Transcript Slide 1

LIVING WITH THE SQUEEZE
PROCUREMENT, LEAN, SHARED SERVICES,
OUTSOURCING
Colin Cram
Marc1 Ltd
[email protected]
Tel: 01457 868107
Mobile: 075251 49611
www.marc1ltd.com
£Bn
Total Public Sector Expenditure
State Pensions
Benefits/Welfare
Healthcare
Interest on Government Debt
Sub Total
‘What’s Left’
Forecast Reduction in Budget Deficit
£Bn
660
117
109
119
31
376
284
70
•The £280bn ‘what’s left’ expenditure includes areas where
cuts are likely to be less than 25%
Spend
Cuts
£Bn £Bn
•Defence:
44
5
•Protection:(Police, Fire, Prisons, Courts)
17
2
•Education:
86
9
•Total
147
16
•What’s left?
133
54
So Disproportionate Cuts likely for all remaining activities.
£Bn
£Bn
Savings from the most difficult areas
(Welfare, State Pensions, Benefits, National Debt Interest)
Savings from Defence, Education, Protection
VAT Increase to 20% (revenue increase)
Sub Total
8
16
11.5
35.5
Savings to be found from remaining spend of £133bn:
i.e. 26% cuts.
34.5
Cutting Functions
Greater Efficiency/Doing Things Differently
Improving Procurement
Increasing Revenue (particularly for Local Government)
‘No sane person imagines that by doing something the way they
have always done it will deliver a different result’
‘It is not necessary to change: Survival is not mandatory’
Deming: 1900-1993
√ Procurement
√ Shared Services and Outsourcing
√ Lean
• Use of IT
• Estates Rationalisation
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£200 Bn pa
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30% of Public Sector Costs
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£3,000 per Adult and Child pa
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£250,000 per person into the ‘Public Sector Purchasing Pot’
over a lifetime
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£1Bn Saving can save 30,000 front line jobs
Parking/Traffic Management Procurement: Approx £1.5-2Bn pa
© C M Cram
Traffic Management Procurement: Approx £1.5-2Bn pa
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What are the Best Areas to Tackle?
What Ways are there to Make Procurement Savings?
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Re-negotiate
Benchmark
Reduce Costs of Duplication
Harmonise – procedures and specifications
Enhance Power e.g. through aggregation
Commitment
Place Based Procurement
Benchmark
Restructure
What Areas Would be Suitable for Benchmarking?
What Measures Might One Use?
How Should the Sector Proceed?
Any Offers to Take the Lead?
1% Savings Overall - do the same, but better
3% Savings Overall - Do the same, but much
better
5% Savings Overall - Some re-structuring,
bringing in new expertise
7% Savings Overall – Fundamental Change and
Re-structuring
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Indiscipline
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Different Procedures/Contract Ts and Cs
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Complexity – e.g. Tender Procedures
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Multiplicity of Tenders
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Multiplicity of ‘Duplicate’ Contracts and Contract
Managers
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Inconsistency
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Specifications
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Very Varied Capability
Specifications:
• Tarmac
• IT
• Finance Systems
• Outsourcings
• Street Lighting
• Construction
• Waste Disposal
• Research Equipment
• Commodities Goods and Services
How Consistent are Specifications for Parking Related
Procurement?
Who has the Best Specifications?
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Increased Leverage
Better Quality Contracts
Expertise Available to All
Commodity Market Knowledge Available to All
Better/More Consistent Policy Implementation
Consistent Specifications
Opportunities to Use More Advanced
Purchasing Techniques
- Relationship Management
- Supply Chain Management
- Value Analysis
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Right Procurement Structures
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Information
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Common Information/IT Systems
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Discipline
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Expertise
1. Each
Organisation Acts Independently
2. Benchmarking
3. Collaboration
4. Joint Local
5. Joint Regional
6. Sector Procurement
7. National Procurement
MODEL EVALUATION
How Should the Sector Proceed?
Collaborative Model/
Objectives
Leverage
Negotiation
Market Management
Common Procedures
Consistent Legal Interp
Consistent Specs
Fewer Tenders
Expertise
Service
Localism
TOTAL
© C M Cram
Ind B/Mark Collab Joint Joint Sector National
Local Region
Furniture
30%
FM/Outsourcing/Major Contracts Up to 35%
Laboratory Consumables
Up to 90%
IT
5 – 80%
Construction
5 – 25%
Excellent Construction Management 5 – 15%
Social Care
10%
Legal Services
10%
Good Contracts Management
5 – 35%
What Might Be the Potential for Parking/Traffic Management?
© C M Cram
PUBLIC SECTOR PROCUREMENT: THE FUTURE?
INTEGRATION
COLLABORATION
INDEPENDENCE
© C M Cram
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Customs and Excise Pay Branch
Ministry of Defence Stores
Meteorological Office Procurement
Stationery Procurement
NHS
Revenue and Customs – PaceSetter
6 Sigma: Reduce Variations within Processes
Lean: Smooth Flow in these Processes
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Understand How One’s Services add Value to Customers
Optimise the Value Adding Elements of Services and
Eliminate Waste
Deliver Right Services, Right First Time
Empower Staff
Involve Staff
Performance, People, Resource Planning, Skills Planning,
Continuous Improvement
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Leadership – totally dedicated
Genuine Endorsement from the Top
Identify Teams of People willing to give it a try
Early Small Pilots – deliver Quick Wins
Involvement and Ownership by the Staff
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Decide Outcome required and How its Achievement can be
Measured
Examine end to end Process. How far does it deliver the
desired outcome?
Examine and Map individual Processes
Evaluate how essential each Process is to achieving the
desired Outcome
How much time does each Process take. What is its added
Value?
Re-design individual and End to End Process to Deliver
Required Outcomes
Introduce any Technology with Caution. No Point in Automating
the Wrong Thing
WHO ARE THE BEST PEOPLE TO DO THIS? THE STAFF
Technical Change Can Help
BUT Lean is a Cultural Change. It is not One-Off
WHAT ARE THE OPPORTUNITIES FOR LEAN?
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Eliminate Duplication
Reduced Costs/Economies of Scale
• Staffing
• Buildings/Construction
Access to Expertise/Higher Standards for All?
Savings in:
Staffing, Buildings/Construction, Energy, Running Costs,
Equipment, Processing Costs, IT, Licenses,
Procurement
Greater Opportunities to Generate Income
Public Sector Organisations with Lower Activity Levels have
Higher Costs
Hlton
South Lakeland
Manchester
West Lancashire
Macclesfield
Knowsley
Chester City
Liverpool
Allerdale
Chorley
Copeland
Ribble Valley
Wyre
Vale Royal
Carlisle City
Crewe
Eden
Pendle
Wigan
Ellesmere Port
Lancaster
Sefton
St Helens
Blackpool
Rochdale
Burnley
Oldham
Bury
South Ribble
Blackburn
Warrington
Preston
Fylde
Stockport
Congleton
Hyndburn
Bolton
Rossendale
Barrow-in-Furness
Salford
Tameside
Wirral
Trafford
£70
£60
£50
£40
£30
£20
£10
£0
• Benchmarking
• Copying Better Practice
• Collaboration/Consortia
• Joint Service Delivery
• Service Centres
• Outsourcing to a Common Provider
NOT A MAGIC FORMULA
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Within Sector (e.g. Local Government)
Between Sectors
National, Regional, Local
Does Split between NHS, Local Government and
HE Make Sense?
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Be Realistic about the Potential Benefits
Be Realistic about what can be Achieved
A lot of it about
Don’t Expect Accolades!
Be Realistic about Obstacles
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Least Controversial
Quicker
Less Costly
Quick Potential for Benefits Realisation
Reasonable Chance Of Success
But, often resistance to change
What Could be Benchmarked in Parking?
With Whom?
How Should the Sector Proceed?
BENEFITS through
• Aggregation
• Commonality of Specifications
• Commonality of Procedures
• Doing Things Once
BUT
• Often Difficult to Agree
• Time Consuming - the Effort can be Expensive
• Day Job Takes Precedence
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Controversial
Long Timescale – but not necessarily
Can be Complex
Can be Expensive
Higher Risks To Service
Higher Risk Of Non-completion
EU Procurement Directives
BUT: LONG TERM BENEFITS MAY
JUSTIFY IT
IT
Construction
Excellent Construction Management
Social Care (children’s)
Legal Services
Revs and Bens
Procurement Costs
Procurement Spend
Transport
5 – 80%
5 – 25%
5 – 15%
5%
10%
15%
20 -50%
20%
10%
BUT: Outsourcing Companies Often Take Out 30-40%
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Identifies and Highlights Costs of Current Activities
Often the Catalyst to Introduce Major Change
Defined Service Levels
Service Level Agreements
Performance Measures
Accountability
However, there will be some management and change
costs, so total cost of joint service organisation must be
less than 95% of what it replaces.
Hlton
South Lakeland
Manchester
West Lancashire
Macclesfield
Knowsley
Chester City
Liverpool
Allerdale
Chorley
Copeland
Ribble Valley
Wyre
Vale Royal
Carlisle City
Crewe
Eden
Pendle
Wigan
Ellesmere Port
Lancaster
Sefton
St Helens
Blackpool
Rochdale
Burnley
Oldham
Bury
South Ribble
Blackburn
Warrington
Preston
Fylde
Stockport
Congleton
Hyndburn
Bolton
Rossendale
Barrow-in-Furness
Salford
Tameside
Wirral
Trafford
Cost of waste collection per household in NW 2005-6
£70
£60
£50
£40
£30
£20
£10
£0
Reduced Costs Through
• Efficient Use of Depots
• Efficient Use of Vehicles
• Greater Purchasing Power for Equipment
• Reduced Management Costs
• Management by Best Managers?
• Single Method of Collection and Sorting
Overall Savings 10%+
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The Transfer of Part or Whole of an Existing Inhouse Activity to a Third Party.
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This May Include the Related Human Resources
and/or Assets
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More complex to implement than Shared
Services, but often easier ‘politically’ to decide
1. Must Know Existing Costs
2. Must Know Costs to Outsource e.g.
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Switching Cost
Management Cost
Gross Profit
5%
5%
10 -15%
To Deliver a Better Cost Base to the
Customer, the Outsourcer’s Cost Base Must
be only 75 - 80% of Current Operations. It is often
only 60%.
Strategic
Organisational
Fashion / Emotion
It’s A Mess – Give It To
Someone Else To Do It
Financial / Survival
Only Way to Secure Sufficient Change
Bury The Past
Access The Future
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Focus On Core Strategic Activities
Gain Competitive Advantage
Increase Flexibility
Access To Expertise
Acquire Innovative Ideas
Develop Strategic Partnership
Enable Major Organisational Changes
Insurance Against Market Conditions
Job Creation/Regeneration
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Consistent With Business Strategy
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Financial Appraisal:
- Clear View Of Existing Costs
- Need Understanding Of Supply Costs
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Option Appraisal
- Risk Analysis
- Benefits
LEAN
B/MARK
JOINT
OUTSOURCE
SAVINGS
SERVICE
ACCOUNTABILITY
ACCESS TO
EXPERTISE
INNOVATION
INCOME
JOB CREATION
INWARD
INVESTMENT
TOTAL
© Marc1 Ltd
LEAN
B/MARK
JOINT
OUTSOURCE
COSTS
TIME
RESISTANCE TO
CHANGE
CONTRACTING
CAPABILITY
COMPLEXITY
TECHNICAL
SLOWER PROGRESS
SECURITY
TOTAL
© Marc1 Ltd
VISION
MISSION
BUSINESS OBJECTIVES
POLITICAL OBJECTIVES
STRATEGY
OUTLINE BUSINESS CASE
POTENTIAL INITIATIVES, OPTION ASSESSMENT
MARKET ANALYSIS
ENABLERS, INFRASTRUCTURES, RESOURCES
TIMESCALES
© Marc1 Ltd
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Plan Long Term Strategy and Programme
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Get “Quick Wins” through Process
Improvement, Benchmarking and Copying
Better Practice
Colin M Cram
Marc1 Ltd
Tel: 01457 868107
Mob: 075251 49611
Email: [email protected]
www.marc1ltd.com
Central/ Major Industry
Departments/ Specific
Buying
Solutions
Major National
Contracts/Suppliers
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Common Categories
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Relationship Management
Market Management
Industry Specific
PPIs/Major Project Support
Regional
P S Hubs/
Medium
Depts
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Regional/Large Local
Contracts/Suppliers
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Small Local Contracts
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Discipline/Implementation/
Compliance
Local/Med/
Small
Departments
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© C M Cram
OUTSOURCING
ABROAD
DATA
SECURITY
SUPPLY
CHAIN
LENGTH
QUALITY
CURRENCY
TOTAL
© Marc1 Ltd
OUTSOURCING
UK
SHARED
SERVICE
KEEP IN-HOUSE