Appendix A
Isle of Wight Council
PROCUREMENT
STRATEGY
Produced by:
Compliance Section
Finance & Business Services
October 2002
(JES version 4b)
PROCUREMENT STRATEGY
Preface
This Procurement Strategy is NOT a procurement manual or a set of purchasing procedures. Its principal purpose is to set the overall context for procurement and, by building on some current elements of good practice, to map the future developments and likely improvements in the way the Isle of Wight Council approaches its procurement activities as a whole.
It should be read in conjunction with:-
· The Council’s Standing Orders as to Contracts (dated 20 March 2002)
· The Best Value toolkit, in particular the Procurement Policy – 1B (dated 13 August 1999)
· Other procurement guidance to be published in due course.
Isle
of Wight Council
PROCUREMENT
STRATEGY
1. Introduction
Whether it is in the public or private sector, the
formulation of a procurement strategy is an essential feature of effective
procurement. All local authorities are being actively encouraged to develop
their own procurement strategy to promote best practice, and to help provide
the vision and focus for the attainment of genuine improvements in this key
area.
There is strong evidence to support the widely held
view that, properly managed, effective procurement can make a real difference
to service delivery and that it is frequently “mission critical” to the overall
well-being of the organisation itself. Understandably then, in nearly all
successful companies and organisations, procurement activity increasingly and
rightly demands the attention of top-level management. This point is amply
demonstrated by the following recent quote from the Chief Executive of a medium
sized office products company: “The procurement process is one of the most
critical components of a successful business operation. It is also at the
forefront of the eBusiness revolution that is changing fundamentally the way
businesses work……...”
Procurement is a very wide and comparatively diverse
subject. Essentially it is concerned with obtaining the best out of the
marketplace and managing the relationships/interfaces with one’s external
suppliers. By its very nature, procurement can be deemed to embrace all
non-payroll related expenditure (invariably a very significant proportion of
any organisation’s total costs) whilst in its broadest and most fundamental
sense it should also address the basic so-called “make or buy” decisions (i.e.
in-house provision versus outsourcing). Thus the traditional perspective (in
some circles) of a purchasing function operating in a fairly narrow and
predominantly transactional environment, being concerned mainly with buying a
range of lower value goods, is somewhat far removed from the demands of a more
modern, strategically focused procurement function.
In terms of developing an effective procurement
strategy, it is definitely not a case of “one size fits all”. The strategy
needs to reflect the particular needs, circumstances and aspirations of the
individual organisation. It cannot operate in an organisational vacuum; thus it
must be responsive to, and in full harmony with, the organisation’s corporate
objectives. The scale of any particular
requirement will be an important factor in determining the complexity of the
purchasing process to be deployed. There will therefore be some differences
when buying say, the humble paper clip as opposed to a piece of computer
software, or perhaps between letting a new office cleaning contract as opposed
to commissioning a major civil engineering project.
2. Background
2.1 Historical perspective
The previous decade or so saw several significant examples of services or activities that had traditionally been delivered in-house by the Isle of Wight Council being transferred or outsourced to a variety of external organisations in both the public and private sectors. For example, virtually all of the Council’s mainstream “blue collar” service work (e.g. grounds maintenance, waste collection, highways maintenance, office cleaning, etc.) was externalised, as were the majority of its residential care homes and its entire social housing stock. Conversely, the Revenues and Benefits function was retained in-house following due competitive process under the old compulsory competitive tendering regime.
The nett result is that these days the Isle of Wight Council operates a substantially mixed economy, with the provision of both frontline and support services being delivered variously through a balance of in-house and external (third party) resources. This process has continued to evolve and more recently the advent of Best Value has provided a further formal framework to foster an ongoing review of the fundamental “make or buy” decision in regard of a number of key services.
Currently around 50% of the Isle of Wight Council’s total annual budget is spent on bought-in goods, services and works – a total of £85million, which is a significant sum. The effective procurement of these and other future requirements is inextricably linked to the delivery of genuine Best Value, and ultimately makes a very significant contribution to the Council’s success in providing quality services to the public. What happens after contract signature is perhaps even more important than what happens before - but this means getting the contract right in the first place.
2.2 Economic context
The very fact that the Isle of Wight is an island can impose (potentially at least) certain constraints and special logistic considerations regarding the Council’s procurement activities. Whilst this is not the arena for a lengthy debate on the wider severance by sea issues, limited competition and/or additional contractor costs (e.g. covering cross-Solent expenses and other out-of-area contractor premiums) are the most obvious examples likely to affect some areas of our procurement.
A second important factor to be borne in mind is that in relative terms the Isle of Wight Council is not a particularly large authority. Whilst big is certainly not always best, it does mean that as a fairly small unitary authority we do not always have the resources - either financial or human - nor indeed the basic buying power, to necessarily become a “leading edge” procurement player. This is certainly not complacency, but perhaps recognition that on occasions a slightly more cautious approach to higher risk procurement initiatives may be appropriate, or maybe that greater collaboration with other authorities to share development costs and/or obtain better leverage in the marketplace should be encouraged.
2.3 Organisational culture
No two organisations are identical and inevitably there are certain aspects of both corporate governance and “organisational culture” that have tended to help shape the way procurement in general has developed to date. That old maxim “what works best is what works” is perhaps not entirely inappropriate in this context.
However, it is considered that the recent organisational restructuring that has taken place within the Council has provided fresh impetus and opportunity for developing a stronger and more co-ordinated, strategically focused approach to procurement. The real challenge is now to respond positively and with purpose to this enhanced remit for the benefit of the Council as a whole (and, of course, the community it serves).
2.4 Government policy
There is a wealth of policy, initiatives and guidance emanating from central government on a full range of procurement issues, backed up by a robust array of inspection processes within local authorities. Examples include Best Value legislation, the Byatt Report (“Delivering Better Services for Citizens”), the Egan Report (“Modernising Construction”), the e-Government/e-procurement drive, to name just some. In essence, they are all related threads with a common theme – i.e. that procurement, in all its facets, is seen as vitally important to the ability of each and every Council to sustain and improve the delivery of services to its community.
2.5 It
is against this backcloth that the Isle of Wight Council’s Procurement Strategy
has been developed, together with an Action Plan. The strategy itself is
intended to develop a powerful driver and robust tool to achieve step change in
improving procurement practice, and in so doing help establish a wider
understanding of many procurement issues throughout the Isle of Wight Council.
3. Key Objectives
Delivering
quality public services is an overriding objective of Government – both at
central and local level. The Isle of Wight Council will actively strive to
obtain best value in the way it spends money, so that it may in turn offer best
value services to the public it serves. In doing so, the Council will seek:-
3.1 To ensure all procurement
activity undertaken by and on behalf of the Council is carried out with
integrity and is compliant with all relevant legislation, and that it is
conducted in a fair, objective and transparent manner.
3.2 To ensure
that the appropriate procurement skills are developed and embedded throughout
the organisation (recognising the highly devolved nature of the organisation
and the fact that the great majority of spending is carried out by front-line
staff in individual Service Units).
3.3 To identify
and pursue a range of options and tactics most suitable to the particular
procurement being undertaken, having regard to the “procurement positioning
matrix” set out in this strategy. (See Fig.1 in section 4)
3.4 To
systematically review all current contracts (and non-contract expenditure) to
identify potential opportunities for improvements through, inter alia:-
·
More effective demand aggregation
·
More suitable “repackaging “ of the service work content
·
Alternative methods of service delivery (including
partnership/ collaborative/ outsourcing/ internalising options, etc.).
Furthermore,
to ensure that such efforts are not diluted or undermined by the existence of
artificial barriers such as departmental boundaries (and ensuring the mandatory
use of any established corporate contracts throughout the Council).
3.5 To recognise the Council’s
position in the local community as both a significant customer and a key
strategic player in the well-being of the local economy, and thus to seek to
develop a range of procurement initiatives (where practical and legally allowable)
to encourage the development of the local supplier base.
3.6 To actively
encourage the identification and utilisation of a range of “environmentally
friendly” products and services by the Council as a whole, thereby contributing
positively to the Council’s Agenda 21 strategy and its commitment to
sustainability issues in general.
3.7 To present to the marketplace as
a whole a positive image of the Isle of Wight Council as being an “intelligent
client” with whom suppliers and contractors would wish to do business. This to
be reinforced through:-
·
Good standards of procurement documentation and
communications generally
·
A balanced approach to risk
·
Open and fair conduct throughout
3.8 To review
and develop effective and efficient information systems relevant to the needs
of a modern day procurement activity, including the development of
e-procurement capability.
3.9 To invest in the Compliance
Section of the Council’s Finance & Business Services Department the
necessary resources and authority to effectively focus on, co-ordinate and help
deliver the key elements of this procurement strategy, and the dissemination of
procurement best practice throughout the Council.
4. A touch of theory
Clearly not all purchases are the same. Indeed the
nature of purchasing decisions will vary, depending on the relative
importance/cost of the product or service itself and the prevailing supply or
market conditions. Hence some procurement approaches are usually more
appropriate than others in any given situation. Whilst not put forward as some
kind of panacea, the following commonly-used matrix (Fig. 1) does illustrate a
range of broadly applicable procurement options and approaches which underpin
much of what this Purchasing Strategy strives to deliver:-
|
High |
|
|
|
|
CRITICAL ·
Contingency
planning ·
Removal
of unreasonable supplier entry barriers ·
Supplier
development ·
Collaboration
with other purchasers |
STRATEGIC ·
Longer
term contracts ·
Partnership
agreements ·
Detailed
purchase price cost analysis ·
In
depth market/supply chain analysis ·
Active
supplier management |
|
ACQUISITION Aim to move into Leverage segment or minimise effort by:- ·
Consolidation/aggregation
of spend ·
Simplification
of procedures/ improve process efficiency
(e.g. e-procurement) ·
Standardisation
of requirements ·
Call-off
contracts |
LEVERAGE Maximise
competition using:- ·
Enquiries ·
Competitive
tenders ·
Negotiation ·
Simple
purchase price cost analysis ·
Benchmarking |
|
|
Low
|
|
|
|
|
|
|
|
(Note:
Market difficulty can be a reflection of various factors e.g. monopoly or
limited number of suppliers, complexity of products and services, rate of
technological change, degree of risk, the consequences of supply failure,
including the inherent importance of the goods or service to the
organisation, etc.) |
Fig. 1
5. Targets and Action Plan
The following pages set out some specific targets
and actions that the Isle of Wight Council will pursue as part of its medium
term (i.e. next 3 years or so) Procurement Strategy.