ppm strategic sourcing and proc transformation...

Strategic Sourcing and ProcurementTransformation ProgramRosa MartelliPwC Government Advisory Srevices - Senior Consultant

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AGENDA

PwC and Public Sector

Company profile

PwC services for Pas

The Purchasing Rationalization Plan

Client Description

Pwc’s engagement

The strategic approach

The AS- IS assessment

Centralizing Purchases

Ruling the Purchases

Achieving Prompt Savings

Some results after 3 years

Key success factors

The Project Team

2

AGENDA


Company profile

PwC services for Pas


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COMPANY PROFILE

COMPANY PROFILE

PricewaterhouseCoopers provides industry-focused advisory, tax and assurance services to build public trust andenhance value for its clients and their stakeholders. We have extensive experience providing a broad range ofservices to governmental and non-governmental organizations and we provide services for 415 of the companiesin the Fortune Global 500 and the FT Global 500.

PwC people

180,529Countries

158Locations

776

Western Europe

69,853people

North America and theCaribbean

44,885people

South and CentralAmerica

12,236people

Middle East and Africa

11,008people

Asia

37,805people

Central and EasternEurope

7,857people

Australasia andPacific Islands

5,885people

PwC is structured as a network of member firms, connectedthrough membership of PricewaterhouseCoopers InternationalLimited. Within each territory, the business is structured by lineof service (Assurance, Advisory, Tax & Legal Services).

PwC's member firms operate locally in countries around theworld. But by working together member firms also comprise avigorous global network. This structure provides PwC firms withthe flexibility to operate simultaneously as the most local andthe most global of businesses.

Globally, PwC has presence in:

• 158 countries;

• 776 towns and cities

We are the number one or two service provider in most marketsin which we operate.

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COMPANY PROFILE

PwC’s support to PAs

PwC owns specific knowledge and competences to support PAs in predisposing Expenditure Rationalization Plans

and Strategic Sourcing Programs, by reengineering procurement procedures, by leveraging the quality/quantity

trade off for public purchases, by implementing new budgeting processes.

Advisory services offered

Current expendituresrationalization

• Advisory services on current expenditures for goods and services reduction costs(contracts roll over, centralized tendering etc.)

Desription

Purchasing centralization• Advisory services on organizational structure and process optimization for the

design and implementation of Central Purchasing Bodies

Support in drawing upbalancesheet

• Advisory services to support PaA in defining new budgeting models and processes(i.e. standard costs, standard needs, …)

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AGENDA


The Purchasing Rationalization Plan Project

Client Description

Pwc’s engagement

The strategic approach

The AS- IS assessment

Centralizing Purchases

Ruling the Purchases

Achieving Prompt Savings

Some results after 3 years

Key success factors

The Project Team

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Client Description

Our client is one of the biggest municipal administration in Italy,

counting more than 25.000 employees, 50 owned companies, and

a $6,5 billion (USD) annual budget.

The city has been affected by the financial crisis that caused its

financial debt growing, valued at $15 billion (USD). In August 2010

Standard & Poor’s lowered the long-term debt rating from A+ to A

level, highlighting the need to enhance the efforts to balance the

budget.

Called to face the shrinking of national financial transfers, the city

administration resolved to undertake a Cost Reduction Program.

The personnel costs rigidity, due to political and social reasons,

pushed the municipal administration to focus the costs reduction

actions on goods and services purchases, valued at $2,9 billion

USD, and showing a growing trend up to 50% in the last five years.

Called to face theovercoming financial

crisis, the City resolvedto undertake a CostReduction Program,

focused on goods andservices purchases.

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PwC’s engagement

Called to face the financial crisis, the client resolved to design and

implement the Strategic Plan for the Rationalization of goods and

services purchases.

PwC has been elected as partner of the project, thanks to its

distinguishing skills and experience in the Public Procurement

field. The assignment for PwC was about the AS-IS assessment and

the designing of the Strategic Plan for the purchases

optimization.

In three months PwC outlined the Goods and Services Purchasing

Rationalization Plan, aimed to centralize the purchases processes,

by setting up the Central Unit for Purchases (CUP), and to launch

saving costs initiatives, achieving $ 400 million USD of savings in

only 10 weeks of work.

Subsequently the client launched a competitive tender to select

the partner called to support the Goods and Services Purchasing

Rationalization Plan implementation process. PwC has been

awarded the competitive tender, a project lasting four years and

valued at $ 5,6 Mln USD.

PwC Advisory Italy hasbeen selected by the

client as the partner forsupporting the

implementation of thePurchases

Rationalization StrategicPlan

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The approach

PwC’s strategicapproach has been

focused on savingachievements and

on the designing ofnew purchases

processes.

PwC’s strategic approach first planned the AS-IS assessment, producing three specific action

streams:

New Purchasing model

Prompt savings

Creating the Central Unit for Purchases(CUP)

Planning and Control Model for goodsand services purchases

Re-negotiating in force contracts

1Centralizing the purchases

2Ruling the purchases

3Achieving prompt savings

AS-ISassessment

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The AS- IS Assessment 1/2

The spending for Goods and Services

showed a growing trend, up to 50% in the

last five years, reaching a $3 billion USD

value in 2010.

The City’s purchaising processes

presented an high level of fragmentation

and lack of a central supervision

(maverick buying).

The analysis higlighted a relevant price disparity paid by different Municipal Units for buying

the same products. These prices, moreover, turned out higher than the market prices (more

than 50% on the MKT average).

A monitoring and controlling model of the spending, nor a demand side ruling system, are

not in force.

Ruling procedures for purchases processes are not planned.

None of the purchases processes is supported by information systems.

1.9542.025

2.278

2.686

2.979

-

500

1.000

1.500

2.000

2006 2007 2008 2009 2010

Value Million/$ + 52%

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The AS- IS Assessment 2/2

Low Public Tendering propension

In 2009, only 17% of the total expenditures realized

through Public Tendering process; about 30% of the

expenditures carried out through non competitive

tenders, direct commitments, in force contracts

extensions.

Prices above market average

Relevant price disparities have been detected for

the same product/service up to 70%.

Prices were above the market average price, up to

+50%.

€

1,041,05

1,60

0,50

0,36

0,60

0,45

0,150,23

0,58

Glue 40 gr ScissorsHighlighter

27%

21%

0,80

0,350,25

1,231,20

0,30

0,48

0,24

Dept 2

Dept 4

Dept 5

Legenda

Dept 3X

Dept 1

Dept 65

Average paid price

Average market price

50%

25%

15% 25%1

Non competitive tender

Other ( social services)

Consip

Contractextension

Service agreements(ex. Public transport)

Public tendering

41% 17%

11%

2%

Directcommitments

15%5%

9%

Stationery and office products

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Centralizing purchases

The purchases centralization process lead to the creation of the Central Unit for Purchases (CUP),

counting about a 50 people staff, called to manage purchases valued at about $1 billion USD.

The Purchases Centralization process required 4 main streams of activities:

1. New Purchases Model designing: re-engineering of the Purchases

Process and Organization, moving from the creation of a Central Unit

for Purchases (CUP), (specifying its roles, responsibilities, staff scaling,

job descriptions, etc.)

2. Rules and Procedures predisposing: providing

detailed rules aimed to wholly regulate the

purchases process.

3. Information systems framing: providing information systems

supporting the purchases processes.

4. Designing of the Addressable Spending Plan : scheduling about 65

saving initiatives in a 2 years period.

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Ruling purchases (1/2)

PwC supported the municipal administration in designing the new Monitoring and ruling of the

spending for goods and services purchases model, structured in 2 main parts :

Planned Spending: supporting the Balance Sheet compilation, by defining spending

allocation through the standard costs method;

Spending management: providing a monitoring system aimed to ensure the well

performing of the spending, in terms of respecting balance caps, following purchases

procedures, types of Goods and Services purchased, etc… (compliance management).

The Model for the Monitoring of theSpending allows a clear, smart andcomprehensive description of the

main issues related to the Goods andServices Purchases.

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Ruling purchases (2/2)

The proposed Monitoring model is based on a reporting system characterised by a customer-

specific level of data aggregation.

REPORTING LEVEL

StrategicReports

ManagerialReports

OperationalReports

• Synthetic layout, group info by Structure/Product Category• Overview on expenditures for goods and services,• Supporting tool for implementation of Purchasing Rationalization Plan

• Overview on global expendituresOffrono una visione d’insiemedell’andamento della spesa globale;

• Supporting tool for detailed analysis on goods and servicesexpenditure evolution;

• Identify possible anomalies in the Purchasing process and allow totake actions accordingly

• Analytical layout, customizable• Detail info about single purchasing items• Investigate cost trend of any single item cost

Indicators

CHARACTERISTICS BENEFICIARY

Strategic Dept(Dept. Expenditure

Rationalization; MayorCabinet; …)

Dept. directors(Dept. Expenditure

Rationalization; LocalStructures; Dept.s)

CUP

+

-

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Achieving prompt savings

The strategic approach followed by PwC aimed at achieving prompt savings by re-negotiating

extremely onerous “in force contracts” for the municipal administration.

Re-trading in force contracts required to use the

following levers:

• Purchases price reduction, and alignment to

market prices;

• Services level and supplying models

revision;

• Standardization of Goods and Services;

• Supervising goods and services demand

(demand management);

• Re-assessment of the internal policies for

goods and services demand (compliance

management);

• Redefining the contracts monitoring model

and improvement of the supplier quality

control model.

Heating

Public Lighting

Power supply (electricity)

Active rents

School catering (school and kindergarten)

Buildings maintenance

Cleaning services (schools, offices)

School transports

Green maintenance

Water supply

….

Addressable spending:

By re-trading somecontracts (concerning

utilities, Public Lighting,etc.) the municipal

administrationand achievedabout $400 million USD of

total savings,in only 10 weeks of work.

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The competitve tender for advisory support

Today we’re working to getestimated results….

Pursuant to the assessment analysis and to the Purchases Optimization Strategic Plan, the

client resolved to launch a competitive tender to implement with the new strategic sourcing

model.

PwC Advisory Italy has been awarded the competitive tender (planned man-days: 6.000).

The project asked for appropriate actions following three main streams:

make effective the new Purchases Model (processes re-assessment, defining of new

procedures, rules, change management, etc…);

achieve savings, by implementing 65 scheduled saving initiatives (re-negotiating in

force contracts, centralizing contracts, in sourcing, etc …);

implementing the “Monitoring and Ruling of the spending for goods and services

model”.


Some data about key results

The addressable spending managed by the CUP has been of €411 Mln. Saving initiatives and the

Expenditure Rationalization Plan generated total savings for € 92 Mln (22%).

2009 2012

411Mln €

92Mln €

Savings22%

319Mln €

Category Savings per year

Heating - 12%

Power Supply - 10%

Public Lighting -52%

Stationery and office products -41%

Printed materials - 50%

Postal services - 23%

Materials Moving services - 52%

Furnitures - 40%

Food vouchers -64%

Automotive renting -43%

Active rents - 1’%

School catering service -26%

Fuels -5%

Database licences -50%

Goods rental services -38%

Addressable spending and savings 2012 Spending items and savings

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Key Success Factors

Following are the Key Success Factors for the described Project:

achievement of a “success history” in only 10 weeks of work, able to become the

driving force of the ensuing project (re-trading of the Public Lighting e Heating contracts

getting saved about $400 million USD);

a project team with relevant skills in Public Procurement acquired in previous projects

with other prestigious italian public administrations (Consip, Regione Lombardia, etc.);

legal experts support, a crucial factor for such a deeply regulated field as the public

administration’s competitive tenders;

technical experts support, an essential input to identify possible savings areas in so

higly technical fields ;

customer intimacy: a deep knowledge of the customer and a strong relationship with

the client.

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The project team

Team PwC Advisory

GiovanniMariani

Staff Grade: Partner

Location: Rome

Phone: 3356327528

Email:[email protected]

MaurizioRistori

Staff Grade: Director

Location: Rome

Phone: 3400974686


Giuseppe Barresi

Staff Grade: Manager

Location: Rome

Phone: 3481505240


Alessandro Gui

Staff Grade: Manager

Location: Rome

Phone: 3488153129


Daniele Ciampi

Staff Grade: Assistant Manager

Location: Rome

Phone: 3400474343


Rosa Martelli

Staff Grade: Senior Consultant

Location: Rome

Phone: 3488514118


The project team is composed of Operations consultants, with relevant skills in Public

Procurement.

19© 2013 PwC. All rights managed.

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© 2011 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member fi rms of PricewaterhouseCoopersInternational Limited (PwCIL), or, as the context requires, individual member fi rms of the PwC network. Each member fi rm is a separate legal entity and does not act asagent of PwCIL or any other member fi rm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of itsmember fi rms nor can it control the exercise of their professional judgment or bind them in any way. No member fi rm is responsible or liable for the acts or omissions ofany other member fi rm nor can it control the exercise of another member fi rm’s professional judgment or bind another member fi rm or PwCIL in any way.

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