Supply Chain Management Wizard

An Interactive Tool for Public Sector Procurers

Office of Government Commerce, Trevelyan House, 26 – 30 Great Peter Street, London SW1P 2BY Service Desk: 0845 000 4999 E: ServiceDesk@ogc.gsi.gov.uk W: www.ogc.gov.uk

Supply Chain Management Wizard: An interactive tool for public sector procurers

Why Is Supply Chain Management important?

Recommendation 9 of the BRTF/SBC report “Government: Supporter and Customer?” concerning SMEs and access to the Government marketplace, puts the onuson the public sector to work with their larger suppliers to request they provide more evidence of how they achieve value for money through the supply chain, whichincludes the use of SMEs and other diverse suppliers.

There are clear benefits to contracting authorities of improved efficiency and transparency in the management of public sector supply chains, and this suite of toolswill help you to follow a clear route through the procurement process and apply the correct level of management to your supply chains in order to achieve the bestvalue for money.

Who this tool is for

This tool is designed to be used by procurement professionals, contract managers and other individuals who have a procurement responsibility within anorganisation.

Supply Chain Management in the procurement lifecycle

Click on the bubbles to go directly to the supply chain management tool. To procurement lifecycle and then progress sequentially through theprocess.

Supply Chain Man eprocurem

Look at OGC’s Guide to S ent forstrategic level guidance o ement

is

use at the start of the

agement outside thent lifecycle

upply Chain Managemn supply chain managsues.

When establishing anddeveloping your businessneed consider what level ofunderstanding of the supplychain you need and howimportant supply chainissues are for theprocurement.

During supplier andcontract managementconsider how you canensure thatsubcontractors in yoursupply chain are beingpaid on time

After you have signed thecontract, work with yoursuppliers to encouragethem to make their supplychains more visible andopen on public sectorcontracts.

When developing yourprocurement strategy andevaluating the differentcontracting options, takeinto consideration thepotential benefits anddrawbacks of using aprime-type contractor

ReceiveTenders

Establish & DevelopBusiness Need

ContractManagement

Development ofStrategy

Continue to workwith your suppliers tomake the supplychain on yourcontract more visible

FinancialApproval

ID suppliers

Invite Tenders

Bid clarification

Contract award

Vendor rating

Compile thedocuments

Consider howinformation presentedon your website canhelp smaller suppliersget access tosubcontracting

Where supply chainmanagement expertise is anintegral part of the contract,ensure that you have reflectedthis in all your documentation,including the advert.

The Procurement Life Cycle

The level of management required will depend on the unique characteristics of each individual procurement. You can use the supply chain management ‘matrix’below to assess two of the key characteristics: how complex the procurement is and how strategically important it is to get the procurement right for yourorganisation to deliver its objectives. This will help determine how much management of the supply chain your procurement will need.

RETURN TO T OCUREMENT LIFECYCLE

Managing the supply chain is important for the 1st tiersupplier(s) in order to deliver successfully

Example: A Facilities Management contract for anoffice building

Managing the supply chain in an integrated manner is criticalfor successful contract delivery

Example: A complete Design, Build and Maintainconstruction project

Managing the supply chain is not needed forsuccessful contract delivery

Example: A supplies contract for Paper to an office

Managing the supply chain is unlikely to be a major factor insuccessful contract delivery

Example: A contract to provide Legal Services

Comp

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Strategic importance of the contractLow

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High

How to assess the level of management your supply chain will need

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lexityof theupplychain

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Low

Under the efficiency umbrella there is a current focus in public sector procurement towards reducing the number of suppliers that procurers deal with. Rationalisingthe supply base can offer you the best value for money in some cases, but not in all, and can have the knock on effect of pushing SMEs and other diverse suppliersout of the market.

There are often compelling reasons for following the prime-type contracting route, such as simplifying and taking cost out of the supply chain, or developing closersupply chain integration. But there can also be wider implications, such as reducing competition, eliminating opportunities for diverse organisations such as SMEs,VCOs, BMEs, women-owned businesses and social enterprises, or adding another layer of cost mark-up to the procurement.

A well-structured prime-type contracting arrangement will allow the contracting authority to mitigate the potential drawbacks and risks that can be associated withprime-type contracting and to benefit from the particular advantages it can offer. The table below highlights some of the key advantages and drawbacks that shouldbe taken into consideration in evaluating the prime-type contracting option.

TURN TO THE PROCUREMENT LIFECYCLE

Potential advantages of using a prime-type approach Potential drawbacks of using prime-type approach

• Simple contracting process

• Clear line of accountability

• Point of focus for contract management

• Consistency of service

• Removal of complex integration task

• Effective risk management

• Transfer of responsibility

• New funding possibilities (eg, PFI contracts)

• Co-ordinated management of supply base

• Supplier power concentrated

• Additional layer of mark-up introduced

• Less authority-supply chain contact – authority can loseability to intervene if problems arise

• Reduced ability to set pre-qualification standards for allsuppliers

• Reduced commitment from supplier to authority – nodirect contractual relationship

• Potential for reduced scope for innovation

The potential benefits and drawbacks of using a prime-type contractor

RE

Why ld you make your supply chains more visible by improving your website?

Not pliers, particularly SMEs, are in a position to be a first tier supplier, yet there are many opportunities for them to enter the supply chain as subcontractors,espe where they can offer specialist products or services. Using your website is a key way for you to display opportunities to potential suppliers improvingvisib hich should encourage diversity and efficiency in the supply chain that brings good value for money.

The ation below is to assist the procurement function within the department when drafting information to go on the public facing website.

The tments listed below have been identified as examples of good practice in the level of detail of information that is provided by them, to ensure that thepote ccess to supply chain opportunities is realised.

In tion to put on yourwebsite

Why? Example website

The and address of yourlarg ppliers

This will give potential subcontractorsvaluable information about who they cancontact about subcontracting opportunities

The Department for Constitutional Affairs gives the name and address of suppliers who havebeen awarded contracts:http://www.dca.gov.uk/procurement/current.htm

Det f awarded contracts Helps potential subcontractors identify wheretheir product, skills, services could meet yourrequirement

The Welsh Assembly Government shows details of awarded contracts:http://www.winningourbusiness.wales.gov.uk/fe/fe_contracts/contracts_list_awarded.asp

Wh contract expires Helps potential subcontractors plan theircapacity

The Environment Agency provides a PDF document listing all current contracts and when thecontracts will expire:http://www.environment-agency.gov.uk/business/444217/444285/317943/

Det f upcoming contracts Helps potential subcontractors identify wheretheir product, skills, services could meet yourrequirement

The Highways Agency provides details of forthcoming contractshttp://www.highways.gov.uk/business/procure/works/index.htm

A s ent inviting smallersup to contact yourlarg ppliers

Encourages potential subcontractors tocontact your larger suppliers

The Department for Constitutional Affairs actively encourages SMEs to contact their largersuppliers:http://www.dca.gov.uk/procurement/sme.htm

How you can make your supply chains more visible through improved external communication on your website

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RETURN TO THE PROCUREMENT LIFECYCLE

Making it easier to findyour information

Why? Example Website

Make your procurement pageseasy to access from yourhomepage

The Department of Health has a “procurement and proposals” heading on the homepage:http://www.dh.gov.uk/Home/fs/en

If possible have a direct linkfrom your homepage to yourprocurement pages

The Southampton City Council has a “selling to…” heading on the homepage:www.southampton.gov.uk

Link your procurement pages toyou’re A-Z listing and searchengines

The Chester City Council has ‘procurement’ listed under ‘P’ of the A-Z on their homepage:www.chester.gov.uk

Entering “Procurement” in the Durham County Council search engine takes you to theircontract information:www.durham.gov.uk

You can search for “selling to” on the Camden Council search engine to gain access to theircontract information:www.camden.gov.uk

Signpost your opportunities byusing standard words andphrases, such as:“procurement”, “selling to us”“contracts” “business”

Many public sector organisations havecontract information on their websites that isburied within layers of pages and notnecessarily easy to find. All of these thingsmake it easier for suppliers to find this valuableinformation.

The Haringey Council uses the heading of “business” http://www.haringey.gov.uk/index.htm

Increasingly larger suppliers are seeking to fill the gaps in their own portfolio through subcontracting. The contract manager has a role in encouraging their largersuppliers to become more open about how the supply chain is put together on public sector contracts. By requesting management information from your largersuppliers on how value for money is gleaned from the supply chain, and how the supply chain is managed, over time the visibility of the supply chain will beimproved, which should encourage the diversity and efficiency in the supply chain that brings value for money.

The concepts detailed below have been taken from the OGC’s Guide to Supply Chain Management in Public Sector Procurement and are intended to be used as aprécis of this document.

Questions to ask your larger supplier Why is it important?

INSIDE THE PROCUREMENT PROCESS

Where supply chain expertise is identified as necessary for the effective delivery of the contract

Note: Questions around supply chain management should only be used if the requirement can be clearly shown to require expertise in this area and should not discriminate againstsuppliers not using a supply chain to deliver the requirement

Selection Stage

Are the proposed subcontractors, provided by the supplier, technicallycapable of delivering on their section of the contract?

Procurers may wish to understand and be assured that the supply chain as a whole is capable ofdelivering the contract

Tender Stage

What % of the contract is being allocated to subcontractors? Procurers may wish to collect management information on how the contract has been divided up. Thisinformation cannot be used to select suppliers.

The Aide Memoir: working with your larger suppliers to improve opportunities in the supply chain

Questions to ask your larger supplier Why is it important?

How does the supplier ensure it is offering value for money? Asking the supplier to demonstrate how they will achieve value for money and how using a supplychain supports the achievement of value for money is a legitimate request. However procurers must notdiscriminate against suppliers who are not using a supply chain to deliver the requirement

Contract Preparation

How do larger suppliers ensure payment is passed down throughout thesupply chain and actively enforce the Authorities’ payment terms andconditions?

Prompt payment can form part of performance reviews and contract managers should ensure in regularmeetings that this is monitored. This is to make sure those contractual terms and conditions onpayment are adhered to. Look here for tips on how can ensure that subcontractors in your supply chainare being paid on time

Is there a requirement to state how the supplier should contract with thesupply chain?

Contractual clauses may state directly how a supplier should contract with and then manage itssubcontractors this is to ensure that the Authorities specific requirements are adhered to, for examplespecific security issues may need addressing further down the supply chain.

How is risk apportioned throughout the supply chain? It is important for the Authority to see who is accountable and who is managing risk throughout thesupply chain, as the overall responsibility lies with the Authority.

Contract Award

Should always be based on MEAT criteria. If s supply chain is being used,how has VfM been derived that includes the management of the supplychain?

You cannot discriminate against certain types of supplier and whether a supplier uses subcontractorsor not. Provided your request relates directly to the contract, it is legitimate to request information thattests the tenderers ability to offer value for money, including how they will manage the supply chain ifthey use subcontractors or how they will manage themselves if they don’t subcontract.

RETURN TO THE PROCUREMENT LIFECYCLE

OUTSIDE THE PROCUREMENT PROCESS

Access to Subcontracting Opportunities

How do larger suppliers market their subcontracting opportunities? Advertising that subcontracting opportunities are available promotes openness to new suppliers andallows visibility of how the supply chain is constructed for procurers

Do larger suppliers engage in early two-way communications withpotential subcontractors?

Supply chain operators that have been involved in the process early can have a well roundedunderstanding of the requirement, which means less opportunity for issues to arise.

Is there a “Selling to Us….” guide available on the supplier’s website? This offers a single route in to potential new entrants to the market and shows how open andtransparent the process of subcontracting is on the part of the larger supplier

Are supplier’s websites used to advertise for subcontractingopportunities?

This is the easiest and quickest route for subcontractors to find opportunities and offers the widestcoverage of opportunities.

Are suppliers receptive to using a “bridge” to bring together first tiersuppliers with subcontractors?

Dating Agency/match making type services open up opportunities to new subcontractors, this woulddemonstrate visibility of the supply chain and how open the supply chain process was on the part of thesupplier

Do they use an approved supplier list? Approved lists show procurers that subcontractors have been vetted for technical capability andfinancial standing

How often is it refreshed? Frequent updating provides more opportunities for new suppliers to gain entry and rationalises thesupply base.

How can potential subcontractors be added to the list? There should be fair and open processes to promote value for money tendering

Due Diligence Processes

Do they have demonstrably open, fair and competitive processes forselecting subcontractors?

Competitive selection at all levels in the supply chain provides evidence of obtaining value for moneyfrom the supply chain

How many subcontractors have to pre-qualify? A clear, auditable pre-qualification process shows how the supplier gains value for money from thesupply chain

Diversity of the Current Supply Base

How open are suppliers to include SMEs, VCS, BMEs and women ownedbusinesses in their supply chains?

Diversity of the current supply base offers insight into the innovation, value for money benefits andreflects the wider community for which the procurement will benefit (see ‘Smaller Supplier Better Value’for more information http://www.ogc.gov.uk/embedded_object.asp?docid=1004960

Do they record what % of the contract gets awarded to SMEs, VCOs,BME and women owned businesses or how many diverse suppliers arecurrently being used in public sector contracts?

Diversity of the current supply base offers insight into the innovation, value for money benefits andreflects the wider community for which the procurement will benefit (see ‘Smaller Supplier Better Value’for more information http://www.ogc.gov.uk/embedded_object.asp?docid=1004960)

RETURN TO THE PROCUREMENT LIFECYCLE

Cash flow can be a problem for small businesses. SMEs are often hardest hit by the late settlement of bills. Regular late payment may result in subcontractors (andparticularly smaller, less established businesses who may not have significant cash reserves) adding hidden charges to the purchase price in order to cover againstdelays in payment. This extra cost will ultimately be borne by you the customer.

What you can do to encourage your suppliers to pay their subcontractors on time

• Ensure that you pay your first tier supplier on time. The public sector is obliged to pay suppliers within 30 days of receipt of a valid invoice. Be aware thatwithholding payment at the first tier will have an impact on the supply chain.

• You can use the following standard terms and conditions for payments:

“Where the Contractor enters into a subcontract for the provision of any part of the Services, the Contractor shall ensure that a term is included in thesubcontract which requires the Contractor to pay all sums due to the subcontractor within a specified period, not exceeding 30 days from the date of receiptof a valid invoice as defined by the terms of that subcontract”

How you can implement this

• It all comes down to effective contract management and ensuring that the Contracting Authority has developed a relationship with the supplier that ensuresthe supplier is carrying out this obligation and the Authority measures how the supplier is performing on this aspect of the contract.

• Contract management is the process which ensures that both parties to a contract fully meet their respective obligations as efficiently and effectively aspossible, in order to deliver the business and operational objectives required from the contract and in particular to provide value for money.

• Typically, you will require resources for contract management that are equivalent to 2% of the contract value. The management “style” you should use forthe overall contract will differ according to the strategic nature of the contract, the risks it carries and the value of the contract. Further advice on contractmanagement can be found on the OGC Toolkit Website at http://www.ogc.gov.uk/sdtoolkit/deliveryteam/contracts/index.html .

What you can do to ensure that payment is passed down the supply chain on your contract

• As described above, what you can achieve depends on the “style” that you plan to use for the overall management of the contract. The style is what bindsthe relationship you will have with the supplier with the performance and quality measures the supplier is to achieve.

How you can encourage your suppliers to pay the subcontractors in your supply chain on time

• Different styles of managing the contract will lead you to implement the payment terms in different ways, but common measures that you can request forany contract, however you choose to manage it are to:

Include payment of subcontractors as a KPIAsk for management information on the payment of subcontractorsDiscuss as a short-term review item within contract management meetings

• More detailed information may be requested and management becomes more hands on if suppliers are performing badly on this obligation, or haveperformed badly on this in the past.

Have Open Book accounting1

Have a full audit of the accountsDiscuss as a long-term review item at contract management meetings

• If the contract is long term and you have adopted a partnership style and you are more proactive and open then it is important that you:

Employ close working with the suppliers from an early stage.Discuss as a long-term review item at contract management meetingsHave Open Book accounting

• A more hands off or passive style of management may only require you to:

Collect payment details as part of Management Information.

RETURN TO THE PROCUREMENT LIFECYCLE

1 Opening book accounting and auditing may only be appropriate on larger procurements due to the cost and resource involved in implementing these techniques.