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LIVING WITH THE SQUEEZE
PROCUREMENT, LEAN, SHARED SERVICES, OUTSOURCING
Colin CramMarc1 Ltdcolin.cram@marc1ltd.comTel: 01457 868107Mobile: 075251 49611www.marc1ltd.com
THE EXTENT OF THE SQUEEZE £Bn £Bn
Total Public Sector Expenditure 660State Pensions 117Benefits/Welfare 109Healthcare 119Interest on Government Debt 31Sub Total 376
‘What’s Left’ 284Forecast Reduction in Budget Deficit 70
THE EXTENT OF THE SQUEEZE
• The £280bn ‘what’s left’ expenditure includes areas where cuts are likely to be less than 25%
Spend Cuts £Bn £Bn• Defence: 44 5• Protection:(Police, Fire, Prisons, Courts) 17 2• Education: 86 9
• Total 147 16
• What’s left? 133 54
So Disproportionate Cuts likely for all remaining activities.
£Bn £BnSavings from the most difficult areas(Welfare, State Pensions, Benefits, National Debt Interest) 8Savings from Defence, Education, Protection 16 VAT Increase to 20% (revenue increase) 11.5Sub Total 35.5
Savings to be found from remaining spend of £133bn: 34.5i.e. 26% cuts.
BALANCING THE BOOKS: A POSSIBLE SCENARIO
Cutting FunctionsGreater Efficiency/Doing Things DifferentlyImproving ProcurementIncreasing Revenue (particularly for Local Government)
SOURCE OF REMAINING £34.5BN ‘SAVINGS’
‘No sane person imagines that by doing something the way they have always done it will deliver a different result’
‘It is not necessary to change: Survival is not mandatory’Deming: 1900-1993
√ Procurement√ Shared Services and Outsourcing√ Lean• Use of IT• Estates Rationalisation
TAKING OUT COST
DOES PUBLIC SECTOR PROCUREMENT MATTER?
• £200 Bn pa
• 30% of Public Sector Costs
• £3,000 per Adult and Child pa
• £250,000 per person into the ‘Public Sector Purchasing Pot’ over a lifetime
• £1Bn Saving can save 30,000 front line jobs
Parking/Traffic Management Procurement: Approx £1.5-2Bn pa
© C M Cram
WAYS TO MAKE PROCUREMENT SAVINGS?
Traffic Management Procurement: Approx £1.5-2Bn pa
• What are the Best Areas to Tackle?• What Ways are there to Make Procurement Savings?
• Re-negotiate• Benchmark• Reduce Costs of Duplication• Harmonise – procedures and specifications• Enhance Power e.g. through aggregation• Commitment• Place Based Procurement• Benchmark• Restructure
WAYS TO MAKE PROCUREMENT SAVINGS
BENCHMARKING
What Areas Would be Suitable for Benchmarking?
What Measures Might One Use?
How Should the Sector Proceed?
Any Offers to Take the Lead?
1% Savings Overall - do the same, but better3% Savings Overall - Do the same, but much
better5% Savings Overall - Some re-structuring,
bringing in new expertise7% Savings Overall – Fundamental Change and Re-structuring
PROCUREMENT SAVINGS
PUBLIC SECTOR ORGANISATIONS CREATE UNNECESSARY COSTS FOR SUPPLIERS
• Indiscipline
• Different Procedures/Contract Ts and Cs
• Complexity – e.g. Tender Procedures
• Multiplicity of Tenders
• Multiplicity of ‘Duplicate’ Contracts and Contract Managers
• Inconsistency
• Specifications
• Very Varied Capability
© C M Cram
Specifications:• Tarmac• IT • Finance Systems• Outsourcings• Street Lighting• Construction• Waste Disposal• Research Equipment• Commodities Goods and Services
How Consistent are Specifications for Parking Related Procurement?
Who has the Best Specifications?
PUBLIC SECTOR ORGANISATIONS CREATE UNNECESSARY COSTS FOR SUPPLIERS
• Increased Leverage• Better Quality Contracts• Expertise Available to All• Commodity Market Knowledge Available to All• Better/More Consistent Policy Implementation• Consistent Specifications• Opportunities to Use More Advanced Purchasing
Techniques- Relationship Management- Supply Chain Management- Value Analysis
PROCUREMENT/THIRD PARTY SPEND: Savings/Benefits through
• Right Procurement Structures
• Information
• Common Information/IT Systems
• Discipline
• Expertise
UNDERPINNED BY
POSSIBLE PROCUREMENT STRUCTURES
1. Each Organisation Acts Independently2. Benchmarking3. Collaboration4. Joint Local5. Joint Regional6. Sector Procurement7. National Procurement
MODEL EVALUATIONHow Should the Sector Proceed?
Collaborative Model/ Objectives
Ind B/Mark Collab Joint Loca
l
Joint Region
Sector National
Leverage
Negotiation
Market Management
Common Procedures
Consistent Legal Interp
Consistent Specs
Fewer Tenders
Expertise
Service
Localism
TOTAL
© C M Cram
SO WHAT IS THE COST OF POOR PRACTICE /MISSED OPPORTUNITY?
Furniture 30%FM/Outsourcing/Major Contracts Up to 35%Laboratory Consumables Up to 90%IT 5 – 80%Construction 5 – 25%Excellent Construction Management 5 – 15%Social Care 10%Legal Services 10%Good Contracts Management 5 – 35%
What Might Be the Potential for Parking/Traffic Management?
© C M Cram
INDEPENDENCE
COLLABORATION
INTEGRATION
© C M Cram
PUBLIC SECTOR PROCUREMENT: THE FUTURE?
• Customs and Excise Pay Branch• Ministry of Defence Stores• Meteorological Office Procurement• Stationery Procurement• NHS• Revenue and Customs – PaceSetter
6 Sigma: Reduce Variations within ProcessesLean: Smooth Flow in these Processes
WHAT IS ‘LEAN’?
• Understand How One’s Services add Value to Customers• Optimise the Value Adding Elements of Services and
Eliminate Waste• Deliver Right Services, Right First Time• Empower Staff• Involve Staff
Performance, People, Resource Planning, Skills Planning, Continuous Improvement
ELEMENTS OF LEAN
• Leadership – totally dedicated• Genuine Endorsement from the Top• Identify Teams of People willing to give it a try• Early Small Pilots – deliver Quick Wins• Involvement and Ownership by the Staff
CRITICAL SUCCESS FACTORS
• Decide Outcome required and How its Achievement can be Measured
• Examine end to end Process. How far does it deliver the desired outcome?
• Examine and Map individual Processes • Evaluate how essential each Process is to achieving the
desired Outcome• How much time does each Process take. What is its added
Value?• Re-design individual and End to End Process to Deliver
Required Outcomes• Introduce any Technology with Caution. No Point in Automating
the Wrong Thing
WHO ARE THE BEST PEOPLE TO DO THIS? THE STAFF
GETTING IT RIGHT
Technical Change Can HelpBUT Lean is a Cultural Change. It is not One-Off
WHAT ARE THE OPPORTUNITIES FOR LEAN?
• Eliminate Duplication• Reduced Costs/Economies of Scale
• Staffing• Buildings/Construction
• Access to Expertise/Higher Standards for All?• Savings in: Staffing, Buildings/Construction, Energy, Running Costs,
Equipment, Processing Costs, IT, Licenses, Procurement
• Greater Opportunities to Generate Income• Public Sector Organisations with Lower Activity Levels have
Higher Costs
SHARED SERVICES?
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COST OF WASTE COLLECTION PER HOUSEHOLD IN NW: 2005-6
• Benchmarking
• Copying Better Practice
• Collaboration/Consortia
• Joint Service Delivery
• Service Centres
• Outsourcing to a Common Provider
NOT A MAGIC FORMULA
SHARED SERVICES?
• Within Sector (e.g. Local Government)• Between Sectors• National, Regional, Local
Does Split between NHS, Local Government and HE Make Sense?
SHARED SERVICES CAN BE
SHARED SERVICES
• Be Realistic about the Potential Benefits• Be Realistic about what can be Achieved• A lot of it about• Don’t Expect Accolades!• Be Realistic about Obstacles
• Least Controversial• Quicker• Less Costly• Quick Potential for Benefits Realisation• Reasonable Chance Of Success
But, often resistance to change
• What Could be Benchmarked in Parking? • With Whom?• How Should the Sector Proceed?
BENCHMARKING/COPYING BETTER PRACTICE
BENEFITS through• Aggregation• Commonality of Specifications• Commonality of Procedures• Doing Things Once
BUT• Often Difficult to Agree• Time Consuming - the Effort can be Expensive• Day Job Takes Precedence
COLLABORATION
SHARED SERVICE/JOINT SERVICE DELIVERY
• Controversial• Long Timescale – but not necessarily• Can be Complex• Can be Expensive• Higher Risks To Service• Higher Risk Of Non-completion• EU Procurement Directives
BUT: LONG TERM BENEFITS MAY JUSTIFY IT
IT 5 – 80%Construction 5 – 25%Excellent Construction Management 5 – 15%Social Care (children’s) 5%Legal Services 10%Revs and Bens 15%Procurement Costs 20 -50%Procurement Spend 20%Transport 10%
BUT: Outsourcing Companies Often Take Out 30-40%
SO WHAT CAN BE THE BENEFIT OF SHARED SERVICES?
• Identifies and Highlights Costs of Current Activities• Often the Catalyst to Introduce Major Change• Defined Service Levels• Service Level Agreements• Performance Measures• Accountability
However, there will be some management and change costs, so total cost of joint service organisation must be less than 95% of what it replaces.
JOINT SERVICE DELIVERY
Cost of waste collection per household in NW 2005-6
£0
£10
£20
£30
£40
£50
£60
£70
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Reduced Costs Through• Efficient Use of Depots• Efficient Use of Vehicles• Greater Purchasing Power for Equipment• Reduced Management Costs• Management by Best Managers?• Single Method of Collection and Sorting
Overall Savings 10%+
WASTE COLLECTIONShared Service
• The Transfer of Part or Whole of an Existing In-house Activity to a Third Party.
• This May Include the Related Human Resources and/or Assets
• More complex to implement than Shared Services, but often easier ‘politically’ to decide
OUTSOURCING: PRACTICAL DEFINITION
1. Must Know Existing Costs
2. Must Know Costs to Outsource e.g.• Switching Cost 5%• Management Cost 5%• Gross Profit 10 -15%
To Deliver a Better Cost Base to theCustomer, the Outsourcer’s Cost Base Must be only 75 - 80% of Current Operations. It is often
only 60%.
INVESTMENT APPRAISAL - COSTS
Strategic
Organisational
Fashion / Emotion
It’s A Mess – Give It To Someone Else To Do It
Financial / Survival
Only Way to Secure Sufficient Change
Bury The Past
Access The Future
WHY OUTSOURCE?
• Focus On Core Strategic Activities• Gain Competitive Advantage• Increase Flexibility• Access To Expertise• Acquire Innovative Ideas• Develop Strategic Partnership• Enable Major Organisational Changes• Insurance Against Market Conditions• Job Creation/Regeneration
STRATEGIC
• Consistent With Business Strategy
• Financial Appraisal: - Clear View Of Existing Costs - Need Understanding Of Supply Costs
• Option Appraisal - Risk Analysis - Benefits
SHARED SERVICES OR OUTSOURCE?A STRUCTURED WAY TO MAKE THE
RIGHT DECISION
BENEFITS ASSESSMENT MODEL
LEAN B/MARK JOINT OUTSOURCE
SAVINGS
SERVICE
ACCOUNTABILITY
ACCESS TO EXPERTISE
INNOVATION
INCOME
JOB CREATION
INWARDINVESTMENT
TOTAL © Marc1 Ltd
ISSUES AND RISKS
LEAN B/MARK JOINT OUT-SOURCE
COSTS
TIME
RESISTANCE TO CHANGE
CONTRACTING CAPABILITY
COMPLEXITY
TECHNICAL
SLOWER PROGRESS
SECURITY
TOTAL © Marc1 Ltd
DEVELOP STRATEGIC PLAN
MISSION
BUSINESS OBJECTIVES POLITICAL OBJECTIVES
OUTLINE BUSINESS CASEPOTENTIAL INITIATIVES, OPTION ASSESSMENT
MARKET ANALYSISENABLERS, INFRASTRUCTURES, RESOURCES
TIMESCALES
VISION
© Marc1 Ltd
STRATEGY
• Plan Long Term Strategy and Programme
• Get “Quick Wins” through Process Improvement, Benchmarking and Copying Better Practice
BUT DON’T LET THE BEST GET IN THE WAY OF THE GOOD
Colin M CramMarc1 LtdTel: 01457 868107Mob: 075251 49611Email: colin.cram@marc1ltd.comwww.marc1ltd.com
THANK YOU!
GOVERNMENT PROCUREMENT IN 5 YEARS TIME?
Central/ Major Departments/Buying Solutions
Industry Specific
Regional P S Hubs/Medium Depts
Local/Med/Small Departments
Major National Contracts/Suppliers
* *
Common Categories * *Relationship Management * *Market Management * *Industry Specific * *PPIs/Major Project Support * * *
Regional/Large Local Contracts/Suppliers
*
Small Local Contracts * *Discipline/Implementation/Compliance
* * © C M Cram
SECURITY EVALUATON(Service e.g. Revs/Bens)
OUTSOURCING ABROAD
OUTSOURCINGUK
SHARED SERVICE
KEEP IN-HOUSE
DATA SECURITY
SUPPLY CHAIN LENGTH
QUALITY
CURRENCY
TOTAL
© Marc1 Ltd
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