Guidelines Strategic Sourcing

Monash University Guidelines Strategic Sourcing

1. INTRODUCTION
2. ASSOCIATED DOCUMENTS
3. THE STRATEGIC PROCUREMENT GROUP
4. OBJECTIVES OF STRATEGIC SOURCING
5. STRATEGIC SOURCING PROCESS AT MONASH UNIVERSITY
5.1 Procurement Planning
5.2 Market Engagement
5.3 Evaluation
5.4 Negotiation
5.5 Implementation

1.  Introduction

Strategic Sourcing is a process used to achieve the best possible value for money outcome for the acquisition of goods and services. Using a total cost of ownership approach, it is a detailed, analytical planned activity.

These guidelines have been developed to assist individuals who are leading a procurement project (Procurement Project Leaders – PPL) to comply with policy and procedures. Most importantly, they seek to advise how to undertake strategic procurement to ensure that maximum value can be obtained.

2.  Associated Documents

Strategic Sourcing should be undertaken in reference to these guidelines and the following:

  • Procurement Policy
  • Strategic Sourcing Procedure
  • Category Management Guidelines and Procedure
  • Probity Guidelines for Procurement Staff
  • RFx Documentation – Parts A, C and D
  • Procurement Plan Template
  • Category Management Template
  • Environmental and Social Procurement Guidelines

It is strongly recommended that the PPL and the procurement project team members complete the following training courses available through Staff Development:

  • Introduction to Procurement
  • Advanced Procurement

3.  The Strategic Procurement Group

Monash University’s Strategic Procurement Group will assist PPLs with the strategic sourcing process, as required. PPLs are encouraged to engage with the Strategic Procurement Group prior to commencing the procurement project.

4.  Objectives of Strategic Sourcing

The key principle of strategic sourcing is to ensure that maximum value for money reflecting price, quality and service (not just lowest price) is obtained over the life of the goods and/or services being procured.

Strategic sourcing ensures that the contract can be effectively managed throughout its life to extract the value promised, and to build on this through the life of the contract.

The objectives of strategic sourcing are to:

  • Identify sources of value to be obtained in the contract
  • Identify on going sources of value which will be obtained by managing the contract over its full life term
  • Identify the needs of the users of the contract by engaging with key stakeholders throughout the strategic sourcing process and leading into the management of the contract (Category Management)
  • Identify and manage risks, either by eliminating them or minimising their likelihood and/or severity
  • Ensure that the University’s objectives relating to Environmentally sustainable procurement  are fulfilled
  • Ensure that the contract can be effectively managed by ensuring that the required levels of service (Service Level Agreements or SLAs) are documented and how these will then be measured (Key Performance Indicators, or KPIs).

5.  Strategic Sourcing Process at Monash University

There are five (5) steps in the Strategic Sourcing process:

  1. Procurement Planning
  2. Market Engagement
  3. Evaluation
  4. Negotiation
  5. Implementation

5.1       Procurement Planning

Key actions: 

  • Define the baseline
  • Undertake market analysis
  • Undertake supplier analysis
  • Identify opportunities
  • Define the specification
  • Undertake a risk assessment
  • Define the procurement strategy
Key Outcomes 

  • Procurement Plan

The Procurement Planning phase is the most important of the 5 phases, as it establishes the means by which full value can be obtained. PPLs need to ensure that key stakeholders are engaged at the commencement of the planning phase and that their input has been sought.

The Procurement Plan consists of the following stages:

(a)       Defining the Baseline

The PPL should undertake a detailed analysis of the current situation which seeks to identify the extent, nature, advantages and dis-advantages of the current arrangements.

In association with Monash University’s commitment to minimise our use of our natural resources and to lower our waste and emissions, it is also important to consider whether the product or service is really needed.

As a minimum, the following key elements should be considered:

  • Spend analysis

­   Determine what is being purchased by each Faculty and Division. This should be undertaken using all available sources of data such as SAP transactions and Procurement Cards

  • Supplier(s)

­   Which supplier(s) is currently engaged? (either formally or informally)

­   Who is the supplier(s) providing goods and services to and what is the value of that supply?

­   What are the delivery requirements?

  • Contract service levels

­   What are the current SLAs and KPIs?

­   What additional SLAs and KPIs should be included?

  • Processes and Systems

­   What is the order fulfilment process, from need identification to payment of invoice?

  • Consumption trends

­   Is the need for goods and/or services seasonal, and if so, what are the drivers?

(b)       Market Analysis

The PPL should undertake a detailed Market Analysis applicable for the goods and/or services they wish to procure. The analysis should identify:

  • Size

­   Total size of the market by value

  • Suppliers

­   Identify the key suppliers

­   Detailed profile of the key suppliers (ownership structure, size, operating locations, range of capabilities, environmental and social performance/reputations)

  • Market trends

­   Technology

­   New entrants

­   New products, services, including environmentally responsible alternatives

  • Market competitive dynamics

­   Power of suppliers (monopoly, oligopoly, free market)

­   Power of customers (ability to extract value)

­   Substitution (specifications, re-define requirements)

­   New entrants

The market competitive dynamics should be undertaken using a Porters 5 Forces analysis model.

(c)       Supplier Analysis

The PPL should undertake a detailed analysis of the current supplier(s), which will in part draw on the analysis of the market. The analysis should define:

  • Ownership structure
  • Financial analysis
  • Scope of activities
  • Operating locations
  • Opportunities or potential threats

(d)       Opportunity Analysis

The PPL should undertake a detailed analysis to identify the full range of value improvement opportunities, both in establishing the contract and in the Category Management phase.

The PPL should ensure that a whole-of-University approach is undertaken, including consideration for how the needs may change over the term of the contract.

The PPL should also ensure that the University’s objectives are defined and supported including the need to ensure that the contract meets the environmental and social requirements defined by the Environmental and Social Procurement Guidelines.

The analysis should identify opportunities in the following areas:

  • Price

­   Differences in cost structures between incumbent and potential suppliers

­   Differences in price (identified from benchmarking reviews)

­   Ability to index prices to an objective and verifiable source (eg: Platts)

­   New entrants

­   New products, services

  • Process

­   Changes to the order fulfilment process to reduce administration costs

  • Environmental and Social Performance

­   Refer to the University’s Environmental and Social Procurement Guidelines

­   Refer to the University’s Guide for Design & Management of Ecologically Sustainable Buildings: the Eco-Accord model if undertaking any new or refurbished building projects

Note: Environmental Sustainability representatives should be appropriately involved during this stage.

  • Relationship restructuring

­   Opportunities for suppliers to add value

­   Rebates for volume purchases

­   Early settlement discounts

­   Returns and/or disputes policy

­   Ability to purchase direct in lieu of through agents

  • Market engagement mode

­   Open or Closed Quotation/Proposal process

­   Incumbent supplier negotiation

­   Call for Expressions of Interest (EOI) to obtain full intelligence of the market and supplier capabilities

  • Specification review

­   Are the requirements over specified?

­   Are the specifications transparent?

­   Can the specifications be filled from multiple suppliers?

  • Volume concentration

­   Can the number of suppliers be reduced?

­   Are the needs consolidated across the University – can we engage with other Universities or organisations?

­   Can the number of supplied items be reduced?

­   Can products be substituted?

  • Continuous Improvement Opportunities

­   What initiatives can be progressed through the life of the Agreement?

(e)       Defining the Specification

The PPL should define the specification of the goods and/or services to be obtained following the Opportunity Analysis. This will include the following elements:

  • Technical requirements
  • Detailed scope of supply
  • SLAs and associated KPIs
  • Category Management objectives which require the support of the supplier(s).

(f)        Risk Assessment

The PPL should prepare a detailed Risk Assessment which identifies the commercial, reputational and business continuity risks. The PPL should identify the means by which risks can be avoided, minimised or their severity reduced.

The following elements should be considered:

  • Change Management – transition to the new supplier arrangements
  • Business Continuity – failure to deliver to the required service
  • Processes and Systems – integrating new IT or other business processes

(g)       Preparing the Procurement Plan

The PPL should prepare the Procurement Plan for review by Director Strategic Procurement Group, and where the value will exceed $1.0M the Procurement Board. The Procurement Plan should include the following elements:

  • Objectives, including Sourcing and Category Management Objectives, together with the benefits
  • Project timeline
  • Market engagement strategy
  • Project governance and associated Probity Plan
  • Evaluation methodology and criteria
  • High level implementation plan
  • Key stakeholders, including which of these will form part of the procurement project team
  • Summary of the analysis undertaken, together with the key insights

5.2       Market Engagement

Key actions: 

  • Establishment of the Evaluation Team
  • Finalisation of the evaluation criteria
  • Development and release of the market engagement documentation
  • Management of the Market Engagement phase, including responses to questions from Bidders
Key Outcomes 

  • Quotations received from Bidders

During the Market Engagement phase, the PPL begins to implement the Procurement Plan by undertaking the following actions:

(a)       Establishment of the Evaluation Team

The PPL should construct the Evaluation Team from the key stakeholders who are suitably able to assess the technical and commercial aspects of the market responses. All members of the Evaluation Team should comply with the requirements of the Probity Plan and the Probity Guidelines for Procurement Staff.

(b)       Finalisation of the evaluation criteria

The PPL should fully define the evaluation weighting using the elements described in the Procurement Plan. As a minimum, environmental considerations should be no less than 30% of the Total Weighted Score.

(c)       Market Engagement documentation

The PPL should prepare all market engagement documentation, using the approved standard RFx  templates. Where the PPL wishes to make changes to any or all of  these documents, endorsement needs to be sought from Stratgic Procurement Group, and the University’s Solicitors Office (USO) where changes are sought from the standard form Contract.

(d)       Managing responses

The PPL should release the market documents to the Bidders identified in the Procurement Plan, preferably using Tenderlink (or similar Strategic Procurement Group approved tool).

Questions raised by Bidders should be addressed in accordance with the Probity Plan and Probity Guidelines for Procurement Staff.

Bids should be received in accordance with the Probity Plan

5.3       Evaluation

Key actions: 

  • Clarification of received bids
  • Quantitative evaluation
  • Qualitative evaluation

Key Outcomes 

  • Shortlisted suppliers

The PPL is responsible for managing the evaluation of the bids, ensuring that the methodology, and evaluation criteria are adopted by the Evaluation Team. The PPL should ensure that each member of the Evaluation Team scores the bids independently.

The PPL leads discussions to ensure that a team consensus is achieved to provide an overall team score for each bid received.

The PPL is responsible for engaging with Bidders to resolve any clarification questions raised by the Evaluation Team.

Running in parallel with the technical/qualitative assessment of each Bidder’s response, a commercial and financial analysis is also conducted to verify compliance with the University’s requirements on a commercial level and establish the total cost of each Bidder’s offer.

The Evaluation Team should also begin to define opportunities during the negotiation phase, which will be addressed with short listed suppliers. The PPL should ensure that a detailed list of opportunities is recorded for use in preparing the structured negotiation presentations.

The PPL prepares a recommendation of the short-listed suppliers using the team evaluation score, and has this endorsed in accordance with the governance structure identified in the Procurement Plan. As a minimum, where the commercial engagement exceeds $1.0M, the Procurement Board must provide their endorsement.

5.4       Negotiation

Key actions: 

  • Structured negotiation presentations
  • Site visits
  • Reference checks
  • Qualitative evaluation

Key Outcomes 

  • Recommended preferred supplier(s)

The aim of the negotiation phase is to ensure that the objectives identified in the Procurement Plan are met, or exceeded, commensurate with ensuring that the basis of the ongoing relationship will be a partnering arrangement.

During the negotiation phase, the contractual basis will be finalised ensuring that the University’s interests will be fully secured.

The PPL is responsible for the preparation of the structured negotiation presentation for each supplier, and incorporating the opportunities identified in the Evaluation Phase. The PPL should lead the negotiations, supported by Evaluation Team members.

The negotiation presentations should include the following elements:

  • Contractual terms
  • Price and quality
  • SLAs and KPIs
  • Implementation
  • Risk
  • Category Management

Following each round of negotiation with the Bidders, the PPL should identify additional opportunities, including analysis of revised proposals from the Bidders, as a precursor to preparing the subsequent negotiations.

Following the negotiations, the PPL and team members should undertake site visits and reference checks as appropriate prior to presenting a recommended supplier for endorsement in accordance with the project governance structure.

5.5       Implementation

Key actions: 

  • Prepare the Procurement Project Report
  • Finalise the Contract
  • Execute Agreements
  • Notify unsuccessful Bidders
  • Design and implement benefits tracking
  • Commence implementation
  • Prepare Post Project Report
  • Site visits
  • Reference checks
  • Qualitative evaluation
Key Outcomes 

  • Contract

Once negotiations have concluded, the process where Contracts are finalised and formalised between Monash University and successful preferred supplier(s) commences.

The PPL should prepare the Procurement Report which is to be provided to Director Strategic Procurement Group, and where engagements are greater than $1M, the PPL will also present to the Procurement Board.

The Procurement Project Report should contain the following:

  • Objectives met or exceeded, together with the associated benefits (including category management)
  • Implementation plan, including timing, roles and responsibilities
  • Any variances to the contractual terms agreed and endorsed by the University Solicitors Office
  • Risk assessment and associated mitigation plans
  • Post project review, focussing on lessons learnt and opportunities for improvement

Following endorsement, the PPL concludes the sourcing process by undertaking the following:

  • Have the Contracts executed by an authorised University Officer
  • Implement benefits tracking by informing the Business Analyst in Strategic Procurement Group on the project outcomes
  • Debrief unsuccessful Bidders
  • Handover to the Category Manager to commence Contract implementation
  • Execute the Contract.
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