Commercial Excellence Programme - Update

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Jun 5, 2014 - service areas to better understand their spend and provide Corporate. Management team (CMT) with informati
Finance and Resources Committee 10.00am, Thursday 5 June 2014

Commercial Excellence Programme - Update

Item number

7.8

Report number Executive/routine Wards

Executive summary

This report updates Committee on progress with regard to the Commercial Excellence programme.

Links Coalition pledges

P30

Council outcomes

CO25

Single Outcome Agreement

Report Commercial Excellence Programme - Update Recommendations 1.

It is recommended that the Committee note the content of this report.

Background 2.1

The Council appointed EY (formerly Ernst & Young) in March 2013, on a gainshare basis, to assist the Council with the delivery of the Commercial Excellence Programme. This report provides Committee with an update on progress in relation to the delivery of this key Council initiative.

2.2

The Council’s Commercial and Procurement Service (the “Service”) provides advice and support to customers to enable them to meet the Council’s purchasing and other commercial requirements. The Service carries out tendering procedures and also monitors and challenges planned purchasing activity to ensure it is both effective and compliant. The Service has a crucial role to play in helping the Council to achieve its budgeted savings targets.

Main report General Progress 3.1

As Committee is aware, the Commercial Excellence programme has three general strands – namely: (i) (ii) (iii)

3.2

generating cash savings through improved commercial activity; improving the quality and control of all purchasing activity; and improving the Council’s capacity and capability with regard to commercial and procurement activities.

Over the last year, the following achievements have been made: 3.2.1 The Council’s Contract Register is now substantially complete and will be updated on a regular basis. This not only allows better planning and coordination to take place, but also ensures the Council is well placed to comply with forthcoming legislation which will require an extract of the register to be publicly available.

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3.2.2 Over £22m of savings or cost reductions have been achieved Councilwide through improved commercial and procurement activities. 3.2.3 The Council now has a formal Procurement Strategy document which will shortly be considered by the Corporate Policy and Strategy Committee. 3.2.4 The “procure to pay” review is well underway, with mandatory use of purchase orders taking effect from 28 April 2014. There has already been a significant improvement in compliance. 3.2.5 The first year of the partnership with EY has been successful, both in terms of savings identification and delivery and engagement with the wider Council. Both parties are keen to build on the momentum and successes already achieved. 3.2.6 A five stage process (idea, develop proposal, approve proposal, implement proposal, operate and measure) has been developed and implemented with key responsibilities and activities identified for all relevant stakeholders. This ensures all parties are fully involved in the decision and implementation process. A copy of the process is attached at Appendix 1. 3.2.7 The Procurement Handbook, a guide to carrying out effective and compliant procurement, has been developed and provided to staff. 3.2.8 A management information dashboard is being developed to allow service areas to better understand their spend and provide Corporate Management team (CMT) with information on the control environment. 3.2.9 A review of the structure of the Service was completed in autumn 2013, with employment of additional staff to increase both capacity and capability of the service. 3.2.10 The Council’s Procurement Capability Assessment score has improved from 51% in 2012 to 59% in 2013. 3.3

In summary the programme continues to deliver significant benefits for the Council. However, it should be recognised that ensuring ongoing success also requires further significant change to take place in terms of both staff and supplier behaviours as well as improvements in operating systems and management information outputs. As with any change in cultural behaviours, it will take time to fully embed these changes across the organisation. Savings pipeline

3.4

The last 12 months were always going to be more challenging as, given lead in time for planning and delivery of procurement activity, there are only a limited number of ways to achieve savings quickly from a standing start. In addition, the programme faced a number of other challenges including: 3.4.1 An over-focus on budget allocation, with considerable time and effort being expended agreeing where the savings should be allocated rather than focusing on savings delivery. 3.4.2 Overlap and cross-over between corporate and service-led initiatives.

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3.4.3 Inconsistent recognition across the Council of the need to transform services to meet the budget challenge. 3.4.4 Sub-optimal systems and processes leading to delays in approval and delivery leading to value leakage. 3.4.5 A disproportionate level of risk aversion and value 3.4.6 Staffing resources as the Service has been under review and difficulties in recruiting staff. 3.5

However, despite the above, over £22m has been achieved for 2013/14 through improved commercial and procurement activity Council-wide. The Better Outcomes through Leaner Delivery (BOLD) programme will help in addressing some of these underlying issues.

3.6

At present, £11.8m is budgeted for in 2014/15 in terms of procurement savings, with the target in future years set at £16m until 2017/18.

3.7

The current pipeline (with no weighting for likelihood of achievement) stands at £14.9m and £26.2m for 2014/15 and 2015/16 respectively.

3.8

The graph below show how this is spread across the five stage process, with the savings in stages 4 and 5 clearly being more advanced and therefore more likely to be achieved.

3.9

The graph below shows how the savings are spread across service areas for 2014/15 and in total.

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3.10

The tracking of savings against budget targets remains under constant review. Risks and Issues

3.11

There are a number of risks and issues which may affect delivery of the overall programme. These are noted below.

3.12

Planning and coordination of upcoming service requirements remains an issue. However, improved engagement with service areas, together with better management information from the contract register and spend data will, over time, lead to improved contract coverage and lessen the requirement for ad hoc arrangements and the use of waivers.

3.13

Whilst there are examples of good practice in this area, contract management across the Council remains a key concern. Many of the benefits derived through carrying out procurement and commercial negotiations can be lost if not managed correctly throughout their lifetime. Officers are now looking at how this issue can be better addressed by service areas.

3.14

One of the key challenges to the programme is ensuring sufficient capacity within the Service is available to deal with all upcoming requirements within the required (and often short) timescales. This is particularly acute during a period of change. Whilst recent recruitment has led to a small increase in capacity, the market for procurement staff remains buoyant and recruitment continues to be challenging. This is being addressed through more targeted recruitment as well as growing and training existing resources.

3.15

Lack of availability of good quality management information is a further challenge. This relates to both spend data and patterns as well as projected requirements, making base-lining difficult. The Service is working with service areas to improve this, as well as developing system capabilities to produce better management information.

3.16

Finally, benefits tracking and reporting remains a concern as the Council will only be able to clearly demonstrate the benefits from future procurement activities through developing a clear understanding of current performance. P2P

3.17

A full report on progress with this project will be brought to Committee in August. Committee is asked to note current progress below: 3.17.1 3.17.2 3.17.3

3.17.4

The use of purchase orders became mandatory on 28 April and there has already been a significant increase in compliance. Success indicators/metrics have been agreed and will be reported to CMT monthly from June. One third of electronic catalogues in Oracle have been improved (including adding descriptions, images, removing abbreviations etc) and a catalogue standard has been agreed. Through service area engagement, improvements have been identified for the overall purchasing process.

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Measures of success 4.1

The Council will achieve the financial targets which have been included in the approved budget within a robust purchasing control environment.

Financial impact 5.1

Delivery of the planned savings plays a significant role in the Council delivering a balanced budget position.

Risk, policy, compliance and governance impact 6.1

The delivery of the Commercial Excellence programme is a key factor in the Council achieving its financial targets. The risks associated with the programme are regularly monitored and reviewed and management action is taken as appropriate. In addition, the Procure to Pay review and improved Contract Register will improve planning and compliance.

Equalities impact 7.1

There are no direct equalities implications arising from this report.

Sustainability impact 8.1

There are no direct sustainability implications arising from this report.

Consultation and engagement 9.1

Consultation and communication has been undertaken with appropriate stakeholders in preparing the Procurement Handbook.

Background reading/external references Report to Finance and Resources – 29 August 2013, Commercial Excellence Programme - update

Alastair Maclean Director of Corporate Governance Contact: Nick Smith, Commercial & Procurement Manager Finance and Resource Committee – 5 June 2014

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E-mail: [email protected] | Tel: 0131 529 4377

Links Coalition pledges Council outcomes

P30 - Continue to maintain a sound financial position including long-term financial planning CO25 - The Council has efficient and effective services that deliver on objectives

Single Outcome Agreement Appendices

Finance and Resource Committee – 5 June 2014

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