The Ministry expects budget cuts in government grants and is considering develop a collaborative procurement program to reduce costs (Appendix 1 However, there are several issues: both institutions’ procurement teams do not have experience in collaborative procurement, longer lead time due to distance can increase the lead time and cost, lack of measurements in collaborative procurement, and limited products/service from vendors.With these possible issues, 4 alternatives have been proposed: focus on the improvement of the current process without proceeding a collaborative procurement program; use a collaborative model for cooperative purchases, hire a third party and use a ‘piggybacking’ model for the collaborative procurement program.
After reviewing pros and cons of each alternative, the recommendations are to use a collaborative model for low value products which can be implemented in a short-term and an reduce operating costs through volume leverage.If the collaborative model successful, expand the collaborative procurement program by hiring a third party to buy capital intensive products. Issues Identifications There are several issues when consider to develop a collaborative procurement process. Lack of knowledge in collaborative procurement: both institutions do not have experience in cooperative procurement. The process to build a collaborative strategy and policy that reflect both institutions’ interests will be very time consuming.Distance between campuses and endorse (warehouse locations): Moon’s and Can’s campuses are spread out across the province. The longer distance can increase the delivery cost and lead time for some campuses as they will receive products from vendors that are located far from their locations. Setting a focal location for a collaborative procurement team: there are only two public post-secondary education partners in Newfoundland and Labrador.
However, Melon’s and Can’s campus are located in across the province, they have Corner Brook as common location for their sub-campuses.Limited choices on products/service for argue volumes: the collaborative procurement program can lower the unit cost by getting volume discounts with larger volumes. However, having a larger volume puts a limit on choice of materials/services, because vendors may not offer customization service to meet specific conditions that MUM and CAN want. Also, small local may not able to meet the demanded volume by expected time and MUM and CAN may lose unique services from these local vendors.Lack of performance measurements in purchasing: both MUM and CAN have their own purchasing strategies. However, there has been no interaction with other institutions, which implies that there is no clear strategy to measure their purchasing prices, contracts, and services when compares to other institutions. Environment and Root Cause Analysis The Ministry of Education in Newfoundland and Labrador has a concern with reduction in government grants.
It is a major reason that the Ministry of Education is consulting about build a collaborative procurement process for public post-secondary education partners. According to Can’s 2013-2014 annual report the government grants have been reduced by 23. 5% in 2014 amperes to the previous year (CAN 2013-2014 Ann la Report). Also, negative Nun’s finance statement has raised a concern; MI-Inn’s 2013 year-end financial statement shows that its expenditure was more $1 , 125,000 more than the revenue (MINING President’s Report).
The pressure on cost saving becomes a concern for both institutions; Forecasted expenses of the 201 5 for both institutions are similar or higher than the previous year while the budget has been reduced due to the reduction in government grants. Therefore, MUM and CAN need to explore options to reduce expenses on current variable sots. There are server benefits of collaborative procurement program such as reduced purchasing costs, share professional knowledge/experience while work together, and improve supplier responses.
When considering these benefits, collaborative procurement is a very attractive strategy, especially for cost savings. The major concern is how to develop a suitable collaborative procurement process for MUM and CAN that complements the issues mentioned above. Alternatives There are several types of collaborative procurement: 1 . DO not proceed a collaborative procurement program but develop recumbent process measurements to analyze the expense pattern and find areas that can reduce costs.Pros Cons Can identify the expense pattern and areas to improve with measurements No immediate improvement on cost saving No change in purchasing strategy/culture – focus on the current process improvement Time consuming to develop measurements 2. Use a collaborative model for the collaborative procurement program. Pros Lower operating costs through volume leverage Not suitable for products/services that require specific conditions One procurement process while every entities share responsibility for procuringDelivery issues- some regions have a longer lead time to receive products Administrative work shared by members The timing of purchases is less convenient than non-collaborative procurement 3.
Hire a third party cooperative purchasing program. Pros One-stop shop – the third party responsible from researching to administering contracts less control over procurement process Can be used for capital-intensive products Fee may increase costs The host program lets members to source and procure relatively quickly with unlimited participation No visibility in the procurement process, purchase orders should be specific . SE a hybrid model of piggybacking Pros Let entities to purchase products from the vendor under the same terms and conditions May not receive the best price The purchasing time is flexible Requires the agreement of the supplier Recommendations With the pressure on cost saving and consider discussed issues, recommend the Ministry of Education to proceed a collaborative program between MUM and CAN; use collaborative model for low value products with less/no specifications (i. E. Stationery products).Because both institutions do not have experience in collaborative purchasing another recommendation is to hire a hired party for capital intensive products that require detail specifications to reduce administrative work. To measure the successfulness the collaborative procurement program, I recommend MUM and CAN to test out the collaborative model for the short-term plan and monitor results of the collaborative procurement strategy before hire third party to buy more complex, expensive products.
Also, a strong support from the Ministry of Education to proceed the collaborative procurement program and build a cooperative work culture between CAN and MI. JNI. Implementation Plan Short-term plan is to build collaborative procurement strategies, contract with vendors and try out the collaborative model. Fifth collaborative model is successful, expand the list of collaborative purchasing products with this stages.
If this method fails, consider to try the third-party model for these low value items.Sequence # Activity Who – Primary Who-Support When Explain the reason of proceeding a collaborative procurement program to public post-secondary education partners The Ministry of Education Immediate 2 Create a list of low value items that are in common (i. E. Stationery products) Procurement 3 Meetings to discuss collaborative work polices, products, standards, plans, goals and visions Procurement gal 4 Develop measurements to monitor costs, product quality, supplier responses, etc.
Procurement Accounting/Quality Assurance 5 Contract with vendors and start purchases (collaborative model) Procurement Legal Short-term 6 Monitor the process and results and have regular meetings to share evaluated results and discuss areas to improve Procurement The Ministry of Education Short-term – mid-term Mid-term/Long-term plan is to utilize the collaborative procurement further y hiring a third party and to jointly purchase capital intensive products.Sequence # BIG provides Specs for products Build joint spec documents for MUM and CAN through meetings/conferences Mid-term Hire a third party and create contracts and place orders Evaluate the procurement process and products Long-term Monitor and Control First, the execution of the implantation plan list above should be monitored to measure the successfulness of the process. Activities of the process should be completed by the assigned team in a timely manner.Also, there are 3 key areas to measure the performance of the collaborative procurement aerogram: Cost, product quality and people Cost is the main reason to develop a collaborative procurement program.
The effectiveness of cost savings for both institutions should be closely evaluated. Also, any additional costs such as labor, additional lead time, staffing should be considered when measure effectiveness of cost saving of these plans.Product quality should be monitored to record to identify any additional costs. If there are any defect products or low quality products, it will cause increase the total operational costs and add no value to do collaborative procurement, even Hough the collaborative procuring can reduce the purchasing cost.
It is also important to identify how people measure their awareness of need of change and how they think about the new procurement program.