Btec Advanced Award for Local Government

Obtaining Value for Money

Trainers’ Notes

Copyright notice

All parts of this pack are covered by the Content Copyright, Designs and Patents Act 1988. Pages from the pack may be copied to produce teaching and learning materials for Introduction use in face-to-face sessions only. Authorised copying must not conceal the originator’s identification.  Session 1: Tools and techniques

 Session 3: Introduction their expertise. helpandshared Jackie Hartwho gavetheirtimeto and ClaireSmart thanks gotoAnnaBourne, In particular, widerpublicsector. to the thencascaded bytheFire&RescueServiceand piloted programme thatcouldbe toprovideadelivery intended was IEP.Theinitialproject fundedby SW Service and theFire&Rescue byCordie,commissioned by delivered materialswritten and isbasedonthetraining This pack Acknowledgements

Page Page LegalProcurement Aspects EU & 2 of of 21  Key Linkto PowerPoint presentation Duration activity of Participantfeedback Pairs smallactivityor group Instructor-ledpresentation demonstrationor Kirkpatrick's Kirkpatrick's first ideaswere 1959published in to measurefour levels of evaluation: Evaluation     participation. might This the include provisionof Practicalsupport toolsbemaynecessary for specificindividuals with needs to ensure donot these inhibit successful vocabulary.withclearly meanings definitionsand for some participants lessbeing whilst more directive for or confident experiencedlearners and introducingnew consolidationreflection.and This might differentinvolve amountsallocating of time complete to a task,scaffolding tasks atappropriatethe level. Differentiation can be achieved throughregular opportunities self for and assessment, trainer planlearning Everytrainingevent hasmixed-abilities participantsand with individualgoalsand outcomes.intended shouldTrainers andDifferentiation Needs Specific tosupport certainactivities. Trainers usingthis deliverpack should in mannerit a that: ofindividualparticipants and groups. Discussion and points includedactivities are and sheets activity have been created Anytimings indicated are suggestions givenas only. should Trainers adapttimings the of sessionstheto suit needsthe Timingand Delivery stand-alonetrainingdays which canbe delivered individuallylinkedas or programme. a Thepackcan beused basisas which from a to prepare face-to-face a trainingprogramme.It consists of 4 individual, This pack has been developed originalusingthe trainingmaterials developed Cordie by for Fire& the RescueService. About this Pack

Sour4. c3. es2. 1. of Information &4. S3. u2. p1. port Page Page Voicerecorder Laptop Reading equipment Signlanguage experts Obtaining Value Money for Results Behaviour Learning Reaction provides tofeedback support learning conceptualisation,activeexperimentation) followsprinciplesthe oflearning the (concrete cycle experience,reflectiveobservation, abstract supportsindividualpreferences auditory, (visual, kinaesthetic) for receiving assimilatingand information methods meetsindividual styles learning (reflector, theorist)activist, throughpragmatist, usethe of various delivery 3 of of activities thatactivities so arethey organisedsuch in way to ensurea as learning that placetakesfor each participant 21 mechanisms mechanisms suchas: © SW IEP,SW 2011 © Sources of In fo rmExampleEvaluation Forms canbe accessed thesefrom links: afifthlevel of evaluationshould focusonthe the impact of organisationonexternal clientssociety. and Kaufmanhasargued that ROI a is essentially level-four typeof evaluationsince isinternalit to organisation the that and a tonInvestment” (ROI) level to comparefourththe of thelevel standardmodel tooverall the costs of Rogertraining. ioSeveralauthors have suggested anadditional fifthlevel of evaluation. hasargued Phillips JJ for additionthe of a "Return nLevels3 and can only 4 beassessed theafter learningsession some futureat point. programmes. the As trainer, yoube in will position a levelsto judge 1 2and throughout the ofsessions. thedelivery impacted.Levels2, 3 4and are also becauseimportanta difference in behaviour intendedisthe outcomeall for learning &tolearning; if however, learnerthe isdistracted by something learningthe in experience, his her toor learnability can be levelsAll of evaluation are important. Level1 is often byomitted learningprofessionals because doesn'tit directly relate Support Page Page EvaluationLevel2: EvaluationLevel1: Obtaining Value Money for 4 of of 21 © SW IEP,SW 2011 © Sources of InformObjectives ation &rules Ground SupIcebreaker porIntroduction t Introduction Page Page Obtaining Value Money for 5 of of 21 notes to refernotes backto Check understandingand of knowledge.levels Ask what procure,makethey ...... of: ofAt end thethe participantshavesession, will knowledge and an understanding comfortable are with to lead 2 discussion a to aagree listof between3 5thatand rules participantsall Ground helpto createrules positive a learningsafe and environment.Use Activity  helpparticipants tointo settlethe session anSelecticebreaker those from inprovided 1 useoneActivity or of to your own Housekeeping:Toilets, fire escape,drill/alarm,fire timings, breaksetc Trainer’snameand background

allow to 10minutes for5 this depending activity on group the size Hints and Hints tips and Tools techniques will with that assist valueobtainingbest a Applying category management approach Having anawareness the of procurement cycle valueDefiningfor money‘best (VFM) value’ & money for Procurement thattechniques assistthewill in achievementof obtainingvalue Open the Open PowerPointVfM.ppt: file

© SW IEP,SW 2011 © Activity 2 Activity 1 Activity Slide1 Slide4 Sources of Informatibelow o This workswell becauseactivity toparticipants move need around roomthe talkingto each Anexample other. isgiven Each isworthsquare a numberof points. After5 activitytheminutes, iscomplete each and square bingo discussed. nDevisebingo a sheet askand participants to move around tryingroom the to findpeople that match bingothe squares. – Icebreaker4 Bingo &wellbecauseit canhelpindividuals to beremembered their animalby choices. Askpersoneach toname give their to and state animal which connectthey with theirand reasons. activity This works S– Icebreaker3 Animals uworkswell because canalliterationhelpindividuals to some recall unusualof more theor choices.humorous Askpersoneach to introduce usingthemselves for alliteration, exampleRestless orRussell CleverClaire. activity This p– Icebreaker2 Alliteration prelaxed about talkingabout another person to a group. larger o This workswell becauseactivity morepeople are comfortable whentalkingabout themselves pairs in are and more knowledgeon trainingthetopic. Bring group the back togetherand pair each partnerintroduces their towidergroup. the rSplitgroupthe andinto pairs themallow a minutetwo or each to describetheir job, hobbiestheirand experience/level of t– Icebreaker1 Speeddating Dependingongroupthe 10size, 5 allow thisto minutes activity.for Select an thoseicebreakerfrom provided belowuse oneor ownof your to helpparticipants to settle intosession.the Activity 1 – Icebreaker Activity Page Page Obtaining Value Money for 6 of of 21 © SW IEP,SW 2011 © personalreputation. therefore, encourages it free discussion. Speakers then are ableto voice their own opinions, concernwithout their for TheRule peopleallows to speak individuals, as toand express views may that benotthose organisations, of their and The rule devisedwas 1927 in and in refined 1992 2002.Since and refinementits 2002, thein states: rule speakingworld, an toas free discussion,aid particularly local by government, commercial researchand organisations. with aimtheof providinganonymity to speakers toand encourage openness. It isnow in usedwidely English-the taughtAll sessionsare bycovered TheChatham HouseRule. HouseThe Chatham originated atRule Chatham House Confidentiality 5. 4. 3. 2. 1. Participantscan expect: The Rules Ground      These ground were rules developed order in to: Purpose Ground Rules of the agreelistof between a and 3 5 that rules participantsall with.are Thesecomfortable be should onarecorded flipchart. Ground rules helpto a create positiveand learningenvironment.safe the Use followingexampleto leada discussionand Activity 2 – Ground rules

Sources of Inforsupportiveatmosphere learnwhich in to mcandidatesall participateto fully and engage learningthe in activities leading positive, to a developmental fully and toreceive clear, constructive, qualitative feedback atsessionsto start and finish on time iotoshare examples mistakes good(of and practice) as part of anopen honestand learning exchange nrespect views, of their opinions perspectiveand and non-judgmental a response to their comments & Support Page Page issuesclarifythe of confidentiality encourage todiscussion define boundaries rightsclarifythe responsibilities and of everyone involvedin trainingtheprogramme helpparticipants to understand what to expect relationshipsthefrom with peers their tutorsand tutors assist ato establish withinframework conductwhich to taughttrainingsessions Obtaining Value Money for other participant,other may berevealed.” information the but received, the neither noridentity affiliationthe of speaker(s), the nor anythat of “ Whena meeting, partor thereof,isheld the under HouseRule,Chatham participants are free to use 7 of of 21 © SW IEP,SW 2011 © Sopractice uPricing models in rcperspective eSupplier’s s of Idemand nof(In)elasticity Pricing theory: forma What is profit? tionanalysis pricing/profit &Application of Scycle The Procurement uppthe3 E’s – Realising benefits ort Definitions Session 1: Tools and techniques Page Page Obtaining Value Money for 8 of of 21 Skimming vendors little have influence houses. priceThe market bedictatedwill by local and factors Market Organiserscan a price set knowingthat paywill fans Premium examples.Ask for These include: might reasonsDiscuss for setting price same toincreasedramatically, the quantity demanded wouldthe remain people will topay any obtain,price even if Thepharmaceutical industry is inelastic - a competitors of can'tafford to have that significantly prices are different passengers Theairline industryiselastic offer- aairlines service similar (getting include: Outline behindtheorythe and pricing demand.Examplesmight sold for costthe and of producing & selling it Thesupplier’s profit differenceisthe betweenpricethe product a is equation Focusthe ondiscussionsunderstanding andsupplier's pricing value how Value Money practices for can be applied Introduce discussand these threedistinct steps understanding in impactsshouldand beconsidered Use procurementthe to discusscycle where Value Money for the experience participant’s and workpractices Explain lead3 theand E’s discussion a onexamplesof each from WhatValue?isBest What isValue Money? for Leada brainstorminggroup sessionto discuss:

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from those those from businessto © SW IEP,SW 2011 © Slide Slide 10 Slide Slide 13 Slide 12 Slide 11 Slide Slide 9 Slide 8 Slide 7 Slide 6 Leverage SNon-critical ourportfolio’matrix cKraljic’s‘purchasing esanalysis oPareto analysis/ABC f Iapproaches nmanagement Category foranalysis mpricing/profit Application of atiandmargin o– Activity3 Markup n & Support Page Page Obtaining Value Money for 9 of of 21 controland procurement effort value discriminatesbetween stock items ranking by their them by represented by few relatively ofitems the all stocked. Themodel Explain 80/20the principle:the majorityofvalue inventory bewill inDiscuss general terms Focusthe ondiscussionssupplier segmentation Moneypractices can be applied Returnto the distinctthreein steps understanding Value how for suchas rolls,sauces, to encouragedrinks additional spending onsay, foodBBQ thanat less cost price promoteand productsother cost price customersto draw in. Another strategy isto make offers Lossleader thanprinters cartridgeswhere more money ismadethefrom cartridges sales of aswhich refills) are a sold higherprice, at such as printers ink and sold at a but price low requires expensivemore replacements (such Penetration pricewill profitreduced provide additional a its life at ends superfluousstock shelf off before the selling soldinitialandbatches the bybeen covered productionhave Thecosts of remaining any to stock. sell the in order day Marginal allow profitwill for ona daily will labourrate which wages includeand anelement that Cost-based the at amarket highprice range,such as iphonethe or ipaddevicesare dispatchedfirst into Give a anddescription example Give a anddescription example quadrants Explain themodel the – nextfour slides cover will individualthe 3. 2. 1. (usage cost). Items highusagex with value greater need Facilitatethe andgroups leada sessionfeedback Givescenariosout Splitintosmall groups – a baker may reduce the price towards the end the of reducepricetowardsend a may the – baker –acalculatebuilder will buildingthe materials add and pricing: where introductionthe of a starter product is : a supermarket: offer ofmight beans tins at less than usage © SW IEP,SW 2011 © Activity3 Slide Slide 20 Slide 19 Slide 18 Slide 17 Slide 16 Slide 15 Money ValueforAchieving Sourclifecosting e– Activity5 Whole s oelements Whole life costing f In Whole life costing foanalysis rpricing/profit m Application of atistrategy oRelationship n– Activity4 & Sagreements Framework uppStrategic ort Bottleneck Page Page Obtaining Value Money for 10 of of 21 Discuss theDiscuss thatelements are WLC considered for Explain conceptthe of WLC Introduce whole-life costing Moneypractices can be applied Returnto the distinctthreein steps understanding Value how for suppliers.FWA Types ofinclude: FWA Talk throughcall-off forrequirements 1 supplier 3 v more FWA or Discuss theseDiscuss tips ask and for ideasother 6. 5. 4. Splitintosmall and groups useinformation the provided to: 3. 2. 1. Splitintosmall and groups useinformation the provided to: let FWA by that others you canuse letFWA yourself that canothers use letFWA yourself for own your use Give a anddescription example Give a anddescription example Discuss whatDiscuss other needfactors to betaken intoaccount Recommend represents which valuefor money (andwhy) over a three-yearlife period Calculate whole-life the cost of ofeachprinter the options orderto obtain valuefor money highlightspecificthe factorsthat need to beconsidered in determineit whether bechanged should identify typeofthe relationship with ofeach5 the suppliers © SW IEP,SW 2011 © Activity4 Activity5 Slide Slide 23 Slide 22 Slide 21 Slide Slide 29 Slide 27 Slide 26 Slide 25 Sources of Information & Support Handouts Objectives Page Page Obtaining Value Money for 11 of of 21 Distributeconsolidation handouts Summarisebeenwhat we’ve through Checkunderstanding themthefrom day Asklearnersall one to state learning main theypoint withtake will © SW IEP,SW 2011 © Slide Slide 30 charged rateHourly charged (£) rateHourly up/Margin Mark roles: incontained table the summarybelow of theis a situation forto date ofone the common most admin like for like basis. However, asked suppliers were ‘profitto disclose their element’, the and information betweenmarkup and in to margins fully order understand bidsthe and be ableto comparethem ona included therefore,much hasbeentime spent decipheringresponses the and attemptingto distinguish Unfortunately, pricing a matrixwhich suppliersthe couldcomplete returnand with tenderthe not was set up - fromtemps resigned agencyorderone in to join otherthe increased for basic pay). requiredsolution. (Issues have in arisen a neighbouring council frameworkwhere a agreement hasbeen would avoidacrimonious disputes between the supplierswho need will to worktogetherto provide the thatkeen pay’ ‘parity for temps performingsamethe similar or isinstituted roles where possible. This would tolikeWCC contract two with order suppliers in to ensure coverage that isassured.isalso WCC diverse andare from range administration to socialsupport workers. to thatensure frontline operateservices in with line expectedtargets. Thetemporary roles to befilled across[temps] county.the It isenvisaged over that nextthe at leastfour 300years tempsbeneeded will County (WCC)Westishire hasrecently Council run a restricted tender the for provision of temporarystaff Scenario temp Ratepaidto Profit £ Sources3.wouldHow you ensure pay’ ‘parity amongst temps? o2.Onbasis the of this, discuss2 which suppliers you would choose 1. Using templatethe provided below,calculate paythe totemp the f Your Tasks: Supplier E InSupplier C fSupplier A oSupplier B Supplier F rSupplier D Additional Information mation & Support Activity 3: Markup and margin Page Page Obtaining Value Money for 12 isnew tocouncil; the theirhowever, references that state havethey publicworked the sector with extensive hasnotrack record Westishire; with however, dopublictheyhave sector experience issuesthe in past was previously byused Westishire. The temps areprovided however,fine; havethey invoicehad processing haslimited public sector experience iswidely steadyregarded as and reliable, beenhaving used adjacent by counties haslimited public sector experience.Themajorityof supplier D’s temps tend privatetheto work in sector of of 8.65 20%Margin Supplier A 21 Supplier A £ 8.75 8.75 33%Markup B Supplier Supplier B Supplier £ 9.00 9.00 25%Margin C Supplier Supplier C Supplier £ 25%Markup D Supplier 9.00 9.00 Supplier D Supplier £ 30% Margin 30%Margin E Supplier £8.20 Supplier E Supplier £ 18% Margin 18%Margin F Supplier 8.50 8.50 Supplier F Supplier © SW IEP,SW 2011 © £ temp Ratepaidto Profit £ charged rateHourly Sources of Informatihourlytemp rate of around £6.95 by adjusting profit.the oThepayrate isonly 5pdifference an parity hour isunlikelyso to bemuch problem, however,of a you couldagree an ensurewould How you amongst ‘paritypay’ temps? n cheapest hourly rate. &fortempsthe at a hourlycompetitive rate.They come in 3top the for temps; bestrate for leastmark-up/margin and Supplier and A becausetheyF the give overallbest S On this, basis discuss the which2 would of suppliers choose you upport temps Pay to Answers to Activity 3: Markup and margin Page Page Obtaining Value Money for 13 of of 21 Supplier A 6.92 1.73 8.65 £ Supplier B Supplier 6.56 2.17 8.75 £ Supplier C Supplier

6.75 2.25 9.00 combinationof payrates and profit ensuring competitive a pay rate £ Supplier D Supplier 9.00 7.2 1.8 £ Supplier E Supplier 5.74 2.46 8.20 £ Supplier F Supplier © SW IEP,SW 2011 © 6.97 1.53 8.50 £    Type of relationship are WCC unhappy their with currentrevenues benefitsand systems – as isseen it ‘unfitfor purpose’. 18furthermonths. does Sofia, providea handfulof IT consultantsonan ad-hoc basis to WCC. have they told been this that category under is currently contract does and comerenewalnot upfor a for hasapproachedSofia WCC to arethere seeif any potential foropportunities their new product, however, consumption. benefitsand system. Early are indications that couldsaveit upto 40% termsofand timein resources ambitiousand Sofia growth plans. recentlylodged threedesign patentsfor highlya innovative new revenues Sofia Softies 2: SCENARIO     Type of relationship leastThere are other at 5 sized similar supplierswho couldprovidethis service. are they to maintaintheir efficiencies. In addition,hasKelly’sflagged they up that manhave power issues need and better ifforecastingWWC from lowerthansignificantly anyother suppliers currently thisoperating in area. region. SouthWest account Kelly’s currently makes up15% of this spendtotal but(c500K), ratesits are procurement A category project hassuggested that HirePlant couldbe acrossconsolidated the the whole of agreementbasedwas onsole supply; the however, currentutilisationfigureisonly 62%. Kelly’s Plant Hire 1: SCENARIO SCENARIO 3: SCENARIO  You workYouWestishire forCouncil County For following of each (WCC). the scenarios, you should: Activity 4: Relationship strategy

Strategic Bottleneck Leverage Non-critical Strategic Bottleneck Leverage Non-critical

Sources of Information & Suppo3) rt2) 1) Page Page Obtaining Value Money for highlightspecificthe factorsthat need to beconsidered in to obtain order valuefor money determineit whether bechanged should identify typeofthe relationship with ofeach5 the suppliers 14 of of isa relatively Polish supplier of new IT Although services. hassmall,it lot ofa backing financial 21 hasa 4-year supplyagreement with that WCC signed was 18ago.months The   changed? Should beit   changed? Should beit

No Yes No Yes for money for toSpecificfactors be considered in obtain order value to money for toSpecificfactors be considered in obtain order value to © SW IEP,SW 2011 © £12.25m per per annum. £12.25m value the WCC is clause.The totalthere contract theyincreaseRPI Each of a their prices, as is KPIs.year perform against service well SLAsand a and tend Hats be locally. to developed providegood conditions and terms however, agreement place, isin the There public national framework sector. a 50% of around operate Waste Management Hats 5: SCENARIO     Type of relationship The annualexpenditure category on this is£2m. drivingtargeted20%efficiency has withbeenof out WCC savings these. providerthe workinghowever,local is belowwell National Indicators available; are unsatisfactory. There of dealing the franchisehas with been local a WCC Usis Care 4: SCENARIO     Type of relationship The maintenance still hascontract 2 to run,years and isworth around £250Kper annum. returnto seemsor busy’. find itwith ‘veryas is the owner difficult Hercules new nevercalls WCC deal to Scotland.presence in doesnot it have any however the mostUK itadvantages,supportWales, ofand can significantthathas in some geographical Hercules selling theon tooriginal thisduethe business. owner that thought probably is maintenance in drop standards. overtheoraIt is last complete, has so been there year the nowbuilding is of framework government notcentrallocalagreements. Whilst the is majority on or Hercules currently any Builders Hercules     Type of relationship isdueThe renewalcontract for 6 in months. Thereprovidersare inseveral market;the however, operate most regional on a rather than national basis.

Strategic SBottleneck Leverage oNon-critical urces of InfoStrategic Bottleneck rLeverage Non-critical mation & SuStrategic pBottleneck Leverage pNon-critical ort Page Page Obtaining Value Money for 15 is a nationwide provider of venues for the homeless. A contract has been offor centrally. established avenuesthe homeless. Ahas isprovidercontract nationwide of of 21 has been involved with WCC as a result of a long aterm asresult with profile building high project. a involved WCCof has been   changed? Should beit   changed? Should beit   changed? Should beit is one of the largest providers of waste management nationally. They currently wastelargest nationally. currently They ofproviders management one is the

No Yes No Yes No Yes for money for toSpecificfactors be considered in obtain order value to money for toSpecificfactors be considered in obtain order value to for money for toSpecificfactors be considered in obtain order value to Care is Usis Care Group, and Group, have found service and levels Care is Us. Us. is Care © SW IEP,SW 2011 © Souclosely processto look at other and improvementstocosts. reduce ragainstandKPIs wouldit appearSLAs that seeHats also Strategic.Council the The Council as should Hatswork with chighrisk nature of service the provide.they the As providers to operatetend regionally currentlyand Hats well perform Therelationship with Waste Management Hats currently intothe falls categorystrategic because ofhigh the spend and es Hats Management Waste oCouncilcouldworkcollaboratively other with Councils, thislocal would give Councilthe negotiation more power. fCouncilneeds to manage contractthe carefully to risk,reduce reduce costs improve and standards.To dothis the ofservicethe provide.they It that is clear local the does franchise considerthe not as aCouncil customer.strategic The ITherelationship with isUscurrentlyintothe Care falls categorystrategic becauseof the highspend highriskand nature nCareis Us forbackdown non-critical byto improving and processes contingencyidentify againstactions risks. montime, making or timelydecisions mindchangingits continuously?)The Council should to try move relationship this aclient‘nuisance’ and therefore ownreviewits processes managing for contract the instance,(for Councilisthe paying thereforesomething needs to bedone to address problem. this should The Council overlooknot it that bemayconsidered ahighrisk nature ofcurrent the project (due to highprofile).its Thereproblem iscurrently witha relationshipthe and Therelationship with Builders currentlyHercules into falls categorybottleneckthe because of relatively the spend low but tiHerculesBuilders on[Note: Keep on eye on implications procurementof EU Law]. other smaller &areas currentlynotthe in where contract Sofia could Softies value in add develop order to relationship.the strategic working category together to newdevelop Revs a Bens TheCouncil & system. couldlook to seethere if are supply, supplying consultants IT on an adhoc basis. However, potentialisthethere thisto move relationship intothe Therelationship with fallsSofties Sofia currently intonon-criticalthe category becauseof low the spend risklow and of SSofiaSofties uppnecessary to efficient ensure management. TheCouncils couldlook at introducing a includingframework suppliers,butsimilar might notthis throughputthe allow omanpower issues. Otherconsiderations beefficient should payment (reductionprocesses of manualinvoices etc). there onto is scope insist r improvements, service increased the throughput should toKelly’s manageallow their Councilsrelationshipthe moves into‘leverage’the as levelcategory the of spend With increases. increasedthe spend tofsupply(there are many hireplant organisations). aggregating By across thespend and Council collaborating with other Therelationship with hireplant Kelly’s currently intonon-criticalthe falls category becauseof the spend lowrisk low and Kelly’s plant hire Answers to Activity 4: Relationship strategy Page Page Obtaining Value Money for has strategic a wouldrelationship.We want to continue this with relationship. 16 has a hasa relationship. non-critical couldbe This tochanged a relationship.strategic of of 21 has non-critical a relationship. This couldbechanged leverage to a relationship. has bottleneck a relationship. This couldbechanged non-critical to a relationship. has strategic a wouldrelationship.We want to continue this with relationship. © SW IEP,SW 2011 © Residual value Residual costofprinter Disposal cost Training On sitemaintenance Cost ofinkcartridge cartridge perink Avg no.ofpages &Installation Delivery unit Price per Company each that print machinewill approximately 24,000 per year.pages Using threethe quotations: County (WCC)Westishire hasdecided Council to replace ofexistingoffice100 its printers.It estimates Scenario Sources of Information & Support Activity 5: Whole-life costing Page Page Obtaining Value Money for 17 3. 2. 1. of of Discuss whatDiscussfactors other be need to intoaccount taken Recommendwhich represents money valuefor (andwhy) whole-lifetheCalculate cost of each option a over three-year period life 21 Must use Lexoncartridge Must use Estimate 30calloutsper (present supplier) (present (Office hoursonly)(Office £100 percallout Lexon £100 £600 year £25 £45 £50 800 £60 £20 permachinep.a.full £20 Can useany supplier’s 24 hourscallout Inkhead cartridge 1,600 cover £120 £860 £30 £60 £90 £50 £16,000 for 5 years coverif£16,000 for 5years Rental: £20permonth(if3 Rental: Must use Bubblecartridge Must use Subcontracted out 24 hourscallout paid now Bubble N/A £15 £25 £50 900 £55 yrs) © SW IEP,SW 2011 © Whole Life Life Whole Cost Maintenance Variablecosts CostsFixed Sources of Informatio in potentialtherisks associated with strategy this ie, usingrunabilityif of ink different product, invalidation of warranty etc. Note nwhatDiscuss other needfactors to betaken intoaccount &Recommend represents which valuefor money (andwhy) Support Calculate whole-life the cost of optioneach overthree-year a period life Answers to Activity 5: Whole-life costing : : Page Page Obtaining Value Money for costscouldbe driven down alternativefurtherif cartridges are used, such as Bubble,however, factor you need to 18 of of 21 £600 + £60 + £45 + £25+ £45£100+ - £600 £60 + 72,000 needs pagers90 72,000 ink (£9,000 + (100 x [£630 + (100+ x (£9,000 £4,500printer per £630per printer cartridges, 90 x £50 90 x cartridges, 30 x £100 yearsx 3 30 £522,000 £9,000 Lexon £4,500]) £860 + £50 + £60 + £30 £120- £50 £30 + £60 + £860 (100 x [880 + £4,050 + £60]) + £4,050 x + [880 (100 72,000 pagers needs 45 ink needs pagers 45 72,000 £4,050 per£4,050 printer £880 printer£880 per cartridges, 45 x cartridges,£90 £60 printer per 20 x 3 yearsx 3 20 £499,000 Inkhead ([60 x 12] + £55 + £25 + £55 £15)+ £25 ([60 x + 12] This can not be broken downbrokencan not be This pro rata as needs to needs be to paidrata aspro 72,000 pagers needs 80 ink needs pagers 80 72,000 £16,000per printer (16,000 + [100 x (£815+(16,000 x [100 + £4,000 per£4,000 printer £815 printer£815 per cartridges, 80 x cartridges,£50 £497,500 Bubble £4,00)]) upfront © SW IEP,SW 2011 © wouldremain same.the the quantity demanded increase dramatically, price of drug thewere to savingdrug the if even price to life obtain a Peoplepay will any pharmaceuticalindustry. demandisthe Anexample inelastic of costing Whole-life analysis category Supplier analysis pricing/profit Supplier Premium StrategiesPricing Effectiveness Efficiency Economy localareaservethey havingregardallto valuefor money. Under 1999LGAhave bests.3,FRAs a valuetowardsduty the inhabitants the of orderto deliver improvementcontinuous servicesall in toand meet the and needs expectations usersof service while Best Value overmannerthe which in resourcestheinvolved beenhave utilisedmanaged. and process, comparison i.e. a costsof input theagainst the valueof outputsand the a qualitative quantitativeand judgement Valuefor Money Sources of Information & Support Value for Money: Consolidation Handout Page Page Obtaining Value Money for pricing: tickets for Takethereunion That concert. Organiserscan set a price knowingthat paywill fans is: Reducing coststhe ofoperation. the Doingsame the things, cheaperbut is: Getting higheris: theoutputsfrom thesame and staff same resources.Doingsame the things, betterbut 19 provides:provides the uponstatutory whichbasis authorities reviewplan, manageand their performance in of of is: Providing is: rightthe and services solutions. Doing different betterand things Concentrating costhelpon total the will to elements identify add that cost valuenot but service or canbeand used to spendproduce a profile over anticipatedits life-span. Whole Life Costingisa totechnique establish totalthe of all cost ofelements athe product support will and a better understandingof relationships and reduction price activities effort allocate resources.and will This enable procurement to bemanaged in 'categories' theSegmenting supplybase order in to will manage risk helpyou to decide to where negotiationspriceand reduction activities tender appraisal, evaluation sourcingand and decisions provideinformationyou with for monitor assesscompetitivenessand the of pricing; support ofterms betteryou in supplier Having anunderstandingof your supplier's pricing valueand will equation helpyou to 21 is: a conceptassociated with economy, the effectiveness efficiency aand service, of product or and sellingand it the andcost producing of for sold price is a product the betweendifference profit Thethe is supplier's competitors thosefrom of its besignificantly different company's can't prices the part,anairline most locationto another). For passengers one from a service similar (getting industry. offerairlines All demandisthe airline Anexample elastic of © SW IEP,SW 2011 © items Class C items Class B items Class A operating,maintaining ultimatelyand disposing of a projectare considered to be potentiallyimportantto that decision” “ costingWhole (WLC) life encourageadditional spending makeofferson say, foodBBQ thanat less cost price promoteand productsother suchdrinks as sauces, rolls, to Lossleader madefrom salesthe of cartridgesthan printers replacements(such as which refills) atare a sold higherprice, such as printers ink and cartridgeswhere moneymoreis Penetration reduced price provideadditionalwill profit production beenhave covered the by batchesinitial sold theand selling off superfluousstock before shelf its life atends a Marginal element will that for allow profit Cost-based dispatchedintomarketthe at a highprice Skimming and havevendors influence little Market A method A of project economic whichevaluation in problems problems arise shouldcovered are youthat agreements so toexplore compensation stock. may need You also and/orsuppliers holding and supporting new may introducing involve plans. contingency This substitutesand build alternatives,wise toseek high, risks are it would be Because relationships. termmedium to long which develop you will These with suppliers are delivereddirectuser tothe control;they stock likely are to be Ssuch checkingorprocesses as goods-in likelypurchases not toinvolve are o agreements.level These service contractscreation and of service the inand isfor there need aplace utobe and umbrella likely contracts are procurement.arrangements Call-off r suchandas e- purchasing cards throughpossibly automated processes creducingcosttheof processing, Your themselves.aimshould on be e empowered purchase the to undertake user casetheend thethat is s non-criticalFor purchases, itis often of Information & Support Page Page Obtaining Value Money for pricing: prices determined byare marketthe for houses. selling Thebemarket dictated will price local by factors

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