Better Value Procurements: Supply Stability

Guest Post by Rusty Joerin of Woodsgift Enterprises

Planning and effective contract management will ensure supply stability and avoid supply complacency. Things change, are you prepared?

Long term system contracts for the supply of standard products and services are a common method to achieve stable supply for a set period of time. Progressive organizations will incorporate in these contracts process for semi or annual review. A review will consider service level conformity to contract as well as price administration. Changes in volume may trigger negotiation of some terms as may be allowed for in the original contract. A spend analysis may identify opportunities for savings and greater supply stability.

Disruptive events will occur that may precipitate a supply crisis to the unprepared. Contingency plans to cover labour disruption, the loss of a key relationship manager or natural disaster that interrupts the chain of supply should be made. Even with our best efforts, not every situation will be anticipated, nor should it be. What is important is that an agreed process to manage disruptive events be addressed in any long term supply contract.

Time is your enemy, time is your friend.

Plan to make time your friend. Organizations that had “shovel ready” projects benefited from the recent time limited stimulus spending on infrastructure projects.

I am all too familiar with end of budget year spending that may not provide the best value to the organization. Annual needs analysis at budget time followed by early consultation with your procurement professional will deliver better value and supply stability – every time.

Complacency with supply contracts is not an option. When knowledge is shared between buyer and supplier, balance of power is maintained. Always know what you buy and when. This knowledge is critical when managing changes in long term supply contracts.

Supply stability is the result of planning, effective contract management and is in everyone’s best interest.

Rusty James Joerin, SCMP is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply.
Information about his experience and qualifications may be found at:www.woodsgift.com

Breaking Down Compliance w Procurement Policy Directives

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Last week I posted a link to the Ontario Broader Public Sector Procurement Directive/Accountability Act. With an implementation date of April 1, 2011, smaller, independent public organizations are finding themselves having to implement corporate-sized procurement rules ‘off the side of their desks’.

How do you approach implementing something this complex without a corporate procurement department? Break it down into smaller components:

1) Understand the rules – make sure you are aware of what you can/cannot do, what your dollar thresholds are. Single page “cheat sheets” are helpful reminders to staff as to what path to take when they determine a need for a good or service.

2) Explain your process – both internally and externally. It is easier to be transparent, when everyone understands what you are procuring, how you will be doing it, what will be evaluated, and when.

3) Disclose your evaluation criteria – one of the keys to the trade agreements is disclosing the high level criteria for evaluation, and the weightings. Some organizations go further to disclose it on ALL procurements to be clear to all potential vendors (and to eliminate the internal confusion of ‘when do I need to disclose this?”)

4) Ensure all potential vendors have the same information – another key trademark to transparency and fairness. Make sure that any information that an incumbent may have is available to other bidders in order to level the playing field. As well, disclosing whether there is/is not an incumbent gives the vendor community the ability to decide whether it is worth their time to respond.

5) Keep an audit trail – in the name of transparency, and to withstand an audit of the process – keep documenting every step of the process, maintain a complete file from specification building through to contract award. This includes drafts (leading to a decision), email communications, faxes, proposals, evaluation books, signed declarations, letters/notifications of award. It may seem bureaucratic, but it makes life much easier at the end of a process to have a complete file in one place. Maintaining notes during the evaluation also helps for debriefing unsuccessful vendors without having to go back and re-read their proposal and evaluation score sheets.

6) Posting time – The minimum solicitation posting time of 15days is read by the vendor community as “you already have made your choice & are just doing a process to meet policy requirements”. Consider how much time it took you to build your specifications/statement of work and process? If the good/service is highly complex and your project document was built over a number of months – better quality responses will take longer than 15 days.

7) Be consistent – Ensure your processes follow the same path each time. There’s nothing worse than changing the rules, and then changing the way you do things at every turn.

8) Form of agreement w RFP – posting a copy of your resulting contract with your solicitation will greatly reduce the negotiation time as it will form part of your process. Depending upon the wording of your solicitation document (most Canadian public sector templates are based upon the non-negotiated RFP), vendors, by responding with a proposal, have accepted the terms and conditions of your contract attached.

9) Contract management tools – policy changes will affect your existing suppliers as well as smaller companies that haven’t bid on large contracts in past. Providing a sample invoice, contract documentation checklist, and monitoring reports will assist both your internal contract management efforts and compliance on the part of your vendors/contractors.

10) Debriefing - consider this a means to educate and build a stronger vendor community. The more vendors understand your process & how you evaluate proposals, the better the proposals & competition. PLUS, ask for feedback from the vendors as to how well you communicated your requirements; what additional information would they have wanted/needed. Improving the procurement process for future in addition to improving vendor proposals is a win/win for everyone.

10 Ways to Better Procurements #2 - Mitigate Risk

#2 - Mitigate Procurement Risk

Risk exists and can never be eliminated but it can be mitigated through effective management and knowledge application. All of the articles in this series address risk issues, this is a summary. Procurement risks can be sorted into two general categories: contracting process and supply chain risks.

Laws relevant to the procurement contracting process continue to evolve as a result of case law initiated because one party to a tendering or contracting process was offended by the actions of another party. Involvement in these types of court cases is a huge risk to be avoided. This type of risk can be mitigated by application of equal, transparent and ethical treatment of all respondents to a procurement request. Easily said, but considerable diligence is required to implement. Professional procurement and legal expertise can assist.

It is possible to transfer risk from the purchasing organization to the supplier, however risk transfer comes with its own risks. Transferring too much risk will add to the cost of the procurement and/or may reduce the number of quality respondents. Use a fair balance and only assign risk to the party that has the most opportunity to control it.

Any organization’s supply chain can and likely will break from time to time. A sole supplier may lack capacity, a product may have quality variables or a disaster may close a key supplier’s facilities. These risks can be mitigated through understanding and knowledge of your organization’s supply chain (see #8 in this series). This includes knowledge of your supplier’s supply chain as well. Identification of the weak links such as geographical and/or corporate concentration of supply sources of critical components will assist in the formulation of supply chain risk mitigation strategies.
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Other Posts in the series: How to Add Value to Your Procurements
• Be Proactive
• Analyze what is required – bring clarity to the specification
• Understand the supply chain
• Align procurement strategies with corporate strategies
• Apply the highest standard of ethics
• Use the right tool for the job
• Plan contract management before there is a contract
• Learn from what was done
• Mitigate procurement risks
• Utilize the skills of supply management professionals

Over the coming year, Rusty Joerin, guest blogger, will expand on the above. Your comments are welcomed.

Rusty James Joerin, C.P.P. is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada as a Certified Professional Purchaser. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply for those organizations with purchasing specialists on staff.
Information about his experience and qualifications may be found at:www.woodsgift.com

RFP vs Contract requirements

I'm about to start another Procurement & Contract Management course 210 (Understanding and drafting contracts). As I've been teaching this course nearly two years now, I have seen a trend of common errors made on assignments. In one particular exercise, learners are to write criteria for an RFP to avoid "problems of last year". This is something, as a buyer, most of us have had to do. We draft RFPs based upon needs, specifications, etc, but we also inherit projects that "failed" and need to 'fix' what went wrong.

What tends to be common, is listing 'future requirements' of the contract. It is one thing to ask for qualified personnel, and expect the proposal to demonstrate experience and qualifications, it is another to require 'must engage all stakeholders', to which a vendor responds "yes, we will" and meets the requirement! A better method for managing this future requirement would be to ask for demonstrated experience in engaging stakeholders, or ask for 'how' they will engage stakeholders in the process.

Essentially, everything in the RFP is written to determine whether a vendor can meet the future requirements. Requesting Milestone reporting and payment in the RFP as a means to ensure that the contract manager would be getting the information required and that payment was being issued based on performance requirements is good for the contract management. However, for an RFP, you might find it hard to ‘score’ a written response to Milestone reporting – ie in the RFP the vendor can provide ‘yes we will report on milestones’ or give an idea of what they’d do, but not anything really helpful.

Essentially, you need them to provide a proposal to do your project, and in general terms you would evaluate what is ‘important’ to know they can do the job – first would be the ‘how’ they’d do it (Approach/Methodology), the second would be ‘who’ would do it (Qualifications/Capacity/Experience), you might want additional information on their research/analysis tools at their disposal which could be included under Approach/Methodology or scored separately (depending upon how you want to see the information).