Monash University Guidelines

Monash University Guidelines Strategic Sourcing Monash University Guidelines – Strategic Sourcing

1. INTRODUCTION...... 1

2. ASSOCIATED DOCUMENTS...... 1

3. THE STRATEGIC PROCUREMENT GROUP...... 1

4. OBJECTIVES OF STRATEGIC SOURCING...... 1

5. STRATEGIC SOURCING PROCESS AT MONASH UNIVERSITY...... 2

5.1 Procurement Planning...... 2

5.2 Market Engagement...... 6

5.3 Evaluation...... 7

5.4 Negotiation...... 8

5.5 Implementation...... 8 Monash University Guidelines – Strategic Sourcing

1. Introduction

Strategic Sourcing is a process used to achieve the best possible value for money outcome for the acquisition of goods and services. Using a total cost of ownership approach, it is a detailed, analytical planned activity.

These guidelines have been developed to assist individuals who are leading a procurement project (Procurement Project Leaders - PPL) to comply with policy and procedures. Most importantly, they seek to advise how to undertake strategic procurement to ensure that maximum value can be obtained. 2. Associated Documents

Strategic Sourcing should be undertaken in reference to these guidelines and the following:

. Procurement Policy . Strategic Sourcing Procedure . Category Management Procedure and associated Guidelines . Probity Guideline . Standard form Contract . Standard form Request For Quotation (RFQ) and Expression Of Interest (EOI) templates . Procurement Plan Template . Category Management Template

It is strongly recommended that the PPL and the team members complete the following training courses available through Staff Development:

. Introduction to Procurement . Undertaking Strategic Procurement Projects

3. The Strategic Procurement Group

Monash’s Strategic Procurement Group (SPG) will assist PPL’s with the strategic sourcing process, as required. PPL’s are encouraged to engage with the SPG prior to commencing the procurement project. 4. Objectives of Strategic Sourcing

The key principle of strategic sourcing is to ensure that maximum value for money (reflecting, price, quality and service, not just lowest price) is obtained over the life of the good or service being procured.

Strategic sourcing ensures that the contract can be effectively managed throughout its life to extract the value promised, and to build on this through the life of the contract.

Monash University Guidelines – Strategic Sourcing

The objectives of strategic sourcing are to: . Identify sources of value to be obtained in the contract . Identify on going sources of value which will be obtained by managing the contract over its life . Identify the needs of the users of the contract by engaging with key stakeholders throughout the strategic sourcing process and thence into the management of the contract (Category Management) . Identify and manage risks, either by eliminating them or minimising their likelihood and/or severity . Ensure that the Universities objectives relating to environmental procurement are fulfilled . Ensure that the contract can be effectively managed by ensuring that the required levels of service (Service Level Agreements or SLAs) and how these will be measured (Key Performance Indicators, or KPIs)

5. Strategic Sourcing Process at Monash University

There are five (5) steps in the Strategic Sourcing process:

1. Planning 2. Market Engagement 3. Evaluation 4. Negotiation 5. Implementation

5.1 Procurement Planning

Key actions:

 Define the baseline  Undertake market analysis  Undertake supplier analysis  Identify opportunities  Define the specification  Undertake a risk assessment  Define the procurement strategy  Key Outcomes

 Procurement Plan

The procurement planning phase is the most important of the 5 phases, as it establishes the means by which full value can be obtained. PPLs need to ensure that key stakeholders are engaged at the commencement of the planning phase and that their input has been sought.

The Procurement Plan consists of the following stages:

(a) Defining the Baseline

The PPL should undertake a detailed analysis of the current situation which seeks to identify the extent, nature, advantages and dis-advantages of the current arrangements.

In association with Monash’s commitment to minimise our use of our natural resources and to lower our waste and emissions it is also important to consider whether the product or service is really needed.

As a minimum, the following key elements should be considered:

 Spend analysis Determine what is being purchased by each Faculty and Division. This should be undertaken using all available sources of data such as SAP transactions and credit cards  Supplier(s) Which supplier(s) are currently engaged (either formally or informally) Who is the supplier providing goods and services to, and what is the value of that supply What are the delivery requirements  Contract service levels What are the current SLAs and KPIs What additional SLAs and KPIs should be included  Processes and Systems What is the order fulfilment process, from need identification to payment of invoice  Consumption trends Is the needs for goods and services seasonal, and if so, what are the drivers

(b) Market Analysis

The PPL should undertake a detailed market analysis applicable for the goods and services they wish to procure. The analysis should identify:

 Size Total size of the market by value  Suppliers Identify the key suppliers Detailed profile of the key suppliers (ownership structure, size, operating locations, range of capabilities, environmental characteristics/reputations)  Market trends Technology New entrants

New products, services, including environmentally responsible alternatives  Market competitive dynamics Power of suppliers (monopoly, oligopoly, free market) Power of customers (ability to extract value) Substitution (specifications, re-define requirements) New entrants The market competitive dynamics should be undertaken using a Porters 5 Forces analysis

(c) Supplier Analysis

The PPL should undertake a detailed analysis of the current suppliers, which will in part draw on the analysis of the market. The analysis should define:

 Ownership structure  Financial analysis  Scope of activities  Operating locations  Opportunities or potential threats

(d) Identify Opportunities

The PPL should undertake a detailed analysis to identify the full range of value improvement opportunities, both in establishing the contract and in the category management phase.

The PPL should ensure that a whole of University approach is undertaken, including consideration for how the needs may change over the life of the contract.

The PPL should also ensure that the Universities objectives are defined and supported including the need to ensure that the contract meets the environmental requirements defined by TOES (the Office of Environmental Sustainability)

The analysis should identify opportunities in the following areas:

 Price Differences in cost structures between incumbent and potential suppliers Differences in price (identified from benchmarking reviews) Ability to index prices to an objective and verifiable source (eg: Platts) New entrants New products, services  Process Changes to the order fulfilment process to reduce administration costs  Relationship restructuring Opportunities for suppliers to add value

Rebates for volume purchases Early settlement discounts Returns and/or disputes policy Ability to purchase direct in lieu of through agents  Market engagement mode Open or closed quotation process Incumbent supplier negotiation Need to undertake an EOI to obtain full intelligence of the market and supplier capabilities  Specification review Are the requirements over specified Are the specifications transparent Can the specifications be filled from multiple suppliers  Volume concentration Can the number of suppliers be reduced Are the needs consolidated across the University; can we engage with other Universities or organisations Can the number of supplied items be reduced Can products be substituted  Continuous Improvement What initiatives can be progressed through the life of the agreement  Environmental Energy consumption Green house gas off setting Recycling Responsible disposal of waste

(e) Defining the Specification

The PPL should define the specification of the goods and services to be obtained following the opportunity analysis. This will include the following elements:

 Technical requirements  Detailed scope of supply  SLAs and associated KPIs  Category management objectives which require the support of the supplier(s)

(f) Risk Assessment

The PPL should prepare a detailed risk basement which identifies the commercial, reputational and business continuity risks. The PPL should identify the means by which the risks can be avoided, minimised or their severity reduced.

The following elements should be considered:

 Change Management – transition to the new supplier arrangements  Business continuity – failure to deliver to the required service

 Processes and Systems – integrating new IT or other business processes

(g) Preparing the Procurement Plan

The PPL should prepare the Procurement Plan for review by SPG and where the value will exceed $1.0M, the Procurement Board. The Procurement Plan should include the following elements:

 Objectives, including Sourcing and Category Management Objectives, together with the benefits  Project timeline  Market engagement strategy  Project governance and associated probity plan  Evaluation methodology and criteria  High level implementation plan  Key stakeholders, including which of these will form part of the procurement team  Summary of the analysis,undertaken, together with the key insights

5.2 Market Engagement

Key actions:

 Establishment of the evaluation team  Finalisation of the evaluation criteria  Development and release of the market engagement documentation  Management of the market engagement phase, including responses to questions from bidders Key Outcomes

 Quotations received from bidders

During the market engagement phase, the PPL begins to implement the procurement plan by undertaking the following actions:

(a) Establishment of the evaluation team

The PPL should form a team from the key stakeholders who will be able to assess the commercial and technical aspects of the bid responses. All members of the evaluation team should comply with the requirements of the probity plan and the Probity Guidelines

(b) Finalisation of the evaluation criteria

The PPL should fully define the evaluation weighting using the elements described in the procurement plan. As a minimum, environmental considerations

should be no less than 30% of the total weighted score.

(c) Market engagement documentation

The PPL should prepare all market engagement documents, using the standard approved templates and standard form contract. Where the PPL wishes to change these, endorsement needs to be sought from SPG and Universities Solicitors Office where changes are sought from the standard form contract

(d) Managing responses

The PPL should release the market documents to the bidders identified in the procurement plan, preferably using Tenderlink (or similar SPG approved tool)

Questions raised by bidders should be addressed in accordance with the probity plan and Probity Guidelines.

Bids should be received in accordance with the Probity Plan

5.3 Evaluation

Key actions:

 Clarification of received bids  Quantitative evaluation  Qualitative evaluation

Key Outcomes

 Shortlisted suppliers

The PPL is responsible for managing the evaluation of the bids, ensuring that the methodology, and evaluation criteria are adopted by the evaluation team. The PPL should ensure that each member of the evaluation team scores the bids separately.

The PPL leads discussions to ensure that a team consensus is achieved to provide an overall team score for each bid received.

The PPL is responsible for engaging with bidders to resolve any clarification questions raised by the evaluation team.

Running in parallel with the Qualitative assessment of each Supplier’s response, a Commercial and Financial analysis is also conducted to verify compliance with Monash’s requirements on a commercial level and establish the total cost of each Supplier’s offer.

The evaluation team should also begin to define opportunities during the negotiation phase, which will be addressed with short listed suppliers. The PPL should ensure that a detailed list of opportunities is recorded for use in preparing the structured negotiation presentations.

The PPL prepares a recommendation of the short listed suppliers using the team evaluation score, and has this endorsed in accordance with the governance structure identified in the Procurement Plan. As a minimum, where the commercial engagement exceeds $1.0M, the Procurement Board must provide their endorsement.

5.4 Negotiation

Key actions:

 Structured negotiation presentations  Site visits  Reference checks  Qualitative evaluation

Key Outcomes

 Recommended suppliers

The aim of the negotiation phase is to ensure that the objectives identified in the Procurement Plan are met, or exceeded, commensurate with ensuring that the basis of the ongoing relationship will be a partnering arrangement.

During the negotiation phase, the contractual basis will be finalised, ensuring that Monash’s interests will be fully secured.

The PPL is responsible for the preparation of the structured negotiation presentation for each supplier, and incorporating the opportunities identified in the evaluation phase. The PPL should lead the negotiations, supported by the team members

The negotiation presentations should include the following elements:

 Contractual terms  Price and quality  SLAs and KPIs  Implementation  Risk  Category Management

Following each round of negotiation with the bidders, the PPL should identify additional opportunities, including analysis of revised proposals from the bidders, as a precursor to preparing the subsequent negotiations.

Following the negotiations, the PPL and team members should undertake site visits and reference checks as appropriate prior to presenting a recommended supplier for endorsement in accordance with the project governance structure.

5.5 Implementation

Key actions:

 Prepare the procurement project report  Finalise the contract  Execute agreements  Inform un-successful bidders  Design and implement benefits tracking  Commence implementation  Prepare post project report  Site visits  Reference checks  Qualitative evaluation Key Outcomes

 Contract

Once negotiations have concluded, the process where contracts are finalised and formalised between Monash University and successful preferred supplier(s) commences.

The PPL should prepare the procurement report which is to be provided to SPG; where engagements are greater than $1M, the PPL will also present to the Procurement Board.

The procurement report should contain the following:

 Objectives met or exceeded, together with the associated benefits (including category management)  Implementation plan, including timing, roles and responsibilities  Any variances to the contractual terms agreed and endorsed by the Universities Solicitors Office  Risk assessment and associated mitigation plans  Post project review, focussing on lessons learnt and opportunities for improvement

Following endorsement, the PPL concludes the sourcing process by undertaking the following:

 Have the contract executed by an authorised University officer  Implement benefits tracking by informing the Business Analyst in SPG on the project outcomes  Debrief unsuccessful bidders

 Handover to the category manager to commence the contract implementation  Execute the contract