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Delivering e-procurement Local e-gov National e-procurement Project Overarching Guide to e-procurement for LEAs - PDF
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2 1. Introduction Background The National e-procurement Project (NePP) and Centre for Procurement Performance (CPP) are working to support and enable schools to meet their e- Government targets and to gain the benefits available from e-procurement. As part of this work, the NePP has developed entry-level guidance notes for use by Local Education Authorities (LEA) and schools as they work to implement e- procurement. These How to guidance notes are designed to cover the basic steps that schools need to take to implement e-procurement. The notes can be found at and cover the following topics: Part 1:A Guide to Collaboration Part 2:Overarching Guide to e procurement for LEAs Part 3:Overarching Guide to e procurement for Schools Part 4:Getting the best from Purchase Cards Part 5:A guide to Selling to Schools Structure The purpose of this document is to provide LEAs with guidance on options for supporting schools in delivering e-procurement efficiencies and to highlight challenges that may be faced in doing so Its content is: Section 2 - What is e-procurement? Section 3 - Why does e-procurement matter? Section 4 - What are the options available? Section 5 - What are the stages of an e-procurement project? Section 6 - Checklist Section 7 - Frequently asked questions Term Definition
3 2. What is e-procurement? e-procurement is a collective term for a range of technologies that can be used to automate the internal and external processes associated with strategic sourcing and purchasing. Examples are e-tendering, e-auctions, e-marketplaces and purchase cards (p-cards). e-auction, which is the means by which a supplier can submit quantifiable elements of a bid via the internet as part of a full tender process. e-tendering, which comprises of the tasks of advertising the requirement for goods or services, registering suppliers, issuing and receiving tender documents via the internet, and automating the evaluation of responses to a tender. e-marketplace, which is an internet based facility or hub that enables trade between one or more purchasing organisations and a variety of suppliers. Purchase cards or p-cards, which work in a similar way to credit cards and can be used to purchase goods or services. Restrictions on transaction value and the type of suppliers that can be used allow p-cards to be controlled effectively and tailored to the needs of an individual or organisation. Purchase to Pay process or systems (also known as Procure to Pay (P2P)) is the end-to-end process of raising a purchase requisition; purchase order, goods receipt and making payment to suppliers. Strategic Sourcing refers to the activities undertaken by the corporate (central) function who are then responsible for determining which suppliers are willing and able to compete for your business. Purchasing goods and services is an activity that is undertaken by employees during the day-to-day delivery of services. It is the process of raising purchase requisitions, creating purchase orders, receiving goods or services and paying suppliers.
4 3. Why does e-procurement matter? e-procurement enables organisations to automate procurement activities, including sourcing, ordering and commissioning, receipting and making payments for the whole spectrum of goods and services that they purchase. e- Procurement matters to councils and in turn schools because of government targets and the benefits that are available to councils from e-procurement - better value for money with less work and cost and efficiency savings. Government targets Sir Peter Gershon was commissioned in 2003 by central government to undertake an independent review to assess how the public sector could exploit opportunities for efficiency savings, so that resources could be released for frontline public service delivery. Schools will be required to achieve efficiencies to free resources for delivering the curriculum; e-procurement is a tool to support this, by reducing process transaction costs and embedding good procurement practice. From 2005/6 all schools are required to achieve efficiencies to free resources for frontline services. e-procurement could assist in delivering these efficiencies by: Reducing costs of raising an order and processing and paying the invoice. Enabling the LEA to obtain management information for analysis of where better procurement and cost savings can be made. Allowing schools to take advantage of web-catalogue ordering and any discounts that are available. Benefits to Schools from e-procurement Benefits can be categorised as cashable and non-cashable.
5 Cashable benefits result in a reduction in expenditure. For example, less money will be spent with suppliers but the volume or quality of goods or service will remain the same, or fewer staff will be required to deliver the same level of service. Other cashable benefits include better contract terms can be negotiated using management information and the ability to manage maverick spend. Non-cashable benefits may free-up staff from a task (because it is automated or eliminated) but the time saved for each staff member is not large enough to result in a reduction in the number of staff required. Other non-cashable benefits include better management information, a more robust audit trail, process efficiencies and increased compliance with regulations. Compliance means the extent to which orders for particular goods or services are placed with approved suppliers or contracts, in accordance with EU regulations and Contract Regulations. There is increasing evidence that by adopting both good practice procurement and e-procurement technologies a school will be able to deliver significant cashable and non-cashable benefits. The following are factors that will influence the level of savings that a school can achieve Are LEAs clear about the role of procurement and e-procurement and how they support the priorities of the council and the business needs of schools? Do schools benchmark existing contracts to ensure that they offer value for money? Are there opportunities to improve existing contracts, for example because market conditions have changed? (suppliers are more willing to reduce prices) Is there a process of regular measurement of supplier performance? Are they able to estimate the requirement for goods and services across the whole school? Do schools have an integrated ordering and finance system?
6 Does schools ordering and finance systems provide comprehensive purchasing information? Do schools have collaborative arrangements with other schools for the purchase of goods and services? Do schools have few steps in purchase processes? Do schools pay approved invoices within 30 days (BVPI8)?. If the answer to these questions is no, the benefits that a Council can achieve will be at the higher end of the range. Research undertaken by the NePP (see suggests that around 60% of the cashable and non-cashable benefits are derived from good procurement practices and 40% from e-procurement technologies (such as e- purchasing). It is, therefore, the combination of good procurement practices and e-procurement technologies that delivers maximum benefits for a school. Implementing good procurement practices across your schools as a whole, such as consolidating expenditure on particular goods or services and reducing the number of suppliers, could deliver a significant overall cashable benefit to the school. However, without e-procurement technologies to enforce compliance, the tendency will be for schools to go back to purchasing from their own favourite suppliers. It is the combination of good procurement practices and e-procurement technologies that optimises the potential benefits. The following are examples of good procurement practices and how e-procurement supports them. Good procurement practice Reducing the number of suppliers that the school deals with can lead to a more competitive contract with a particular supplier because you are providing them with more business and process efficiencies (fewer invoices and payments). Streamlined process, removing unnecessary steps to ensure that purchasing processes are efficient and effective. Collaboration between schools How supported by e-procurement e-procurement enforces compliance with approved suppliers by only allowing orders to be raised against these suppliers. Special approval is required for additional suppliers. e-procurement automates the purchasing tasks (such as raising a purchase order, matching orders to invoices) thereby reducing cost and time taken to complete the purchasing task. e-procurement automates group purchasing activities with the use of e-
7 tendering, e-auctions or e-marketplaces. 4. What are the options for LEAs in supporting schools? Purchase and maintain a system all schools have access to. Pro, Con, It will be a cheaper option for the LEA as it has only one system to support. The LEA has the full procurement and implementation costs. Do not purchase a system but provide support to schools using an approved system. Pro, Con, Cheaper for the LEA Could alienate schools operating alternative systems. Provide generic guidance and support but allow schools to do as they please. Pro, Con, Gives schools choice and there is no purchase costs for the Authority, A fragmented approach that means that the LEA requires a knowledge and expertise of a number of available systems. This could prove to be expensive to support. There are a number of questions that the LEA should consider before exploring these options. What Finance packages are being used in your schools? Do they have an e-procurement option? If yes, If no, Could an option be adopted and supported by the LEA? Is there any value in implementing a new system that schools may be reluctant to adopt?
8 Are there any e-procurement systems that are compatible with finance packages currently in use in your schools, or any e-procurement systems supported by Central Government? If yes, If no, These options should be explored further in an options appraisal in the business case. This could mean that schools would have to run two systems side by side. Would you be able to mandate the use of a new e-procurement system? If yes, If no, Ensure the new system is robust to allow for school processes and differing goods/supplier requirements. These differences should also be accommodated when drawing up a specification. Systems are much more attractive to schools if they are compatible with existing finance systems. Try to avoid making decisions about purchasing a new e-procurement system for schools until you have asked yourself these questions as you may already have the foundations of an e-procurement solution in place at the moment. Once you have considered this it is safe to move on to the project planning stage 5. What are the stages of an e-procurement project? An e-procurement project typically follows the following stages. A. Gain the support of senior management Implementing e-procurement requires an investment and therefore, LEAs will have to make sure that they have a sound business case for implementing e- procurement. However, before you write a business case you need to be sure that your senior management team understands what e-procurement is and what it can do for your schools. The government targets for e-procurement may well have created a good deal of interest, but do not assume that the senior management team know what e-procurement is or why they should invest in it. The best way to get the interest of the senior management team is to show them what would be different in the school if they implement e-procurement technologies. To do this you need to get some information together about the current procurement processes.
9 B. Initial data gathering Initial data gathering will be required to demonstrate why e-procurement should be a priority. It will provide an understanding of what the Schools purchase and how it purchases. Some analysis needs to take place at this stage, but it can be brief since resources will not have been allocated to a procurement / e- procurement project. You should have already ascertained what your e- procurement system options are once you have gathered data on what finance packages are in use in your schools at present C. Project Proposal After you have been successful in gaining the support of your senior management for e-procurement for schools, the next step is to create a business case. However, creating a business case can be consuming and will require some investment of resources. If you are to get the commitment you require to create the business case, it will be necessary for the senior management team to appoint a sponsor for the project. Sponsorship is critical at this point both to raise e-procurement onto the agenda of the senior management team but also to manage the work and funding required developing the business case. Clearly, sponsorship will be required during the later stages of the project as well. An ideal sponsor might be the Director of Education or Children and Young Peoples Services. Evidence that effective sponsorship has been achieved includes: there is a nominated sponsor for the project, that the sponsor is at a senior management level, that the sponsor is actively seeking advice and progress reports from the project manager and is championing the project and getting buy-in from peers. The output from the project proposal stage is a high level assessment of the benefits to the council from e-procurement and sponsorship of an e-procurement project in the form of a project proposal. D. Build the business case Having raised the profile of procurement / e-procurement in schools, a business case needs to be prepared. This document should:
10 set out potential benefits for the Council, for example by undertaking a spend analysis and use this to show where efficiencies can be made. define the e-procurement technologies that fit the Council s needs; recognise the implementation costs, for example, the technology, the project team, changes to the ways in which councils select suppliers and Purchase goods and services (process redesign), the roles and responsibilities of officers (change management) and project management; identify the potential challenges to delivering the expected benefits from e- procurement and anticipating how they can be overcome. identify project risks and mitigating actions produce a project implementation plan. LEA s should actively pursue opportunities for collaboration in implementing e- procurement for schools, which not only increases the potential benefits from e- procurement but which can also spread the costs of e-procurement technologies. The headings that are typically found in business case are: Management Summary Context the way in which goods are currently purchased What is e-procurement? Why Should the LEA adopt e-procurement Options Appraisal; an evaluation of the options available to the LEA to implement e-procurement Recommendations how should e-procurement be implemented? The project plan Business case approval The conclusion from the business case stage is to: establish a business case that provides evidence of the benefits available to schools and the cost versus benefit, describes how the benefits will be achieved and highlights the challenges that the Council will face obtain a commitment from the sponsor of resources (people and money) for the next stage of the project ( Commit Resources ). E. Commit resources
11 A project plan needs to be agreed between the LEA and the service provider (since the service provider will have experience of how long the implementation of their technology typically takes). Timescales must be realistic and achievable and therefore must take account of resources available, the skills and experience of the team and the willingness of the council to accept the new technology. Once the business case has been approved, the next task is to implement the preferred e-procurement technology. Implementation is not just about technology - there will be process and organisation changes to consider, and a change management programme should be agreed to ensure that users not only accept the new ways of working but are able to adopt them to best effect. The key tasks to be undertaken during this stage are to: Establish the project organisation - structure and skills Set out the implementation approach To highlight the key challenges that will arise and how they will be met. F. Project Implementation Typically, the project organisation will comprise: A Sponsor, who owns the project, has the LEA to commit resources (people and money) and is responsible for the success of the project; A Project Board, which will include a cross-section of stakeholders such as Finance, Procurement, Internal Audit and key services A dedicated Project Manager A Project Team, comprising a cross-section of specialists from the key stakeholder groups and school representatives. A methodology to manage the project (such as Prince 2 and the gateway process). You will need dedicated resources throughout the project, ideally on a full time basis, but this may be difficult for some LEAs. The adoption of best practice procurement usually requires changes across the organisation and this must be properly resourced. e-procurement is part of the mechanism for addressing the savings to be delivered as part of the Efficiency Review, so is an important area to address. Where possible, LEA s should look at collaboration for the funding, implementation and resources required. For example, are other councils or public sector bodies undertaking a similar project and is there potential for joint working?
12 Some fundamental skills (both hard skills such as IT and technical knowledge, and soft skills such as people and change management) are required during the implementation period therefore analysis must be undertaken to assess the current capabilities and capacity: It is important to understand the impact of the e-procurement technology on the LEA s structure, roles and skills, therefore, clear communication is required at all stages of the project. This will enable staff affected by the project to understand why the project is taking place and how the impact will be managed. Staff who are informed and involved are less likely to be resistant to changes in the procurement process when they are implemented. Understanding how the e-procurement technology will change ways of working e.g. how a supplier is selected? How orders are raised and how invoices are approved? It is vital to communicate with suppliers to ensure that they understand the reasons why the council is implementing e-procurement and how it will affect them. It is essential to ensure that staff involved in e-procurement understand the new technologies, processes and roles. Good practice for an LEA is to implement e-procurement in bite-sized chunks for reasons of investment, capacity for change and focus on realising benefits. Trying to do too much at once will be expensive and difficult for the organisation to cope with, and is likely to detract attention from achieving the expected benefits. LEAs may be able to implement quick win e-procurement initiatives such as using for the issue of tenders, using their financial management system to issue orders electronically and using p-cards for low value purchases. It is likely that you will need a service provider (e.g. software company or e- marketplace organisation) for the e-procurement project. Your selected service provider is likely to have their own methodology for implementation, based on their past experience, and this needs to be understood by the LEA s project team. The approach taken to roll out should draw upon the experience of the service provider with other councils. Implementation should be approached in a way that maximises the early achievement of cashable and non-cashable benefits and following an overall strategy. It may be appropriate to implement the solutions through an initial pilot with s (e.g. a group of schools or one supplier) to enable you to understand what the technology can do and what changes are required to ways of working or organisation. Once the pilot has been successfully completed, the e-procurement technology can be rolled out to more Schools and suppliers.
13 G. Deliver and measure the benefits Delivering the expected cashable and non-cashable benefits depends upon a range of internal and external factors. The Authority needs to be aware where they are starting. Therefore set a baseline for transaction cost, people time and the current cost of goods and services that your authority is using. Benefits will only be realized if the System selected is used is valued and used. Continuously benchmark to ensure improvements are being made and address any technical or staff issues as they become apparent.
14 6. Checklist Activity 1) Understand schools purchasing issues, what they buy and, when and where from. Done 2) Understand the level of support offered by the LEA via ICT, Procurement and Finance departments. 3) Understand the receptiveness of schools in accepting the implementation of a LEA provided system. 4) Calculate potential spend savings a LEA can expect from implementing e-procurement 5) Collate characteristics of the current procurement process, technology and organisation infrastructure, and capacity for change 6) Secure sponsorship from a senior manager, such as the Education Director 7) Have resources been committed to undertake the business case? 8) Plan for measurement and methodology to claim benefits. 7. Frequently Asked Questions Question How do I know that the benefits you suggest from e-procurement are achievable for this LEA? We have a purchasing process that works. Changing will be expensive and chaotic. Response The LEA will prepare a detailed business case that will demonstrate in detail what savings are achievable for this council. Schools need to become more efficient and this will require investment to make sure that we change. A lot can be done to prepare for
15 change so it won t be chaotic and a business case will be prepared to explain both the costs and the benefits. I m not convinced by the security and robustness of e-procurement technology There are a lot of e-procurement systems available, how will I know that I am choosing the right technology? Won t smaller suppliers be disadvantaged by e- procurement? e-procurement technologies are successfully in use in a number of councils. It is of the highest priority for software companies to design systems that are secure and reliable and it is in their best interests to ensure that systems run smoothly and operates with a maximum level of security. Councils should also ensure that virus protection measures are in place to maintain the integrity of the e-procurement systems. If the LEA writes a good specification for the system required, it will be able to both evaluate alternative systems and understand what schools are getting. This will give confidence that the LEA is purchasing a system closest to its needs. Remember, this isn t just about purchasing a system but a service partner who will be providing the LEA with implementation, training and other services. Suppliers only need access to a computer and the internet to take part in e-procurement. Schools will work with suppliers to ensure that they understand how we wish to purchase goods and services and what they need to do. Every LEA or Procurement team should publish a Selling to Schools guide on its corporate website, so that suppliers are clear about how Schools intend to trade with them. See Part 5 a guide to selling to schools Is e-procurement compatible with EU procurement directives? Yes - the EU procurement directives have been updated so that: e-procurement technologies can be used for goods, services and works e-tenders are permitted if there is sufficient security and confidentiality arrangements in place Following an initial evaluation, successful tenderers can be invited to participate in an e-auction. Are there specific audit requirements for electronic trading? Currently there are no new audit requirements for public sector organisations using e-procurement
16 systems. LEAs should continue to follow the existing fundamental principles that cover: An audit trail being available from all stages of the transaction process (from request through to receipt of goods / services and payment) The visibility of the transaction, which means, for example, that information is available regarding, who raised the transaction and who has been involves at each stage (e.g. the person who approved a purchase) Adequate controls and security The separation of duties, so that the same officer cannot raise a purchase order, approve the purchase order and authorise an invoice for payment e-procurement procedures must be aligned with guidelines for public procurement. What if staff are unwilling to adopt new ways of working and make use of e- procurement technology? It is highly likely that you will encounter some resistance to the changes you are making, and this is extremely common. There are a number of steps that can be taken to ensure that the implementation is as smooth as possible and that users adopt it - practical Change Management guidance and case studies by Councils who have gone through e-procurement implementations are available at
17 Term Accounts payable Business case Benefits realisation Cashable benefits Compliance Contract e-auction e-marketplace e-purchasing Definition The module within a finance system that supports the processing of invoices and the payment of suppliers. A business case is the document used to obtain management commitment and approval for investment in business change, such as e- procurement, which changes the way that suppliers are selected and goods and services are purchased. The business case provides a framework for planning and management of this change and ongoing identification of risks. The viability of the project will be judged on the contents of the business case. The actions taken to identify where benefits should come from, assessing whether benefits are being achieved and taking steps to ensure that cashable and non-cashable benefits are achieved. Further information on benefits realisation can be found at Cashable benefits result in a reduction in expenditure. For example, less money will be spent with suppliers but the volume or quality of goods or service will remain the same, or fewer staff will be required to deliver the same level of service. The extent to which orders for particular goods or services are placed with approved suppliers or contracts, in accordance with EU regulations and Contract Regulations. The legal agreement between the school and a supplier. An e-auction is the means by which suppliers can submit bids as part of a best and final offer for a contract via the Internet. This is an internet based facility that enables trade between one or more purchasing organisations and a variety of suppliers. Automating the activities involved in purchasing goods and services from the creation of a requisition through to payment of suppliers.
18 Term e-tendering FTE Government purchase cards Non-cashable benefits Process efficiencies Procurement team Purchase card (P-card) Purchase-to-pay process Supplier Definition e-tendering comprises: undertaking the tasks of advertising the requirement for goods or services, registering suppliers, and issuing and receiving tender documents via the internet automating the evaluation of responses to a tender. Full time equivalent employees. Calculated by dividing the total hours saved (for example through e- procurement) by the standard hours worked per week (eg 35 hours). Payment card scheme (like a credit card) operated by Visa, which can by used by the whole public sector. Non-cashable benefits are those that freeup staff from a task (because it is automated or eliminated) but the time saved for each staff member is not large enough to result in a reduction in the number of staff required. Other noncashable benefits include better management information, a more robust audit trail and increased compliance with regulations. A reduction in the cost of a process or the time taken to process (e.g. processing a purchase order) as a result of automating the process. The officers responsible for leading the sourcing activities. Payment card (like a credit card), which can by used by Council staff to order and pay for goods. The end-to-end process of raising a purchase requisition, purchase order, goods receipt and making payment to suppliers. An organisation responsible for supplying goods and services.
19 A Guide to Collaboration Further sources of e-procurement Best Practice Guidelines Resource NePP website DfES Centre for Procurement Performance NePP Diagnostic tool (NB you will need to register with IDeA to use this resource this is free of charge) IDeA Knowledge NePP pages IDeA Knowledge home OGC Buying Solutions OGC website OGC e-procurement resources SIMAP UK Public Procurement Information CIPFA - Chartered Institute of Public Finance and Accountancy National Bursars Association Link The Centre for Procurement Performance (CPP) will work with budget holders within the education, skills and children and families system to exploit optimum procurement opportunities to help schools deliver better value for money; budget-holders will retain control of money saved in order to re-direct to frontline services.
20 A Guide to Selling to Schools
NATIONAL E-PROCUREMENT PROJECT GUIDANCE NOTES OPTIMISING PROCURE TO PAY
NATIONAL E-PROCUREMENT PROJECT GUIDANCE NOTES OPTIMISING PROCURE TO PAY Title: Optimising Procure to Pay Identification: Optimising business processes in the procure to pay process Version: 2.0 Date of
National e-procurement Project Delivering e-procurement Desktop Guide to e-procurement Part 7: What is Spend Analysis and how to get started Supported by Office of the Deputy Prime Minister Delivering