Mastering Procurement - A Structured Approach To Strategic .
Procurement – driving better valueNeedsMastering procurementA structured approach to strategicprocurementA guide for government agenciesMED1176494March 2011
2Acknowledgement and thanksThis guide is part of a Government initiative to support good procurement practice across government and helpsuppliers better engage with government agencies. It has been developed under the New Zealand GovernmentProcurement Reform Programme (GPRP) after consultation and discussion with stakeholders, including: GPRP Procurement Development Technical Advisory Group: Input and guidance were received from anadvisory group comprising senior procurement advisers from the following government agencies: the Ministryof Foreign Affairs and Trade, the Ministry of Social Development, the Auckland District Health Board, theMinistry of Agriculture and Forestry, the Ministry of Justice, Inland Revenue Department and Public Trust.With special thanks to the following organisations for permission to use extracts from their material: Queensland Government Chief Procurement Office UK Office of Government Commerce PMMS Consulting GroupReferences used in this guideThe guide makes reference to other procurement good practice guidance, tools and templates. The following termsare used to identify the sources:GPRPOAGSSCTreasuryGovernment Procurement Reform Programme within Ministry of Economic Developmentwww.procurement.govt.nzOffice of the Auditor Generalwww.oag.govt.nzState Services Commissionwww.ssc.govt.nzThe Treasurywww.treasury.govt.nzTerminologyThe guide aims to use simple terminology. For r’‘tender’government ministry, department, crown entity, non-public service department etctender, proposal, bid, submission etca generic term for RFQ, EOI, ROI, RFP or RFTvendor, seller, contractor, potential supplier, respondent etca generic term used to describe making an approach to market (‘going out to tender’)TrainingThe guide supports the GPRP 2-day training course Demystifying Procurement. Additional GPRP training coursesare available on specialist topics. For a full listing of available courses refer to the training and education section atwww.procurement.govt.nz. Specialist topics include: Procurement planning. Managing procurement risk,Introduction to contract management, Supplier relationship management, Advanced contract management andAdvanced category management.First Published March 2011Government Procurement Solutions Ministry of Economic DevelopmentPO Box 1473 Wellington 6140 New Zealand www.med.govt.nz www.procurement.govt.nzCrownCopyrightThis work is licensed under the Creative Commons Attribution-Noncommercial-Share Alike 3.0 NewZealand License. In essence you are free to copy, distribute and adapt the work non-commercially, as longas you attribute the work to the Crown and abide by the other licence terms. To view a copy of this licence,visit http://www.creativecommons.org.nz Please note that no departmental or governmental emblem, logo orCoat of Arms may be used in any way that infringes any provision of the Flags, Emblems, and NamesProtection Act 1981. Attribution to the Crown should be in written form and not by reproduction of any suchemblem, logo or Coat of Arms.A guide to mastering procurementMED1176494
3This one in a series that has been developed under the New Zealand Government Procurement RContents pageIntroduction . 5Purpose. 5Government spending . 5Procurement. 5Mastering procurement. 6The procurement lifecycle. 6Structured approach to strategic procurement. 7Overarching procurement strategy . 7Individual strategic procurement . 8Traditional versus strategic procurement . 9Drivers for successful procurement. 10Procurement lifecycle . 11Stage 1 - Initiate Project (procurement activity). 12Stakeholder engagement. 13Project team . 14Probity . 15Direct and competitive approaches. 16Governance and accountability. 17Appropriate level of planning . 18The business case. 18The procurement plan . 19Links between business case and procurement plan. 20Stage 2 - Identify needs & analyse the market . 22Identify the needs . 24Review previous procurement . 25Analyse the market. 26Supply positioning . 33Analyse market behaviours . 34Identify possible solutions. 36Approach to market rationale. 42Stage 3 – Specify requirements . 43Definition . 44Quality and standards. 46Deliverables. 47A guide to mastering procurementMED1176494
4Stage 4 – Plan approach to market and evaluation. 48Approach to market strategy. 50Evaluation methodology . 50Evaluation criteria . 57Due diligence. 61Type of contract. 62Timetable . 62Stage 5 – Approach market and select supplier . 65Supplier selection . 66Stage 6 – Negotiate and award contract . 68Negotiation . 69Post negotiation. 69Supplier debriefs. 69Post award notification. 69Stage 7 – Manage contract and relationships . 70Contract management . 71Relationship management . 71Contract administration. 71Stage 8 – Review . 72Importance of reviews . 73Conduct of Reviews. 73Different types of reviews . 74Appendix 1: Procurement acronymsA guide to mastering procurementMED1176494
5IntroductionPlanning andmanaging forresultsWhen agencies areplanning and managing forresults they: Have a goodunderstanding of theenvironment that theyoperate in.Have a clear vision ofwhy they exist, what theyneed to achieve and howmuch they are achieving.Plan their work whilstkeeping in mind a clearset of objectives,activities, outputs,outcomes and measuresof success.Deliver what they haveplanned – meetingbudget, standards oftimeliness, quality,accuracy and in amanner consistent withethical practice.Take stock of progressby monitoring,measuring, reviewingand evaluating as theygo.Learn from success andfailure and modify whatthey do and how they doit.Report publicly on resultsto promote transparency.Seek continuousimprovement.Adapted from the StateServices Commission’sGuidance for Crown Entities –Planning & Managing forResults (2005)A guide to mastering procurementMED1176494PurposeThis guide has been developed for government agencies. Itsupports good procurement practice. It takes a structured approachto strategic procurement.Government spendingGovernments exist to make a tangible difference to the lives of theircountry’s citizens and residents. Consequently New Zealand, likemany other countries, is placing greater emphasis on planning andactively managing for better results, improved outcomes and bestvalue for money in the use of public funds.Government spends billions of dollars each year in the provision ofgoods and services that are needed to deliver public policy andbusiness objectives. Good public service outcomes depend on goodprocurement. Properly planned and effectively executedprocurement is essential for all agencies.ProcurementThe term ‘procurement’ covers all aspects of the acquisition anddelivery of goods or services, spanning the whole contract life cyclefrom the identification of needs to the end of a service contract, orthe end of the useful life and subsequent disposal of an asset.
6Mastering procurement.1ANAGEThe procurementlifecycle chain ofsuccessReviewInitiateprojectM8Managecontract &relationships7Identify needs& analyse themarketneedsNegotiate &award contractThe positive benefits fromone stage will lead tostronger results in thenext. This continuous‘chain of success’ resultsin increasingly beneficialoutcomes and strongeroverall results.SO26URCE3PLANThe procurement processconsists of a number oflogical stages. If executedwell, each stage willdeliver the required resultsand generate & selectsupplierPlanapproachto market4& evaluation5The procurement lifecycleThis guide is based on the procurement lifecycle which separatesprocurement into three phases: planning, sourcing and managing.These phases are further divided into eight distinct, but interrelatedstages which are:A guide to mastering procurementMED11764941.Initiate project(page 12)2.Identify needs and analyse the market(page 22)3.Specify requirements(page 43)4.Plan approach to market and evaluation(page 48)5.Approach market and select supplier(page 65)6.Negotiate and award contract(page 68)7.Manage contract and relationships(page 70)8.Review(page 72)
7Structured approach to strategicprocurementProcurementStrategyOAG provides guidance onstrategic procurementplanning. The followingguides outline an approachas well as OAGexpectations.Part 3: Procurement guidancefor public entities (June 2008)Part 3: Public sectorpurchases, grants and gifts:Managing fundingarrangements with externalparties (June 2008)Achieving strategic procurement outcomes involves setting strategicpriorities and direction. The implementation links strategic planningwith operational planning and financial planning and management.Adopting a structured approach to procurement planning results inrobust, objective analysis that informs the best methodology toapproach the market and achieve optimal procurement outcomes.All of this means that resources – time, money and people - need tobe effectively allocated and successfully used.For agencies, strategic procurement can be identified at two levels.Firstly, involving high-level strategic thinking and business planningsecondly, at an operational level when dealing with individualacquisitions.Overarching procurement strategyAgencies are encouraged to take a strategic approach to managingpublic funds. For procurement activities, this often involvesdeveloping an overarching procurement strategy.Each agency should develop an understanding of the importance ofprocurement to achieving its overall public policy outcomes andbusiness objectives. The agency can then clearly identify the mosteffective and efficient ways to source and secure its goods andservices.The process is supported by a detailed analysis of historic andforecast spend to identify the volume, value and risk associated withthe acquisition of different types, or categories, of goods andservices.Using the supply positioning model, procurements can be seen torange from high-volume, low-value, low-risk transactional purchases(where there are many suppliers), to high-risk, high-cost specialistgoods and services (where there are a limited number of suppliers).Supply Positioning ModelFor more information on supply positioning go to page 33.P-cardsP-card is a form ofcompany charge card,similar to a credit card. Thecard is preloaded for eachuser with financial limitsand specific suppliers inaccordance with theagencies procurementpolicy.P-cards streamline highvolume, low costtransactions, reduceadministration and providecentralised spend data.A guide to mastering procurementMED1176494Through the supply positioning model an agency can plan how it willprocure different categories of goods and services. This will informthe allocation of resources across the organisation as well asidentifying appropriate procurement procedures.For example, streamlining high-volume, low-risk transactionalprocurements (which could involve introducing p-cards) and focuseffort on high-risk, high-value and complex procurements.Critically the Procurement Strategy should place importance onthose procurements required to deliver key public policy outcomesand business objectives and provide a framework for procurementactivities across the agency.
8Individual strategic procurementGatewayIf your procurementinvolves major investmentconsider adopting theGateway Review Process.Gateway is a qualityassurance methodologyfor large State sectorprojects. It is Cabinetmandated for high riskcapital projects indepartments and CrownAgencies and isadminstered by SSC.It involves independentexamination of the projectat key decision points‘gates’ to provideassurance that the projectcan progress successfullyto the next stage.For more information visit:www.ssc.govt.nzA guide to mastering procurementMED1176494At an operational level, agencies are encouraged to take a strategicapproach to individual procurements. This guide focuses onstrategic procurement at an operational level.The methodology and approach to strategic procurement involvesrobust research, analysis and planning that results in a procurementstrategy that influences and shapes the market to meet your needs.It demonstrates how: research and planning add value to sourcing, implementationand results collaborative cross-disciplinary team work leads tostrengthened solutions good governance and project management ensure delivery ison time, on budget and to specification professionalism and ethics support due process,accountability and transparency.
9Traditional versus strategic procurementThere are several differences in methodology and execution between traditional approaches toindividual procurements and strategic approaches. A traditional approach to procurement is to view it as an administrative function for buyinggoods/services. A strategic approach involves understanding the importance of the procurement to theagency in achieving its outcomes, sourcing suppliers and managing relationships tosuccessfully deliver against public policy objectives and business needs, whilst deliveringoverall value for money.Diagram 1Traditional approach to procurementValueaddLevel ofeffortStage inprocessInitiateprojectIdentifyneeds& analysethe marketPlanapproachSpecifyrequirements to market &evaluationApproachmarket &selectsupplierNegotiate &awardcontractManagecontract &relationshipReviewThis diagram illustrates a traditional approach to procurement where little time is spent on planning. Effort is generally brought tobear when it comes to approaching the market. As a consequence of insufficient analysis in the planning stages increasinglevels of effort are required through contract and relationship management. If the procurement is not reviewed there is littleopportunity to benefit from lessons learned.Diagram 2Strategic approach to procurementValueaddLevel ofeffortStage inprocessInitiateprojectIdentifyneeds& analysethe marketPlanSpecifyapproachrequirements to market &evaluationApproachmarket &selectsupplierNegotiate &awardcontractManagecontract &relationshipReviewThis diagram illustrates a strategic approach to procurement which methodically works through each stage in the procurementprocess. The time taken to plan, research and analyse add significant value to identifying solutions that will meet the needs. Afocus on relationship development and management means that less time is spent resolving issues and more time applied toassessing quality in delivery and identifying opportunities for cost savings and benefit gain
Individual strategic procurement . At an operational level, agencies are encouraged to take a strategic approach to individual procurements. This guide focuses on strategic procurement at an operational level. The methodology and approach to strategic procurement involves robust research, analysis and planning that results in a procurement
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