Central government s management of service contracts: Supporting private sector case studies DECEMBER 2008

Transcription

1 Centra government s management of service contracts: Supporting private sector case studies DECEMBER 2008 Centra government s management of service contracts: Supporting private sector case studies

2 2 Centra government s management of service contracts: Supporting private sector case studies Introduction This paper provides five private sector case studies to iustrate rea ife exampes of good practice in contract management and the benefits that can be reaised. The case studies were seected to provide a broad range of good practice exampes across the 11 areas outined in the good practice contract management framework. The case studies are: A B C D AXA UK and Wiiams Lea (page 3) BP and Ogivy and Mather (page 6) CSC and Aexander Mann Soutions (page 9) Lega & Genera and Adare (page 12) E Loyds TSB (page 15) The case studies were not the subject of Nationa Audit Office audits, but were prepared on the basis of an interview with a key representative from the customer organisation. In addition, as four of the case studies (those invoving BP, AXA, CSC, and Lega and Genera) had previousy been nominated for the Chartered Institute of Purchasing and Suppy/Suppy Management Magazine awards under the Best Purchaser-Suppier Coaboration category, the case studies aso draw on the submissions made by the organisations in support of their appication. Athough the case studies presented here are a from the private sector, there are aso exampes of good practice in the pubic sector and the Nationa Audit Office report on Centra government s management of service contracts (HC 65, Session ) provides a number of exampes from centra government organisations which are appying eements of the good practice detaied in the framework.

3 Centra government s management of service contracts: Supporting private sector case studies Case Study A: AXA UK and Wiiams Lea In most of our major spend areas, we beieve there is far more vaue for AXA now in effective contract and suppier management than in the initia sourcing phase you can ony beat down the up-front cost so much. (Pau McMuen, Head of Genera Expense Procurement, AXA UK) Background AXA is one of the argest financia services companies in the word. In the UK, it operates through a hoding company, AXA UK, and via a number of operating businesses incuding AXA Life, AXA PPP heathcare and AXA Insurance. AXA has a UK procurement team that manages key group contracts for a its UK businesses. In 2000 AXA awarded a print services contract to Wiiams Lea, a goba corporate information soutions company. The contract was the first et by AXA to be used by a its UK subsidiaries. The contract was extended in 2005, and is now worth over 20 miion annuay. The scope of the contract has expanded consideraby over time, to incude ogistics and suppy chain management, with AXA s utimate aim being a singe print and document management service. As we as traditiona print services, Wiiams Lea now aso provides services that hep to drive saes revenues, such as a rapid turnaround pitch pack for AXA saes staff. Key areas of good contract management practice Governance AXA s reationship with Wiiams Lea is governed through a muti-tiered operating framework, which consists of various eves of activity and responsibiity: day-to-day service management, which takes pace at oca eve; monthy service meetings in each business between Wiiams Lea and oca AXA stakehoders; quartery contract management reviews, chaired by the AXA Head of Genera Expense Procurement, focusing on overa key performance indicators and targets; and strategic management, with ong term direction discussed at bi-annua executive director eve.

4 Centra government s management of service contracts: Supporting private sector case studies Performance management Key performance indicators are specific for each AXA business and Wiiams Lea service. Performance metrics are re-written annuay by mutua agreement to ensure they remain reevant, and the contract is reguary re-negotiated for the same reason. Monthy service management meetings on each AXA site incude process owners, Wiiams Lea service managers and reationship managers (where appropriate). The meetings review: service performance and improvement pans; reationship issues; change requests; risk management/financia monitoring; and any issues that have been escaated for discussion at the meeting. Contract deveopment As the range of services has grown, AXA has used different financia modes as appropriate, from fu open book to contracts where AXA is free to competitivey tender eements of the service, to ensure vaue for money. Benchmarking has been used to estabish market pricing where Wiiams Lea was awarded business without a fu tender, whie some other services have been fuy competitivey tendered. The most important factor has been the abiity to ensure that the contract and Wiiams Lea s service deivery continues to meet our changing business needs. (Pau McMuen, Head of Genera Expense Procurement, AXA UK) Strategic reationship management AXA and Wiiams Lea have worked together to improve the tota suppy chain, incuding work to improve vaue from sub-contractors, and on actions around sustainabiity, such as carbon footprint anaysis. AXA has retained a veto over Wiiams Lea s choice of sub-contractors. Wiiams Lea is encouraged to form cose reationships across the range of AXA businesses. For exampe, Wiiams Lea worked directy with marketing staff in order to reduce the time to market for compex direct marketing campaigns to three weeks. This integration and contact drives continuous improvement and deveopmenta opportunities. However, contact and activities continue to be coordinated at a high eve and the overa reationship managed through the structured operating framework.

5 Centra government s management of service contracts: Supporting private sector case studies 5 Benefits Both parties have benefited significanty from the contract. There are annua cost savings targets, with a rigorous process for measuring and reporting outcomes. AXA has reduced expenditure on print services by over 15 miion a year (some 50 per cent) over the contract period through price and process savings and infuencing the tota end to end suppy chain costs of print and additionay document management services. In addition, the contract has deivered greater quaity and consistency in branding across AXA UK and service to stakehoders such as marketing has improved. For Wiiams Lea, the contract has heped to drive its strategic deveopment into print management services, and AXA has acted as an effective case study and reference site.

6 6 Centra government s management of service contracts: Supporting private sector case studies Case Study B: BP and Ogivy and Mather You can t expect to have a successfu strategic suppier reationship if the basics of contract and performance management are not firmy in pace. (Ken Cronshaw, BP Procurement Centre of Exceence) Background BP is one of the word s argest energy companies. Much of its activity is devoved to business units, but in some areas suppiers and procurement activities are managed on a goba basis. One exampe is the speciaist procurement team in Sunbury, Surrey, who act as process owner and goba centre of exceence for suppier management strategy, advice and guidance. Ogivy and Mather is a goba advertising and marketing agency, part of the WPP Group, one of the word s argest marketing communications firms. BP has been a cient of Ogivy and Mather since 1999, but by 2005 both parties recognised that the reationship, which is strategicay important to both organisations, coud be improved and a forma suppier reationship management programme was introduced. Key areas of good contract management practice The overa suppier reationship management programme covers BP s top 1,000 suppiers, which account for over 80 per cent of its tota expenditure on third parties. The suppiers are segmented and each segment is treated in a different manner depending on its strategic importance to BP. BP s suppier reationship management programme with Ogivy and Mather emphasises many key aspects of the tota end to end contract and suppier management process, with a continuum running from operationa contract management through to strategic reationship management. Performance against the contract has been an essentia base for buiding the more strategic reationship and vaue-added benefits. Resources The programme highights the importance of the staff invoved in contract and suppier management having the appropriate competences. BP considers that persona attributes such as persistence, empathy and drive are as important as more technica skis such as ega contract knowedge in terms of defining a successfu suppier manager. Successfu practitioners have come from areas such as saes as we as from the more usua procurement areas. BP uses a Procurement and Suppy Chain Academy to deveop these skis, and key features incude the use of competence modes, assessments and training in areas such as category, contract and suppier management.

7 Centra government s management of service contracts: Supporting private sector case studies Vaue for money testing and performance management Benchmarking was used extensivey eary in the reationship management programme across the range of marketing services provided by Ogivy and Mather to ensure that costs were appropriate and competitive, and it continues to be used for new services and to check market price movements. Key performance indicators are particuary difficut to define where the services provided are reativey intangibe, and BP has focused on measuring what it is that the business wants from the suppier across a range of 10 key measures such as strategic understanding, financia accountabiity and timeiness of service deivery. These key performance indicators are reguary reviewed to ensure they remain up to date and reevant to the business. Quartery in-house surveys are used to coect customer feedback on Ogivy and Mather s performance. Governance and reationship management BP has deveoped a strong suppier reationship governance mode, which sets out cear roes and responsibiities at site, regiona and goba eves. In the case of Ogivy and Mather, the goba review group, which incudes BP s Goba Head of Marketing, reports progress and issues up to main Board eve. BP has aso restructured its interna management of the reationship to hep it optimise Ogivy and Mather s goba network. BP invited Ogivy and Mather to impement a simiar structure which provided crossbusiness representation. The reationship is now underpinned by: cear channes of communication; cear roes and responsibiities; cear escaation procedures; and a working charter setting out expectations and behaviours from the two companies. Contract/suppier deveopment The suppier reationship management programme has been successfu in identifying joint process improvement opportunities. The governance structure, described above, has been used to deveop and impement ideas that bring mutua benefit. A more transparent payment mode aso heped in driving openness from both parties. In some areas, BP was itsef contributing to contract costs or inefficiencies; for exampe, through its compex sign-off mechanisms for Ogivy and Mather s work. Working together, processes have been improved with benefits for both parties.

8 8 Centra government s management of service contracts: Supporting private sector case studies Benefits Perhaps the greatest overa benefit has been the deveopment of the reationship from an unsatisfactory starting point to the current situation where both parties see it as an exempar. Tangibe financia benefits have aso been achieved. In terms of quaity of work, the greater eve of trust between the parties has enabed Ogivy and Mather s goba resources and expertise to be appied to drive quaity and innovation. This is not a soft suppier management regime, quite the reverse, but neither is it adversaria. Rather it is a coaborative arrangement suitabe for a strategic partnering business reationship. (Nick Ford, Commercia Director, Ogivy and Mather)

9 Centra government s management of service contracts: Supporting private sector case studies 9 Case Study C: CSC and Aexander Mann Soutions The success of this project was driven by both organisations commitment and coaboration, utimatey deivering tangibe benefits to both companies. (Lee Rimmer, CSC Suppy Chain Director) Background CSC is one of the word s argest IT services companies with goba annua revenues of over $17 biion. Its UK headquarters are in Adershot and it empoys 7,500 staff throughout the UK. Temporary staff pay a key roe in the deivery of CSC s services to cients, so obtaining the right service for sub-contractor recruitment is of critica importance to CSC. After a review of sub-contractor management and a competitive procurement process, CSC appointed Aexander Mann Soutions in 2001 to provide a managed service for sub-contractor provision. Aexander Mann Soutions is an internationa human resources services company that works with cients to transform recruitment and temporary abour processes. The contract between CSC and Aexander Mann Soutions has been extended twice since 2001, and the business mode has evoved, such that Aexander Mann Soutions now acts as a resourcing partner. CSC has a structured process for managing its suppy base and focuses significant contract management attention on a sma number of top suppiers. The reationship between CSC and Aexander Mann Soutions is one of CSC s top 12 contracts in Northern Europe. Key areas of good contract management practice Transition management Transition from the previous contractor carried significant risk as Aexander Mann Soutions was a new suppier, and there was considerabe sensitivity around transfer of sub-contractors and contractua issues. In practice, impementation was smooth and effective, in CSC s view because of: carity of responsibiities ensuring Aexander Mann Soutions took ownership of transition issues; appropriate risk transfer to utiise Aexander Mann Soutions experience and capabiity; honesty from both parties around the current service situation; and invoving service users in the seection of the suppier and throughout the transition process.

10 10 Centra government s management of service contracts: Supporting private sector case studies Performance management Key performance indicators reate to six key areas, incuding voumes of starters, suppier margins and time to hire. Metrics are reguary reviewed to ensure they remain appropriate. Particuar focus has been paced on interna customer satisfaction. A percentage of service users are questioned on an ongoing basis after their engagement with Aexander Mann Soutions, and resuts are shared with Aexander Mann Soutions through a monthy performance report. CSC s contract manager and Aexander Mann Soutions account manager meet at a monthy operationa review to consider performance against service eve agreements. Governance and reationship management CSC s reationship with Aexander Mann Soutions is governed through a structured review process. A monthy operationa review is attended by the contract manager from CSC and the service manager from Aexander Mann Soutions and is based around performance reporting and monitoring of service eves. A quartery review acts as a point of escaation, invoving more senior CSC procurement staff, and considers more strategic issues. A biannua strategic suppier review considers mutua opportunities and onger term issues. Actions are identified and inked back to day-to-day contract management. Attendees incude the CSC Human Resources executive sponsor for the contract. Good communications between Aexander Mann Soutions and the arge number of CSC service users is important to maintain the strong reationship between the two organisations. There is reguar communication with users primariy through the onine Resourcing Newsetter which provides key statistics and updates to the service. Materia is written by Aexander Mann Soutions but branded by CSC in order to present to interna users of the service a seamess partnership between Aexander Mann Soutions and the CSC Human Resources team. Benefits Both the CSC and Aexander Mann Soutions procurement and contract management teams recognised that demonstrating savings during the eary stages of the new contract was the key to gaining the buy-in of interna stakehoders. Benefits fowed rapidy, and CSC has saved over 20 miion since the contract started through ower suppier margins and substituting contractors for interna staff. There have aso been financia benefits through better staff utiisation.

11 Centra government s management of service contracts: Supporting private sector case studies 11 The two firms have worked together to improve the efficiency of processes such as the engagement of new contractors, and users have enjoyed a service that provides greater fexibiity, and improved organisationa capabiity. For Aexander Mann Soutions, working with CSC to extend the service across parts of Europe, the Midde East and Africa has increased its own capabiity and provided a aunch pad for its own expansion. Keeping users invoved in the contract management process is key once the contract is running we, they can ose interest. But to ensure continued success, we have to keep their interest and invovement going. (Lee Rimmer, CSC Suppy Chain Director)

12 12 Centra government s management of service contracts: Supporting private sector case studies Case Study D: Lega & Genera and Adare Invoving users in the procurement process heped us get initia buy-in and compiance; whist the user feedback process has ensured we can work with Adare to deveop and improve the service over the years. (Cecie Bagne, Lega & Genera, Print Category Manager) Background The Lega & Genera Group is one of the UK s argest financia services companies. It has over five miion customers covering ife assurance, pensions, investments and genera insurance pans, and invests over 300 biion wordwide (as at 31 December 2007) on behaf of investors, poicyhoders and institutions. Lega & Genera has worked with Adare, an internationa provider of marketing and customer communications soutions, since Adare provides two main services to Lega & Genera: a print management service, which incudes support and advice on marketing communications incuding Direct Mai, and a print ogistics (storage and distribution) service. When Lega & Genera s strategic procurement team tendered the print contract in 2002, they identified the opportunity to create an innovative outsourced management contract rather than a traditiona print production contract. A key feature from the beginning was the intention to deveop the service over time to meet Lega & Genera s evoving business requirements. Effective contract and suppier management was therefore essentia in order to manage that deveopment and ensure that the service continued to meet user needs over time. The contract is managed by Lega & Genera s Senior Category Manager within the procurement function. Key areas of good contract management practice Stakehoder reationships The nature of the contract means that there are many users of the service around the organisation. For exampe, any marketing or other manager who requires externa print services is a potentia user. Ensuring that users are content with the service provided by Adare, and have an opportunity to provide input into performance management and improvement, is key. Achieving buy-in from users was an important eement of the tendering process. The procurement team invoved interna customers in the process, incuding in evauating and seecting the successfu suppier. This has increased the sense of ownership amongst the user community.

13 Centra government s management of service contracts: Supporting private sector case studies 13 Having an Adare team on site at Lega & Genera s premises has improved communications between Adare and users. An issues og is maintained and, whie most issues are resoved between Adare and users without the intervention of the senior category manager, there is a monthy meeting between that manager and the Adare account manager. A service users receive a questionnaire on a quartery basis, with questionnaires taiored depending on whether the work is print or direct mai reated. The resuts form a key part of performance evauation, and are coated and reviewed at the quartery review meeting. A service users for the period are invited to the quartery meeting. Whie generay few attend, the open offer has again increased the sense of ownership amongst the user community. Lega & Genera aso runs quartery knowedge sessions for users, where Adare eads discussions on key topics of interest. Utimatey, user satisfaction is demonstrated by high compiance (around 98 per cent) with the contract. Compiance is monitored through a database of spending, with interna customers who have not used the contract caed by the contract manager to find out why, and if necessary, the issue is escaated up the management ine. But generay, a high eve of compiance has been achieved without escaation. Performance management As Adare acts as a print management company, a jobs are tendered by Adare to an approved ist of sub-contractors. Lega & Genera has fu visibiity of the suppy base and the breakdowns of the detaied quotations received. Adare s own performance is measured through a set of 15 key performance indicators, which reate directy to the service eve agreements defined in the contract. The key performance indicators are a mix of hard objective measures and more subjective measures such as user satisfaction scores. A composite score against the key performance indicators is produced quartery, and this drives Adare s tota payment, providing an incentive to score as highy as possibe. The scores make a significant difference to Adare s profitabiity. When Lega & Genera decided in 2007 to contract for the storage and distribution of their marketing iterature and corporate stationery, it decided to hod a fu tendering process rather than awarding the contract to Adare under the existing contractua arrangements. Whie Adare was utimatey successfu in winning the work, Lega & Genera fet that it was important to estabish the best vaue soution through a fu approach to the market.

14 14 Centra government s management of service contracts: Supporting private sector case studies Sustainabiity Lega & Genera has deveoped a comprehensive Corporate Socia Responsibiity programme that covers not just its own activities, but aso its suppy networks and the everage it can exert given its ownership through pension and insurance funds of stakes in many eading companies. In 2007 Lega & Genera pubished the Corporate Socia Responsibiity standards it required of suppiers, providing a benchmark to assess socia and environmenta impacts. The programme covers suppier activity in terms of environmenta management, empoyee reations, community invovement, heath and safety, equaity and diversity, and ethica behaviour. Lega & Genera has aso introduced Making a Difference awards for suppiers, rewarding those who have exceed in areas of environmenta or socia impact. As part of its Corporate Socia Responsibiity programme, Lega & Genera is focusing on 80 priority suppiers based on a number of criteria incuding expenditure and risk (based upon FTSE4Good criteria). Adare is one of the 80. This group of suppiers is provided with detaied environmenta and other specifications by Lega & Genera, and reguar meetings at east quartery are hed to progress Corporate Socia Responsibiity reated activities. Adare is a suppier managed under UK Procurement s ISO14001 certified management system. Adare and Lega & Genera have deveoped an environmenta print specification, covering issues such as aminating and use of water based inks. Another tangibe exampe of the Corporate Socia Responsibiity programme is the feedback provided when a job is submitted to Adare. Every time a Lega & Genera interna customer puts a job forward, Adare produces a report for the user on the environmenta impact of what is being proposed. For exampe, if a user requires amination, Adare wi point out the impications of the process and chaenge whether it is necessary. In other cases, there may be ways to reduce the quantity of paper used in a particuar job. Adare aso gives advice on cost-saving or other improvements it beieves are possibe. An exception report is produced showing where users have rejected Adare s advice; this is reviewed by the senior category manager and risk & project manager and discussed with users where appropriate. Benefits The coaboration between Lega & Genera and Adare has deivered major benefits for both organisations. For Lega & Genera, it has deivered cost savings, service eve improvements and groundbreaking environmenta initiatives. For Adare, the benefits incude the prestige of a FTSE 100 cient, market eading initiatives that can be repicated across its wider cient base and a fagship contract worth severa miion pounds a year. We can use our everage with our suppiers and firms where we are investors to drive better Corporate Socia Responsibiity practice across a wide range of companies. (Graham Precey, Head of Corporate Responsibiity, Lega & Genera)

15 Centra government s management of service contracts: Supporting private sector case studies 15 Case Study E: Loyds TSB We are seeing an increasing executive awareness and recognition that poor suppier reationship management can have serious risk and cost impications for our business. (Caroine Booth, Procurement Director, Loyds TSB) Background Loyds TSB is one of the UK s argest financia services companies. It is spit into four divisions UK Retai Banking, Insurance and Investments, Whoesae and Internationa Banking, and IT & Operations. IT & Operations provide shared services to the other divisions and in addition to IT and Operations contains Procurement, Property, Change Management Services and Security. Group Procurement forms part of the IT and Operations executive committee, which reports at Group executive eve aongside the three other divisions. Over the ast two years, Loyds TSB has put significant effort into improving contract and suppier reationship management performance. It initiay assessed that it had some strengths in this area, such as dedicated reationship managers for many of its top 50 suppiers, and a strong focus on risk and compiance with outsourced and offshore suppiers. But it aso recognised that there were issues to be addressed incuding inconsistent approaches to suppier reationship management across the Group and itte focus on driving added vaue from suppier reationships. In recognition of this, a consistent approach driven by Group Procurement, and branded One Best Way, has been appied to the management of Loyds TSB s top 50 suppiers. The top suppiers were chosen based on a range of factors, incuding expenditure and criticaity, and then grouped using a mode that ooked at four high-eve deiverabes from the reationship; with increasing eves of strategic importance, these were deiver, assure, improve, and innovate. Group Procurement reviews and updates the top 50 ist annuay. Loyds TSB has appointed accountabe executives and reationship managers for each of the top 50 suppiers. Accountabe executives are very senior managers, incuding some at main Board eve, who provide the senior focus and ownership of the reationship. Reationship managers oversee the reationship at a more detaied and day to day eve. Some reationship managers are Group Procurement staff, whie others are from the business units with whom the suppier is working. In these cases, significant commercia and contractua matters continue to be handed by Group Procurement.

16 16 Centra government s management of service contracts: Supporting private sector case studies Key areas of good contract management practice Governance Loyds TSB considers that executive commitment and understanding are essentia if a suppier reationship management programme is to be successfu. Equay, suppier reationship management shoud not be a bot-on ; it must be an integra part of the end to end procurement process. It is aso essentia that interna roes and responsibiities are documented in order to have carity in facing the suppier. Governance of the suppier reationship management process is therefore vita, and Loyds TSB has put measures in pace to support such governance. To ensure that a key contracts are handed through the desired processes, arrangements for contract and suppier management must be in pace before a contract is agreed. This approach is enforced through the use of a Gate process with a Sourcing Steering Committee, chaired by the Managing Director of IT & Operations, governing the key stages of the procurement process for the most significant contracts. The Committee approves the choice of suppier and at that point ensures that an Accountabe Executive and a Reationship Manager have been identified. Transition arrangements are aso signed off by the Committee. Resources Loyds TSB has paced particuar emphasis on ensuring staff invoved in contract and suppier management have the skis and capabiity necessary to deiver the desired resuts. It has aso worked to raise awareness of the importance of suppier management and to buid a suppier management community to disseminate and share best practice. Knowedge and skis are deveoped via Loyds TSB s Suppier Management Academy, which was introduced on 1 March The Academy is avaiabe to a staff within the organisation, but is targeted at those who manage reationships with the top 50 suppiers. Content is owned by Group Procurement but deivered via the University for Loyds TSB, whie marketing and communications are a joint University/Procurement responsibiity. Materia is deivered through a combination of face to face courses and on-ine modues, using a mix of internay and externay deveoped and deivered content. There are currenty 16 face to face modues and 17 on-ine modues avaiabe, incuding infuencing skis, negotiation skis and confict resoution.

17 Centra government s management of service contracts: Supporting private sector case studies 17 The induction programme is seen as a key part of the training programme. It is compusory for new reationship managers, and consists of a one-day workshop, ed by Group Procurement. Some 130 peope have been through the induction process and more are schedued; eventuay, some 180 staff are expected to go through the training. Once they have been inducted to the Academy, trainees can agree with their ine manager which further modues they need to compete as part of their deveopment pan. Foowing induction, Group Procurement aso foows up with monthy cas to the reationship managers to identify issues and offer support. Loyds TSB is aso buiding its reationship manager community through other means such as away days, and onine or conference ca sessions around current hot topics. We have to force peope to think about contract and suppier management eary in the process. Once you re on the back foot, it requires a huge effort to turn a faiing reationship around. (Mike Jones, Procurement Manager, Loyds TSB)