(Q1) Data – Schools

The procurement of products and services by government funded schools represents a significant sum of
money spent in an important area of the public sector. Staffing typically amounts to around 70% of school
costs. The remainder consists of operating and maintenance expenditures, such as gas and electricity,
catering, stationery, buildings maintenance, cleaning and insurance. These are purchased from external
suppliers and account for a sizeable proportion of any school’ s budget. There is a growing focus on the
importance of procurement activity within schools, as they have often failed to comply with government
procedures for procurement.

A report entitled ‘ Review of Efficiency in the Schools System’ published in 2013 found that too many
schools continue to purchase products and services individually. They have failed to realize potential
economies of scale which might have been achieved by collaborating with other schools by using a
consortium or group buying approach. Where competition was sought, contracts were often awarded to
suppliers purely on the basis of the lowest prices. This focus on price often created problems with the
quality of product and service that were supplied. For example, in the case of catering, pupils could have
been offered food with little nutritional value or a limited range of healthy options. By contrast, in other
categories of procurement, such as in the supply of energy and insurance of personnel and buildings, very
little competition was evident.

A survey of prices for routine items (such as stationery) showed how they varied hugely by supplier,
depending on the supplier selected. The report also highlighted a sample of 23 schools, all based within a
15 mile radius of each other, with a combined spend on purchased goods and services of approximately
£5m per year.

The following issues were identified:

• 1,828 different suppliers were used
• The annual spend with 1,524 of these suppliers was less than £500 each
• The schools in the sample were using the same suppliers, but on varying terms and conditions
• Schools were also paying different amounts for the same goods and services.

Question One
Describe FIVE sequential stages of a typical procurement cycle that could be adopted by a new buying
consortium for schools. [25 marks]

Identify need

Operating and maintenance expenditures, such as gas and electricity, catering, stationery, buildings
maintenance, cleaning and insurance.

Classify into the types of needs; tangible, intangible, direct & indirect

Who should identify the need? Caterers, teachers, store keeper, electrician & maintenance staff, cleaner

Needs must be verified and approved by a person in authority, who owns a budget.
Market analysis and testing

STEEPLE- Economic, Legal, environmental

Supplier segmentation

3. Supplier Evaluation

PQQ- company details/ location etc, trading history, quality standards, insurance, accreditations e.g. ISO 9001,
environmental concerns 14001, health & safety,

Benchmarking- compare with best practices

Financial Credit checks - debts, profitability

Reputation- quality & safety of food, ethics

Relationships- historical interactions

Sustainability-

Specifications- match quality & price

4 Tendering

i) Style of tender,- open bidding- government sector, restricted, negotiated, competitive dialogue

Based on company requirements and sector of organization- private, public, third sector

ii) Prepare ITT document- company profile, evaluation criteria, date of submission, format, specifications,

Non-disclosure agreement- insurance, construction

Advertise for wide reach and compliance,

Scope of suppliers- local, international

iii) Once the ITT document is prepared, send the ITT, via email or automated system at the same time and with same
contents. Include contact details in case clarification is sought.

iv) Buying organization receives bids by deadline, sealed. Reject any late bid submissions,

v) Bid evaluation- by a cross-functional team, using the same criteria sent out in bid document. Apply principles of
public procurement- honesty, leadership, fair treatment.

Vi) Award contract and share information with unsuccessful bidders (only after the winning supplier has accepted the
award and signed the contract).

vii) Contract management. Considerations- KPIs, SLAs

5. Supplier relationship and Stakeholder management

An ongoing process between buying organization and supplier(s), through audits, benchmarking, financial assessments,
reviews. This will bring benefits of quality and desired levels of service, continuity of supply, reduce risk and reduce
costs.

Based on culture, collaboration, communication, transparency, behavior.

SRM & SM is part of strategic procurement.

Stakeholders

Internal or external stakeholders;

Government, sister schools, suppliers, Staff; Teachers, caterers, students, parents. Buy-in is important from
management.

Mendelow’ s power interest matrix. To guide on how to engage the stakeholders.

(Q3) Insta Foods

Insta Foods purchased new machinery for a new packing line and used it for 3 years. During this period the
machine required specialised repairs and part replacement in year two and three. Insta Foods now need to
upgrade the packaging operation to fulfil its production schedule.

Question Three
Analyse FIVE costs which are associated in the Total Cost of Ownership. Also identify FIVE hidden costs
that could arise during implementation of the new machine [25 marks]

Define TCO

Select 5 costs in sequential order; pre-acquisition costs, acquisition cost, installation and commissioning costs,
operating costs, maintenance costs, performance/ downtime monitoring, end of life disposal/ recycling
(decommissioning- preparation, dismantling, processing, disposal).

Define what hidden costs are- costs that do not present themselves at the start of a project or acquisition.

Identify risks associated with a long supply chain, internal overheads, language barriers, time differences, culture
differences, reputation, ethical issues, lead time, inventory, trade wars, incompatibility, changes in currency and taxation.

NB: Relate the responses to the case study provided.