June 19, 2015

1. June 19, 2015 Xuelai Cao , Jenna Diaz-Gonzalez, Alejandro Fajardo, Diana Hernandez, Pierre Masson, Rachel Patterson and KuaiKuai Wei Management and Procurement: Identifying Efficient Processes

2. Current Situation Q1) How do we empower small municipalities and improve periphery relations? Q2) Which goods & services should be integrated into the Hub & Spoke Model and what are the expected effects on the market? Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

3. Goal of Recommended Strategies A management and procurement process framework between ARCA and municipal public entities that monitors progress against the following targets: Promote Cultural Shift Build Leadership Capacity Deliver Community Benefits Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

4. Building Capacity and Dialogue: Empowering Small Municipalities to Improve Periphery Relations Recommended Process: • Diagnose the situation to understand the profile of function and existing procedures • Implement the strategy • Evaluate Case Studies: • Portugal: e-procurement Case • Germany: e-procurement adoption at the municipal level • United States: Train the Trainer model Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

5. Diagnose the Situation Conduct Needs Assessment Gather information around: • Evaluating opportunities for improvement • Identifying quick wins • Specifying product categories to centralize Convening focus groups and planning meetings, identifying: • Potential adopters • Municipalities that are already participating • Agency representatives • Experts in the field in order to determine the sector’s need Q 1 Q 1 Implement Implement Classify Classify Evaluate Evaluate Intro Intro Diagnose Diagnose Q 2 Q 2 Centralize Mechanisms Decentralize Benchmarks End End

6. Diagnose the Situation Administer Survey e-Procurement Participation: • Why they did or did not choose SINTEL • Why they use traditional forms of procurement • Perceptions on regional authority • How ARCA can best serve them Identify capacity of municipalities and existing gaps: • Data sharing and equipment abilities of municipalities • Information exchange capabilities • Access to e-procurement resources (such as internet access or municipalities working with CONSIP) Q 1 Q 1 Implement Implement Classify Classify Evaluate Evaluate Intro Intro Diagnose Diagnose Q 2 Q 2 Centralize Mechanisms Decentralize Benchmarks End End

7. Diagnose the Situation Why Needs Assessment? • ARCA can realize how to be a resource for municipalities • Understand demand needs of municipalities • Establish a foundation for open dialogue and facilitate trust-building • Empower local authorities by including them from day one References: Train the Trainer - needs assessment and community outreach Portugal - began with diagnostic phase Target: • Promote Cultural Shift Q 1 Q 1 Implement Implement Classify Classify Evaluate Evaluate Intro Intro Diagnose Diagnose Q 2 Q 2 Centralize Mechanisms Decentralize Benchmarks End End

8. Diagnose the Situation Select key municipalities to lead procurement efforts • Work with task force to target “quick wins”: municipalities on board and with capacity • Engage in planning meetings and focus groups with targeted municipalities to determine needs Target: • Promote Cultural Shift References: Portugal - “Quick wins” with 8 targeted ministries Germany - Peer-to-peer influence led to successful adoption Q 1 Q 1 Implement Implement Classify Classify Evaluate Evaluate Intro Intro Diagnose Diagnose Q 2 Q 2 Centralize Mechanisms Decentralize Benchmarks End End

9. Implement the Strategy Peer-to-peer influence • Pioneering municipalities should be subsidizedor otherwise incentivized with awards or recognition • Reduce risk perceptions, increase benefit perceptions and improve acceptance among peer organizations Utilize Train the Trainer model • ARCA will conduct the initial training, then targeted municipalities will reach out to peer municipalities and share procurement strategies References: Germany - Peer-to-peer influence led to successful adoption Train the Trainer - Disseminate information/skills to trainers who in turn disseminate to their colleagues Target: • Build Leadership Capacity Q 1 Q 1 Implement Implement Classify Classify Evaluate Evaluate Intro Intro Diagnose Diagnose Q 2 Q 2 Centralize Mechanisms Decentralize Benchmarks End End

10. Implement the Strategy Brand ARCA as a Resource Center • Best Practices Outline: Develop a list of best practices around different procurement models • Publish Best Practices to municipalities via the ARCA website • Workflows and Web Training: Expand efforts around web training • Templates for Contracts: Provide resources that have already stood the test of time and litigation Q 1 Q 1 Implement Implement Classify Classify Evaluate Evaluate Intro Intro Diagnose Diagnose Q 2 Q 2 Centralize Mechanisms Decentralize Benchmarks End End

11. Evaluative Methods • Compile reports and recommendations • Create annual purchasing plans • Establish benchmarks and compare implementation results against those measurements Target: • Deliver Community Benefits Q 1 Q 1 Implement Implement Classify Classify Evaluate Evaluate Intro Intro Diagnose Diagnose Q 2 Q 2 Centralize Mechanisms Decentralize Benchmarks End End

12. Standardization: Determining the categorization of goods & services Which goods & services should be integrated into the Hub & Spoke Model and what are the expected effects on the market? Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

13. Goal of Recommended Strategies A procurement process that categorizes goods and services with increase communication and establish contract mechanisms and benchmarks Categorize Goods and Services Establish Contract Mechanism and Communication Establish Benchmarks Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

14. Categorization of Goods and Services in a Procurement System • Characteristics of goods and services → Kraljic • Cost of Centralized vs Decentralized: • Used a quantitative approach to evaluate cost implications • For example: administrative costs for centralization are much higher than for decentralization; however, the purchase power is stronger with centralization, which implies lower purchase prices in a centralized system Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

15. Quantitative Approach for Classification △Cadministrative expenses = Cdec · n – (Ccen + Cdec · (n – ncen)) Sperc = ∑Savings / ∑ Revenue of centralised procurement Source: Evaluation of financial effects of public procurement centralization, Karolis Šerpytis*, vytautas vengrauskas, Zinaida Gineitienė Cdec - Administrative expenses in decentralization Ccen - Administrative expenses in centralization N - Number of organization Ncen - Number of organization in centralized procurement Sperc - Savings Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

16. Categorization of ARCA’s Goods\Services High Profit Impact Low Low High Supply Risk Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

17. Contract Strategies Using Kraljic Matrix High Profit Impact Low Low High Supply Risk Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

18. Decentralization Encourage communication between the Hub and Spokes → Centralization Establish benchmarks Centralization/Decentralization Strategies Centralization • Encourage communications • Establish contract mechanisms • Split contract into several lots • Community Benefits Clauses (UK, Scotland, Wales), includes: • Maximise supply chain opportunities for SMEs • Establish benchmark Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

19. Case Study Recommended Process: • Categorizegoods and services according to characteristics of the good and the supplier market • Establish contract mechanisms and communication to counteract potential market distortions • Establish benchmark for the implemented procurement process Reference: • Barnsley Metropolitan Borough Council Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

20. 3) Supplier management Number of new suppliers involved in competition Number of late/damaged, inadequate deliveries Level of quality 4) Efficiency of internal systems and processes Volume of low value transactions Usage of aggregated arrangements or long term agreements Internal customer satisfaction 5) Procurement management % of procurement officers certified Number of staff days for training Possible Benchmarks 1) Efficiency of the competitive process • Number of compliant bids and proposals • Number of suppliers involved in the competition • Suppliers feedback on process 2) Cost reduction/containment • Level amount of savings/cost reductions achieved • Reduction of stockholdings • Reduction in demand • Number of goods rejected • Increase use of alternatives Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End

21. Lessons Learned • Identify key municipalities to lead procurement efforts and establish “buy-in” • Target “Quick Wins” within municipalities • Find appropriate approach to procurement categorization • Customize e-procurement system that includes both Centralization and Decentralization to meet buyer and supplier needs Promote Cultural Shift Build Leadership Capacity Deliver Community Benefits Q 1 Implement Classify Evaluate Intro Diagnose Q 2 Mechanisms Benchmarks End