Procurement Reform – LEAN Sourcing

A new approach that requires us to change the way we work

UNCLASSIFIED

Briefing for policy staff & project managers

The Procurement Reform Agenda

• The Coalition Government has set out the requirement to support the implementation of the Growth Agenda and to ensure that more Small & Medium Sized Enterprises win government contracts.  The requirement includes a new approach to the way central government departments carry out procurement.

• This requires departments to think very differently about how procurements are planned and delivered.

• Subsequently, this will require a much closer working relationship between procurement staff and colleagues from policy areas and project management functions than has previously been the case.

• The new approach has been endorsed by Francis Maude, the Minister for the Cabinet Office and all central government departments and their arms length bodies are required to adopt it.

The new policy requirements

• The new approach comprises the following new government policy requirements:

– Adoption of a LEAN sourcing approach that strips out waste and reduces costs

– A requirement to carry out significant levels of pre-procurement market engagement with diverse range of prospective suppliers, including SMEs in order to warm-up the market, test our thinking and generate ideas for innovation as part of the development of outcome-based specifications.

– Contracts should be broken down into lots where appropriate, and requirements that are below the value of £100K should be rapidly sourced through the new Government Dynamic Market place.

– All Government procurements are strongly encouraged to use the Open Procedure.

– There is now a presumption against the use of the Competitive Dialogue procedure which has often resulted in slowing things up unnecessarily and typically incurs huge costs on both sides.

– There is an expectation that all but the most complex procurements are completed with 120 working days (publication of the advert to the contract award decision date).

What this means for our department• Collectively, we need to develop:

– A detailed understanding of what the pipeline of potential procurements is so that these can be planned and resourced effectively

– Strong recognition within business areas that early engagement and joint working with the procurement function (as part of a multi-disciplined procurement team) is a critical success factor

– A full understanding of the key principles of the LEAN sourcing process and how engagement with suppliers in the market before establishing a formal procurement process has to become standard practice (we can no longer rush out with an advert)

– Strong acceptance that large complex contracts with large suppliers are no longer going to be permitted (in the vast majority of cases) and that increasing the number of contracts awarded to SMEs (through breaking requirements into lots) is the new way forward (where appropriate).

– Strong recognition that departmental performance in delivering procurements within 120 days will be subject to ongoing scrutiny by ERG and No10 and that we can only achieve this by working together.

– More efficient and effective approaches to taking business decisions to ensure that we do not incur any unnecessary delays.

7 key principles of the new approach

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1. Establish a clear understanding of required business outcomes

2. Engage with the market in order to shape and confirm that the business requirement is attractive to a diverse range of suppliers

4. Do not commence formal procurement until thorough engagement with suppliers has taken place.

6. Use e-sourcing tools to support the procurement and follow the LEAN Standard Operating Procedures (SOPs)

7. Measure and manage performance through continued focus on turnaround times and costs. Advert to contract award decision date should be completed within 120 working days

3. Use LEAN thinking and visual tools to set up and run a well planned and efficient process

5. Streamline any engagement with suppliers and stakeholders by using a ‘boot camp’ approach to make best use of limited time

Strong focus on preparing to go to market

This is a key activity that takes time and careful

planning

Strong focus on running a fast procurement process

This is a key activity that requires collective effort and

is dependant on effective preparation

Route Key Features Use

Open All interested suppliers may respond to the advertisement in the OJEU by tendering for the contract.Well defined, outcome-based requirements will help ensure a manageable number of bid responses from good quality and capable suppliers.

There is a government commitment towards greater use of the Open procedure.

Restricted A two stage process where a selection of suppliers who respond to the advert is made and only they are invited to submit a tender for the contract. The selection (pre-qualification) questionnaire (PQQ) must only contain proportionate and relevant criteria

Use in limited circumstances where pre qualification is essential.. The use of a standardised , stripped back ‘core’ PQQ is mandatory across central Government, and not used at all of sub £100k work.

Competitive Dialogue

Following an advert and a selection process potential suppliers are invited to enter into dialogue to develop one or more suitable solutions before chosen suppliers are invited to tender.

The Government has set a presumption against the use of competitive dialogue.

Negotiated One or more potential suppliers are selected to negotiate the terms of the contract. An advert is usually required.

Only to be used in extremely limited circumstances described in the Regulations, for example, where a previous procurement was discontinued because of unacceptable/irregular tenders.

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Procurement routes – our choice has become limited

The new LEAN sourcing approach – the 5 Stage Process

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1. Business need & baselining

2. Market analysis & sourcing strategy

3. Supplier identification4. Execution of

sourcing strategy5. Finalise contract

Mobilisation

Pre-Procurement Market Engagement Sourcing and Contracting

Talk to potential suppliers, publicise requirement (preferably by using a project specific PIN) to warm the market up and advertise the industry engagement event

Establish a project planning and performance hub in the mobilisation phase and use visual management and e-sourcing tools to drive the process and to measure and manage performance including turnaround times in line with the 120 day target.

Industry boot camp to capture the suppliers’ views on your requirement, on the viability, and on possible delivery options and where appropriate to facilitate meetings between suppliers to explore the potential for the establishing consortia, partnering arrangements and / or subcontracting opportunities.

Pre-OJEU readiness - the preparation and subsequent publication of a bidders pack at OJEU including requirements, draft terms and conditions, selection criteria, evaluation strategy and criteria and procurement timescales. This transparency allows suppliers to make informed decisions as to whether they wish to bid.

Execution of sourcing strategy through structured workshops, boot camps and tightly managed project plans

Use standstill period to prepare for publication of the contract documentation and to finalise delivery and contract management plans

Driven by visual management tools

The new approach requires more work to be carried out before going to market

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6. LEAN Sourcing Process Overview – General

2. Mobilisation

The sourcing team is set up for success, all associated stakeholders are clear on requirements of the business need

22 to 66 calendar days from issue of

OJEU

10 days

1. Business Need Identification, Baselining & Market Analysis

Ensure identification & clear articulation of the business need

2. Sourcing Strategy

Setup the procurement & develop the most efficient sourcing strategy

4. Supplier Identification (OJEU)

Publish requirements through a contract notice in the supplement to the Official Journal of the European Union

5. Supplier clarification

Respond to all questions & clarifications simultaneously

6. Evaluation of Tenders

The best solution is established through evaluation of tenders

7. Contract Award

Notify the supplier and finalise the contract

8. Contract Signature

Formal signature of contract

Business need, baselining & market

analysisSourcing strategy Supplier identification Execution of sourcing strategy Finalise contract

Mobilisation

Use e-sourcing

tools

Talk to suppliers

Talk to business

stakeholders

Establish a strong PPM discipline

approach and deploy visual management

techniques

Ensure that you are

ready to go to market

Drive continuous improvement in

turnaround times by measuring performance

The new LEAN sourcing approach – overview

To be completed within 120 working days

The Standard Solution enables the execution of the LEAN sourcing process. It provides a suite of tools that you can use to execute the sourcing process from business need identification and baselining through to contract award & signature.

The LEAN sourcing tools that have been developed to help us

Team Implementation Plan (TIP)An action plan showing who will do what and when in specific functions and processes

Policy Business Need & Baselining Market Analysis & Sourcing Strategy Supplier Identification Execution of Sourcing Strategy Finalise Contract Managing the contract & Supplier

Handing off to contract & supplier management

Activity: Outputs: Activity: Outputs: Activity: Outputs: Activity: Outputs: Activity Output: Activity: Output: Activity Outcome:Analyse business needs (SOP 1.1)

Intial make or buy consderations and intial thinking on approach to market (Covered by SOP 1.1)

Sound understanding of business outcomes required

Run an Industry boot camp to conduct Market Analysis to identify requirements and what is available, using market specialists if appropriate (SOP 3.1)

MI updated Create OJEU notice and gain approval (SOP 4.1)

OJEU notice is published

Bidders pack published via web / e-sourcing system

Complete evaluation of responses and agree ranked list (SOP 6.1)

Undertake assurance to ensure the team are ready to progress to dialogue (SOP 6.2)

Appropriate suppliers shortlisted Hold Dialogue Boot Camps (the number of dialogues will depend on the complexity of the specified outcome, number of bidders, workstreams) (SOP 7.1)

Conduct immediate Evaluation & Feedback (SOP 7.1)

Mutual understanding of final solution

Evaluate BAFOs / tenders (SOP 8.1)

Finalise terms & conditions of contract (SOP 8.2)

Final tenders / BAFOs received & evaluatedSuccessful bidder chosen

Contract finalised

Sign Contract (SOP 9.1) Contract signed

Operational Imperatives e.g. Expiring Contracts

Conduct initial market research (SOP1.2)

Conduct benchmarking vs current provision (SOP 1.3)

Baseline of current provision and cost Internal decision to make or buy (SOP 3.2)If 'Buy' then use decision tool to identify the most appropriate procurement route

MI updatedFinalise & issue the invitation to participate in dialogue (ITPD) (SOP 6.3)

Dialogue invite issued (ITPD) including:~ Requirement~ Outline Solution Template~ Draft joint statement of intent & revised project plan ~ Refined T&Cs with draft schedules

Negotiation of contract (key terms and principles)( SOP 7.1)

Facilitate the undertaking of due diligence (SOP 7.2)

Draft final contract issued (including finally agreed solution).

Gain approval to award decision (SOP 8.3)

Issue alcatel letter (notify of standstill period) (SOP 8.4)

Debrief Suppliers

Update Full Business Case

Standstill (Alcatel) letter issued

Suppliers receive feedback

Approved Full Business Case updated

Publish contract award notice on TEDPublish contract on Contracts Finder

Contract published unredacted on e-sourcing system or stored in appropriate document management systemContract published on Contracts FinderMI Updated

Write 1st draft of the strategic outline business case (SOP 1.4)

First draft Strategic Outline Business Case (SOBC) including draft of outcomes and first draft of project plan.

Write procurement strategy and get approval (SOP 3.3)

Procurement strategy agreed including:~ Outcomes defined~ Procurement procedure~ Standard T&Cs

Conduct supplier feedback (SOP 6.4)

All suppliers receive feedback where requested / appropriate

Formerly close dialogue & invite Best & Final Offers (BAFOs) / nvitation toSubmit Tender (ITST) (SOP 7.3)

Dialogue Closed & invitation to submit Best and Final Offers (BAFOs) issued

Write and publish a project specific Prior Information Notice (SOP 1.5) & check pipeline of sourcing projects has been updated & published

Project Specific Prior Information Notice (PIN) published (Requirements, scale & contract value)Updated pipeline of sourcing projects published on departmental website

Understand & agree requirements, scale & value

~ Initial negotiation strategy (what is in and out of dialogue)~ Scale and Value~ Contract Management Strategy~ Selection Criteria & Methodology

Refine project plan

Finalise bootcamp logistics (SOP 6.5)

Plan dialogue sessions (SOP 6.6)

MI updated

Bootcamp logistics finalised

Dialogue plan in place

Draft Full Business Case (SOP 7.4) Full Business Case drafted

Update Business Case (From Stategic Outline Business Case to Outline Business Case) (SOP 3.4)

Create Bidders Pack (SOP 3.5)

Outline Business Case updated

Bidders Pack agreed including:~ Standard selection criteria~ Extended selection criteria (tech/prof capability)

~ Prospectus (inc. requirements)~ First draft Ts&Cs~ Evaluation strategy & criteria~ Explicit guidelines on timelines, security~ Timescales / Project Plan

Carry out assurance & obtain approval to proceed (SOP 3.6 )

Approval to proceed

Activity: Outputs:Set up and run web-based Q&A facility (SOP 5.1)

Suppliers have increased understanding of requirementWeb pages recording all clarifications with suppliers

Real time evaluation of supplier returns (SOP 5.2) against selection criteria:1) Pass / Fail2) Qualitative Scored

Incomplete ranked list based on responses received before deadline

Create an Invitiation to Participate in Dialogue (ITPD) (SOP 5.3)

1st draft ITPD created including:~ Requirement~ Outline Solution Template~ Draft joint statement of intent & revised project plan ~ Refined T&Cs with draft schedules~ Evaluation stratgey & criteria

10 days

Approvals plan in place

Create project performance hub (SOP 2.2)Complete team skills assurance (SOP 2.3)Establish & brief Project Board (SOP 2.4)

Establish dialogue boot camp logistics (SOP 2.7)

Establish industry boot camp logistics (SOP 2.6)Venues secured

6) Finalisation of Supplier Identification

Activity: Establish a cross disciplined team (SOP 2.1)

Purpose - Choose the supplier and finalise the contract

Room, plan, communication strategy etc in place

1 week1 week

Project Board in place & understand objectives, evaluation Strategy agreed with end participantsMI updated

Purpose - To identify a potential list of qualified suppliers

Purpose - To identify a potential list of qualified suppliers

Dedicated team in place

2 weeks

Purpose: To have an agreed outcome focused contract in place at the best possible price from the chosen supplier

4) Supplier Identification (OJEU)

Policy Decision - Perception of Need

Date set for contract renewal

8) Finalisation of Contract

Purpose - Formal signature of contract

Purpose - To publish requirements through a contract notice in the

supplement to the Official Journal of the European Union

30 days

SCOPE

9) Contract Signature7) Execution of Sourcing Strategy through Competitive Dialogue

2 weeks

Purpose - Licensed sourcing team is set up for success, all associated stakeholders are clear on requirements

5) Supplier Identification

4 - 6 weeks

Outputs:

Establish what approvals will be required & when (SOP 2.5)

Proposed Future State map for Government Sourcing Process (Competitive Dialogue)

3) Market Analysis & Sourcing Strategy

Harmonious Relationship

Contract Management

Delivery plan & governance

0 days

2) Mobilisation

1) Business Need Identification & Baselining

Purpose - To ensure identification & clear articulation of the business need

Purpose - To understand what the market can provide & identify sourcing strategy

6 weeks1 week2 weeks

Purpose - The best outcome based solution established through fact based negotiations

System allowing potential bidders to access bidders pack (e-sourcing System )Govt/Dept.

30 Days

30 days from issue of OJEU

10 Days

10 days from Contract Aw ard to Contract signature

BIQ

BIQ

BIQ

KEY

BIQ= Built in quality

= Specialist Legal support

= Treasury

Govt/Dept.

E-sourcing tools OJEU compliant

System allowing department to evaluate returns from bidder (e-sourcing System)

E-soucing tools OJEU compliant

Log interest electronically in the sourcing opportunity

complete Selection criteria electronically

Receive timely feedback and invitation to attend dialogue

Attend dialogue boot camps and receive transparent & timely feedback & issue solutions

Agree and sign contract

BIQ

System updated detailing the final details and contract published

E-sourcing tools OJEU compliant

What - The M ake/Buy/Internal decision w as correct - and procurem ent approach correctly identified

What - OJEU , Bidder aw areness, technical evaluation all m eet agreed standard

What - Evaluation results ready to proceed to dialogue

What - The team are in place and ready to proceed

ActivityOpportunity to refine delivery plan and complete contract management plan, with briefing slides including rationale for negotiation

BIQ

What - Dialogue boot cam ps are standard, ready for contract negotiations

Database advertising all sourcing opportunities (Contracts Finder & Tenders Electronic Daily)

E-sourcing tools OJEU compliant

TimelineThe timeline is dependant upon the size, the complexity and the risk of the procurement.

A depiction of the supplier journey, the touch points with the department and the places where deselection occurs.

What - Productive use of 30 day OJEU period Bidders fully understand the requirem ents enabling them to subm it optim um bid or dese lect

BIQ

e-sourcing System

E-sourcing tools OJEU compliant= Business

Case

E-sourcing tools OJEU compliant

Database advertising sourcing opportunities (Contracts Finder & Tenders Electronic Daily)Departmental website

Govt/Dept.

BIQ

What - Contract, final business case and evaluation to agreed standard

Lean Procurement Project Key Performance Indicators

September 2011V2.0

UNCLASSIFIED

0

50

100

150

200

250

300

350

400

450

500

Turnaround time working days - OJEU to contract signature

Planned

Actual

Competitve Dialogue Average

Visual ManagementA way of displaying information to drive the performance of the process & specific parts of the process

KPIsPerformance indicators to measure turnaround times and cost of running procurements.

Standard Operating Procedures (SOPs) A set of high level desk instructions describing the best known method for carrying out the activities described in the value stream map

Procurement Route Decision Tree

A tool to assist procurement

professionals to think through and identify the most appropriate procurement route for their requirement.

Visual Management in Procurement

Project Performance Hub Guidance V3.0

Use for the duration of Project

Visual Management in Procurement

Project Performance Hub Guidance V3.0

Use for the duration of Project

Value Stream Map The route map which sets out the LEAN sourcing process.

7. Procurement Route Decision Tree

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COMPETITIVE DIALOGUE PROCEDURE

Government presumption against its use

Use of Competitive Dialogue may be challenged by ERG

Follow the Competitive Dialogue Standard Operating Procedures (SOPs).

RESTRICTED PROCEDURE

Confirmed by Commercial Director / Head of Procurement

Follow the Restricted Procedure LEAN sourcing Standard Operating Procedures (SOPs)

Use mandatory standardised PQQ and ensure it contains proportionate and relevant criteria, and not at all for sub £100k work

Yes but there is strong evidence the market is very large and the pre-qualification is the only option

NOYES

OPEN PROCEDURE

Use the Open Procurement Route following the Standard Operating Procedures (SOPs)

There is a government commitment to move towards

greater use of the Open Procedure, see:Cabinet Office

YES

You have been approached with a new requirement

ORyou have an operational imperative

– e.g. an expiring contract

1. Analyse the requirement to ensure that you have a sound understanding of business outcomes required and engage the market

StartIs your requirement covered

by Government's Central Procurement Programme for

common goods and services?

Refer to the Government

Procurement Service.

Is your requirement covered by an existing departmental or cross government contract?

Use pre-existing departmental or cross

government arrangement

YES

NO

YES2. Engage the market to sound out ideas on the best way to shape, and where possible, simplify and breakdown the requirement

Now that you have completed pre procurement market engagement (including publication of a project specific PIN and Industry Bootcamp) can you define and specify in accordance with the appropriate EU Regulations:

1. How the project outcome will be delivered, and2. How the contract and commercial deal will be structured

NO

Routinely challenge your sourcing strategies to ensure enough consideration has been given to whether the requirement can be simplified or broken up to allow for greater competition in the marketplace, including SMEs

Key specific differences in practice

Typical as-is New approach

1. Used rarely, and only when requirements are so specific and the target supply base is known to be small

1. More efficient requirements capture through stakeholder bootcamp, followed by full and comprehensive pre-procurement market engagement

2. Publish OJEU, Bidders pack (ITT including Ts &Cs) at same time, with a clear statement of requirement and evaluation criteria

Problems with this:

• Inevitable tendency to avoid using the Open route because of the lack of control over the number of bidders.

Benefits

• Provides full clarity to market and opportunity for supplier self de-selection

• Helps to ensure the widest possible market is aware of and understands the opportunity to compete pre-OJEU

Open – Standard Operating Procedures (SOPs)

Key specific differences in practiceTypical as-is New approach

1. Publish OJEU & PQQ 1. Publish OJEU, PQQ & Bidders pack (including Ts &Cs) at same time

2. Evaluate PQQ

3. Use time between 1& 2 to develop ITT (full bidders pack)

4. Issue ITT to those who get through pre- qualification

5. Evaluate responses to ITT

Problems with this: Benefits

•Suppliers may get through PQQ and not like Ts & Cs and then cause delays in timescales - waste

• Inefficient supplier self de-selection - they may not have entered the competition if they had seen full pack

•Provides full clarity to market and opportunity for supplier self de-selection

• Helps to ensure that requirement are crystal clear before going to market.

• Helps to ensure the widest possible market is aware of and understands the opportunity to compete pre-OJEU

•Helps consortia and other partnerships to form

Restricted – Standard Operating Procedures (SOPs)

Key points

1. The more quality time that is spent on pre-OJEU activities the more efficient the procurement is likely to be.

2. Reduced turnaround times (OJEU to contract award decision date) = reduced costs and improved resource utilisation

3. LEAN sourcing is not about cutting corners it is about improving efficiency, and quality as part of a repeatable approach that is subject to continuous improvement

Pipeline of known

procurements

Pre-OJEU

Setting up for success - readiness

1.Developing a clear understanding of requirement business outcomes

2.Engaging with suppliers in the market and identifying opportunities for innovation and/ or breaking requirements into more attractive lots

3.Developing a detailed understanding of the business requirement and constructing it in a way that will be clear and attractive to the market

4.Getting a team in place with the right capabilities and a clear delivery plan (that takes into account approval and assurance points)

Procurement: OJEU to Award

Execution

1.Operating a highly efficient process in line with the plan, which focuses on reducing turnaround times and costs to both the client and the suppliers within the competition but maintains quality

Risk

1. Failure to complete the pre-OJEU activities is likely to result in three things occurring:

1. A protracted procurement incurring significant costs2. A business outcome that is sub-optimal3. Dissatisfaction of key business stakeholders

The pool of scarce resources

In summary......

New policy imperatives that

may require procurement

What we need to do next......

• Business stakeholders will need to:

– Familiarise themselves with the policy requirements set out in this briefing

– Familiarise themselves with the key LEAN sourcing principles that will be applied to all procurements

– Work with the procurement team to identify what policy initiatives will result in a potential future procurement

• The Procurement team will:

– Become knowledgeable (and trained) in operating the new LEAN approach using the standard operating procedures

– Be ready and prepared to work with Business stakeholders to plan procurements in good time

– Support business stakeholders in planning and delivering procurements within 120 days

– Ensure that as a department we are complying with these policy requirements

Training

• The Government Procurement Service (GPS) is rolling out training across central government which will comprise:

– 1 day LEAN Sourcing Awareness course

– 3 day LEAN Sourcing Simulation workshop

• Initially the both course types will be classroom based but an e-learning package is being developed to replace the 1 day course. This should be available by May 2012

• Further information will be available from GPS by phoning the service desk on 0345 4102222 or by emailing training@gps.gsi.gov.uk