MSc (Eng) in Industrial Engineering and Logistics Management (IELM6046) 1st Semester – 2014/2015...

MSc. in IELM – Supply Management (IELM 6046) – 2014‐2015 Copyright @ QuST 2014 Prof. Stephen W. K. Ng – HKU

Institutional and Government Purchasing (November 4, 2014)

Session 8 – Room MWT5 – 2:30 P.M. to 5:00 P.M.

Dr. Stephen W. K. Ng ([email protected])

MSc (Eng) in Industrial Engineering and Logistics Management (IELM6046) 1st Semester – 2014/2015 Year

1

(Class A)


1. Introduction & Objectives of Supply Management …………. Sept 22. Evolution of Purchasing and Supply Management Strategy Sept 16 3. Role of Purchasing and Supply Management Sept 304. Global Supply Chain Management Challenges …………..…… Oct 7 5. The Strategic Framework and Strategic Procurement Oct 146. Sourcing, Outsourcing and Supplier Selection Oct 21 7. Partnership, Negotiation and Relationship Management ..……. Oct 28 8. Institutional and Government Purchasing Nov 4 *9. Business Ethics and Ethical/Professional Standard Nov 1110. Measurement of Supply Management Performance …………. Nov 18 (#)11. Team Project Presentation (Speaker invited) Nov 25 (#)12. Presentation, Revision and Next Generation of S. Mgt. ..…….. Dec 213. Assessment Period i.e. Examination (TBC) Dec 6‐23

R.0. Sept 2, 2014

• Individual Assignment Submission due on Nov 4, 2014• (#) Team Project Paper Submission and (#) Presentation Starts

Make up class – if any (TBC)

Room MWT5 (2:30 P.M. to 5:00 P.M.)

MSc (Eng) in Industrial Engineering and Logistics Management (IELM6046) 1st Semester – 2014/15 Year – Class A

2(Marks will be deducted for late submission)


Supply Management (IELM 6046)Objectives

To acquire essential knowledge about all key functional areas of supply management.

To develop a systematic framework for analyzing the behaviour of large and complex global supply networks

To understand the relationship and motivations of suppliers and distributors to ensure supplies of raw materials and markets for finished goods and services.

To acquire the technologies and approachesfor improving a supply flow performance.

IELM 6046-Sept 2, 2014 3


Team Project(Date of submission: November 18, 2014)

(Date of presentation: November 25 & Dec 2, 2014)

Develop the Best Supply Management Strategy and Measurement Systems for an Organization(i.e. Write a proposal to your management by referring to the topics above and identify the opportunities and challenges of today and

tomorrow)

Title

IELM6046 – Sept 2, 2014

Or any other related topics suggested by the teamon or before Oct 7, 2014 Marks will be deducted for late submission


Team Project Submission & Presentation on November 18, 25 & Dec 2, 2014

• Team 1 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐• Team 2 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐• Team 3 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐• Team 4 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐• Team 5 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐• Team 6 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐• Team 7 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐• Team 8 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐• Team 9 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

• Team 9• Team 8• Team 7• Team 6• Team 4• Team 3• Team 2• Team 1• Team 5

Presenting Teams Critique Teams

5


Adopt Golden Rule of Buying

The more you buy, the more discounts you get


Purchasing for Institutions and Governmental Organizations

A Purchasing Consortium is…

As consisting of two or more independent organizations that join together, either formally, informally, or through an independent third party,

for the purpose of combining their individual requirements for purchased materials, services, and capital goods to leverage more value‐added pricing, service and technology from their external

suppliers than could be obtained if each organization purchased good and services alone

Hendrick, CAPS of ASU, 1998


Definition ‐ Purchasing Consortium

• A Purchasing Consortium consists of two or more independent organizations that join together, either formally or informally, or through an independent third party, for the purpose of combining their individual requirements for purchased materials, services, and capital goods to leverage more value‐added pricing, service, and technology from their external suppliers than could be obtained if each firm purchased goods and services alone.

Hendrick 1998


Purchasing Consortium

• According to Corporate Purchasing Solutions, Fortune 1000 companies have reported that purchasing through their consortiums saved them approximately 13.4%.


Survey from SM100

• SM100, consultancy in UK asked buyers in private sector

• “Are you looking to enter any collaborative procurement deals in the next year? “

• 55% Yes 45% No• BMW and Daimler are set to extend their collaborative procurement deal

Source: SM100 2010



Purchasing in not‐for‐profit institutions and governments is similar in many ways to purchasing in industrial Organizations….. Notwithstanding the similarities, purchasing in not‐for‐profit institutions and governments differs from purchasing in industry in several respects……..

They have become …a regulated, yet open, process defined and controlled by innumerable laws, rules and regulations, judicial

and administrative decisions, and policies and procedures.

Purchasing in not-for-profit institutions tends to less regulated than purchasing in governments, but the emphasis on

accountability and stewardship is just as strong

Donald W. Dobler et.al, 1993



The fundamental objective is to identify sources of needed materials and to acquire those items when needed, as economically as possible within accepted standards of

quality. The function must be able to react quickly, effectively, and efficiently to requirements, and policies

and procedures must conform to sound business practice…

Purchasers utilize professional techniques and modern methods, and they employ professional buyers and

managers to assure that the purchasing program fully supports their organizations’ needs.

Harold E. Fearon et.al, 1993


Difference between Public and Private Institutions

The difference between supply management for public and private institutions is not a matter of concept; rather, it is a matter of how the concept of buying without favoritism is implemented.

A primary objective of most public and private institutions is to create goodwill for the institution.

David N Burt 2004


Government Purchasing ‐ ACCI

Government Procurement is of vital interest to the business community…Although not as high profile as other issues, its significance is underscored by the fact that the Commonwealth Government spends $8.8 billion a year on goods and services. The imminent release of revised Commonwealth Procurement Guidelines is an opportunity for the Government to maximize the involvement of Australian business while still achieving value for money for the taxpayer. It’s VFM is the core principle governing by four supporting principles of:

• efficiency and effectiveness;• accountability and transparency;• ethics and fair dealing; and• industry development.

Australian Chamber of Commerce and Industry - 2009


Industrial experience sharing…(The case of Hospital Authority)


Vision & Objectives of H.A.Vision:

To establish VFM and seamless SCM operation with maximal risk management

Objectives:1. To explore and implement improvements

to procurement services by raising the skills and competency of staff, pursuing service excellence and industry best practices, and achieving best value for money

2. To provide the best value‐added products and services to end‐users and patients through the supply chain in healthcare


Roles of Purchasing for Institutions and Governmental Organizations, the Purchasing Agency


Purchasing Cycle of a not‐for‐profit Organization

Three Principal Phases :

•Planning and Scheduling •Supplier Selection•Contract Administration

S.B. Gordon and R.L. Mooney, 1993


Procurement Strategy of U.K. joint Procurement Policy and Strategy Group

• Improve training skills and development• Benchmark to external standards of price and process

performance• Improve procurement management information systems• Monitor and evaluate the effectiveness of procurement

procedures and performances• Encourage standardized coding systems• Monitor the dissemination of good practice in

procurement and outcomes from other elements of the strategy

• Maximize the benefits to be obtained from the use and development of the purchasing consortia

John Ritchie and Tom Chadwick, 1996


A Typical set of tender document used by HKSAR Government


Example of an Assessment Panel by HKSAR Government


Supply Management Practice

Public Procurement and EC directives


Purchasing Policy of Governmental Institutions

Characteristics of purchasing in governmental institutions:• Far from transparent• Many stakeholders involved• Often conflicting interests among stakeholders

Political objectives• Governmental purchasing often serves social and political

objectives• Political objectives often in conflict with rational spending of

budgets

Budget policy• Institutions are constrained by the central government’s budget

policies• Often difficult to build up financial reserves and shift these to next year• Tendency to spend more than budget to get more budget for the next

year


Public accountability• Governmental institutions are publicly responsible for how they spend

money• This often leads to a lot of bureaucracy making purchasing ordering a

tedious, laborious and slow process.• Most purchasing organizations within the government are procedure

rather than result oriented

Contract management• Most countries still seem to struggle on how to control and monitor

governmental purchasing expenditure effectively

Nationalist approach • National and often regional interests are favored above EC interests

Purchasing Policy of Governmental Institutions


Directives on Public Procurement• Have been issued by the European Community • Are designed to structure tender procedures for

governmental institutions.

The Treaty of Rome embodies initial procurement rules which prohibit any discrimination on ground of nationality and restriction in the choice of supplies or services.

However these arrangements were not sufficient to establish a single market in the area of public procurement

From 1976 on, a number of directives were issued eventually resulting in the EC directives as we know them today.

EC Directives on Public Procurement


Most directives cover the following rules:• Rules describing which public institutions need to work

according to the contracts and what type of contracts are considered.

• The types of award procedure or purchasing procedure, that need to be followed in a specific situation

• Rules on how to deal with technical specifications, whereby preference is given to community standards.

• Advertising rules, describing what public institutions must do to communicate their intended purchases.

• Some common rules on how suppliers need to be selected and the criteria that can be used to award the contract in a specific situation.



• It should be clear for whom these directives are relevant

• It should be clear for what type of purchases the directives need to be pursued

What type of contracts are covered ?The directives relate to all commercial, public supply contracts.In terminology of the EC:

‘all contracts for pecuniary interest concluded in writing involving the purchase, lease, rental or hire purchase, with or without option to buy, of product and services’



© Thomson Learning 2005 – Purchasing & Supply Chain Management 4 ed (1‐84480‐024‐5)


The value of the contract under consideration determines whether it should be tendered following the Directives or not.

Contract which exceed a threshold value of 200.00 Euro should follow the EC procedures.

Public SuppliesPublic WorksPublic Service contractsUtilities Directive

- Supply/services- Works

Without indicative notice200.000 Euro

5.000.000 Euro200.000 Euro

400.00 Euro

With indicative notice750.000. Euro5.000.000 Euro750.000 Euro

5.000.000 Euro

Standard threshold values under the EC Directives



EC purchasing procedures

Depending on the situation, the following proceduresare available for awarding public supply contracts:

• Open procedure: public entity submits a tender through a contract notice in the official journal of the EC and/or Tender electronic daily, on which all interested suppliers may submit their proposals

• The restricted procedure: This procedure consists of two steps. First, suppliers are pre‐qualified by some kind of screening procedure. Next, only suppliers who pass the screening test are invited to the actual tender

• Negotiated procedure: In this procedure, the contracting authority consults the suppliers of its choice (usually a minimum of five potential bidders) and negotiates with them the terms and conditions of the contract



EC purchasing procedures

Government Procurement Agreement• Other guidelines than EC Directives are those of GATT

(General Agreement on Trade and Tariffs)• GATT is replaced in 1996 by GPA (Governmental

Procurement Agreement) which was agreed among the EC member states, USA, Japan, Canada, Switzerland, Israel and South Korea.

The GPA is built upon the general principles of national treatment, non‐discrimination and

transparency and follows the EC directives closely.



Consequences for procurement professionals

Consequences of the EC directives:• They support the idea of preventing customers being locked

into supplier relationships by favoring objective and functional product specifications

• It favors stimulating competition among suppliers by adopting both a uniform supplier prequalification procedure and contract award procedure

• They favor that contracts with suppliers are conducted in writing, providing in this way an objective basis for the evaluation of the supplier’s performance

• They contribute to increased transparency of the supply market




• In general, the directives have met large resistance, both from governmental officials inside and outside purchasing.

• Most complaints relate to the lack of flexibility, the level of detail, the time frames which need to be adhered to and the fact that partnership relationships are not fostered and stimulated.

• Working with the Directives requires a thorough planning and preparation.




• The EC directives on public procurement resemble sound purchasing principles.

• However…– At the same time, the political climate and culture of most

governmental institutions do not foster purchasing professionalism– The reward system within governmental institutions does not

support a purchasing approach based upon ‘getting the best value for money’ or ‘lowest total cost of ownership’.

– A coherent control system to ascertain the the directives are being followed by the member states is not present

These factors may explain why implementation of the directives in most countries is so troublesome and

adoption so slow


34

The Public Procurement Challenges –The Public Procurement Process

Jack T. Pitzer & Khi V. Thai - 2009


35

Three Phases of the Public Procurement Process –The Key Factors

• Repeatability – Procurement activities are going to be repeated, i.e. Custom software development

• Complexity – Terms of technical specification, i.e. A warship, aircraft etc.

• Value and Risk – Low value but risks in reputation high

• Commonality – Items needed by the agency i.e. Aircraft carriers

Jack T. Pitzer & Khi V. Thai - 2009


Industrial experience sharing…


Purchasing Consortium in HK

• A purchasing consortium was formed by a group of HK universities that saw the potential of combining purchasing power of the universities to achieve cost savings through economies of scale and the adoption of best practice in supply chain management

By Timothy Lam of BU


Group Buying Websites

• Combining individual purchasing power into a better negotiation position

• Groupon.hk• hk‐groupbuy.com• asiagroupbuy.com• tuncow.com



Background to Setup the Purchasing Consortium, IPLG in Hong Kong

• Funding cut and increased awareness of strategic role of procurement

• Move to more commercial business operations

• Value for money purchase• Requested by the UGC for closer collaboration among institutions



1. Membership: 8 UGC funded institutions

CityU HKBU LU CUHK HKIED PolyU HKUST HKU

2. Chairman: HKBU

3. Secretary: HKU

40

Inter‐Institutional Purchasing Liaison Group (IPLG)



Set up of Purchasing Consortium, IPLG

• In May 2004, the group was formally established with clear Terms of Reference:

• ~to share best practice• ~to pursue collective tendering/bargaining • ~to take concerted action against delinquent suppliers

• ~to make joint‐efforts that are in the interest of Member Institutions



IPLG Operation

8 Member Institutions with a chairman (HKBU) and a secretary (HKU)

• No start‐up capital• Regular bi‐monthly meeting• Invite group tenders and conduct collective bargaining



Group Tenders

• An Institution (Leader) would invite group tender on behalf of other seven institutions

• Three group tenders were prepared and invited in 2005

• Printing papers – HKPolyU as Leader• Distilled Water – HKUST as Leader• Photo copiers – HKBU as Leader



Group Tenders (2013)

• Distilled Water – CityU as Leader• Printing papers – HKBU as Leader• Photo copiers – CUHK as Leader• Toilet papers – HKUST• Tattle Tape (Lib) – HKBU• Courier Service for Library – HKIEdu• Industrial Gases ‐ HKUST• Airfares – Group Negotiation with Cathay Pacific• Light Fittings – Group Negotiation• Lift Maintenance ‐ **



Collective Bargaining – Appointment of English Language Book Vendor

• Compile a request for proposal consolidating book acquisition requirement from 8 libraries

• Request for proposal was sent to 5 vendors• Through collective bargaining, appoint a book vendor with highest discount rate for a two‐year contract



Collective Bargaining – Appointment of English Language Book Vendor

• Benefits of an University • Current average discount rate 12.5%• Through collective bargaining, 18.1%• Potential savings 5.6%, with annual book purchase budget of US$750,000,

• Estimated annual savings US$ 42,000 (eg. HK$327,600)



Purchasing Consortium Benefits

• Aggregation of orders, bulk orders imply bulk discount

• Sharing of expertise/information among institutions

• Reduction in number of tenders• Procurement process improvements• Increased competition among suppliers ‐ Joint U approach with suppliers



Challenges

• Different purchasing systems among universities

• Redraft tender document• Limited leverage opportunities because of fixed specifications

• Hard to define standard specification• Order quantity commitment – encourage compliance

• Competition among universities By Timothy Lam of BU


Key Features of Successful Consortium

• A long‐term strategy is essential• A high degree of trust among members• Support from purchasing department of individual institution

• Choice of common materials, services, projects and initiation of proposals by buyers

• Commitment of key players before and after the formulation of ideas – committed quantity, adoption of group tender etc.

• Cultural fit – share common vision and similar buyer/supplier relationship philosophies



Readings & References .. Additional sharing …

1. “Supply Management: The Key to Supply Chain Management”, byDavid N. Burt, 2009.

2. “Purchasing & Supply Chain Management”, by Arjan J. Van Weele, 2014.

3. “Outsourcing and Offshoring of Professional Services” by Amar Gupta 2008.

4. “Purchasing and Supply Management, Test and Cases” by Donald W. Dobler and David N. Burt, 1996.

5. “Supply Chain Logistics Management” by Donald J. Bowersox et al., 2010.6. “Operations & Supply Management” by F. Robert Jacobs et al., 2009. 7. “Strategic Sourcing, From Periphery to the Core “ by Mark

Gottfredson, Rudy Puryear, and Stephen Philips, HBR February, 2005.

8. “Supply Management” by David Burt, S. Petcavage, and R. Pinkerton, 2010.

9. “The Future of Purchasing and Supply Management” by Giovanni Atti, 2010.

10. Articles, Paper clipping, Notes, Cases, Reports and References in 2014.

50


51

MSc (Eng) in Industrial Engineering and Logistics Management (IELM6046) 1st Semester – 2014/2015...

Documents

Transcript of MSc (Eng) in Industrial Engineering and Logistics Management (IELM6046) 1st Semester – 2014/2015...