Local purchasing toolkit for City based firms cover
Local purchasing toolkit A guide on how to develop and implement a local procurement strategy
Foreword The City of London has a rich history and tradition as a centre for international trade and financial services. New opportunities for commerce, arts and culture are likely to arise from improved transport links, the construction of new iconic buildings and the increasing profile of the area as the technology hub for London and the UK. Developing Local Supply Chains Local ‘small to medium sized enterprises’(SMEs)1 play an important part in maintaining the City’s status as the world’s leading international financial centre. They do this by providing essential support services to City firms and by offering benefits to purchasers in terms of diversity, flexibility and potential for innovation. Our research tells us that only 4-5%2 of the £13 billion of City procurement is spent with SMEs within the City and City Fringes3. All of the City’s neighbouring boroughs, while sharing borders with the City, rank in the top 27% of boroughs in England in terms of deprivation4. This research also indicates that there is the potential of placing up to 13% of City procurement spend with businesses in the City Fringes2. If this potential is maximised, together we can contribute to the area’s economic prosperity. If local businesses secure new contracts, they are able to upgrade production, invest in expansion and job creation, which will then increase their capacity to support global trade within our financial centre.
cost and risk advantages traditionally associated with standardisation, supplier reduction and the letting of larger contracts. This toolkit provides case study examples to encourage the view that risk is not synonymous with small in every case and that your commercial goals can still be achieved while delivering local impact. The City of London Corporation has a proud history of leading on and implementing key initiatives designed to promote prosperity and sustainability. We have long recognised the benefits of local purchasing. Since 2003 we have spent over £150m with local suppliers and have done so without compromising on affordability or quality, so we know it can be done. This toolkit is aimed at supporting and enabling the buyer community to join us in supporting local communities.
Procuring Internationally, Nationally, Regionally and Locally. We recognise that local purchasing might present a complex challenge for procurement professionals and other buyers. The benefits of local purchasing need to be balanced with the
1 EU Definition: Organisations with a turnover/ balance sheet of less than €50m/€43m and less than 250 employees 2 City of London Corporation, (2008), The City of London Supply Chain and its Relationship with the City Fringes 3 City Fringes definition: These are the London boroughs of Camden, Hackney, Islington, Lambeth, Southwark, and the City of Westminster 4 Source: Department for Communities and Local Government, 2010
Stuart Fraser, Chairman of the Policy & Resources Committee, City of London Corporation
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Contents
Page
Who’s procuring locally and why?
2
1. Local purchasing, business case and benefits
5
2. Developing internal capacity
13
3. Developing a local purchasing strategy
20
3.1 identify opportunities
22
3.2 Establish and manage contracts
29
3.3 Build local sME capacity
35
3.4 Monitor and evaluate strategy
39
4. the legislative and policy environment for local procurement
43
5. Fit with corporate social responsibility and sustainability
46
6. City of London good practice initiatives
49
7. appendix
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Local purchasing toolkit
Who’s procuring locally and why? Local purchasing is increasingly recognised as a catalyst for economic regeneration and social development both by central government and local authorities in the UK. The current coalition government’s ambition is that 25% of central government procurement spend should be placed with SMEs. Local authorities, including the City Fringe boroughs, use appropriate social and environmental clauses in the procurement or the planning process to ensure that locally based businesses are able to access opportunities arising from large contracts and local infrastructure and development projects. These are referred to as “community benefit clauses” in the case of the procurement process, or a clause in a “section 106 agreement” in the case of the planning process. Where such clauses are used, suppliers and developers are increasingly being asked to provide evidence of, or a commitment to, local purchasing. For example, the City of London Corporation has introduced a local purchasing target of 10% in its Local Procurement Charter for City Developers5 and organisations winning Olympic contracts are required to place sub-contracts on a dedicated web portal6. For some large businesses therefore, local purchasing is a strategic objective with a high implementation priority. These companies have been able to create extra value by sourcing and using local suppliers to reduce costs, reduce their environmental footprint and increase their market share. For others, it is a tactical objective based on short-term needs and driven by the local purchasing requirements of their current or potential clients.
Who is this toolkit for? This toolkit is aimed primarily at corporate professionals working in procurement/supply chain or contract management roles who may, for strategic or tactical purposes, be interested in implementing a local purchasing strategy. It is also applicable to city developers, major contractors, quantity surveyors and bid managers who may face similar drivers to those mentioned above. Corporate Responsibility (CR) or Supplier Diversity professionals can also use this toolkit to implement local purchasing as a strand in their CR or diversity-related initiatives. This toolkit provides an armoury of practical, usable resources and links to local procurement best practice to help you establish mutually beneficial trading relationships with small businesses. Tables and templates are provided for note taking, record keeping and progress monitoring. Download or comment on the most recent version at www.cityoflondon.gov.uk/cityprocurement.
5 City of London Corporation Local Procurement Charter for City Developers 6 www.competefor.com
Local purchasing toolkit
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Develop Business Case
Develop Internal Capability
Develop Local Purchasing Strategy
Establish fit with legislation and policy
Fit with CR and Sustainability
City of London Corporation Best Practice
Business case and benefits
Organisational improvement plan
Analysis
Best Practice
Analysis Priority spend cataegories or sectors
3.1 Review business case and benefits Review organisational capability
Identify opportunities
3.2
Review local purchasing spend
Establish and manage contracts
3.3
Review internal barriers to procurement
Build local SMA capacity Review local impact
3.4 Monitor and review strategy
Your business case (Chapter 1), plans for developing internal capability (Chapter 2) and strategic alignment with policy and best practice (Chapter 4, Chapter 5 and Chapter 6) can all be captured in your local purchasing strategy. Chapter 3 represents the implementation activities relating to your local purchasing strategy. These would normally follow your business case development and strategic alignment with other policies. However, if you need to implement a local purchasing strategy quickly for commercial reasons (responding to a request for a local purchasing action plan in a tender document or planning application, for example), you can go straight to these sections after developing a brief business case (explained in Chapter 1).
Local Purchasing Action Plan
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Local purchasing toolkit
Definition of Small, Medium Sized Enterprises (SMEs) In the rest of this guide we will refer to small to medium size enterprises as SMEs7. There is a standard European Union definition for SMEs.This is presented in Figure 0.1
Figure 0.1 Enterprises qualify as micro, small or medium enterprises (SMEs) if they fulfil the criteria below Size Category Micro
Employee number and
Annual Turnover or Balance Sheet (â‚Ź)
Fewer than 10
2 million or 2 million
10-49
10 million or 10 million
50-249
50 million or 43 million
Small Medium
Contributions and comments can be sent to cityprocurement@cityoflondon.gov.uk
Look out for Handy Tips indicated by this sign.
Tip!
7 http://ec.europa.eu/enterprise/policies/ sme/facts-figures-analysis/sme-definition/ index_en.htm
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1. Local purchasing, business case and benefits introduction A clear definition of local purchasing helps to communicate its purpose and benefits to key staff, suppliers and other stakeholders. The integration of local purchasing with your corporate strategy also helps to identify the types of benefits that local purchasing can achieve in the context of the overall strategic direction of your organisation. In this chapter we set out the following: a definition of local purchasing So that you develop a standard way of communicating the meaning of “local” and “ local purchasing” to stakeholders when implementing your strategy; and how to develop a business case for local purchasing This is in recognition of the need to justify your local purchasing strategy in the context of the benefits that your team, project or organisation might derive from it.
What is a local purchasing strategy? Throughout this guide “Local” refers to the City and City Fringes8. Your local purchasing strategy can be defined as “your approach, processes and plans to maximise the participation of local SMEs in your supply chain in a way which provides tangible benefits for your organisation, the procurement function and for the local community9.”
8 City Fringes: These are the boroughs surrounding the City: Camden, Hackney, Islington, Lambeth, Southwark, the City of Westminster and Tower Hamlets 9 If you are outside of the City of London, ‘local’ would refer to your nearest area of deprivation as defined by the Office for National Statistics
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The City Fringes contains some of the most deprived neighbourhoods in the country and is a priority area of regeneration for the City of London Corporation. In 2008, the City Corporation commissioned the Centre for Economic and Business Research to produce a research report, The City of London’s Supply Chain and its Relationship with the City Fringes which found the City of London accounts for approximately 16% of City Fringe sales while SMEs from the City Fringe only account for 5% of City business purchases. Still, the seven boroughs surrounding the City include some of the fastest growing and most diverse areas in the United Kingdom. Procuring from local SMEs is an important part of maintaining a healthy local economy.
Preparing a business case for local purchasing The social arguments favouring local purchasing can be supported by the development of an organisation-specific business case. Your business case should prove that benefits will materialise for the three areas described below (Figure 1.0 shows how these are linked together): Strategically for your organisation: Your local purchasing strategy should make good business sense. Developing a strong capability for local purchasing may help to secure new business from governments, organisations and consumers who value ethical and sustainable purchasing. Align it to your corporate strategy to secure support at senior level; For your procurement function: The whole-life cost approach10 which considers social and environmental, as well as economic/risk factors could be applied in order to demonstrate value for money, and; Locally in your target area: Use the Local Multiplier Calculator (LM3) to calculate the economic impact of your local purchasing strategy. LM3 is based on the principle that benefits of local procurement accrue as money spent in the local area is circulated through the rest of the economy. For example, if a business bought sandwiches for £1.50 each from a sandwich supplier in Islington, who in turn bought the ingredients for £1 from a nearby bakery/grocer, the original £1.50 has in fact contributed £2.50 to the local economy. This is known as the ‘multiplier’ effect and is more likely to occur when trading with SMEs, as they also tend to buy from other SMEs.
Organisation
Procurement Figure 1.0 Benefits from local purchasing Local Area 10 Whole Life Costs definition: The costs of acquisition, operation, maintenance and disposal associated with purchasing goods and services.
Local purchasing toolkit
The steps to creating a business case are as follows: Step 1: Identify your strategic objectives and clarify whether local purchasing can support one or more of these Step 2: Identify the costs of implementing your local purchasing strategy Step 3: Compare benefits and costs of implementing your local purchasing strategy
Step 1. Identify and align strategic objectives to your local purchasing strategy Obtain your organisation’s strategic objectives in order to consider whether local purchasing can contribute to the achievement of any of the objectives identified. If the answer is yes, the best way of confirming the contribution of local purchasing is by identifying quantifiable benefits. The Handy Tips overleaf provide guidance on benefits identification. After identifying and defining the benefits, prioritise the objectives, the related local purchasing activities and identify the time frame within which the resultant benefits should materialise. Figure 1.1 provides a template for identifying and mapping strategic objectives to your local purchasing strategy. At the end of this step you may or may not have a list of strategic objectives which local purchasing can support. However, as most businesses will have an objective around increasing revenue/market share, local procurement can (at a minimum) provide benefits when presented with local procurement clause in Section 106 planning agreements (for developers), or when local procurement features in a tender specification.
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Figure 1.1 A template for aligning your local purchasing strategy with your organisation’s strategic objectives 1
2
3
4
5
6
Strategic
Can local
What are the benefits
How will these be
Priority
When will benefits
objective
purchasing support
associated with local
measured?
(1,2,3)
materialise?
this objective?
purchasing?
(Short, Medium or Long term)
(Yes or No)
Increase market share/revenue
• s ecuring of new customers
•w inning bids • v alue creating SME acquisition
•% increase in market share/revenue
• s pecific bids won a successful acquisition or joint venture
• n ew product/process development
Reduce risk/ Regulatory compliance
• l ess supply chain disruptions
•c ompliance with labour and environmental standards
Reduce cost
• r eduction in total cost of ownership linked to
• r educed direct costs as a % of total revenue
• increase of % in market capitalisation
•% reduction in cost per project
reduced energy costs/ transportation costs
• r educed compliance costs
Corporate responsibility
• i ncreased social impact • i ncreased environmental
•a pplication of the Local Multiplier (LM3)
impact
• i ncreased sustainability
The benefits outlined below provide a useful starting point for identifying specific benefits for your organisation. This can help you with the completion of Column 3 in Figure 1.1. n Lower costs over the life-cycle of purchasing leading to a reduction in cost n The reduction of transport and logistical costs leading to a reduction in cost n Greater flexibility and compromise leading to improved customer service n Greater innovation and creative solutions leading to increased market share n Risk Management Compliance with proposed or approved legislation
Tip!
Local purchasing toolkit
“Value of Sustainable Procurement: A Quantitative Analysis of Value Drivers Associated with Sustainable Procurement Practices” is a study produced by Insead Business School, EcoVadis and PricewaterhouseCoopers.
9
Tip!
The aim of this study is to help Senior Procurement Managers build a business case with top management and the CEO on the value of Sustainable Procurement. The study provides a useful methodology for identifying costs and benefits. (http://www.ecovadis.com/website/l-en/ webinars-whitepapers.EcoVadis-13.aspx)
NLG Associates, partner with Higgins Construction on construction bids NLG Associates are public health, mechanical and electrical consultants. NLG met Higgins Construction at a Meet the Buyer event and has since been invited to tender for 8 different jobs with the company all over London. So far they have won two of the eight with a total value of £72,000 in fees and another major contract is pending planning approval. This extra work has enabled the company to safeguard two jobs. “We have found NLG Associates a great support on tenders and they go a bit further than other design consultants we use with the level of design documentation and pricing information produced. This greatly assists our estimating teams who have all given very positive feedback on NLG’s performance.” Bob Cockerton, Higgins Construction plc
MACE supports local purchasing “Mace has a long history of engaging local businesses through its procurement practices. We see the City Procurement Project as a meaningful way to increase opportunities for local suppliers and, in turn, stimulate local economies and drive community regeneration.” “We don’t see this as a social programme provided by big businesses, or a tool to provide handouts – it makes good business sense. We recognise that local businesses can deliver innovation, responsiveness, flexibility, customer service, specialist skills and services, and ultimately lower costs.” Gez Carr, Mace, Senior Community Regeneration Manager
Case study:
Case Study:
Case study:
Case Study:
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Local purchasing toolkit
Step 2. Identify the costs associated with local purchasing Step 1 helped you to identify strategic objectives which can be supported by local purchasing along with exploring the associated benefits. Step 2 allows you to acknowledge and budget for the costs of implementing your strategy. If your strategy involves an element of communications and road-shows, material and staff costs will be incurred. Auditing and adapting your purchasing systems for local purchasing also comes with a cost implication which needs to be considered. Figure 1.2 provides a template for recording identified costs. The first four cost categories are taken from the EcoVadis and PricewaterhouseCoopers case study (see Handy Tip from previous page). The study identifies the cost of a sustainable procurement programme associated with a £17 billion revenue stream and £8.5 billion procurement spend. The figures have been provided to help you calculate pro-rata figures and as a rough estimation guide.
Figure 1.2 Identify and quantify the costs of implementing your local purchasing strategy Cost category
Internal team
EcoVadis Examples
Five fully backed full time equivalents (FTEs)
Ecovadis Costs for a £8.5
Insert your
billion procurement spend (£)
costs here
420,000
£84,000
CSR assessments based on 500 suppliers, followed by 100 on-site audits Supplier assessments and
Databases, vendor rating systems,
audits
knowledge tools, etc
Other implementation tools
Training costs associated with new systems
Training costs
500,000
and procedures. Based on 300 buyers.
210,000
Outreach activities aimed at SMEs
125,000 n/a
Supplier roadshows and events Insert other costs here as necessary Insert other costs here as necessary
£1,255,000
Total Costs
Total costs as a percentage
in the case of a construction development
of revenue
project , an alternative approach would be
0.008%
to calculate total costs as a percentage of total development /construction costs (Assuming total procurement costs of 2% of £8.5 billion spend Total as a percentage of the procurement function operating budget
0.75%
Local purchasing toolkit
Invite local SMEs to tender implementation-related activities: catering, venues, printing and publishing and promotional items are good, low risk categories to trial. This can help improve negative perceptions of small firms and help you pilot your new systems.
Tip!
Step 3 Conduct cost benefit analysis Analysing returns: At a very simple level, sum up your total quantifiable benefits and where they materialise over time. Conduct a similar analysis of your costs. Again a net positive effect can be used as a powerful communications tool to achieve buy-in from stakeholders. Figure 1.3 provides a template to record your calculations.
Figure 1.3 Local Purchasing Cost Benefit Analysis Measure
Value
Guidance Information
Total quantifiable
£
Benefits can be quantified using one
benefits
or a combination of: • an increase in market capitalisation • market value of a development • increased revenue • local economic impact See Figure 1.1
Total costs
£
Costs taken from Figure 1.2
Total net benefits
£
Benefits minus costs
Notes
11
12
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Summary At the end of this exercise you should have achieved the following n A clear understanding of the strategic objectives a local purchasing strategy can support n Identification and quantification of the benefits of local purchasing n An understanding of the costs of implementation n Whether there is a net positive justification for its implementation
What to do next? Go to Chapter 2 for guidance on where your organisation needs to be in terms of its people, strategy and other aspects in order to successfully implement a local purchasing strategy. Chapter 2 introduces an assessment tool and outlines a plan for addressing gaps in “organisational readiness� to implement a local purchasing strategy.
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1.
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2.
Develop Business Case
Develop Internal Capability
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3.
Develo Local Purchasi Strateg
3.1
Identify Opportun
2.0 Developing internal Capacity
Tip
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3.2
Establish a manag contrac
3.3
introduction Organisations committed to local purchasing should invest in internal systems, processes and a culture which support the delivery of the outcomes and benefits identified. This may mean addressing entrenched business processes, cultures, attitudes and reward systems in order to change focus and make local purchasing a core business objective. In the last chapter we identified the business case for local purchasing and the benefits which can be achieved as a result. In this chapter we set out the following step 1: How to assess your organisation or team’s readiness to implement a local purchasing strategy. step 2: How to develop an organisational improvement plan for areas you want to address. Your organisational improvement plan then becomes part of your local purchasing strategy in Chapter 3 (Developing a Local purchasing strategy). Once your improvement plan is implemented, your progress can be reviewed at set review periods. step 3: How to establish baselines to understand what your current performance is like in relation to: a. current levels of SME spend with small to medium size enterprises (SMEs) b. organisational attitudes to local purchasing and local SMEs to understand the scale of change management activity required
Build loc SMA capacit
3.4 Monitor a review Strateg
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Your findings in Step 3 will lead to the creation of performance targets relating to future spend with SMEs and to a change management and communications plan which should also be inserted into your local purchasing strategy.
Step 1. Assess your organisation’s readiness to implement a local purchasing strategy. It is important to adopt the right organisational structure, culture and processes that will support the implementation of your local purchasing strategy. Figure 2.0 provides a methodology for the assessment of your organisational readiness for local purchasing. This method has been adapted from the Flexible Framework11, a maturity matrix developed to assess the quality of sustainable procurement in the UK public sector and to provide an action plan for implementation. Overleaf Figure 2.0 also allows you to rate your organisation’s readiness on a scale of 1 to 5. For each of the criteria presented, analyse the state of your organisation then tick the level that applies to your organisation. A complete maturity matrix has been provided in the Appendix.
Rio Tinto Iron Ore, Pilbara, Western Australia Rio Tinto Iron Ore’s Aboriginal procurement strategy reflects a commitment to an agreed set of targets that form part of the agreements between Aboriginal people and Rio Tinto. In 2008, the company commissioned an independent inquiry to identify systemic blockages to Aboriginal business procurement and made recommendations to increase Aboriginal involvement in the supply chain. One of the changes being implemented as a result of this inquiry is a system to track progress through joint reporting by the procurement and community relations divisions on Aboriginal business spend, using the lean monthly reporting system. The metrics for this system are built into management incentive and reward programs. Structural changes to the procurement function have also been implemented. For example, in planning for a new project, the projects team works with the community team to identify opportunities for Aboriginal businesses, and ensure Aboriginal businesses are invited to tender.
Case study:
Case Study:
11 See www.ogc.gov.uk/sustainable_development_ in_government_flexible_framework.asp
Source: Procuring from SMEs in Local Communities: A Good Practice Guide for the Australian Mining, Oil and Gas Sectors found at www.csrm.uq.edu.au/index. html?page=142124&pid=0
Local purchasing toolkit
Figure 2.0 Organisational Readiness Assessment measuring internal readiness for local purchasing Criteria
Assessment of readiness
People
What is the level of commitment to
Level 1
Level 2
Level 3
implementing a local purchasing strategy and are people equipped to implement the strategy? Policy, strategy and
What policies and processes exist
communications
which clearly define the processes that personnel should follow? Are policies communicated effectively and to what extent do incentives exist to reward compliant behaviour?
Procurement process
To what extent is local purchasing planned and managed as a deliberate strategy to ensure that contract opportunities for local SMEs do arise?
Engaging suppliers
Does your organisation work actively with major contractors to identify opportunities and build local SME capacity? Is this monitored in any way, or does your organisation rely on “light� touch codes of conduct?
Building local SME capacity
Is engagement ad-hoc and informal or does the organisation work with local businesses and other business support agencies to build SME capacity to bid for contracts?
Monitoring, reporting
Does your organisation baseline key
and reviewing
performance indicators relating to local purchasing and to what extent does your organisation report on performance both internally and externally?
See Figure 2.1, overleaf, for summary information on the criteria for Levels 1-5. Also see the Appendix for more detailed information.
Tip!
Level 4
Level 5
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Step 2. Develop an organisational improvement plan for areas that need addressing. The template below (Figure 2.1) can be used to develop your organisational improvement plan for each criterion identified. To use this chart do the following: n Review date: Place a date to review your organisational implementation plan n Action points: Insert improvement actions for each of the criteria identified. An example for each level has been provided n Deadlines: Establish dates for reviewing your organisational improvement plan n Person responsible: Identify the person responsible for ensuring that the plan is implemented. You may want to identify an individual for different aspects of the plan
Figure 2.1 Organisational Improvement Plan Review date [insert review date]
People
Current Level
Desired Level
[Insert Level]
[Insert Level]
Action Points Level 1:
Identify interested individuals in order to develop a business case.
Level 2:
Identify local purchasing champions at an operational and senior level.
Level 3:
Develop local purchasing training and awareness materials.
Level 4:
Implement simple incentive programme to acknowledge accomplishment.
Level 5:
Local purchasing included in competencies and selection criteria.
Deadline(s)
Strategy and Communications
Current Level
Desired Level
[Insert Level]
[Insert Level]
Action Points
Deadline(s)
Level 1:
Integrate local purchasing objectives into corporate purchasing strategy.
Level 2:
Develop guidelines and key contacts to support local purchasing.
Level 3:
Develop a robust communications plan to promote local purchasing.
Level 4:
Link local purchasing to overall corporate strategy.
Level 5: Strategy reviewed regularly and future priorities determined.
Procurement Process
Current Level
Desired Level
[Insert Level]
[Insert Level]
Action Points
Deadline(s)
Level 1:
Analyse expenditure to understand current behaviour.
Level 2:
Identify “priority contracts� suitable for local purchasing.
Level 3:
Place local purchasing requirements in tender documentation.
Level 4:
Remove all barriers to local purchasing.
Level 5:
Track and report on benefits realised from local purchasing.
Local purchasing toolkit
Engaging Suppliers
Current Level
Desired Level
[Insert Level]
[Insert Level]
Action Points
Deadline(s)
Level 1:
Develop a “local purchasing code” for main contractors.
Level 2:
Get key suppliers to sign up to the “local purchasing code”.
Level 3:
Agree performance indicators with key suppliers.
Level 4:
Audit Supply Chains and initiate supplier improvement programmes.
Level 5:
Encourage key suppliers actively promote local purchasing in their supply chains
Building local SME capacity
Current Level
Desired Level
[Insert Level]
[Insert Level]
Action Points
Deadline(s)
Level 1:
Understand the local SME landscape.
Level 2:
Inform local SMEs about qualification requirements.
Level 3:
Systematically invite SMEs to tender for opportunities.
Level 4:
Create internal mechanisms to support the development of local SMEs.
Level 5: Collaborate with local SMEs and industry to create new economic opportunities in the local area.
Monitoring, Reviewing and Reporting
Current Level
Desired Level
[Insert Level]
[Insert Level]
Action Points
Deadline(s)
Level 1:
Identify successful case studies on local purchasing.
Level 2:
Identify simple measurements to track local purchasing activities.
Level 3:
Create systems to track performance indicators to measure benefits and activities.
Level 5: Initiate internal and external evaluations to confirm the effectiveness of local procurement practices and local impact.
Person(s) responsible for organisational improvement plan [Insert name and details here]
Step 3. Establish baselines for local SME spend and organisational attitudes to local purchasing The purpose of developing a baseline for your local purchasing strategy is to understand your starting point in the context of what you want to achieve for local purchasing. Once understood, your findings can be used to develop a tailored strategy with clear priorities for action. (a) What is my organisation’s spend with local SMEs? Establish a baseline in order to set an overall expectation and consensus on what success means in terms of value of, and
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percentage of, spend on SMEs. The following supplier data is required as a minimum to analyse your total SME-related spend; n Turnover and/or balance sheet data and number of employees – in order to support spend analysis by SME category n Postcode – in order to monitor and review local impact12 n Sector – in order to understand which sectors are being represented (or under-represented in local purchasing). The City of London Corporation commissioned research on City Fringe supply chains13. The research highlighted six key sectors which offer the most potential for local purchasing. These are “property services”, “legal services”, “printing and publishing”, “entertainment”, “office supplies” and “events and seminars”. You may decide to target these sectors as a first step in the implementation of your strategy, as supply by SMEs14 is already commonplace. If you are implementing a local purchasing strategy for the first time, this approach might offer “quick wins”. Use Figure 2.2 to capture your findings.
Figure 2.2. Analysis of City Fringe SME spend according to 6 “key” sectors Type of SME14
Property Services Legal Services
Printing and
Entertainment
Publishing
Micro
Office
Events and
Supplies
Seminars
£x,000
Small Medium
(b) How do my organisation’s stakeholders perceive local SME purchasing? Negative as well as positive attitudes to local purchasing may exist within your organisation. It is useful to survey your stakeholders and buyers to understand where pockets of good practice exist, and where changes in perception need to be achieved. Capture your findings in Figure 2.3.
12 City and City Fringes Borough Postcodes: Tower Hamlets: E1, E2, E3, E14, Hackney: E5, E8, E9, N16, Islington: EC1, N1, N5, N7, N19, N4, Camden: WC1, NW1, NW3, NW5, NW6, N6, Lambeth: SE11, SE24, SE27, SW2, SW4, SW8, SW9, SW12, SW16, Southwark: SE1, SE5, SE15, SE16, SE17, SE19, SE21, SE22, Westminster: SW1, SW7, WC2, W1, W2, W9, W10, NW6, NW1, NW6, City of London: EC1, EC2, EC3, EC4 13 City of London Corporation, (2008), The City of London Supply Chain and its Relationship with the City Fringes 14 A definition can be found on Page 3 (About this toolkit)
Local purchasing toolkit
Figure 2.3 Profile of buyer perceptions of Local SMEs. Use as a communications tool and as input into a change management plan if necessary
Tick if relevant
Feedback from buyers:
Counter-arguments for
Local purchasing leads to...
negative perceptions15
Lower costs over the life-cycle of purchasing
n/a
Greater innovation and creative solutions
n/a
Reduction of transport and logistical costs
n/a
Greater flexibility and compromise
n/a
The reduction of the need to find temporary
n/a
accommodation for an outside labour force Risk management
n/a
Compliance with proposed or approved legislation
n/a
Lacking capacity
Focus on spare capacity. The SME may have the spare resources (spare capacity) needed to take on the contract whereas larger firms may have insufficient spare capacity to meet the specific requirement at any one time.
Lacking financial guarantees
Obtain performance bonds or parent company guarantees.
Higher prices
Price should not be the sole determining factor. Evaluate the SMEs complete offering in order to determine added value
The use of smaller suppliers who are more risky
All suppliers, whatever the size carry risk. Be less risk averse. One strategy to apply is to “dual source�, that is source from two suppliers before moving to single source.
Summary By the end of this chapter you will hopefully understand the scale of change required to implement an effective local purchasing strategy in terms of: n organisational readiness, n future spend targets, and n changes in behaviour and perceptions required. The final products are an organisational improvement plan, a local SME purchasing spend analysis and a documented checklist of instances where local purchasing has led to real organisational benefits.
What to do next? Developing on the foundation you will have created in this section, Chapter 3 sets out how to implement your local purchasing strategy.
15 Counter arguments extracted from CIPS Knowledge Works, Use of small suppliers (www.cips.org)
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2.
3.
Develop Business Case
Develop Internal Capability
Develop Local Purchasing Strategy
3.1 Identify Opportunities
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Tip 3.0 Developing a local purchasing strategy
3.2 Establish and manage contracts
3.3
introduction In the last 2 chapters we looked at creating a business case for local purchasing and assessing your organisation’s readiness to implement a local purchasing strategy. In this chapter you will find guidance on developing a local purchasing strategy. Your local purchasing strategy provides a framework for the implementation of local purchasing within your organisation. A checklist of suggested contents for a local purchasing strategy has been provided in Figure 3.0. The checklist is designed to be used flexibly, in a manner which best suits your needs. Further guidance on how to implement your local purchasing strategy has been provided in four further sub-sections as follows: 3.1 identify opportunities: how to identify appropriate contracts for local procurement 3.2 Establish and manage contracts: how to reduce internal barriers to local procurement 3.3 Build local sME capacity: how to understand and support your local supplier base 3.4 Monitor and evaluate strategy: how to monitor the success of your local procurement strategy
Build local SMA capacity
3.4 Monitor and review Strategy
4.
Establis fit with legislatio and poli
Local purchasing toolkit
Figure 3.0 Local Purchasing Strategy Template Tick Suggested content
Foreword or vision from a senior member of staff who champions the vision.
A description of the accountable body (the senior management team which champions the strategy and authorises the resources and the implementation plan). A statement confirming the fit/strategic alignment with other strategies including the corporate strategy, overall procurement strategy, sustainable procurement and any others identified.
The business case for local purchasing and a list of benefits achieved through local purchasing.
A clear definition of what “local” means for the organisation, what the local purchasing targets are, and the target areas of spend (list of ”priority contracts”) for local purchasing. A summary of the approach being taken to implement local purchasing. This includes changing procurement processes, engaging with main contractors, providing advice and support and analysing current and future contracts for suitability for local purchasing. A statement which describes the organisational readiness and capability to adopt and benefit from local purchasing (“local purchasing maturity”) and a confirmation of where the organisation would like to be and the timeframe for achieving this.
The local purchasing implementation plan including:
roles and responsibilities
budget
implementation time frame
risks and issues
statement of benefits
a benefits realisation plan
a local purchasing training plan for procurement and other key persons identified
an organisational improvement plan
a communications plan
risk and issues management plan
monitoring and evaluation plan
Local purchasing review date
Summary Your local purchasing strategy provides a reference framework to support the implementation of local purchasing. It can also be used as a communication tool which sets out the mission, objectives, activities, targets, and benefits related to local purchasing.
What to do next The outputs from the activities in Sections 3.1 – 3.3 will provide the basis for updating your local purchasing strategy. Once implemented and in place, these should also be reviewed in Section 3.4 Reviewing your local purchasing strategy.
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3.1 Identify opportunities Introduction The previous chapters focused on setting the strategic framework guiding the implementation of your local purchasing strategy. At this point, your business case and your organisation’s readiness to implement your strategy should be clear. This chapter identifies appropriate models for analysing your spend on goods and services in order to identify “priority contracts” for local purchasing. These priority contracts are a list of contracts or categories where local suppliers are asked to quote or tender every time a contract comes up for renewal or whenever a need arises. Priority contracts are identified by analysing existing contracts or new procurement requirements (“demand analysis”) in order to identify which opportunities might be suitable for local purchasing. On a construction project for example, the opportunities arise in the form of “work packages” which are discrete projects or trades which create the final product. The steps for identifying priority contracts are as follows: Step 1: Establish timeframes: Identifying the contracting period under review for potential opportunities Step 2: Assess spend categories: Identifying options for analysing your spend categories Step 3: Assign a level: Categorising your contracts or spend categories in terms of difficulty or strategic importance Step 4: Assign minimum requirements to each level: Creating minimum supplier criteria for each level identified Step 5: Identify “priority contracts”: creating a list of contracts where local procurement applies, the local procurement targets that apply and the internal champions for each priority contract identified Step 6: Inform your stakeholders: communicating your plans for local procurement
Local purchasing toolkit
Who can help identify priority contracts? This exercise is transferable across the following roles: n P urchasing and supply professionals implementing local purchasing in a specific business area or across the whole organisation n Construction project managers or quantity surveyors responsible for construction and non-construction spend on a project n Diversity or Corporate Social Responsibility (CSR) managers or any other role leading on a CSR, Sustainable Procurement or Diversity led project. Demand analysis For the purchasing and supply community, a demand analysis is a reassessment of your future demand for services, products or new projects in order to build in opportunities for local businesses. The end result will be: n a set of spend categories or contract opportunities “priority contracts� where local SMEs will be invited to tender as part of normal procurement, and/or n a decision to advertise specific contracts in the local boroughs. Equally, if you are in a non-procurement role, such as a bid manager or a quantity surveyor, your starting point will be the subcontracting opportunities or work packages in a tender application or project. You will have to work with your procurement colleagues if the function is highly centralised. The main demand analysis activities are explained in the following steps.
Step 1. Establish timeframes The purpose of this step is to clearly define the contract period that will be used to analyse which contracts should be considered for local purchasing. For example, you may decide to look at all contracts up for re-procurement over the next two or three years, or the next six months depending on how fast you want to implement changes. For construction projects, the relevant period will be the lifetime of the project over its various phases (pre-construction, construction and operational).
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Step 2. Assess spend categories Identify appropriate models for prioritising contracts for local purchasing. Four different models have been provided as examples below. Option A: Categorise spend according to risk and value. The example below illustrates the types of contracts that might arise on a development project. A set of contracts could be identified from each quadrant as “priority contracts”. Select your chosen method in Figure 3.10
Figure 3.10 Prioritisation according to risk and value
High Risk
High Risk/High Value
High Risk/Low Value
Employment and training services, Architectural and
Structural steelwork, Land remediation, Structures and
professional services, Public relations, Public affairs, Bat
substructures, Building products, Core merchandise,
surveys, Community services, Public art commissions
Target £m
Baseline:
Target £m
Baseline:
Target % of spend
Baseline:
Target % of spend
Baseline:
Low Risk/Low Value
Low Risk/Low Value
Furniture and fittings, On-site cleaning and janitorial,
Gifts and promotional items, Recycling, Agency staff,
Security services, Removals, Key holding, Landscaping
Print and pre-recorded media, Taxi services, Design, Print
and grounds maintenance, Employee services (Yoga
and promotional materials, Corporate catering
classes, etc), Floristry, Video coverage, construction or corporate photography, Community services
Target: £m
Baseline:
Target: £m
Baseline:
Target: % of spend
Baseline:
Target: % of spend
Baseline:
Low
Low
Value High
Option B: New categories of spend Identify “priority contracts” as new categories are developed or new procurement processes are initiated. A new construction project, for example, will have typical work packages associated with it. A subset of these can be identified for local purchasing.
Local purchasing toolkit
Option C: Proximity Advantage The City of London Corporation’s Analysis of City Fringes SME sectors16 identified services where there were advantages of having suppliers located within 5 miles of the delivery location. These sectors are “office cleaning”, “catering” and “facilities management and repair”. This list can become your priority contracts. See Figure 3.11.
Figure 3.11 City Fringes key sectors for proximity advantage Tick Sectors with proximity advantage
Office cleaning
Catering
Facilities management and repair
Option D: Creating a positive economic impact in the locality The City of London Corporation’s Analysis of City Fringes SME sectors identified six “key sectors” where the potential for winning contracts and creating a positive economic impact was higher. See Figure 3.12.
Figure 3.12 City Fringes six key sectors to create a positive impact locally Tick
City fringe six key sectors
Property services
Legal services
Printing and publishing
Entertainment
Office supplies
Events and seminars
Step 3. Assign a level Assess each contract according to level of difficulty and strategic importance. Assign a corresponding level as follows: Level I: Minimum levels of business qualification required Level 2: Low levels of business qualification required Level 3: Highest levels of business qualification required
16 City of London Corporation, (2008), The City of London Supply Chain and its Relationship with the City Fringes
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A completed example from the construction sector is provided in Figure 3.13. Note: this does not mean that local firms can only supply low level qualification contracts, this type of assignment allows the SME business owner to self assess and judge whether the contract is suitable given its stage of development.
Step 4. Assign minimum requirements to each level Build a corresponding set of minimum requirements that a SME would need to fulfil for each level. Examples include the following: n Registration of business n Audited financial statements n Health and Safety n Environmental Management Plan n Insurance value n Vat Registration n Industry Accreditation and Standards The levels and associated minimum requirements should be publicly available so that local small to medium size suppliers (SMEs) understand the minimum requirements needed to supply at those levels. Contract advertisements, for example, could state the level of contract with a link to your procurement page for further details on the minimum requirements. Examples are provided in Figure 3.13
Figure 3.13 Levels assigned to construction work-packages Level 1
Hoarding
Minimum
Good ethical record
Painting
requirements
Good leadership
Site facilities
Level 2
Plumbing installation
Minimum
Revelant industry accreditation
Electrical installation
requirements
Insurance ÂŁ5m
Health and safety processes
Quality management system
Level 3
Demolition
Minimum
Health and safety accreditation
Substructures
requirements
ISO14001/ISO9000
Superstructure
Investors in People status
Local purchasing toolkit
Step 5. Identify “priority contracts� Identify priority contract opportunities where local suppliers should be invited to tender. Use Figure 3.14 as a template to document: (a) Identified categories or contracts (b) The local purchasing spend target for each contract (c) Internal budget holders who purchase these contracts or categories. (d) An identified Local Procurement Champion providing support and training Figure 3.14 List of future contracts or categories chosen for local purchasing (a) List of Contracts/ Categories
Events and events related services
(b) Local Purchasing Spend Target
ÂŁ 100k
(c) L ist of internal budget holders
Martin Soames Head of Human Resources Priya Patel Head of Communications
Your local procurement champion is the first point of contact for help and support and is responsible for promoting local purchasing and taking ownership of the following: n Local purchasing target n Production of case studies n Documenting and dissemination of good news and good practice n Resolution of risks and issues n Reporting and feedback
Step 6. Inform your stakeholders Communicate your intentions to internal stakeholders, main contractors and current suppliers so that they understand how these changes will affect them. For example current suppliers of priority contracts may feel threatened by the introduction of new competitors for their business. Main contractors may be asked to confirm local purchasing plans when tendering for future contracts and may want to understand whether this increases the cost of tendering. If procurement is devolved, those who buy in priority contracts will have to be informed and trained on how and what they need to do to purchase locally. If, for example, they develop their own tender specifications and manage their own contracts they
(d) Local Purchasing Champion
Marie Sands, Senior Buyer, 020 899 9999 mary.sands@mail.com
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will need to understand what steps they need to take to make processes and documents more SME-friendly. See Figure 3.15. Figure 3.15 Stakeholder checklist for local purchasing Tick if relevant I’ve informed current suppliers of “priority contracts”
I’ve informed main contractors
I’ve briefed the City Fringe supplier community and business support representatives
I’ve informed other stakeholders
I’ve fully considered who could be affected either positively or negatively about these changes
As a general rule start with simple and small contracts and build up towards more complex contracts. You may also want to reserve contracts for local businesses.
Useful Links Strategic Sourcing: Reducing Cost and Supporting Diversity Goals http://www.ism.ws/files/Pubs/Proceedings/GFDolanFedele.pdf Developing a Transparent System for Local Contracting http://www.ifc.org/ifcext/advisoryservices.nsf/AttachmentsByTitle/ Business_Linkages_+Practice_Notes-Chad/$FILE/ Chad+Manual+FINAL.pdf
Summary By the end of this chapter you should have achieved the following n The identification of a list of “priority contracts” n The identification of a local procurement champion for each contract n A programme of communications aimed at your stakeholders informing them of your planned changes
What to do next The next step will be to address internal barriers which might prevent local SME suppliers from accessing procurement opportunities within your organisation. This is covered in Section 3.2 Establish and manage contracts. Update your local purchasing strategy with your list of priority contracts, local procurement targets identified champions as well. Use your list of priority contracts to develop a local purchasing statement.
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3.2 Establish and manage contracts Introduction In the previous section we looked at appropriate models for prioritising goods and services in terms of local purchasing and identifying “priority� contracts for SMEs. Your current purchasing and supply practices might prevent SMEs from trading effectively with your organisation or project which means certain adaptations to your internal systems might be needed. Having identified your priority contracts, you will also need to establish systems for capturing business data so that you can track and monitor your spend with local suppliers. This section helps you do the following: Step 1: Create an action plan to address barriers SMEs might face in accessing contracts within your organisation Step 2: Start the process of benefits realisation once the changes have been implemented Step 3: Identify methods of tracking spend with SMEs or local suppliers
Step 1. Action Planning Once your priority contracts are identified, you will need to analyse the following aspects of your purchasing and supply systems to understand whether they present any barriers to trading with SMEs n C ontract Management: Creating simpler versions of standard contracts n Supplier Sourcing: Ensuring that mechanisms exist to interact with the local supplier base n Supplier selection: Ensuring that contract opportunities are accessible and available to SMEs so that buyers get a wider range of choice n Tender documentation: Analysing and amending tender
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specification templates, requirements for insurance and accreditation to ensure that they are proportionate and the scope exists for SMEs to provide equivalent standards n Supplier payments: Providing suitable payment terms for suppliers The City of London Corporation’s study into the City’s Supply Chain and its Relationship with City Fringes could be used as a framework for developing your action plan. The study reported barriers to accessing contracts from City based firms set out in Figure 3.20 Lack of reputation or track record
Figure 3.20 SME barriers to winning contracts. Source: The City’s Supply Chain and its Relationship with City Fringes www.cityoflondon.gov.uk/Corporation/LGNL_Services/ Business/Business_support_and_advice/ Economic_information_and_analysis/Research_publications/
Lack of knowledge about the bidding process
Lack of credit history
Reported Barriers
Lack of appropriate contacts
1. Action planning The barriers from the City Fringes study are presented in the tables below with suggested solutions for implementation. Select or add actions to the tables below (Figure 3.21 – Figure 3.25) and assign deadlines for implementation.
Lack of CR, environmental and accreditation
Figure 3.21 Actions to address reported barrier: “Lack of track record” Barrier
Lack of track record
Tick
Solution
Make your tender specifications in your priority contracts more “outcome based” . This means you specify a desired outcome rather than the solution. Evaluate responses based on the credibility of the solution offered. Make allowances for the use of associates and the experience of the individuals rather than the company. Flag contracts that are suitable for SMEs. Use the “SME Star rating” developed in Section 3.1 Identify Opportunity. The Office of Government Commerce also provides procurement best practice guidance to SMEs. Find out about contract flagging at www.ogc.gov.uk/documents/Contract_Flagging.pdf. Manage the contract closely if you award a contract to a start-up SME to ensure that they continue to deliver and to play an active role in finding solutions to operational problems. Alternatively develop a mentoring scheme so that suitable mentors are available for support. It is useful to have two types of mentors. The first type is an expert in a process like Health and Safety for example. The second type is an expert in business issues like accessing finance, partnering or collaboration.
Any other.
Deadline(s)
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Figure 3.22 Actions to address reported barrier: “Lack of credit history” Barrier
Lack of credit history
Tick
Solution
Deadline(s)
Identify other financial indicators that can support an assessment of credit worthiness. Allow for the submission of performance bonds or parent company guarantees as part of your financial appraisal process. Create a mechanism that allows local SMEs to communicate their sound financial position using a medium other than formal paper work. Allow for alternatives such as management accounts and references from banks as part of your financial appraisal process.
Any other.
Figure 3.23 Actions to address reported barrier: “Lack of corporate responsibility, environmental and other accreditations” Barrier Lack of Corporate Responsibility, environmental and other accreditations Tick
Solution
Deadline(s)
Establish a mentorship scheme to help local SMEs develop these policies and associated processes. Allow for the submission of an action plan as part of your tender evaluation process. Allow for equivalent systems such as a quality management system or an environmental management system as an alternative to formal accreditation.
Any other.
Figure 3.24 Actions to address reported barrier: “Lack of knowledge about the bidding process, corporate responsibility, environmental and other accreditations” Barrier
Lack of knowledge about the bidding process
Tick
Solution
Revise and review information available on your procurement process. Provide easily accessible tendering guidance. Produce a list of all procurement documentation and set targets, where required for conversion into plain English. Review procurement processes to ensure that they are not discriminatory. Make sure that all suppliers have equal access to information.
Host or hold bid writing training sessions for SMEs.
Any other.
Deadline(s)
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Figure 3.25 Actions to address reported barrier: “Lack of appropriate contacts� Barrier
Lack of appropriate contacts
Tick
Solution
Deadline(s)
Create a procurement page on your website to publish your contracts. Create a process to disseminate contract opportunities to business support partners. Apply to use CompeteFor, a website for publishing contract opportunities. Establish a process for local press advertisements. Interact with the City and City Fringe business community to jointly explore and create new economic opportunities. Host or attend targeted Meet the Buyer days, events or invite suppliers to meet procurement officers. Provide guidance to purchasers to ensure that individual procurement strategies consider local SMEs. Regularly participate in relevant events/networking opportunities. Ask main contractors for evidence of local purchasing policies at the pre-qualification stage of tendering and make it part of the selection criteria. Ask for local procurement action plans at the bid stage and make it part of the award criteria. Agree a target for local procurement with your main contractors. Ask main contractors to sign up to voluntary agreements to local procurement. Create a mechanism for receiving information for innovative products. Examples include design competitions, open innovation days. Any other.
K&M McLoughlin Since 2005, K&M McLoughlin - an Islington based painting and decorating company - has been receiving local business support on tendering skills, quality assurance and environmental accreditation. This has greatly helped the company to win contracts on developments such as the King’s Place development and the St Pancras Chambers Hotel. K&M has gone from strength to strength, including winning the decorating contract on the Media Centre in the Olympic Park. Their success has enabled them to create new local jobs and local apprenticeships.
Case study:
Case Study:
Local purchasing toolkit
Step 2. Benefits Measurement It is important to remember that your local purchasing strategy has gone ahead because you identified some clear business benefits. Once the changes outlined in your action plan above have been implemented, you should baseline your anticipated benefits17 in preparation for future measurement. This method follows the Office of Government Commerce method of benefits realisation where the process is as follows: n n n n n
Implement required changes Baseline benefits once change has been implemented Allow some time for the changes to become operational Measure benefit at an agreed time Assess achievement
Step 3. Track and monitor spend with SMEs You should have created a target for spend with local SMEs as part of developing your local purchasing strategy. This target might have been created internally or given to you by your client. You will have to develop systems in order to track and monitor how you are doing in relation to meeting that target. Your financial systems can be used to capture business data. New suppliers should be asked to supply information on turnover, number of employees, postcode and sector as part of their registration process for payments. Reports can then be generated at pre-set periods to analyse payments made to local SMEs. Good news stories and significant milestones should be included in your communication activities.
Summary By the end of this chapter you will have developed an action plan to reduce internal barriers which may exist in your procurement processes, documentation and other systems. The achievement of these actions demonstrates a genuine commitment to making your systems accessible to local SMEs.
What to do next Your action plan should be evaluated to understand the extent to which internal barriers have been reduced. Section 3.4 adopts a “local purchasing balance scorecard approach” to review and measure the impact of your plan. Local SMEs may also need to develop their own internal capacity and capability to supply, especially for larger and more complex contracts. Section 3.3 “Build Local SME Capacity” provides practical suggestions for supporting SMEs in development and growth.
17 S ee www.ogc.gov.uk/documentation_and_ templates_benefits_realisation_plan.asp for support on measuring benefits
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London Universities Purchasing Consortium London Universities Purchasing Consortium (LUPC) attracts SMEs to its recruitment framework agreement through innovative tendering. Established in 1968, LUPC is a not-for-profit professional buying organisation owned by its Members, for its Members. LUPC’s core membership is made up of universities and colleges of higher education in and around the capital, along with some colleges of further education. With a £19m annual spend on temporary recruitment, the LIPC aimed to establish a highly competitive framework agreement that gave Members a genuine choice – between larger suppliers offering a strategic relationship and smaller, specialist and perhaps local providers that offered high levels of knowledge and service. To achieve this, LUPC needed to find an innovative new strategy to enable small and medium-sized enterprises (SMEs) to have an even chance of winning business. As a result, LUPC split the requirement into seven lots: six specialist lots (with one final award in each) and a seventh, one-stop-shop lot (with 3 final awards). The specialist lots provided for temporary staff in administrative and clerical, finance, Information Communication Technology (ICT), operational, retail and other corporate roles such as HR and procurement. Since only one supplier was to be appointed in each specialist lot, bidders would be incentivised to submit their very best prices. LUPC ran a Bidders’ Conference for the 42 suppliers shortlisted. They set out the strategy for their bidders, sharing their criteria, weightings and scoring mechanism, which provided clarity for all attending, including the SMEs. After the evaluation of tenders, the framework agreement was awarded to a total of seven suppliers, four of which were SMEs. LUPC achieved the following benefits: n Increased spend with SMEs n Created specific new business opportunities for SMEs n Better/competitive prices n Quick turnaround times by using SMEs to fulfil niche university related vacancy requirements “Using SMEs has helped us to provide an enhanced service for our members. LUPC Members now have the opportunity to meet a need for temporary staff quickly, by ordering from one of a series of knowledgeable, specialist providers of temporary staff straight away and at highly competitive rates.” Andy Davies, LUPC Director.
Case study:
Case Study:
Local purchasing toolkit
3.3 Build Local SME Capacity Introduction In the previous section, we identified actions to reduce internal barriers to local supplier participation in your procurement activities and to make contract opportunities more transparent. On the supply side, it is equally important to understand the characteristics of small local businesses and how some typical “small company� challenges can be overcome with the right support. In this chapter we cover working in partnership with local business support agencies or internal company support in the form of knowledge transfer or mentoring in order to support SME capacity development. Create effective partnerships to maximise the impact of your local purchasing strategy by: Step 1. Creating a profile of business support agencies that exist in the City and City Fringe. Step 2. Creating an effective partnership which can support the aims and objectives of your local purchasing strategy. Figure 3.30 provides a checklist for categorising business support in your area.
Sector specific support
Support on international trade
Business start up support
Figure 3.30 Using business services to support your local purchasing strategy
Supplier briefings and seminars
Local Business Support
Matching to contracts/ local databases
Focus group services
Access to finance Business improvements, training and mentoring
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Step 1. Create a local business support agency profile A business support profile will help you understand what support is available locally. Use it as a communications and signposting tool for internal buyers and SMEs. Options for categorising support include: n Using the Department of Business Innovation and Skills Solutions for Business categories18 n Using the categories for assessing SME capabilities: General, Business Conduct, Management, Health and Safety, Environmental Management, Quality Management, Equality and Diversity n Using the the City Corporations ‘Ready to Supply the City’ service, which provides free support both for SMEs in the City fringes to become fit to supply the City, and for City buyers, supply chain managers and procurers to encourage and facilitate local procurement.
Step 2. Creating an effective partnership Good working partnerships with other business support agencies can offer the following benefits: n A larger resource pool (financial, human, and premises, for example) n Marketing support for supplier briefings n Gaining the trust of local businesses In order to maximise the opportunity for local SMEs the ideal scenario is to identify an “Enterprise Support Partnership” whose main function would be to coordinate a portfolio of services such as that in Figure 3.31.
In order to achieve buy-in from business support agencies, pitch your local purchasing strategy as an added value service that will potentially create opportunities for their clients which they may not have otherwise seen.
18 http://www.bis.gov.uk/files/file53913.pdf
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Figure 3.31 Portfolio of services offered by enterprise support partnership which support the implementation of a local purchasing strategy
Supplier sourcing
Collaboration support
Supplier due-diligence
Enterprise Support Partnership
n Supplier sourcing: Finding and matching suppliers to opportunities
Contract sending
n Supplier due-diligence: Assessing supplier capability according to pre-established criteria n Coordinate training: Coordination of training and support on various business improvement courses including accreditation support and tender writing n Contract sending: Dissemination of contract opportunities n Collaboration support: Support to find partners for joint bidding activity There may be an existing partnership which may be able to adopt these objectives into its operating model. Be sensitive to the fact that some of these organisations might be in competition with each other and there will have to be some agreement on common ground, upon which all groups can work together but still individually benefit. The use of a memorandum of understanding between partners might be useful in this context. Not all SMEs will access business support services – so it is also useful to include the private sector in your local purchasing activities. These include banks and local accountants which SMEs also use for advice and support. These organisations may also see the benefit of being involved as being the provision of value added services for their clients.
Figure 3.32 sets out a list of Business Support organisations with a City and City Fringes SME client base that can be matched to opportunities. If you are interested in procuring from a particular area in London, please contact the City Corporation team for tailored advice at partnerships@cityoflondon.gov.uk.
Coordinate training
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Databases and other resources Figure 3.32 Databases and other resources which can support local purchasing City Business Library
www.cityoflondon.gov.uk/cbl
British Library and IP Centre
www.bl.uk/bipc/
CompeteFor
www.competefor.com
London Business Guide
www.capitaldirectories.co.uk
London Chamber of Commerce B2B platform
www.londonchamberb2b.co.uk
Capital Enterprise
www.capitalenterprise.org
Ready to Supply the City
www.cityoflondon.gov.uk/readytosupplythecity
Summary By the end of this chapter your should understand the following n Which business support agencies exist in your local area n The scope and range of business support services which SMEs can access Local purchasing should be more sustainable with the support of local business support agencies. Local SME suppliers may need support while tendering for or after securing a contract. Effective partnerships should maximise the number of responses to contracts, provide greater access to resources, as well as increasing stakeholder support for the program.
What to do next A strong partnership among local business support, local SMEs and your organisation can support the regeneration of the local economy. Section 3.4 Monitor and Evaluate Strategy provides suggestions for measuring the local economic impact of your local purchasing activities.
Local purchasing toolkit
3.4 Monitor and evaluate strategy Introduction Your local purchasing strategy needs monitoring and evaluating in order to understand whether the intended outcomes have been achieved. In the previous chapters you should have identified one or more of the following: n Expected benefits from local purchasing n Organisational changes needed to implement local purchasing effectively n Priority contracts where local purchasing activity was expected n Targets for local procurement n Action points to reduce barriers to local purchasing This section provides a method of assessing the impact of your local purchasing strategy both internally and externally.
Core concepts Evaluate the impact of your local purchasing strategy both internally and externally. The suggested perspectives in this example are: Internal Customer: How satisfied are they with local supplier performance or communications related to the strategy? Internal Business Processes: What impact, positive or negative, has the implementation had on internal purchasing and supply business processes? Socio-economic impact: What is the value of total spend and the more longer term, impact on the local economy? Financial: Has local purchasing contributed to financial business performance either in terms of reduced costs or increased revenue?
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The suggested steps are as follows: Step 1. Agree targets at the beginning of the implementation of your local purchasing strategy. Chapter 3 Developing a local purchasing strategy provides a template where local purchasing targets can be recorded. See Page 21 Point 5. Step 2. Agree review periods which can vary from quarterly to once a year. Step 3. Update actual scores at agreed review periods.
Calculation method 1. Assign points for each perspective (total = 100). For example the total points assigned to Internal Customer is 30. 2. Create performance measures for each perspective. For example the performance measure for Internal Customer is ‘customer satisfaction rating’. 3. Create a performance metric for each performance measure created. For example the performance metric for customer satisfaction rating is “% of internal customers satisfied with the local purchasing strategy”. 4. Measure actual performance using agreed methods. Apply weightings or point allocations to arrive at a total activity score. For example if the results of an Internal Customer show that 65% were very or extremely satisfied, and 21 points were allocated for this banding, then the activity score would be 21 out of 30. (See Figure 3.40.)
Figure 3.40 Allocating scores based on customer survey results Percent of Customers Responding to Points earned Survey that are satisfied
> 92.0%
30.0
82.1 – 92.0%
27.0
72.1 – 82.0%
24.0
62.1 – 71.0%
21.0
1 < 62.1%
18.0
5. Do similar for other perspectives. That is, those related to internal business processes, socio-economic and financial targets. Figure 3.41 (opposite), sets out a template for measuring expected outcomes from local purchasing.
purchasing was a requirement
City Fringe SMEs Tower Hamlets Local Multiplier Effect Hackney (LM3) City of Westminster Southwark Islington Camden Lambeth 2.3 Supplier relationship management 2.3.1 Number of main contractors Documented Local adopting local procurement Procurement strategies action plan 3 Financial 30 3.1 Increased revenue 3.1.1 Number of new local authority Successful tenders tenders won where local
2.1 Measuring effectiveness 2.1.1 Number of local purchasing transactions in the period 2.2 Socio Economic 2.2.1 % of socioeconomic subcontracting Sub-contracting and 30 in City Fringe area contracting with
Local purchasing remains aligned with strategic objectives (total score 30)
Effective implementation of local purchasing strategy (total score 40)
Performance Measures/ Target Activity Activity Criteria for Total Performance Total Performance metrics Value Score measurement Points Objectives 1 Internal Customer 30 Internal stakeholder 1.1 Customer satisfaction rating extremely or very 1.1.1 % of internal customers experiencing a 66% 65% 21 Internal customer 21 satisfied local purchasing defined positive outcome from feedback activities (total score 30) local purchasing 2 Internal business processes 10
Figure 3.41 Template for measuring expected outcomes from local purchasing
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Measuring local impact19 City Fringe boroughs will have a vested interest in understanding the local economic impact of your local purchasing strategy. The local multiplier tool (LM3) is a government-recognised impact measurement tool. “ The measuring process starts with 1) a source of income (say total income into a social enterprise) and follows how it is 2) spent and then 3) re-spent within a defined geographic area (that is called the ‘local economy’). These three steps are the ‘3’ in LM3. The ‘multiplier’ is an economics concept that puts a label on a concept we understand intuitively: money that enters an economy has a multiplied impact on that economy, based on the way people spend and re-spend money. More re-spending in the local economy means a higher multiplier effect, because more income is generated.” Source: http://www.proveandimprove.org/new/tools/localmultiplier3.php
Useful Links www.neweconomics.org
Summary This step should provide quantitative data supporting the achievements of your local purchasing strategy and areas for improvement as well. It is also useful for identifying qualitative outcomes. These could include better partnerships with stakeholders or closer relationships with internal customers or suppliers which develop as you implement the strategy. Monitoring and evaluation therefore, may identify any spin-off or unexpected outcomes. The results provide the trigger to refine, re-prioritise and re-develop your local purchasing strategy in preparation for its next round of implementation.
19 http://www.proveandimprove.org/new/ tools/localmultiplier3.php
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4.0 the legislative and policy environment for local procurement introduction The purpose of this section is to provide information on relevant legislation and policies that should be covered as part of the internal assessment of your strategy’s fit and organisational impact in relation to those featured. Use the information provided to demonstrate the alignment of your local purchasing strategy with wider external legislation. It also might be prudent to undertake an impact assessment in order to be sure that you are not introducing elements of risk by implementing your strategy. This is best done by legal departments within your organisation.
Competition act 199820 Description The Competition Act 1998 (“the Act”) introduced two prohibitions. Chapter I of the Act prohibits any agreement between “undertakings”, (i.e. businesses) or decisions by trade associations which might affect trade in the UK to an appreciable effect. Chapter II of the Act prohibits the abuse of a dominant market position which has, or is capable of having, an effect on trade within the UK.
application Private sector. There is lack of clarity as to whether this applies to the public sector21. impact Clear your local purchasing strategy with your legal function.
Late payments of Commercial Debts regulations 200222 Description This act allows small businesses to charge each other statutory interest, as well as large businesses and the public sector, for the late payment of commercial debt. application Public and private sector procurement. impact Consider impact. If your organisation postpones
20 http://www.oft.gov.uk/about-the-oft/ legal-powers/legal/competition-act-1998/ 21 Policy 1/2004, The Competition Act and Public Bodies, Clause 28. Found at http://www.oft.gov.uk/shared_oft/ business_leaflets/ca98_mini_guides/ oft443.pdf 22 See http://berr.gov.uk/files/file37581.pdf
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Local purchasing toolkit
payments to SMEs you could be liable for interest payments. A risk to reputation can also exist. County Court Judgements can also affect credit ratings.
International Free Trade Agreements/Conventions As a member of The World Trade Organisation, the UK is subject to global rules of trade. The relevant instruments are Trade-Related Investment Measures (TRIMs) Agreements and the General Agreement of Trade in Services (GATS). Application Public Sector Procurement. Impact The focus of these agreements is government procurement and as such a private company adopting a local procurement policy is beyond the scope and reach of the international trade agreements.23
Public Sector Legislation While not applicable to the private sector, the Public Sector duty puts a clearer and stronger emphasis on public bodies to use procurement actively to advance equal opportunities, minimise disadvantage and improve relations. This means that more public authorities will be building equalities into their specifications and will be looking at how the organisations in their supply chain meet their duties under the Act. The general theme or risk to be assessed is the probability of losing out on contracts where local procurement clauses are becoming commonplace. The relevant public sector legislations are as follows: n UK Public Contract Regulations (2006) n European Union Directives on Public Procurement (Directive 2004/18/EC) n Local Government Act (2000) (LGA)
Equalities Act What’s different? Implemented in October 2010 the Equality Act simplifies and streamlines nine previous pieces of legislation. It challenges organisations to equip
their workforces with the right skills and satisfy their customers through a more sophisticated understanding of the relationship between the individual ‘protected characteristics’ (of age, disability, gender reassignment, pregnancy and maternity, race, religion/belief, sex and sexual orientation) and wider society. Among its provisions are: n Discrimination on grounds of age in the provision of goods and services will be unlawful (from April 2012). n Changes to disability discrimination, including introducing indirect discrimination. n Allows businesses to use positive action to target their goods or services to groups that are under-represented in their consumer base or who have particular needs. The Act also introduces (from April 2011) a public sector Equality Duty requiring public authorities to pay due regard to: n Eliminating unlawful discrimination n Advancing equality of opportunity between different groups n Fostering good relations between different groups in carrying out their functions. This latter provision has the widest potential, through indirect, impact on procurement in the private sector (and indeed in the voluntary sector and social enterprises) and on local purchasing. Further information www.equalityhumanrights.com/advice-andguidance/new-equality-act-guidance/ www.equalities.gov.uk/pdf/GEO_EqualityLaw_ Business_acc2.pdf. What opportunities do these changes provide for better procurement? In strict legal terms, private and other non public sector organisations do not need to do any more than avoid discriminating when purchasing services or goods, although a more pro-active approach to the design and delivery of goods and services should lead to real business benefits. Businesses should not, for example, buy recruitment services which themselves discriminate or specify services which directly or indirectly discriminate.
23 Good Practice Guide to SME Procurement, Page 61. Found at www.csrm.uq.edu.au/index.html?page=142124&pid=0
Local purchasing toolkit
However, when private sector organisations are carrying out activities that constitute public functions (i.e. when they are contracted or sub-contracted to carry out a public service), they become, for the duration of that contract, a public authority with their own liability under the Duty, but only for those activities, not the rest of their work. This means that they may be asked and will need to be able to respond to specifications and contract conditions related to advancing equal opportunities and to demonstrate this capability in order to bid. The Public Sector duty therefore puts a clearer and stronger emphasis on public bodies to actively use procurement to advance equal opportunities, minimise disadvantage and improve relations. This means that more public authorities will be building equalities into their specifications and will be looking at how the organisations will work with their supply chain to meet their duties under the Act. This should help local small and medium size businesses, minority-owned and other under-represented businesses, voluntary sector organisations and social enterprises. These organisations are likely to have local and specialist knowledge and experience of responding to the diversity in the area. They are well placed to subcontract or bid in consortia for both public and private sector contracts, locally in the City and in neighbouring boroughs. What are the benefits? â&#x20AC;&#x153;The Equality Act helps both the public and private sector to develop procurement fit for purpose in a diverse local, national and global market. A better understanding of diversity and equality will strengthen business success by: nH aving a sophisticated understanding of your staff and customers. nB ringing in a wider pool of talent and a range of local suppliers to help build an understanding of those customers and how best to meet their needs. nE nsuring legal compliance. Demonstrating Corporate Social Responsibility and a commitment to sustainability. nP laying a stronger role in local, national and global economic development.â&#x20AC;? Michael Keating, National Advisor Equalities and Cohesion.
Useful links www.Weconnect.org.uk WeConnect is a supplier diversity initiative spearheading the connection of women-owned business with multinational corporations. www.msduk.org.uk MSDUK is a private sector led not-for-profit membership organisation created to provide a direct link between its corporate members and ethnic minority businesses, to enable the building of mutually beneficial business relationships.
Summary This chapter provides practical guidelines for finding a fit for local purchasing within the legislative and policy environment. This provides opportunities for wider recognition of the policy. A clear statement explaining how local purchasing with policy and legislation can be included in your Local Purchasing Strategy found in Chapter 3. See Page 21 Point 5.
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1.
2.
3.
4.
5.
Develop Business Case
Develop Internal Capability
Develop Local Purchasing Strategy
Establish fit with legislation and policy
Fit with CR and Sustainability
3.1 Identify Opportunities
!
3.2 Establish and
manage Tip 5.0 contracts Fit with Corporate social responsibility 3.3 and sustainability Build local SMA capacity
introduction
Local purchasing and Corporate social responsibility
Corporate Social Responsibility can be defined as “a concept whereby companies integrate social 3.4 Your decision to procure locally can have Monitor and and environmental concerns in their business significant multiplier effects on regenerating the review operations and in their interaction with their local economy. Your decision to purchase locally Strategy stakeholders on a voluntary basis.”24 is likely to create jobs, encourage trade, and could even decrease your environmental impact. The combination of social and environmental “There is no universally accepted definition for benefit implies that local purchasing will fit with Sustainable Procurement. The UK Sustainable your Corporate Social Responsibility (CSR) policy. Procurement Task Force, 1998 defines Sustainable Procurement as “taking social, economic and Linking local purchasing to CSR might be a good environmental factors along with financial criteria strategic move as members of the organisation in making procurement decisions. Looking might be more familiar with CSR-related activities. behind the traditional economic parameters If there are nominated managers responsible for and making a decision based on whole-life cost, CSR throughout your business, they may form a the associated risks, measures for success and ready-made core group who can help develop implications for society and the environment”.25 and champion your local purchasing strategy. They may also have access to names and This section provides tools and suggestions for contacts of members of your organisation who establishing the fit between local purchasing, are actively participating in CSR-related activities, Corporate Social Responsibility and Sustainable who are good prospects for tier 2 champions. Procurement more generally.
24 http://ec.europa.eu/enterprise/ policies/sustainable-business/ corporate-social-responsibility/index_en.htm 25 Sustainable Procurement Taskforce, 2008
Use the checklist in Figure 5.10 as a guide to activities you might do with your CSR team. Conversely the implementation of a local purchasing strategy means that local suppliers
6.
City of Lon Corporat Best Prac
Local purchasing toolkit
joining your supply chain need to be aware of the importance of responsible supply chain activities to the reputation of your organisation. Local suppliers should be given a briefing on Corporate Social Responsibility (CSR) principles and supported where possible in formalising and acknowledging existing practices and in developing a plan of actions around areas for improvement.
Sustainable Procurement - BS 8903 BS8903 is a British Standard designed to give guidance on how sustainable procurement practices and principles can be embedded into organisations and supply chains.27 Local purchasing, as defined in this toolkit, fits well with the “social theme” of sustainability within the BS8903 standard and can be considered as a sub-strategy within the implementation of BS8903.
Identify activities which can form the basis for mutual support of both teams’ (purchasing and corporate social responsibility) activities. A checklist of actions is provided in Figure 5.11.
Figure 5.10 Corporate Social Responsibility Checklist
Figure 5.11 Integration of CSR into purchasing and supply activities
Tick Action Tick Action Obtain a copy of your organisation’s CSR Policy/strategy Understand which CSR theme or objective local purchasing fits with
Recruit a CSR lead for local purchasing
Apply CSR objectives to category plans
Create a CSR plan for procurement
Develop a CSR Code of Conduct for new and existing suppliers. Include weightings for CSR activities in tender
Jointly create objectives/standards for local purchasing under the relevant theme Develop a survey to identify interests in local
evaluation criteria Create improvement plans with strategic suppliers. Improvement plans are actions that each supplier will
purchasing and the net effect of local purchasing
commit to in order to improve their track
activity on employee and client perceptions of the
record on local purchasing. Improvement plans should
company.
be flexible, but should have jointly agreed time-scales
Create an internal communications plan targeted at those organisational members already involved in CSR activity Create an external communications plan targeted at your potential and existing clients to inform them of your new strategy and good news as the strategy is implemented
26 See Business in the Community Guide, “How to Manage Your Supply Chains Responsibly”http://www.bitc.org.uk/ resources/publications/how_to_manage_ your.html 27 http://www.supplymanagement.com/ news/2010/purchasers-views-needed-onnew-british-standard/?locale=en
for achievement.26 Include CSR when segmenting business opportunities. See Chapter 2 Identifying opportunities.
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Useful Links Financial Services Corporate Social Responsibility Groups’ Category Guides: www.cityoflondon.gov.uk/Corporation/LGNL_ Services/Business/Tenders_and_contracts/Local_ Procurement_for_City_Businesses/Resources.htm CIPS Construction Group: www.cips.org/en/membership/groups/ constructionprocurementgroupcpg/ Business in the Community: www.bitc.org.uk Heart of the City: www.theheartofthecity.com/ CSR Europe www.csr-supplychain.org
Summary This chapter provides practical guidelines for finding a fit for local purchasing within a Corporate Social Responsibility and/or Sustainable Procurement framework. This provides opportunities for wider recognition of the policy. A clear statement explaining how local purchasing with other purchasing objectives should be included in your Local Purchasing Strategy (found in Chapter 3).
28 http://www.scotland.gov.uk/ Publications/2008/05/22092418/7
Case Study B3 Creative and the Canary Wharf Group B3 Creative Limited is a niche agency that provides creative solutions for design, publishing and marketing in the children’s and youth sector. East London Business Place (ELBP), a matching service for buyers and suppliers in east London, arranged an opportunity for B3 Creative to pitch to Canary Wharf Group. “We were able to devise and provide Canary Wharf Group with an educational project for primary school children that fitted in with the Group’s CSR programme, promoted local links and gave good PR. Since then, our relationship with Canary Wharf Group has grown and we continue to produce CSR projects for other clients such as Nickelodeon, Lewisham Council and Virgin Atlantic.” James Marsh, B3 Creative, Managing Director “B3 Creative’s booklet and lesson plan really brings the history of the area to life.” Canary Wharf Group “B3 Creative very much know what makes children and young people tick and they know that sector very well. They’re a great company to work with and we’re very pleased with their service.” Virgin Atlantic Airways
Case study:
Corporate Social Responsibility and Supported Businesses A supported business is a business where more than 50% of the workers are disabled persons who by reason of the nature or severity of their disability are unable to take up work in the open labour market.28 Understanding and purchasing from supported businesses is another example where local purchasing and corporate social responsibility can find common ground.
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6.0 City of London good practice initiatives introduction The City of London Corporation sponsors projects, research, tools and guides to support the economic development of the City Fringe boroughs. We also offer developers, purchasing and supply professionals and corporate buyers free access to information and research, purchasing related advice and sign-posting to sMEs in the areas of local, green and fair-trade purchasing and supplier diversity. The purpose of this section is to provide information on City of London Corporation resources which support your local purchasing strategy. The City of London resources can be found at http://www.cityoflondon.gov.uk/Corporation/ LGNL_Services/Business/Tenders_and_contracts/ Local_Procurement_for_City_Businesses/ Resources.htm.
Category Management guides Recognising that there are a limited number of tools available to purchasing professionals within financial services, these buyersâ&#x20AC;&#x2122; guides provide background information and potential questions that could be included in tenders. Guides are available for Corporate Travel , Facilities, Insurance Claims, IT and Telecoms, Professional Services and Recruitment Services. research publications The research publications cover sector research and economic, social and environmental issues which impact on the City and City Fringe boroughs29. Other research publications can also be found at http://www.cityoflondon.gov.uk/ Corporation/LGNL_Services/Business/Business_ support_and_advice/Economic_information_ and_analysis/Research_publications/. To receive new reports when they are published, please email economic.research@cityoflondon.gov.uk
The types of resources include the following: sustainable procurement newsletters These feature events and training, good news stories about sustainability achievements and case studies relating to sustainable procurement.
29 City Fringes: These are the boroughs surrounding the City: Camden, Hackney, Islington, Lambeth, Southwark, the City of Westminster and Tower Hamlets
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Sustainable Procurement Training These are free workshops around sustainable procurement – what it means, what benefits it brings and how to embrace it as a concept to embed it into an organisation.
Glossary Term Definition
Demand Analysis
Local Procurement Charter for City Developers This Charter encourages “City developers” (meaning, for the purposes of this Charter, anyone commissioning or carrying out building work or repairs in the City, regardless of development size or level of procurement spend) to join other City businesses in engaging in local procurement.
Identifying future opportunities from your contracts database and analysing which opportunities might be suitable for local purchasing. On a construction project for example, the opportunities arise in the form of “work packages” which are discrete projects or trades which create the final product.
Meet the Buyer Events offering the opportunity for buyers to meet local suppliers and SMEs and for those local suppliers and SMEs to
Summary
learn about forthcoming contracts, procurement policies and procedures. This can help to increased visibility of contract opportunities for SMEs.
This toolkit forms part of the resources provided to support Corporate Social Responsibility, Sustainable Purchasing and local purchasing aims.
Priority Contracts A list of contracts or categories where there is an expectation to include local suppliers every time a contract comes up for renewal or whenever a need arises.
To access free support in procuring locally please email: city.procurement@cityoflondon.gov.uk or call: 0207 332 1532
Proximity Advantage The advantages gained by being close to the “buying market”, for example reduced transportation costs.
Supply Analysis An assessment of the capability of the existing supply chains in your local area and the application of a star rating according to levels of performance criteria set by you.
Added Value Also known as ‘Value Added’. The increase in realisable value resulting from an alteration in form, location or availability of a product or service, excluding the cost of the purchased materials and services. Some SMEs might charge a higher price because of an inability to achieve economies of scale however that price may contain elements of added value which should be taken into consideration.
Balanced Scorecard A balanced scorecard developed by Kaplan & Norton to overcome an imbalance in business planning. It is a management system that involves setting measures based upon the priorities of the strategic plan. It provides the key business drivers and criteria to motivate managers to develop and apply processes that will contribute to future success – rather than dwelling on historic performance. By requiring four perspectives, it provides a richer more holistic view of the organisation. The four perspectives are: Financial, Customer, Internal Business Processes, Learning and growth
Local purchasing toolkit Benefit
Communications Plan
The enhancements to the future business or operations that
A company’s communications goals and objectives for local
the project is to deliver. Local purchasing should support
purchasing, and the messages and vehicles that will be used to
the benefits that arise from achieving strategic objectives,
meet them.
increased revenue, reduced costs, or corporate reputation, for example.
Contract A ‘business contract’ implies the entry into an unambiguous
Benefits Realisation Management
legal agreement with a company, another party, person (other
The process at the end of your local purchasing strategy
supplier) to deliver supplies (goods/services) or to do something
implementation by which the benefits identified at the
(e.g. construct a building) on mutually agreed terms. Try to
beginning of your implementation are measured.
simplify contracts for low value, low risk opportunities or to modify standard payment terms to ease the cash flow situation
Bid Manager
for SMEs.
A Bid Manager is responsible for complex Internal Sales projects. Bid Managers orchestrate the creation of the solution and
Contract Management
proposal as ‘Bid Project Managers’ ensuring compliance with
The activities of a buyer before, during and after a contract
customer requirements and company value proposition.
period to ensure that all parties to the contract fulfil their contractual obligations. An important aspect of this is managing
BS8903
the relationships between all parties in the most effective way
BS 8903 is a British Standard which gives recommendations
so as to ensure the contract meets the optimum combination of
and guidance on how to adopt and embed sustainable
cost, time and quality. SMEs may need extra support once the
procurement principles and practices across an organization
contract is signed. Keep a list of business support organisations
and its respective supply chains. It provides practical
to hand or arrange for a mentoring scheme so that the SME
information to help implementation. It also includes guidance
can be supported on business and improvement issues such as
on measurement to help organizations assess the extent and
environmental action plans or health and safety action plans.
effectiveness of their sustainable procurement activity.
If the contract is coming to an end, make sure that there is a transition plan in place either to support the SME in the next
Business Support
round of bidding or to introduce them to new areas of the
Funded and paid for support to help SMEs maintain and grow
business.
their business. The UK Government and the European Union fund business support programmes. The main agents are
Corporate Social Responsibility
the Department of Innovation and Skills and the European
A concept whereby companies integrate social and
Regional Development Fund. Possibilities could exist to agree
environmental concerns in their business operations and in their
joint ventures where SMEs access Research and Development
interaction with their stakeholders on a voluntary basis.
funding to support joint process and product development. Cost Benefit Analysis Champion
A process of identifying and comparing the benefits and costs
A member of the organisation with responsibility for promoting
of your local purchasing strategy.
your local purchasing strategy. Deprivation Index Change Management
Deprivation indices measure the level of deprivation in an area
Change management is a structured approach to transitioning individuals, teams, or your organizations to a culture of local
Economic Regeneration
purchasing.
Economic regeneration is the redevelopment of industrial or business areas that have suffered decline, in order to increase
Chartered Institute of Purchasing and Supply (CIPS)
employment and business activities.
CIPS is the leading UK body representing purchasing and supply chain professionals. CIPs has published a piece called the “Use
Ethical Purchasing
of Small Suppliers”.
Ethical consumerism is the intentional purchase of products and services that the customer considers to be made ethically.
City Fringes
This may mean with minimal harm to or exploitation of humans,
The London boroughs of Camden, Hackney, Islington, Lambeth,
animals and/or the natural environment.
Southwark, the City of Westminster and Tower Hamlets.
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Local purchasing toolkit Fair Trade
supplying the Olympics to publish a proportion of their contract
Trade that satisfies certain criteria on the supply chain of the
opportunities on a web portal CompeteFor.
goods involved, usually including fair payment for producers;
(www.competefor.com)
often with other social and environmental considerations. ONS Impact
Office for National Statistics.
Sustainability attributes of products, activities and services and their effects on the local economy and the environment.
Organisational Improvement Plan
Construction as a sector for example, has a big potential
A plan of action to improve your organisational maturity having
for positive impact on local regeneration because of the
assessed your status according to the criteria and scales on your
opportunities for local sub-contracting.
OICC.
Information, Communication and Technology (ICT)
Organisational Internal Capacity Chart (OICC)
Is a broad subject concerned with technology and other
A chart to measure the maturity of your organisation with
aspects of managing and processing information, especially
regards to local purchasing and realising the benefits from it.
in large organisations. ICT is normally a spend category in its own right. Look for niche ICT requirements which could be
Outcomes/Outputs based specification
appropriate for SMEs. SMEs may also be a source of innovation if
To provide a description of the requirement in output or
looking for new ways of delivering or utilising technology.
outcome terms, concentrating on what is required rather than how it is to be delivered; usually produced as an Output Based
Internal Customer
Specification. This may reduce barriers to entry by allowing SMEs
The â&#x20AC;&#x153;clientsâ&#x20AC;? of the purchasing and supply function. These
to provide innovative solutions.
include functional areas such as research and development, marketing, HR, finance and IT objectives.
Plain English Writing that can be understood and acted upon the first time
Invitation to Tender (ITT)
it is read. This practice can reduce confusion or the lack of
A request made to potential suppliers to submit bids on goods,
understanding for SMEs.
works and services to be purchased. Can also be commonly known as Request for Proposal (RFP) and Request for Quotation
Pre-qualification Questionnaire (PQQ)
(RFQ)
A questionnaire used to elicit information from a potential supplier about his firm, financial status, performance against
LM3
contracts etc. Some pre-qualifications are complex and
The Local Multiplier 3 is a methodology that can be used by
disproportionate to the value or risk of the contract. SMEs
community organisations, business leaders, or government
can be discouraged by long, complex questions, costly
officials â&#x20AC;&#x201C; to measure how much organisation, initiatives or
accreditation or large insurance requirements.
spending impacts on the local economy. Procurement Local Purchasing Balanced Scorecard
Often used interchangeably with Purchasing. Procurement is
A balanced scorecard or element of your business balanced
the totality of acquisition starting from the identification of a
scorecard to measure your performance of your local
requirement to the disposal of that requirement at the end of its
purchasing strategy.
life. It therefore includes pre-contract activities e.g. sourcing and post contract activities e.g. contract management, supplier
Major/ Main Contractor
relationship management activities. However, it does not
Organisation holding the main contract to which there are
include stores management and logistics that are aspects of
sub-contracting elements. Where main contracts are too large
the wider subject of Supply Chain Management. Procurement
for SMEs to bid for, a private secotr organisation could choose to
generally relates to goods, works and service(s) requirements.
build local purchasing clauses into the main contract. Procurement Professional Olympic Delivery Authority (ODA)
Key procurement staff including full time procurers, sourcing
The Olympic Delivery Authority (ODA) is the statutory
managers, procurement managers and commissioners of
corporation responsible for ensuring delivery of venues,
procurement activities.
infrastructure and legacy for the 2012 Summer Olympic and Paralympic Games in London. The ODA requires all contractors
Local purchasing toolkit Quantity Surveyor
Supplier Diversity
A quantity surveyor (QS) is a professional working within the
The focus of supplier diversity is both on changing the nature
construction industry concerned with building costs. A quantity
of the purchasing body, eg, having more diverse suppliers is
surveyor on a development project might be given the
an asset to the purchaser (product quality and public image
responsibility for finding local suppliers for certain elements of
of purchaser) as well as on increasing opportunity for a diverse
the project.
pool of firms who are suppliers and contractors. WeConnect (www.weconnect.org.uk) and MSDUK (Minority Supplier
Section 106 Agreement
Development UK) are two organisations which support Women
Legal agreement under section 106 of the 1990 Town & Country
(WEConnect) and Black and Ethnic Minority Suppliers (MSDUK)
Planning Act. Section 106 agreements are legal agreements
to access contracts.
between a planning authority and a developer, or undertakings offered unilaterally by a developer, which ensure that certain
Supplier Reduction/Rationalisation
extra works related to a development are undertaken. Section
Strategic approach to reduce large numbers of suppliers to a
106 agreements have been successfully used to increase
manageable few and from which contractual benefits can be
subcontracting opportunities in certain local areas.
obtained. This strategy might disadavantage SMEs.
SME
Supplier Selection
Micro, small and medium sized enterprises.
The stage in the buying process when the intending buyer chooses the preferred supplier or suppliers from those qualified
Solutions for Business
as suitable during supplier selection.
In order to make government grants, subsidies and advice more targeted and easier to access the Business Support
Supplier Sourcing
Simplification Programme (BSSP) has reduced the thousands
Activities involving searching markets for sources of goods
of publicly-funded support schemes to 30 via one, transparent,
and services.
easy to find portfolio of products under the readily identifiable banner, Solutions for Business.
Supply Chain All the elements in the process that enable the delivery of a
Specification
product or service to a customer (including raw materials,
A description of requirements and the standards to which
manufacture, subcontractors and delivery).
goods/services should conform. Supported Business Spend Category
A service in which more than 50% of the workers are disabled
Category Management is a concept in which the total range of
persons who by reason of the nature or severity of their disability
products or services bought by an organisation is broken down
are unable to take up work in the open labour market.
into discrete groups of similar or related products; these groups are known as product or spend categories. You may identify
Tender
certain spend categories which are suitable for SMEs.
An offer to provide goods or services, in response to an invitation to tender, for a specified price.
Stakeholder A corporate stakeholder is a party that can affect or be
Whole Life Costs
affected by the implementation of your local purchasing
Total cost of goods and services taking into account purchase
strategy.
price, costs of usage over their lifetime (e.g maintenance, repair, upgrades and disposals).
Standardisation The decision to buy one, or a few type(s) of certain products or services across an organisation which may result in larger suppliers obtaining the business.
Strategic Objective A written statement describing an intended outcome; a resultsoriented objective. In this toolkit it is recommended that local purchasing should be aligned to the strategic objectives of the organisation.
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7.0 appendix The maturity matrix below examines your organisationâ&#x20AC;&#x2122;s readiness to implement local purchasing from the perspective of the following: people srategy and Communications procurement process Engaging suppliers Building local sME capacity Engagement with local businesses Monitoring and Evaluation reporting For each criteria, read the description under each level in order to ascertain the level which best reflects your organisationâ&#x20AC;&#x2122;s internal state. Insert your findings in Figure 2.0 on page 15.
There is no public commitment to local purchasing.
People
Individuals within the organisation are interested in local purchasing but there is no internal corporate commitment.
Level 1
Procurement staff and other buyers start to build a business case for local purchasing. They also start to address the tensions between promoting local purchasing and minimising costs by developing an initial business case.
The company make periodic external statements about commitments to local purchasing. However there is no corresponding internal drive.
Level 2
The Chief Executive Officer or a senior influential person endorses local purchasing and confirms the need for change.
Senior management and local purchasing champions are identified and trained in order to promote the benefits of local purchasing.
Level 3
Rewards and incentives exist to recognise achievements related to local purchasing.
There is constant sharing of good practice within the company.
Performance objectives for local purchasing exist at the business level.
A training and awareness programme is rolled out companywide.
Level 4
Independent external recognition of an organisational culture that encourages local purchasing.
Skills and competencies relating to local purchasing become desirable recruitment criteria within the purchasing and supply profession.
Individual performance objectives for local purchasing exist for procurement professionals and other buyers.
Continuous improvement is actively sought at the senior management level.
Level 5
Local purchasing toolkit
55
Level 1
There is no local purchasing strategy. Local purchasing and/ or a commitment to SMEs do not feature in the organisation’s corporate purchasing strategy.
Strategy and Communications
There is no action plan to support this and little or no awareness of the policy.
The organisation’s corporate purchasing strategy incorporates a commitment to local purchasing or SMEs.
Level 2
The strategy and guidelines is available on the corporate intranet.
The strategy provides some guidelines for action. For example, a definition of “local” and suggestions on how to invite local suppliers to quote or tender for contracts.
The corporate purchasing strategy is supported by a strategy for local purchasing.
Level 3
Working groups and forums exist for support and feedback.
The strategy is actively promoted in the workplace and information sessions are rolled out.
The strategy is augmented by input from appropriate stakeholders (e.g. new business development managers, human resources, public relations, main contractors and local SMEs). It is aligned to wider corporate objectives.
Level 4
The organisation is able to win new business because of a proven track record in supporting local economic development.
Benefits arising from local purchasing are regularly communicated.
Local purchasing plans are firmly integrated into other corporate planning activities.
The strategy is reviewed and enhanced at set review periods.
Level 5
56 Local purchasing toolkit
Purchasing drivers focus on controlling costs. Contract award criteria focus on lowest price or a combination of quality and price. Local impact does not feature as a “quality criteria.”
Procurement Process
Reducing suppliers and the “bundling of contracts” to reduce costs represent typical procurement strategy.
Level 1
There are no processes in place to track local spend with SMEs.
Contract notices contain statements encouraging SMEs and local suppliers to apply for contracts. However these statements are arbitrary and there is no clear strategy for prioritising or identifying contracts most suited for local purchasing.
Level 2
Local purchasing targets are in place.
Priority contracts are identified and minimum requirements are developed for contracts depending on risk and value.
The organisation starts to address internal barriers in the procurement process which prevent local SMEs for bidding for contracts.
There is a good understanding of the organisation’s spend profile. This includes a profile on the amount spent with local SMEs.
Level 3
Local purchasing monitored at the contract management stage.
Local purchasing considerations are built into tender evaluation where relevant and appropriate.
Local purchasing requirements are built into main contractor tender specifications.
Local purchasing targets are consistently met and exceeded.
Local purchasing is considered at an early stage in the procurement process.
Level 4
Local SMEs are delivering quantifiable benefits in the form of innovation, reduced costs, improved quality and by minimising environmental impact.
Local purchasing is actively implemented in key contractor supply chains.
Local SMEs regard the procurement process as open and fair.
Level 5
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Main contractors are not aware or do not buy into local purchasing requirements.
Engaging suppliers
Local SMEs are constantly excluded for local subcontracting opportunities.
Level 1
Key suppliers actively sign up to a local procurement code and provide an action plan.
Main contractors pay â&#x20AC;&#x153;lip serviceâ&#x20AC;? to local purchasing requirements. Main contractor spend is analysed and key suppliers are targeted for engagement.
Tender documentation contain statements referring to local purchasing and subcontracting from local SMEs, however main contractor compliance is voluntary.
Level 2
Appropriate subcontracting opportunities along with minimum requirements which local SMEs have to fulfil.
Main contractors have sector and business information on local SMEs.
Level 3
A good level of contracts are awarded to local SMEs.
Main contractors are regularly advertising local purchasing/ sub-contracting opportunities to local SMEs.
Key performance indicators are in place for local subcontracting opportunities.
General programme of main contractor engagement is in place.
Level 4
Targets for local purchasing are met and exceeded.
Main contractors consistently provide evidence of benefits derived from local purchasing.
Progress rewarded or penalised based on performance relevant to the contracts.
Level 5
58 Local purchasing toolkit
Business support organisations are able to provide business directories which provide information on local SMEs and the sector make up of the local area.
There is no understanding of the sector profile in the local area.
There is little or no understanding of what is spent on local SMEs.
Local SME engagement is ad-hoc and informal.
There is no engagement with local SMEs.
Building local SME capacity
Level 2
Level 1
Local engagement increases evidenced by “Buyer meet supplier” events, bidder and supplier open days and single points of contact for local purchasing enquiries.
Level 3
Local SMEs are able to self select appropriate contract opportunities as the opportunities clearly indicate what the minimum requirements for bidding are.
The organisation regularly interacts with the local business support community. This evidenced by regular dissemination of local purchasing contract opportunities and the joint facilitation of “Meet the main contractor days”, for example.
Level 4
Local SMEs are able to create new jobs and leverage their track record of supplying a large organisation to find new opportunities.
The organisation has an internal support system in place which provides mentoring opportunities for local SMEs.
The organisation works actively with the business support community and local SMEs to address gaps in capacity and gaps in supply.
Level 5
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Local purchasing toolkit
Local purchasing toolkit for City based firms
Local purchasing toolkit A guide on how to develop and implement a local procurement strategy
This publication is available in large print, Braille, tape and computer on request from the City of London Economic Development Office Economic Development Office (EDO) City of London Corporation Guildhall PO Box 270 London EC2P 2EJ Telephone: 020 7332 1563 Website: www.cityoflondon.gov.uk