Southern Councils Group Regional Procurement Roadmap Report October 2012

Transcription

1 Southern Councils Group Regional Procurement Roadmap Report October 2012

2 Background Procurement has been increasingly acknowledged world-wide as a vital strategic tool to reduce costs and improve performance outcomes. Yet while significant procurement reform and development programs are underway in both the public and private sectors, it is only recently that local government has begun to focus attention on the opportunities available in this area. Procurement Development Programs are now underway in Victoria and South Australia focussed on supporting individual councils, regional groups and the sector as a whole to develop and embed improved procurement practice. Estimates suggest that NSW Councils spend more than $7 billion through procurement each year on the goods and services needed to support council operations. For most councils, procurement accounts for more than half of their overall annual expenditure and business activity. Research undertaken in Victoria by Ernst and Young in 2008, highlighted that significant savings of up to 15 20% are available through improved procurement practice and increased collaboration. The importance of good council-wide procurement practice has been further underlined recently in NSW with ICAC highlighting Government procurement performance and probity as a priority area of focus. Despite the scale of the activity and the opportunities available however, the profile and understanding of procurement within councils is still low-medium in many instances, where it is considered as primarily an administrative and compliance function. There are significant opportunities available to raise the profile, capability and performance of council procurement in NSW (as in other states). Local Government Programs To address similar issues and opportunities in Victoria, the State Department of Planning and Community Development (DPCD) undertook the Procurement Excellence Program (PEP) focussing on embedding improved procurement practice across Victorian local government. PMMS Consulting Group was engaged by DPCD to assist councils in undertaking a review of their procurement operations. Driven by the Procurement Capability Assessment (PCA) process developed and implemented by PMMS across three hundred public and private sector organisations, the PEP reviewed council procurement practice and facilitated the development of a Procurement Roadmap for 77 Victorian councils. In South Australia, 39 Councils took part in the Local Government Association s Procurement Development Review as part of their Year of Procurement. A pilot Procurement Roadmap Program is now underway including both metropolitan and regional councils. In NSW, Local Government Procurement and PMMS announced a the NSW LG Procurement Roadmap Program, following a highly successful Pilot in late Nineteen diverse councils from across the State took part in the first stage of this program completed in June 2012, designed to raise the profile and performance of procurement across the sector. Southern Councils Group Regional Procurement Roadmap Report Page 2

3 Southern Councils Group Report All seven Councils from the Southern Councils Group took part in the Procurement Roadmap Program, providing an opportunity to build on the individual council work with the development of a Regional Report collating the results and experience from across the region. With the support and involvement of the Southern Councils Group, this Report has been prepared bringing information collected through the Program and subsequent regional workshops together to assist in identifying common issues and new opportunities to work together to progress in this vital area of council activity. The Report includes the following: Key Findings Common overall individual council recommendations Regional recommendations Detailed Data analysis and specific council recommendations Key Findings The seven Councils in the Southern Councils Group spend over $500m each year through procurement on the goods and services needed to support council operations. While the Southern Councils vary considerably in size, all of them procure a similar complex range of goods, services and infrastructure. For all councils in the Group, procurement accounts for between 45% and 60% of total budget expenditure. Engagement with councils through the Program highlighted a similar range of procurement practice objectives: Reduce costs; Streamline administration; Ensure quality; Meet operational and business needs; and Minimise probity risks. Some of the key higher level findings from the Survey include: 1. The self-assessment of procurement capability undertaken by the Southern Councils ranged from emergent to basic levels of maturity. 2. While self-assessed capability was generally low, Councils (and the range of stakeholders surveyed within councils) rated the importance of procurement as high to very high across all aspects. This suggests a significant interest in improving practice and a positive environment to drive change. This was supported by the high level of involvement and participation in the stakeholder workshops. 3. Despite the diversity and complexity of the goods and services councils purchase, there was a limited amount of procurement co-ordination and low levels of structured procurement planning. None of the Councils currently prepare an Annual procurement Plan. 4. There is generally good practice across the councils in the administration of tendering processes, with some inconsistency in the following areas: a. Documentation including RFT and contract structures and content; b. Specification development practice and quality; and c. Evaluation processes. Southern Councils Group Regional Procurement Roadmap Report Page 3

4 5. There is significant inconsistency of procurement process and practice under tender thresholds. 6. The quality and currency of policies, manuals, templates and procurement guidance and support available for staff is variable and sometimes limited. 7. Procurement and spend data is difficult to access and in general there are significant opportunities to improve the use of current technology and explore new technology to support better practice. 8. While the importance of a central procurement staff was identified as critical to achieving savings, delivery and probity objectives, there are a significant lack of resources for most councils in this area. The officers that are in central procurement roles are often caught up almost exclusively with administrative tasks, (usually related to low-value transactions) and the opportunities to lead organisational strategic procurement practice are limited. 9. While councils readily identified the need for training, none of the Southern Councils have a procurement training plan in place, and most councils had undertaken little or no training over the last 12 months. 10. While councils are buying a very similar range of goods and services and often using the same suppliers, the survey identified that the use of aggregated contracts is relatively low and some councils are not taking advantage of the probity and savings opportunities they can provide. 11. All councils had very high levels of low-level transactions which is administratively very time consuming and expensive. 12. The average contract coverage was only just over 50%, and significant opportunities were identified for new contracts to reduce low value transactions and rive savings and better outcomes Priority Focus Areas Organisational Procurement Framework The scale and complexity of the range of goods being purchased raises the importance across each of the Councils of having a cohesive, co-ordinated and properly resourced organisational approach to procurement in order to achieve their key organisational objectives. All participating Councils identified the importance of moving from more decentralised and sometimes unco-ordinated approaches to a form of Centre-led model. This follows a trend occurring across procurement in both the public and private sectors of moving towards a best of both worlds approach, where procurement policy, process, expertise and strategy is developed centrally while the diverse range of business areas procure directly within the clear framework established. To achieve a successful Centre-led Model will require an investment in developing procurement capability and further development of new organisational procurement models with clear roles and responsibilities assigned the central procurement function and to business areas. Regional Co-operation - While each council procures a wide range of goods and services, there is very little variation between councils as to what they buy, as the services each council delivers are similar, though of different scales. The only key exception to this is that 4 of the Southern Councils have responsibility for water and sewerage assets and services. This suggests that there are very significant opportunities for collaboration in all aspects of procurement at a regional and sector level. The Southern Councils Group works together (in whole or in subgroups) regularly. Yet while there have been a few examples of collaboration in the procurement area, there are significant opportunities to expand Southern Councils Group Regional Procurement Roadmap Report Page 4

5 cooperation in the area - both in the foundation areas to improve organisational capacity and performance and in strategic projects will drive significant cost savings and other benefits for the Region The Ernst & Young Review of Victorian Council procurement expenditure identified regional collaborative procurement as a key opportunity to drive savings and improved performance. There are many examples of successful regional procurement approaches undertaken for example on behalf of Councils by ROCs in NSW and the G6 in South Australia. The recent Procurement and Practice Project in Victoria also provides a relevant recent case study of a successful regional procurement exercise. Appendix 1 refers. Following a detailed opportunity analysis process, a range of opportunities could be explored to undertake regional procurement exercises including some or all of the Southern Councils. The processes could be supported by the Regional Procurement Network, the Southern Councils Group and other bodies such as Local Government Procurement (LGP). Council Roadmap Recommendations A number of the key findings and recommended actions identified through the Roadmap process were consistent across several of the councils. There is a great opportunity to work together through the Procurement Manager s Network and other vehicles to deliver on some of the consistent recommendations including: (recorded against the 8 procurement dimensions in Figure 2 of the attachments) Leadership and Influence Develop and implement on-going procurement improvement strategies, annual and project planning models, and simple KPIs and targets to address key opportunities over time to improve probity, achieve cost savings and reduce administrative costs. Develop regular reporting on expenditure data and introduce standard category coding to support compliance and the identification of strategic opportunities. Procurement Strategy and Organisation Strengthen central procurement roles including the establishment of a centre-led procurement model supported by a central procurement team/resource and a Procurement Steering Committee to drive: o More co-ordination and consistency of overall council procurement; and o A more strategic approach to procurement that focuses on whole of organisational opportunities to achieve cost savings and improve performance. People and Skills Provide guidance and regular training for all staff with purchasing, procurement and contract management responsibilities; Documentation, Probity and Compliance Review and strengthen council s procurement framework, including processes, systems and documentation, and its consistent application across council to strengthen compliance, probity and performance. Streamline processes and systems for low value transactions, setting up new deals, panels and monthly invoicing patterns, and exploring the use of purchase cards to reduce administration time and costs and improve probity. Southern Councils Group Regional Procurement Roadmap Report Page 5

6 Use of Technology Review available technology solutions to strengthen procurement practice, including better use of existing technology, such as finance systems and the internet and intranet, and new products such as e-tendering, e-quoting and contract management tools. Fully implement electronic purchasing to reduce administration costs and probity risk. Supplier Management Introduce an improved range of supplier and contract management processes, including management of variations, improved specification development and supplier KPIs. Sourcing and Collaboration Establish additional contracts or access available sector contracts to reduce costs and risk. Explore opportunities for collaboration on a regional and sector-wide basis. Triple Bottom Line Procurement Strengthen triple bottom line procurement processes to drive the achievement of environmental, social and economic development objectives through procurement. Regional Roadmap Recommendations While there is much each council can do to address the opportunities raised in this report, many of the opportunities to achieve sustained improvement will come from a regional and sector-wide approach and the establishment of on-going leadership in this vital area of council activity. Workshops with the Southern Councils Procurement Managers Network have identified the following opportunities flowing out of their Council s Procurement Roadmaps to work together to drive improved practice and savings. The actions are divided into two categories: Foundational actions to support the implementation of individual Council Roadmaps and put in place good practices to improve efficiencies, processes and organisational procurement models. Strategic Actions to support the achievement of regional objectives and significant savings Foundation Actions No. Action Details Outcome 1. Supported Program to implement the Procurement Roadmap 2. Introduce standard Strategic Planning and Procurement document and process suite a. Share Roadmaps amongst Group and establish common actions, timing and support mechanisms b. Re-measure progress at 6, 12, 18 and 24 months a. Standard savings approach KPI measurement and tracking b. Standard Category Model c. Standard Spend analysis - $ and Qty. Momentum maintained and support provided for implementation of Council Procurement Roadmaps A consistent set of metrics across all Councils to measure performance and savings. 3. Develop and adopt common Procurement Policies and thresholds a. Share procurement policies b. Adopt policies that support regional procurement, triple bottom line objectives and facilitate savings Simplify and create consistency, streamlining processes for councils and suppliers and creating environment to support joint procurement Southern Councils Group Regional Procurement Roadmap Report Page 6

7 4. Develop Best Practice Model for Low Value Transactions 5. Establish Regional standard document suite 6. Establish standard procurement document suite 7. Establish standard contract management document suite a. Use of Purchase cards b. Online requisitions c. Approval processes Work with LGP to establish regional standard procurement process documents suite including strategic procurement documentation. a. RFT document b. RFQ document c. Supply of Goods Agreement d. Supply of Service Agreement e. Capital Works (minor, DSI and DSM) f. Design Services. a. Guidance and Templates b. Contract management Systems c. Training 8. Training and education Establish a regional training program (in partnership with LGP), including: a. Cert 4 in Procurement b. Other relevant training / development 9. Technology Explore opportunities for joint approaches to technology, including: a. automation of manual processes b. e-tendering c. contract management systems d. Reporting and spend analysis Increase administrative efficiencies and savings. Administrative efficiencies and savings for Councils and suppliers. Administrative efficiencies and savings. Suppliers will also benefit from standard documentation and practices across the region. Administrative savings, better contract performance and compliance. Smarter purchasing decisions, increased compliance and probity. Improved efficiency and compliance. Strategic Actions No. Action Details Outcome 1. Review current contracts and share contract registers Establish Regional Plan including: a. Sharing specifications and procurement strategies for common contract categories b. Explore opportunities to establish regional approach to access relevant LGP contracts creating an income stream through the additional rebate into the region Improved planning, sharing of expertise and procurement savings 2 Identify regional social procurement opportunities Following the recent launch of the Social Procurement Guidelines, identify a range of procurement and supplier development projects to drive social and economic benfits to the region. Strengthen the role council procurement can play in job creation, business and social enterprise development and addressing disadvantage 3. Undertake Opportunity Undertake Opportunity Analysis and Strategic and intelligence Southern Councils Group Regional Procurement Roadmap Report Page 7

8 Analysis and Project Validation 4. Deliver Collaborative Procurement Projects validation to determine key opportunities to establish collaborative regional or subregional contracts to deliver strong outcomes and maximise savings. Deliver on agreed collaborative procurement projects and measure benefits and learning for the Region led procurement Administrative efficiencies and savings. Improved performance and practices. Southern Councils Group Regional Procurement Roadmap Report Page 8

9 Benefits Benefits available to the Southern Group of Councils through the recommendations above include: Cost Savings: There are significant and measurable external savings available through the establishment of Centre-led Procurement Models with the appropriate expertise to co-ordinate Council expenditure and establish a wide range of contracts and better practice procurement arrangements. Collaborative procurement across the Region and Subregion combined with more effective use of aggregated contracts deliver has been demonstrated in many examples to deliver very significant savings (15% to 30%). Results from the SCG Roadmap Program suggest that similar savings are available in this region through increased regional and sector collaboration, strengthened contract coverage and improved skills, planning and processes. Administrative Savings: By streamlining processes and reducing the high numbers of low-level transactions being undertaken, Councils have a very significant opportunity to reduce administrative costs and time, while achieving better outcomes and improved probity. Probity: By working across the region and the sector, councils have the opportunity to access good practice and then review their own model to ensure a strong procurement framework is in place and being followed, including documentation, processes, systems and standard templates. Improved practice will decrease risk and provide confidence to Council, auditors and the State Government that good practices are in place. Performance: Good practice procurement planning, delivery and contract management will lead to better contractor performance and project outcomes including the more effective delivery of on-time capital works plans. Triple Bottom Line: Early planning of procurement projects can ensure that social, environmental and local economic development objectives will be achieved through council procurement practice. Resource Implications To deliver on the recommendations presented in this Report will require a commitment of resources and a clear project management and governance structure. A suggested model for consideration is outlined below: Governance Structure Report quarterly on Project progress to the SCG General Manager s Committee SCG Procurement Steering Committee be established to oversee Regional Roadmap and undertake Strategic Regional Procurement Opportunity Analysis and activities. The Steering Committee should comprise: o Director/ Manager/Procurement representation from each Council o Southern Councils Group representative o Local Government Procurement (LGP) representative Procurement Manager s Network to oversee the implementation of the Foundation Actions Southern Councils Group Regional Procurement Roadmap Report Page 9

10 Resources - SCG Foundational Actions Procurement Managers (within existing resources) SCG Part-time Officer ( $25,000 in funding) LGP Support as required Resources SCG Strategic Actions SCG role with expert support to undertake Opportunity Analysis on behalf of the Project management Subgroup. Key Projects to be identified and validated with support of Council experts Working Groups to be established to deliver agreed projects including: o Council Engineers and subject matter experts o Council Procurement Officers o SCG Project Coordinator o External expertise as required Funding SCG costs to be met from reserves (up to $25,000) plus support from SCG Project Coordinator. Councils to meet costs from existing resources. Potential financial and expert support from LGP Other sources to be identified SCG General Manager s Committee Recommendation It is recommended the SCG General Manager s Committee agree that: 1. The Foundational and Strategic actions detailed in this report be implemented; 2. Councils will work collaboratively to adopt consistent procurement policies and practices; 3. A Procurement Steering Committee be appointed by the General Managers Committee to oversee Strategic Regional Procurement analysis and activity; 4. The Procurement Steering Committee establish working groups as necessary to deliver agreed Regional procurement activities; 5. The implementation of Foundational Activities be managed by the SCG Procurement Managers Network; 6. An officer be seconded, on a part time basis, to support the Foundational and Strategic Actions; 7. Funding of up to $25,000 be provided from SCG Reserves to meet the costs of the seconded officer; 8. Additional resources be sought from other sources, including Local Government Procurement, to assist with Foundational and Strategic actions; and 9. A report by the Procurement Steering Committee and Procurement Managers Network be submitted to the General Manager s Committee each quarter on progress. Southern Councils Group Regional Procurement Roadmap Report Page 10

11 APPENDIX 1 - Victorian Case Study: Collaborative Procurement Five local councils have achieved considerable savings over current contract costs through a collaborative procurement project that was project managed by Local Government Victoria (LGV). New contracts for bituminous road resealing works in Ararat Rural City Council, Ballarat City Council, Golden Plains Shire Council, Hepburn Shire Council, and Pyrenees Shire Council will deliver an annual savings of $630,000 to the councils when compared to current contract prices. By combining their spend, that is in excess of $4.6 million a year, the five councils were able to drive down procurement costs and have made considerable savings. An exhaustive tender evaluation process was undertaken by the collective group and a sole supplier has been selected. Each of the councils has resolved to enter into a three year contract with two, one year extension options, with the one recommended supplier. If all five councils elect to take up the contract option for extensions, the combined savings to the community will be in the order of $3.1 million over the life of the contract. Undoubtedly, these savings would not have been achievable had it not been for the individual council's commitment to this innovative procurement project. The successful outcomes from this project will encourage other councils across the state to consider working together in the procurement of large expenditure items. Southern Councils Group Regional Procurement Roadmap Report Page 11

12 APPENDIX 2 - Procurement Roadmap Program Summary Procurement Maturity Model The Procurement Maturity Model demonstrates the journey to improved performance across all aspects of procurement. The capability assessment completed as part of the Procurement Development Survey identifies the level of maturity of each council and the sector as a whole against each of the 8 procurement dimensions. Figure 1 Procurement Maturity Model Southern Councils Group Regional Procurement Roadmap Report Page 12

13 Procurement Dimensions The Survey analysis is based on the model depicted below. Successful development of procurement capability requires a whole-of-organisation approach. The model depicts 8 dimensions of activity that need to be developed to drive improved procurement performance. Five foundational dimensions have been identified: 1. Leadership & Influence 2. Strategy & Organisation 3. People & Skills 4. Process & Governance 5. Technology Development in each of the foundation areas will enable councils to deliver improved performance through the three strategic dimensions: 6. Supplier Management 7. Sourcing & Collaboration 8. Triple-Bottom-Line Procurement Development across all 8 of these dimensions will assist Councils in better achieving their objectives. Southern Councils Group Regional Procurement Roadmap Report Page 13

14 Figure 2 Dimensions of Procurement Excellence Capability Self-Assessment Based on the Procurement Maturity Model, councils have self-assessed in general between Emergent and Basic for the 8 procurement dimensions. Southern Councils Group Regional Procurement Roadmap Report Page 14

15 1. Leadership and Influence 1.1 Does a procurement steering group exist to coordinate activity across your Council? 1.2 Is procurement considered in your Council's budget process? 1.3 Does your Council measure Procurement savings/benefits? 1.4 Is procurement and compliance on the Executive Team's agenda? Definition - Leadership and Influence This dimension focuses on the level of influence that procurement has within the council. Procurement should be closely aligned with council objectives and form part of strategic organisational decisions. Procurement should be a demonstrated Senior Management priority with regular reporting and targeted savings and benefit planning and monitoring. Procurement needs to be able to demonstrate the clear benefits and value for money that can be delivered directly as a result of good practice. Influence should range across all areas of spend in the organisation, regardless of which area has the direct involvement in the buying activity. General Council Recommendations 1. Establish a Steering Committee to oversee all organisational procurement practice and development; 2. Develop Quarterly Procurement Reports to the Senior Executive team to track expenditure, savings, probity issues and development programs; 3. Develop a Savings Program to identify and support achievement of procurement savings, including regular monitoring and reporting; and 4. Incorporate procurement planning into council s budget processes. Southern Councils Group Regional Procurement Roadmap Report Page 15

16 2. Procurement Strategy and Organisation 2.1 Which of the following best describes procurement in your Council? 2.2 Is there a recognised Procurement department in your Council? 2.4 Does your Council have a Procurement Strategy? 2.5 Do you have an Annual Procurement Plan? Definition - Procurement Strategy and Organisation A clear, concise and Senior Management-endorsed Procurement Strategy outlining how procurement will develop as well as an Annual Procurement Plan identifying priorities and projects should be in place. Sufficient levels of procurement resources should exist to be able to influence all areas of spend. The organisational structure should be appropriate for the council, however a strong central team/resource should lead the function and be responsible for strategic co-ordination, policy, technology, training and common use purchases. General Council Recommendations 1. Develop a Procurement Strategy/Roadmap incorporating key areas of improvement including timelines and responsibilities across all procurement dimensions; 2. Develop an Annual Procurement Plan, following budget approval, including all procurement projects and development programs; and 3. Review procurement roles and responsibilities and establish a Centre-led model supported by a central procurement team/resource that will improve co-ordination and strengthen the role, influence and performance of procurement. Southern Councils Group Regional Procurement Roadmap Report Page 16

17 3. People and Skills 2.4 Which of the following apply to your Council? 3.2 How many staff have been trained in the following areas over the last 12 months and what are your council s training priorities? Southern Councils Group Regional Procurement Roadmap Report Page 17

18 Definition - People and Skills Appropriate procurement skills are vital for all staff with purchasing, procurement and contract management responsibilities. Training requirements need to be well understood and ongoing induction and training plans should be in place. A specific training plan should exist for staff with contract management responsibilities, and a training and development plan should be in place for key procurement staff. Building a professional procurement team will enable procurement to increasingly operate as a strategic rather than an administrative function. Professional qualifications (such as MCIPS or Cert IV) are ideal, however general commercial acumen, negotiation, facilitation and mentoring skills are also key in ensuring that procurement can effectively influence business outcomes. General Council Recommendations 1. Undertake a Training Needs Analysis to determine training requirements across all staff with procurement and contract management responsibilities; 2. Develop a comprehensive and sustainable Procurement and Contract Management Training Program, including key priorities identified through the survey; 3. Identify key procurement staff and support participation in professional procurement development activity; and 4. Develop and implement an Induction Program for all staff with purchasing, procurement and contract management responsibilities. Southern Councils Group Regional Procurement Roadmap Report Page 18

19 4. Process and Governance Definition - Process and Governance A clear and simple yet comprehensive set of procurement policies, procedures and templates will help ensure that probity issues are addressed and that all projects are conducted in an appropriate and consistent manner. These policies and procedures need to be supported by clear training, communication processes and regular monitoring and audits to ensure consistent compliance. Overall Process and Governance General Council Recommendations 1. Review existing procurement processes and documents against good practice, to ensure they are comprehensive, simple and will meet operational needs and probity requirements; 2. Respond to gaps identified through the survey, access required good practice documentation, and introduce new procurement processes and documents; 3. Review the application of processes and documentation to ensure consistent and effective usage and identify opportunities to streamline and improve availability, awareness and training; and 4. Put in place simple review/audit processes to ensure probity through the consistent application of documentation and processes. 4.1 Process & Governance - Which of the following documents does your Council have? General Council Recommendations 1. Further develop Council s procurement documentation to incorporate the key documents identified above. These documents will support the effective implementation of Council s Procurement Policy and strengthen organisational probity. The documents should then be reviewed and updated regularly. Southern Councils Group Regional Procurement Roadmap Report Page 19

20 4.2 Process & Governance - Audit Findings General Council Recommendations 1. Council should consider the development and implementation of the key mechanisms identified above to ensure there are consistent procedures in place to support compliance with its procurement policy. 4.3 Process & Governance - Council Purchasing Processes General Council Recommendations 1. Council should be regularly tracking cumulative payments and developing methodologies (potentially including use of an intranet) to provide clear guidance on internal purchasing practice. Southern Councils Group Regional Procurement Roadmap Report Page 20

21 5. Use of Technology Definition - Use of Technology Procurement technology should be used as a key enabler for delivering improved procurement outcomes. Automating manual processes such as purchase orders and investing in key tools such as contract management systems, spend analysis and e-tendering can help improve compliance and increase benefits from the procurement processes. Many organisations struggle to gain even an overall view on spend information. If this can be achieved, it will significantly help with the preparation of procurement strategies and identification of compliance issues. General Council Recommendations 1. Consider the introduction of an electronic purchasing system to reduce administrative costs and strengthen compliance and performance; 2. Assess available purchasing and financial data and develop a suite of spend analysis reports; 3. Introduce and maximise the use of an e-tendering system to cut costs for suppliers and reduce council administration time; 4. Develop a Procurement Technology Plan as part of a Procurement Strategy/Roadmap to address key priorities and plan for on-going improvement in automating aspects of the procurement workflow; 5. Identify opportunities to develop or access existing pre-qualification systems to reduce supplier costs, streamline council processes and improve supplier performance; and 6. Take advantage of new web technologies to streamline and improve processes 7. Source and apply a standard category coding structure to support spend analysis, collaboration and strategic procurement. Southern Councils Group Regional Procurement Roadmap Report Page 21

22 6. Supplier Management Definition Supplier Management The management of the post-contract-award process is often an area of opportunity for councils. By focusing on effective supplier/contract management practices, councils can start to regain control over the relationship and ensure that the benefits that were identified at the commencement of a contract can be realised. General Council Recommendations 1. Develop good practice Contract Management Guidelines including standard templates, and train staff in their consistent use 2. Clearly identify contract management roles and responsibilities and ensure all staff have received appropriate induction and training. 3. Review the effectiveness of current systems used for all aspects of contract management, administration and record-keeping, and develop a plan for improved practice Southern Councils Group Regional Procurement Roadmap Report Page 22

23 7. Sourcing and Collaboration Definition - Sourcing and Collaboration A key opportunity for councils is to develop a strategic approach to sourcing based on a close understanding of cross-organisational spend and the development of clear contracting strategies for each category. Councils can also achieve significant benefits working collaboratively at a regional or state level, and taking full advantage of available aggregated contracts. While it is often challenging to gain agreement on specifications for regional collaborative procurement, the commercial benefits of leverage and economies of scale can be very significant. Often overlooked however are the additional collaborative benefits of sharing knowledge and good practice across council boundaries. The use of formal regional networks and aggregators can be a good way of delivering the benefits of collaboration. General Council Recommendations 1. Establish standard Spend Categories based on best practice models; 2. Review supplier expenditure breakdowns, current contract strategies, and available aggregated contract models to identify new contract opportunities for costs savings and improved outcomes; and 3. Develop or increase participation in regional networks to share good practice, develop common approaches in areas such as documentation, supplier engagement and training, and explore opportunities to develop regional procurement opportunities. Southern Councils Group Regional Procurement Roadmap Report Page 23

24 8. Triple Bottom Line Procurement Definition - Triple Bottom Line Procurement Triple bottom line (TBL) procurement is an emerging area of procurement that offers significant opportunities for councils to achieve their economic, social and environmental objectives through strategic procurement processes. Councils are a key regional purchaser of local goods and services and can implement strategies to strengthen local and regional businesses and economies through education and supplier engagement. Increasingly councils are also exploring the achievement of social benefits, such as increasing indigenous employment and addressing systemic disadvantage and rural decline, through targeted social procurement programs. Reducing carbon emissions and managing water security and landfill pressures are some of the environmental objectives councils can address through a strategic approach to procurement. General Council Recommendations 1. Review the way in which council's triple bottom line objectives are incorporated into procurement policies and practice; 2. Integrate local and regional economic development programs with procurement strategy development including business education and regional standardisation of documents; 3. Establish a sustainable procurement strategy to maximize environmental performance in purchasing; and 4. Undertake a training and awareness program to identify opportunities for social procurement activities. Southern Councils Group Regional Procurement Roadmap Report Page 24

25 A - Financial and Expenditure Analysis Definition Financial Analysis: Having a detailed understanding of procurement spend is a vital step in gaining control of Council s expenditure and developing strategies to reduce cost over the short and long term. For many Councils, this data is difficult to collect and not available on a regular basis. Even when the data is brought together, it is often incomplete or inconsistent reflecting the reality that most Councils have not sought regular reporting and ensured that their systems and processes are set up to deliver regular and accurate information on what, for most councils, accounts for well over half of their annual expenditure. The data collected in this survey and the graphs produced are indicative of what can be prepared with only high level data. A key development opportunity for all councils surveyed and the sector overall is to work on the data quality and reporting to drive on-going strategic improvement. A.1 Procurement Spend by Councils Procurement represents a very large part of council s financial activity. Total procurement expenditure from the 7 Southern Councils is $525m. The variation between council expenditures in the Group is also highlighted in this graph, ranging from over $143m for Shoalhaven to $23m for Kiama. Southern Councils Group Regional Procurement Roadmap Report Page 25

26 A-2 Council Supply Base A.2.1 Supplier Concentration Findings and General Council Recommendations Graph A-2.1 has brought together data on council expenditure with their top 20 suppliers. The results for the top 20 suppliers overall demonstrates the scale of expenditure and the number of councils who use the same suppliers. This data demonstrates the capacity for aggregated sector and regional contracts targeted at areas of high spend. Councils have a significant opportunity to work more closely together to drive better outcomes. For the supplier, more standardisation of process and documentation across councils could lead to significant savings to be passed backed on to councils. Southern Councils Group Regional Procurement Roadmap Report Page 26

27 A-2.2 Proportion of spend covered by top 20 suppliers A-2.3 Spend and number of suppliers Southern Councils Group Regional Procurement Roadmap Report Page 27

28 Findings and General Council Recommendations Graph A-2.2 demonstrates the level of supplier concentration by measuring the % of total spend covered by the top 20 suppliers. The percentages vary significantly, but for most councils, it accounts for more than 40% of overall expenditure, highlighting the importance of putting good management practice in place for these major suppliers. The top 20 supplier breakdown enables a quick examination of Council s major suppliers. Key questions to ask are: Are there any surprises? Is this the right mix of suppliers for our Council? Do each of these suppliers have an appropriate and effective contract in place that covers all council expenditure with each supplier? Are there aggregated contracts available or regional approaches that may be used to reduce costs across councils for similar suppliers? As the top 20 suppliers make up a large % of all of Council s procurement expenditure, is sufficient resource going into the effective management of these suppliers and their associated contracts? Are there strategies that could be put in place to reduce expenditure and administration associated with these contracts? Graph A-2.3 compares the amount of expenditure with the number of suppliers. Many councils with relatively small overall expenditure have a very large number of suppliers. This indicates that there are not enough contracts in place and that the supplier base is not being well managed. On average larger Councils with more mature procurement models have more concentrated supplier bases, enabling better management practice and cost reduction. Southern Councils Group Regional Procurement Roadmap Report Page 28

29 A-3 Low-level transactions A-3.1 Example Council A-3.2 Sector Invoice patterns Southern Councils Group Regional Procurement Roadmap Report Page 29

30 Findings and General Council Recommendations Graph A-3.1 provides an example Council graph showing: o How much money is being spent for each range of invoices (Green columns) o How many invoices are being processed for each invoice range. (Blue line) Graph A.3.2 shows the % of low value invoice processed by surveyed Councils. These graphs demonstrate a common issue faced by most of the councils surveyed. The number of invoices processed for many councils is very high. The example in Graph A-3.1 demonstrates that a Council may have as many as 30,000 invoices below $1,000, spending a total amount in this example of only $5,000,000. Evidence suggests that the administrative cost of transacting an invoice, particularly in those councils using manual systems, can be as much as $80 to $100 each. Therefore this council may be spending $3,000,000 in administrative costs to spend just $5,000,000 in expenditure. The sector invoice patterns reflected in Graph A-3.2 highlight that most councils who were able to provide the requested data, had more than 75% and up to 90% of their invoices for transactions under $1,000. This indicates a large amount of administrative and processing time going into spending only a small amount of council s overall expenditure. There are a range of ways to reduce administrative costs from low value spend including: Using available data to identify suppliers with high invoice numbers and working with those suppliers to reduce numbers through: o Establishing contracts; o Aggregated and monthly invoicing; and o Electronic invoicing. Establishing a Purchase Card model for use on low-level level transactions to significantly cut administrative time General Council Recommendations Purchase cards are a very effective way of reducing administrative costs. Many metropolitan councils have begun to introduce purchase card use, but very few regional councils, despite the fact that many regional councils have high numbers of low-value transactions and often use cumbersome manual purchasing systems. Southern Councils Group Regional Procurement Roadmap Report Page 30