPRA) for Goods and Services
to help ascertain:
•
Risks associated with the goods or services to be procured
•
Scope to do more
The guides identify key issues to probe and provide many helpful suggestions on
ways to do more in terms of sustainability.
SPRAs for goods and services are included at Annex A.

A Specification translates agreed business need into contractual obligations. It is a
requirement of EU legislation that specifications must provide a level playing field
© PMMS Consulting Group 2007
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for competition between all appropriately qualified suppliers who wish to compete.
In broad terms, the specification provides the best opportunity to take account
of sustainability in that any aspect of sustainability can be specified provided it is
relevant to the goods, services or works to be purchased and does not discriminate
in favour or against a particular supplier or group of suppliers i.e. the level playing
field is maintained. Specifying sustainability requirements provides certainty of
outcome since offers which do not meet the specified requirements must be
rejected. The legislation highlights the following ways of addressing
sustainability through specifications:
•
Eco labels can be used to help specify environmentally friendly products. Eco
labels take many forms and some are little more than marketing hype. However,
those produced by independent bodies provide a detailed ‘sustainability’
specification for a particular product or service. Currently eco labels are limited
to products. Reputable and well known eco labels are summarised at Annex B to
this guideline.
•
Most eco labels address issues that relate to the sustainability characteristics of
the product being purchased, are therefore directly relevant to the purchase and
can therefore be used. Those such as the Fair trade Mark or Rug Mark however,
relate to social conditions applicable to the workforce and their use within
specifications for public purchase has been held to be in breach of EU
legislation on the basis that they are too far removed from the subject matter of
the purchase. Organic food, on the other hand, may be specified since the
organic eco label addresses the way in which the food is produced and is
therefore related to the subject matter of the purchase.
Note:
1. Fair trade products can still be acquired by asking existing suppliers of food,
for example, to include Fair Trade products in their offering.
2. It is the specification supporting the eco label which can be incorporated
within specifications. We cannot specify that a supplier is accredited under the
terms of the eco label although this may be taken as proof of compliance with
our specification.
3. Although not permissible to specify products conforming with the
specification supporting an eco label which addresses social aspects, such as the
Fair Trade Mark, in addition to aspects relating to the quality of a product, it is
permissible to specify compliance with the quality related aspects of the eco
label.
•
Buying Solutions Quick Win Specifications identify minimum sustainability
criteria for a wide range of commonly used products. Those currently available
are included at Annex B.
•
Green production standards may be specified provided they are relevant to the
manufacture of the product being purchased. Thus, green electricity may be
specified but a requirement in a contract for the purchase of pens that a
manufacturer must use recycled paper in its offices would be in breach of the
© PMMS Consulting Group 2007
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legislation. We cannot impose sustainability requirements on issues which are
unrelated to the goods, services or works being procured.

•
The way in which a service is provided may be specified provided it is related to
the subject matter of the purchase. For example, suppliers can be required to
monitor noise levels to ensure they do not exceed specified levels when working
in public places.
•
Qualifications may be specified for those delivering a service. For example, if
the ability to speak Welsh is necessary to perform the service, then this may be
specified.
•
Variant bids may be invited to test the consequences of more demanding
sustainability requirements. The minimum and progressively higher
sustainability standards are specified and bids are invited against each.
Consequences of the higher standards are visible enabling an organisation to
select the preferred standard and award the contract to the supplier offering best
value for money for the selected standard.
However, before considering how to specify the goods or services in detail, test the
business need:
•
Do we really need it?
•
Can the need be met in another way?
•
Can we reduce the quantity or scale of the product or service whilst achieving
the same outcome?
•
Can the product/service be specified to serve a useful purpose after its initial
use?
Remember this is likely to be the last opportunity to test the business need prior to
the competitive procurement process.

Phase 2: Tendering and Bidding

EU legislation prescribes what can be taken into account at the selection stage in
relation to three areas:
•
•
•
Personal situation of the company or those with a controlling interest in the
company
Economic standing of the company
Technical ability
Sustainability can be taken into account in relation to personal situation and
technical ability when selecting suppliers in a pre qualification process or ensuring
that those bidding through the open procedure are qualified to undertake the work.
Under personal situation, a company or individuals with a controlling interest in a
company, convicted by final judgement of a breach of environmental or social
legislation, may be excluded from the competitive process.
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Under technical ability, those with a poor track record on environmental or social
requirements may be rejected if they fail to meet the minimum standards specified.
Ability of applicants to apply environmental management measures for works and
services contracts may be assessed but only where these measures are relevant to
the construction or services to be performed. For example the ability to measure and
record dust levels and noise levels on a construction site may be a selection
criterion where noise and dust would cause a nuisance or adversely affect the
workforce, Accreditation to ISO 14001 or EMAS could be taken as proof of the
ability to apply the required management measures provided the accreditation
covered this aspect of environmental management.

Contract award criteria enable an organisation to judge which bid best meets its
specified needs in value for money terms i.e the best combination of price and
quality, where sustainability can be included as one or more quality criteria and can
also be taken into account through the assessment of whole life costs – see Phase 3:
Contract Award. Award criteria are therefore linked to specified requirements.
Award criteria must relate to the intrinsic quality of each of the bids and not to
secondary issues such as wider costs and benefits i.e. they must relate to the subject
matter of the contract. However, not all award criteria need to convey an economic
advantage but taken together they must enable the best value bid to be identified.
Furthermore, award criteria must be objective and sufficiently precise to ensure that
they would be interpreted in the same way by all bidders with reasonable
experience of the work being tendered.

Key ways in which account may be taken of sustainability issues in the procurement
process are summarised below:
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Specification
• Sustainability requirements
• Green production standards and relevant aspects of eco labels
• Special (including environmental and social) conditions relating to
the performance of a contract if compatible with community law
• Variants may be used to test the consequences of more demanding
sustainability requirements – select on the basis of best VFM at the
desired level.
Selection
• Environmental management measures (incl accreditations such as
ISO 1400 series) may be assessed for works and services contracts –
proof of equivalence must be accepted.
• Suppliers may be excluded for proven non compliance with
environmental or social legislation or de-selected on grounds of a poor
track record on environmental and social requirements.
Award
• Award criteria may include environmental characteristics if linked to
the subject matter of the contract
• Relevant contracts may be limited to ‘sheltered workshops
(supported businesses)’

Phase 3: Contract Award

Using whole life cost as the price component of the most economically
advantageous tender is the final way in which sustainability can influence the
outcome of the procurement process.

Whole life costs can include, for example:
•
•
•
•
•
Initial purchase price.
Cost of modifications to existing infrastructure to accommodate the new
purchase e.g.consequential cost of changing to another IT services provider.
Maintenance costs
Operating costs
Disposal costs
Buying on the basis of whole life cost can transform our perception of what we are
purchasing. For example when we buy a pump, are we buying a machine to move
liquid or are we buying a machine which consumes electricity or both?

Whole life cost can be substantially different to initial purchase price. Research
conducted by Intel, the computer chip manufacturer, suggests that the initial price
of a computer system is only 5% of the whole life cost of ownership.
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
However, whole life cost is only relevant to the purchase decision where there are
differences in whole life costs and benefits in terms of value and, possibly, timing.

We can procure on the basis of whole life cost by including maintenance, operation
and disposal of an asset in the service to be procured. Private Finance Initiative
projects and some Private Public Partnerships are examples of purchasing on a
whole life cost basis. Types of contract which enable procurement on a whole life
cost basis are:
•
•
Design, build, maintain and operate
Finance, design, build, maintain and operate i.e. Private Finance Initiative
projects
For example, call centres may be procured on the basis of design, build, maintain
and operate.

Alternatively, whole life costs can be estimated and added to the tendered price
provided there is sufficient data to enable a reasonable estimate of whole life cost to
be made. Unfortunately, our ability to estimate future costs accurately is often weak
and our estimates can become too subjective.

Calculation of the cost of a car over a 3 year period of ownership is included at
Annex C. This is the whole life cost for the period of ownership and is the cost
relevant to the procurement decision.

Money in the future is worth less than money today. It may be appropriate to take
account of the time value of money by discounting future costs and benefits
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particularly where timescales are lengthy (10 year project for example) or where
there are significant differences in cost and income streams between tenders.
Discounting reduces future costs and benefits to present day values by applying the
principles of compound interest in reverse. The effect and application of
discounting is also illustrated in Annex C.
Phase 4: Contract Management

At this stage, monitoring to ensure that the specified/agreed requirement is
delivered is the key issue.

Sustainability issues addressed by the procurement strategy must be incorporated in
performance management systems alongside the other key deliverables.

It may be possible to secure further improvement as opportunities arise or through
application of value management techniques to services and works contracts.
© PMMS Consulting Group 2007
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APPENDIX E
STRUCTURED APPROACH TO STRATEGIC PROCUREMENT (SASP)


Membership
Clear Objectives
Establish multi-functional team




Understand current supply
arrangements












How the market works
Suppliers
Capabilities
Trends & Developments
Tools:
Supply Positioning
SPRA
Supplier Preferencing
Supply Chain Analysis
Vulnerability Analysis
Financial Analysis
Strategy Analysis
EC procurement process
Approach supply market
Define procurement route
Implement procurement
Negotiation – if relevant
Clarification – if relevant
Contract award
Market Analysis
Business Needs
Strategy
Development
Preferred Procurement Strategy
Implementation
Contract Management
Review





What is being purchased,
Why and how
Existing Suppliers
What works well
 Problems/issues
What the business really needs
Technical/Functional Spec
Sustainable Development
Confirm Business Needs
Option Analysis incl collaboration





Select preferred Option
Implementation Planning
Detailed Business Case
Select suppliers
- Order Winning Criteria
Endorsement to implement




Supplier management
Variations
Claims
Payment
Lessons learnt
 The rigour with which the above process is applied will depend on the scale and complexity of the
procurement as gauged through the use of Supply Positioning.
 Typically three to five facilitated workshops are required to undertake the Structured Approach to
Strategic Procurement (SASP) for the purpose of coaching staff in the use of the process. Periods
between workshops are used by the team to conduct the research/ work in preparation for the next
workshop.
© PMMS Consulting Group 2007
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APPENDIX F
PROCUREMENT ORGANISATION MODELS
Organisation options range from highly centralised to highly devolved. The preferred option will depend on
many factors including but not limited to:

The nature of the business - local, Regional, National, International

The culture and ethos of the organisation - directive or consensual

Business needs

The potential for collaboration with other organisations with similar needs
Viable organisation models are illustrated below:
CENTRALISED
Procurement
Director
Procurement
Manager
(Team
Leader)
Procurement
Manager
(Team
Leader)
Procurement
Manager
(Team
Leader)
Buyer(s
)
Senior
Buyer(s
)
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REGIONALLY CENTRALISED
Procurement
Director
Procurement
Manager
Region 1
Procurement
Manager
Region 2
Procurement
Manager
Region 3
Buyer(s
)
Senior
Buyer(s)
DECENTRALISED
Functional
Head/Director
Functional
Head/Director
Functional
Head/Director
Procurement
Director/Manager
Functional/Business
Procurement Team 2
Functional/Business
Procurement Team 3
Senior
Buyer(s)
Buyer(s)
Functional/Business
Procurement Team 1
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CENTRE LED ACTION NETWORK (CLAN)
Local Business
Management
Procurement
Director
Local Business
Management
Small central
resource
Business
Procurement Team 1
Policy/Direction
Strategy
Standards
Procedures
Performance
Training/Devt
Resource optimisation
Initiatives
Business
Procurement Team 2
Many organisations, disenchanted with the rigidity of the centralised and de-centralised options, now adopt the
CLAN structure. There are numerous variations on the CLAN theme from ‘heavy’ to ‘light’ approaches
depending on the activity reserved to the centre and the associated scale of required resource. For instance, in a
‘heavy’ CLAN structure, strategic critical procurement may be conducted at the centre and functional links
between the centre and business units may embrace a degree of direction.
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APPENDIX F
MODEL ACTION PLAN TEMPLATE
No
1
Action
Assess team competences against
the Value Wales framework
Complete
by:
25 Dec 07
Leader
&
Team
Stakeholders
Reporting Mechanism
Quality Review
Process
Authorisation
Ivor Price (L)
plus Pat Cash
and
external
specialist
Training Rep
Team leaders
Department Hds
Monthly progress report to
Head of Procurement
Peer Group Review
on completion
Head
of
Procurement
Note: Actions arise from a benchmark exercise and must be specific and be capable of being implemented by the nominated leaders and supporting team.
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