Value for money (VfM) is not about achieving the lowest price. It is about achieving the optimum combination of whole life costs and quality. Traditionally VfM was thought of as getting the right quality, in the right quantity, at the right time, from the right supplier at the right price. This concept has been updated to - obtaining better quality of supplies and services in more suitable quantities, just in time when needed, from better suppliers at prices that continue to improve. It is also often described in terms of the ‘three Es’:
Economy – minimising the cost of resources for an activity (‘doing things at a low price’)
Efficiency – performing tasks with reasonable effort (‘doing things the right way’)
Effectiveness – the extent to which objectives are met (‘doing the right things’).
To help achieve VfM, supplies and services should be acquired by competition unless there are convincing reasons not to do so. The form of competition should be appropriate to the complexity of the procurement and barriers to the participation of suppliers should be removed. In practice, the level of competition is indicated by the estimated value of the proposed procurement.
There are several key principles of attaining value for money (VfM).
1. Develop appropriate contract strategies that are actively managed
Develop a strategy that suits the type of supplies or services. Use frameworks for high volume, low value supplies.
It is important to have early involvement of procurement, especially in high value, high profile strategic procurements. Also consider how to manage the contract once it has been awarded by ensuring the management information requested is appropriate and beneficial to the management of the contract and the performance of the supplier then if/when problems arise, take immediate action.
2. Have a strategic approach to procurement
How do you find out what is happening at present and who is doing the purchasing?
What is happening at present?
You can identify what is happening within your institution by analysing the key supplies and services, their cost and importance. For example:
Financial Data - will identify the value of your institution's non-pay spend, a significant proportion of which should be managed by professional procurement staff
Supplier Analysis - will help you to analyse your suppliers by commodity group, procurement influence and formal purchasing arrangements used. You will also be able to visualise the type of procurement structure and level of influence exerted by your institution’s professional procurement staff
Supplier Performance - will provide an indication of how effectively your suppliers are performing
Who is doing the purchasing?
It is also necessary to identify what staff are involved in procurement as the number and what they do varies between institutions.
There are often many part-time departmental (nominated) buyers with some level of procurement awareness training. They will be involved with routine, high volume, low value purchases and may use procurement cards to manage these low value requirements. These staff may also have some involvement in high value, strategic purchasing.
There will be a smaller number of academic staff who are involved in purchasing on an ad hoc basis – maybe as result of winning a research grant – and who will dip in and out of procurement. These staff need to be aware of who to speak to and where to find information to ensure that appropriate procedures are followed, e.g. in higher value purchases above your institution's tender thresholds and especially where the expected value exceeds the procurement thresholds.
A smaller number of senior staff may be involved in major build projects – representing the end-user stakeholders. Each must act as part of the project team working with both internal and external experts, e.g architects, other works consultants, finance department, human resources, procurement personnel etc.
The dedicated professional procurement staff interact with each of the above groupings to differing degrees and will function depending upon the procurement structure operating within the institution.
3. Make appropriate use of electronic procurement
Institutions should use electronic networks to simplify and speed up all stages of procurement. The use of procurement cards is common and other electronic marketplaces are being assessed and adopted. The use of electronic auctions is becoming more popular as a means of optimising procurement of some types of supplies and services, although is not that common in further education sector as its typically more effective for high volume commodity items which aren't that prevalent in the sector.
Consider using an e-tendering system to allowing your tenders / mini competitions to be managed electronically, including the receipt and return of tenders, which is mandatory for above-threshold contract awards.
For more information on the electronic procurement tools available to our members, look out for our Guide to E-Procurement and our Guide to E-Tendering which will be added to Crescent Learning soon.
4. Manage procurement risk
In procurement, risk may be defined as the chance or opportunity for something to go wrong or other problems to arise. The main risk areas to be considered include:
The supplies or services required are not delivered on time, to budget or of an appropriate quality
There may be risks associated with financial impropriety, fraud and waste
Inadequate planning caused by something coming out of the blue – negating best efforts to plan procurement activity, e.g. an award of bid funding
Missing an opportunity to do something better and more cost effectively due to inadequate timescales or an error of judgement
Assessment of risk
When starting a procurement exercise, it is necessary to assess the risks that may arise during the exercise. Factors such as the value, political profile, marketplace and the importance of the proposed procurement will determine the potential for risk and indicate the time and effort required in completing an assessment.
For example, generally a minimal risk assessment will be given to low value routine requirements however larger or complex requirements, generally need more consideration in terms of risk.
Potential risks that should be considered include but are not limited to:
The procurement exceeds allocated budget
The supplies/services are not delivered on time
The supplies/services selected do not meet the users' expectations
There is a technology shift between the procurement selection and delivery
There is a change in the strategic direction of the institution/department
Market constraints limiting supply of supplies/services
Limited interest of requirement within the marketplace
Risk assessments have been provided for each stage of the procurement cycle
For further information on risk management and why it is important, please see our Guide to Managing Risk.
5. Measure and evaluate performance
Using financial and management information measure and evaluate the suppliers' performance but also the professional procurement influence exerted within the organisation. Where appropriate, share information with the suppliers and seek feedback from them, such as: what could you have done differently to streamline the process or enable them to provide you with better value for money?
Carry out a formal evaluation of major procurement exercises to determine what went well and what could have been better. Determine what you would change in the future and implement these changes. Publish a Lessons Learnt document and consider using this, for example, as practical case study material in future staff awareness and training courses.
Use regional procurement networking groups to compare yourself with other institutions. If someone is doing better consider contacting them and seeing if you can learn from their experiences.
6. Develop appropriate contract strategies that are actively managed
Develop a strategy that suits the type of supplies or services. Use frameworks for high volume, low value supplies. It is important to have early involvement of procurement staff especially in high value, high profile strategic procurements. Also consider how to manage the contract once it has been awarded. Ensure that the management information requested is appropriate and beneficial to the management of the contract and the performance of the supplier - if/when problems arise, take immediate action.
7. Partnerships and longer-term collaboration
Collaborative arrangements can cover a range of areas and are designed to promote co-operation that is beneficial to both parties. They are of greater importance in major development projects.
The use of frameworks can enable the establishment of good collaborative relationships while retaining the element of competition by mini-competitions when awarding contracts. In some cases, the use of incentive contracts where gains or losses are shared between the institution and the supplier can be beneficial.
For further information on collaborative procurement and its potential benefits, please see our Guide to Collaborative Procurement.
8. Reliable management information
As integrated financial systems, on-line purchase order processing and e-procurement systems become more common, the availability and quality of financial and management information will be more accessible. The use of benchmarking and price comparison data will enable institutions to assess the quality of their procurement activities in terms of both prices paid and processing methods.
School / MAT members - the information on this page aligns with the following ISBL Professional Standards: 3.6, 3.7. 3.8, 3.11, 3.15