Does the RfP Process need a major Upgrade? - Episode 1: The History
Looking back in the history of the RfI/RfP process we see, that it’s source was developed in another time at the end of the 19th century. Of course the new channels like phone, email, web, etc. allowed new possibilities and increased efficiency. However the core of the process stayed nearly the same and struggles with increased demands of complex orders. Do we may be need a major upgrade after almost 120 years?
Lets first look back in history, how it come to the todays RfP Process.
Looking back in the history of the RfI/RfP process we see, that it’s source was developed in another time at the end of the 19th century. Of course the new channels like phone, email, web, etc. allowed new possibilities and increased efficiency. However the core of the process stayed nearly the same and struggles with increased demands of complex orders. Do we may be need a major upgrade after almost 120 years?
Lets first look back in history, how it come to the todays RfP Process.
Please note: This blog posts is focusing just on the RfP process. We are aware of the fact that modern procurement is much more than this. We hope you enjoy another perspective!
History
Despite that people have been trading since ancient times procurement is a relatively new discipline and was unknown before 1800. One of the first mentions is from 1832 in Charles Babage’s Book On the Economy of Machinery and Manufactures. He points to the need for a ‘materials man’ in the mining sector, who selects, purchases and tracks goods and services required. Before, there were just local markets with low competition. Everybody knew each other and came e.g. to the local blacksmith and made his order for a new pick in person. The products were highly individual and hand made.
During the Industrial Revolution, procurement solidified its importance. Marshall Kirkman’s 1887 book The Handling of Railway Supplies - Their Purchase and Disposition, detailed procurement’s strategic contributions to the railroad industry, specifically in acquiring goods from developed parts of the country and bringing them south and west. In other words the markets developed further across a country, there were some first bigger players, but still low competition. Focus of the industry was on standardization and mass production of simple to complicated products. The suppliers were not known any more in person, so that the tenders were published in news papers (Request for information) and the suppliers sent there proposals by post. The RfI/RfP process was born (let's call this the RfP Version 1.0, or short RfP 1.0).
Grafic about historic development of procurement inspired by the graphic Komplexitoden from Nils Pflägin, 2017
Today, in the age of information, new technologies continuously evolve procurement. The digital revolution started with the internet, email and the web in the late 20th Century. This development was continued with E-procurement solutions, reverse-auctions, etc. to this day. Everything underlies the goal to make the RfP process more and more efficient and lean (RfP 2.0). This is necessary, then in the mean while the markets got globalized, the competitors are in a high competition and the customer demands got highly complex.
Conclusion
RfP 1.0 was developed in a time without internet, where the buyer and the supplier didn’t know each other and a direct collaboration was hard, or too expensive. It worked fine for simple and complicated orders. As those requirements could be described, understood and estimated by an expert. With RfP 2.0 we still follow the same basic approach from the 19th century to this day. We just applied modern, digital tools to it and got more efficient. However complex tenders, like e.g. in IT, are still taking us months and with RfP2.0 we loose the opportunity for creative solutions and innovation.
Is the sole focus on efficiency enough to cope with the current and future complexity of market and customer requirements?
In the next Episode
Stay tuned, in the next blog post we'll present you some facts. We will talk about some statistics and experiences from the field handling complex customer requirements with the classic RfP process.
>> Next blog post: Does the RfP Process need a major Upgrade? - Episode 2: The Facts
Author
Sources:
- Historie summarized from blog post by Mike Nolan | SourceSuite.com
- Grafic about historic development in from Komplexitoden by Nils Pflägin
- Cat image Image source: https://awritersden.files.wordpress.com/
Success Story POCathon@CSS Insurance - A Participative Evaluation in just 3 days
If you're wondering how a big room evaluation day (Step 3 of 4 in lean-agile procurement) could look like read this awesome interview with Konrad and Dominik about their custom implementation at CSS Insurance called "POCathon". CSS is one of the largest health insurers in Switzerland. For there complex evaluation of a software service provider they've invited 4 providers and put them all together in one room for 3 days. At the end of these 3 days they were able to decide with whom of the service provider they will continue agile delivery at the next day!
If you're wondering how a big room evaluation day (Step 3 + 4 in lean-agile procurement) could look like read this awesome interview with Konrad and Dominik about their custom implementation at CSS Insurance called "POCathon". CSS is one of the largest health insurers in Switzerland. For there complex evaluation of a software provider they've invited 2 providers and put them all together in one room for 3 days. At the end of these 3 days they were able to decide with whom of the service provider they will continue agile delivery at the next day!
“The POCathon fits perfectly into lean-agile Procurement and we will use both in combination again.”
Who are you guys and what is your job with CSS insurance?
Konrad Durrer: I have been working in IT for 35 years and was always looking forward to learn new things. After writing stock market applications on large systems, I entered the first ETH course of studies in Computer Science. I then worked in industry and for the governance before joining CSS Insurance. I'm now an architect and technology consultant. In leisure time, I run marathons and enjoy life. Konrad was responsible for the evaluation and is co-initiator of the approach POCathon.
Dominik Liebmann: I'm an API management and integration consultant at ipt AG. My focus is on simplifying business processes. Since my first company at the age of 16, I've been working with IT-supported business processes and worked for many companies (SAP, IBM, Bison Schweiz AG) in Germany and abroad (Russia, China). I personally spend my time either at the local stove or go for mountainbike races. Dominik supported CSS as an external consultant and is co-initiator of the approach POCathon.
You are the initiators of pocathon, what is it exactly?
Konrad & Dominik: The "POCathon" is a combination of the words Proof-of-Concept (POC) and Hackathon and is intended to combine the advantages of both approaches. With a POC you want to test the cooperation with a new partner and its services and / or products. With a Hackathon it is very quickly possible to achieve many learnings by simply putting the right people together and try things out by implementing them. The POCathon starts, when the customer needs and possible providers are already known. It allows to evaluate them jointly in a participative process with an ultimate decision. We see the application area of POCathon independent of the industry and the topic, as long as this has a certain complexity.
Image: (c) 2013 by Sebastiaan ter Burg (Amsterdam Hackathon)
This sounds very extraordinary, even disruptive. How did you get it?
Konrad: Classical POCs are intransparent, partially unfair and and it is not easy to differentiate between product, service and partner. Also, the lead time is incredibly high (weeks & months) and thus the investment massive. We were looking for a faster, more lean way of a competitive evaluation and got inspired by lean-agile procurement (LAP).
Dominik: In LAP, we particularly liked the participative idea, so the people, who are also concerned about it, are placed in the center and get empowered to decide for themselves. This has the advantage that not only the product, but also the partner (soft / hard skills), their way of thinking and working, as well as the cooperation and the ability to deliver can be tested. If the stakeholders are able to participate in this short period of time, they also get a deeper insight. Of course the speed, or time-to-market, was also very exciting to us. Beside that I totally agree with Konrad, that classic evaluations and POCs are partially unfair. Especially as these are done sequentially and it's in our nature that we remember the last provider the best and the 1st the worst.
What made you decide to run a POCathon just for this project?
Konrad: On the one hand there was the pressure of time and the complexity of the business needs. On the other hand the project offered itself, it had clear bounding conditions, the procedure was in our decision-making competencies and the evaluated products were roughly comparable. We therefore looked for further criterias and also wanted to involve the users directly in the decision. Furthermore the details for the POC were already well prepared through the preliminary work.
Dominik: Due to the technical background of the project, all stakeholders were from IT and were tangible for us. The fact that we wanted to involve them in the evaluation became mainly beneficial. Likewise, the providers were open to the procedure too.
“What used to take WEEKS & MONTHS now only takes DAYS!”
How did the pocathon work in practice, can you explain a little bit?
Konrad: First of all the product vision (why) and the business needs (what) of the POCathon were presented to all 2 invited providers. This set the frame, so that the 2 vendors could start implementing their solution (HOW) self-organized, by taking one business need after the other from the prioritized backlog. It was the idea that we have 2 implementations in parallel similar to a competition between the 2 providers.
Dominik: Therefore we basically had an iteration each day. In the morning we made a planning and at the end of each day the results were presented in a review session to the real users. They assessed the technical integration/solution and gave direct feedback to the vendors. We facilitated the process throughout the day and answered questions instantly. In doing so, we also experienced surprises such as when a vendor was apparently behind the schedule but then catch up and delivered in time until the next demo. In addition to that, the users got to know the products and the providers personally in the day-to-day collaboration and this also formed interpersonal preferences. An important aspect of our approach, where usually is not enough time for.
What do you recommend any followers?
Konrad: We had made the preparation of the requirements and / or the preselection in a classic approach. Today, based on the huge success of the POCathon, we would work this phase in a participative process too using the lean procurement canvas and lean-agile procurement. This would allow us to faster classify the offered solution and its intermediate results faster.
Dominik: The POCathon was an experiment. Accordingly, we could still improve a lot, for example the top management could be invited too, end users should constantly participate during the POCathon (they were just for the demo present), the lean Procurement Canvas incl. an agile roadmap could be developed together with the providers, etc. Furthermore, you shouldn't under-estimated scaling effects the more providers get invited.
Where are you today in the project and did you achieve what you hoped with the pocathon?
Konrad: The selected product is in productive use. The users were very motivated by the participative process. You just can not underestimate this. All-in it was a big success for us from the buyer perspective!
Dominik: From the approach point of view we over-achieved our biggest expectations. We could speed up time-to-market, participation of end users and made finally a decision.
How was the feedback from the organization or the suppliers?
Konrad: From both sides very positive, which has surprised us. Due to the daily reviews in the evening, a high identification of the end user with the product could be achieved. We believe this is because they have become part of the evaluation process from the start. We do not recognize the usual discussion that product B would have been better.
By the way, all the providers were paid for their expenses (3 days). This was important to us, since they all delivered business value during the POCathon, one provider contributed already to our current solution and through the others we got important new ideas, learnings and feedbacks. Usually, the winner is willing to provide a special rabat of the amount we invested.
Dominik: I think such an approach is in the interests of all parties. From the point of view of the buyer, all stakeholders as well as the project team members themselves are involved into the decision. From the point of view of the providers this approach gave them the chance to present themself in a completely different quality, with a much less investment of time and ressources. In total, the end user benefits as well, since he gets business value delivered faster, more effective, the procurement process gives room for innovation and becomes less expensive.
Surprisingly the providers even liked the competitive approach being in the same room with their competitors :-)
How does it go on, will you use lean-agile procurement or the POCathon for further evaluations?
Konrad: We see a mutual value both. LAP can be made with a larger number of providers do workout the WHY/WHAT and a POCathon covers the solution (HOW). The POCathon complements LAP perfectly and we will use this in combination again.
Dominik: Amazing was retrospectively what we have been achieved in only 3 days. Imagine if the preparation work and preselection could become similarly effective by the combination with LAP. This will in our opinion disrupting procurement: What used to take WEEKS & MONTHS now only takes DAYS!
Thanks for the interview and FOR SHARING OF THIS AWESOME STORY!
Source: CSS Insurance AG, Switzerland 2017
Interviewer & Author
Going Digital, Procurement in Kanton Zug
Repeating last year’s very successful event, CIPS-Switzerland is teaming up with the Technologie Forum Zug and the Economic Promotion team of the Kanton Zug for this special Procurement & Supply Chain (P&SC) event. Speakers include leaders from companies with regional or global headquarters in the Canton around the theme of “Going Digital, flowdays took place with a booth to represent the disruptive approach lean-agile procurement.
Repeating last year’s very successful event, CIPS-Switzerland is teaming up with the Technologie Forum Zug and the Economic Promotion team of the Kanton Zug for this special Procurement & Supply Chain (P&SC) event. Speakers include leaders from companies with regional or global headquarters in the Canton around the theme of “Going Digital, flowdays took place with a booth to represent the disruptive approach lean-agile procurement.
Procurement in Kanton Zug”. It is well known that Zug is fast emerging as a leading P&SC cluster in Europe. In addition to hosting drinks and snacks to facilitate participant networking – several Zug-based Procurement Service Companies with be available for follow-up discussions (including Consultants and Headhunters).
The speakers where:
Mr André Wismer, Biogen Switzerland AG, Product Specialist
André Wismer holds a Bachelor degree in BA with a focus on International Management and Economics (IM&E) from the Lucerne University of Applied Sciences and Arts (HSLU), Switzerland, and an MSc in Logistics and Supply Chain Management from Cranfield University, UK. His presentation at this CIPS event was about his research obtained during his MSc thesis project and provide interesting insights based on Swiss based companies.
Conclusions: Find his main findings below:
Mrs. Leong, Cecilia, Olin Corporation, Head of Regional Purchasing EMEAI & APAC and Global Business Excellence
Head of Regional Purchasing EMEAI & APAC and Global Business Excellence Leader with Olin Corporation, Cecilia has throughout her career provided the transformational leadership. This has enabled operations to become effective and efficient commercial organizations. She has excellent cross-functional global program and project management skills, and has built a year-over-year portfolio of achievements includes million-dollar revenue and profit gains, operational improvements and innovative solutions that set the stage for both immediate and long-term growth.
Conclusions: Before introducing a new, expensive system for procurement check what your CRM could serve you. Cecilia showed, that the roles and the requirements towards a system are quite similar for a marketeer and a procurement manager.
Mr Adrian Doyle, Amgen Europe, Global Strategic Sourcing, Head of Region Europe
Having over 17 years of procurement experience in the pharma industry Adrian has a wealth of commercial category, regional and global sourcing expertise. Starting in the UK with GlaxoSmithKline, about 4 years ago he moved to Switzerland to join Amgen’s Strategic Sourcing leadership team.
During the Networking and Interaction session flowdays was present to introduce the procurement experts into lean-agile procurement. The echo was awesome, as we've got even 5 feedbacks like this:
“lean-agile procurement is a real disruption, you should have been talking about before”
a special thank to John Everett, Branch leader at CIPS and organizer of the event!
The agenda was:
17.30 Event Registration and Refreshments
18.00 Event Start and Introduction
18.05 Mr Andre Wismer, Biogen Switzerland AG - Digital Transformation of Swiss Procurement
18.35 Mrs Cecilia Leong, Olin Corporation - Procurement can be early adopters
19.05 Mr Adrian Doyle, Amgen Europe - Procurement enabling digital engagement
19.30 Networking and Interaction with Zug based companies including:
Customer Value Management GmbH
EMEA Recruitment GmbH
Deloitte Consulting AG
Flowdays
BSMA-Europe
Performex Consult GmbH
21.00 Event Close
Drinks and snacks will be provided during the newtworking session.
Good Practice in procurement of business Services & Results of the Performance Excellence Study 2016
The conference about good practice in procurement of business Services in Bern, organized by procure.ch and University of St. Gallen (UNISG) Research Institute for Logistics Management brought together an amazing group of pan-european/-industry procurement experts. The UNISG presented their Results of the Performance Excellence Study 2016 and the top performer an open and honest insight about their current state in procurement. I really hope this kind of event will be continued!
The conference about good practice in procurement of business services in Bern, organized by procure.ch and University of St. Gallen (UNISG) Research Institute for Logistics Management brought together an amazing group of pan-european/-industry procurement experts. The UNISG presented their Results of the Performance Excellence Study 2016 and the top performer an open and honest insight about their current state in procurement. I really hope this kind of event will be continued!
After a short introduction and presentation of the results of the performance excellency study 2016 by Erik Hofmann and Martin Händel (both UNISG) the stage was given to the top performers of the study. They shared there good practices, there current challenges and believes about trends and upcoming practices. As the presenters of the top performers were cross-industries and cross-functions it gave a very good overview of the current status of procurement of business services. To be continued!
The following a summary about the most impressive talks held and my personal view on most important lessions:
Introduction
-- Prof. Dr. Erik Hofmann, Director University of St. Gallen (UNISG) Research Institute for Logistics Management
- Results: in 2015, more than 73% of Swiss workers were employed in the service sector. Depending on the branch, a share of up to 80% of the total purchasing volume is possible. A complexity driver is the individual tailored business service. Although the importance of business services has been noticed, the majority of purchasing managers still struggle with a consistent procurement of services in comparison to goods purchasing.
- The most important lessons: There is a lack of specific evaluation tool and approaches for purchasing business services, outcome. It’s quality depends not only from partner/supplior, but also on customer itself. Good practices to measure success of business services delivered are not yet well established. Focusing more to customer/user feedback over budget/cost will become more important in the future.
Results of the Performance Excellence Study 2016
-- Martin Händel, Project Manager UNISG
- Results (just a subset): There was no representative study in area of procuring of business services available yet. In other words this seems to be a undefined field. Focus of the study was set to 3 business areas „Marketing“-, „Logistics“- and "ICT“-services. It turned out that depending at the business service area the most relevant evaluation criterias are different, even within one area depending at service evaluated. Because of complexity there are no specific business service evaluation tool available yet. External factors and trends like digitalization, industry 4.0 will increase complexity even more. While area of logistics was the best of the three, area of Marketing has biggest potential for improvement. The interviewed companies showed, that there is room for improvement in area of partner collaboration, transparency, monitoring and outlook. It's fact that the customer and user needs are often insufficient known. This is valid for external as well as for internal customer/partner relationships.
- The most important lessons: Services will increasingly be procured together with products (hybrid services) and because of that complexity and the need to increase knowhow in procurement and products will increase more and more. This can’t be handled by procurement alone in the future. This will become more of a team effort, or even an empowerment and enablement of the experts that are the nearest to the customer need. Furthermore the service provider will have to tightly integrate with the customers value stream. Most important learning was that the researcher found is no pattern to procure business services nor a tool yet, that supports it.
Order the Performance Excellence Study 2016 via procure.ch
Insights by the top performers of the Performance Excellence Study 2016
Value-based Procurement at Munich Re
-- Bernhard Bundlechner, Global Head of Category Management, Munich Reinsurance AG
- Results: Till 2001 money was no issue at Munich Re. These days situation and market has changed. Munich Re is more and more an investor in start-ups as well. It has it own innovation scouts, labs, ideation events and corporate partnering (ecosystem). Therefor it’s for them more valuable to find the right service partner than the cheapest. That’s why they’ve introduced for more than 80% of the procurement requests digital solutions. Unfortunately these cover just 2% of the order volume. For more complex procurement Munich RE often uses value based procurement. The example shown was about the outsourcing of the whole facility services in a value based approach. This partnership lead to much less management overhead (just 5 invoices), more innovation (e.g. is partner motivated to introduce new facility to save maintenance costs), increasing quality of the service (by an overall bonus system), more loyalty and motivated employees (as they were empowered and got incentivized as a team depending on the whole success) and a good partnership (as risk was shared and margins were defined long-therm).
- The most important lessons: Partnering or value-based procurement needs a lot of trust and is depending at the given company culture of both customer and supplier. Building this trust by e.g. having open books is not possible in every case and there is a trade-off between having a sustainable partnership and a locked-in situation. However, looking with an agile mindset at this cooperation model it seems to be the most fair and promising approach for procurement of business services. Nevertheless trust and transparency needs a honest communication, monitoring, feedback loop, continuous improvement
Connecting Differently! Service Procurement@Deutsche Post DHL Group
-- Dennis Böing, Head of Global Sourcing Goods & Services Deutsche Post DHL
- Results: With roughly 500k employees Deutsche Post DHL is a global player and one of the biggest employer in the world. The major challenges in area of global goods and services are the raising labor costs and total costs of ownership (TCO). As well as the increasing complexity (>100k Suppliers and >12 sites) and the adherence to (stricter) laws, policies, rules & guidelines. Because of the incredible amount of transactions every minute DHL had no other choice as to focus to automatization and big data/analytics from early days on. With the strategy 2020 focus.connect.grow DHL went on the journey from a unsatisfying supplier experience (complex organization to deal with, primary focus on squeezing costs, not enough sharing of strategic planning) to an aspiration for the future (a joint learning curve toward strategic partnerships, right balance between quality/costs, optimization of process on both sides). The challenges in procurement are approached by connecting differently with internal stakeholders, external (strategic providers), the markets trough a service portfolio and engagement model.
- The most important lessons: Nevertheless DHL has 470 FTE in procurement it’s impossible to handle all 100k suppliers manually. That lead them to categorize and connect differently. In other words they've set focus. In these highly valuable collaboration they’re also in progress changing the culture of cooperation. Fairness, sustainability, leadership and other words were told several times and as those are part of the strategy they become more and more important for procurement as well. This investment is done similar to other top performers not just externally, but internally as well. Changing the mindset and development of the employers skills becomes more and more an obvious pattern for procurement
Corporate Procurement@Commerzbank AG: A competent business enabler
-- Petra Eberlein-Kemper, Head of Corporate Procurement Commerzbank AG
- Results: The Commerzbank has a big order volume in business services and a big leverage while becoming more effective. With the strategy CSP 2018 were already good results achieved. E.g.standardization of proposals, such as Internal and external definition of fields of competences/roles and seniority levels, lead to more transparent competition and savings. Classification of suppliers, paired with empowerment/selfservice per area lead to faster decisions and improved time-to-market.
Banks, as Mrs. Eberlein-Kemper told, are just before difficult, unpredicted times triggered by disruption trough digitalization (e.g. blockchain). That’s why the Commerzbank is investing already in a lot of start-ups. Procurement of start-ups, or business services of start-ups, is challenging. On one hand time-to-market is the major KPI, otherwise window-of-oppertiunity gets closed, on the other hand the startups are unknown and classic evaluation approaches are impossible. New disruptive approaches for procurement are needed too! - The most important lessons: Empowerment and fast decisions seems to become an unique selling proposition for the future. Looking at procurement of startups other factors than the price like similar culture, innovative capacity and time-to-market come to the fore. What does this means for future of procurement?-It has to evolve to the same values, become an innovation partner and that means agility will becomes the central asset of successful organizations.
“become agile, or die”
Success criterias in procurement of business services
-- Markus Wenecsek, Head of General Procurement Alliance of Austrian railways (ÖBB)
- Results: The ÖBB is facing a lot of the current challenges with missing standardization, the complexity and measurement of service quality. This is solved by empowerment and digitalization of all possiblities for procurement. E.g. simple products and services below €5k are mostly automized from request till monitoring. In area of procurement of business- or more complex services the success criterias are standardization (e.g. of roles), x-functional teams, transparency, communication, measurability and development. So has the ÖBB developed and establish an internal academy and a support organization for anyone involved in procurement. That’s why procurement is now well known in the organization and introduced in more complex procurements much earlier. That leads to a more professional, more innovative, more quality and faster contracting with more savings.
- The most important lessons: By empowerment of people that are the nearest to the customer problem and so delegation of more simpler procurement tasks majority of load could be handled via digital tools fast and compliant. Complexity in procurement of business services is approached by standardization where possible and x-functional teams. Impressive was the investment and success of development and supporting employees.
Common building blocks of all talks
procurement of business services ...
- is complex
- is hard to standardize and is lacking of specific evaluation tools or approaches
- and quality of outcome depends on customer too
- has not yet well established good practices to measure success (Customer feedback/business value over budget/costs)
- will increasingly become more complex in the future (hybrid services) and so need to increase knowhow in procurement and products. This can’t be handled by procurement alone in the future. This will become more of a team effort
- Investment in training, support and collaboration is valuable for the whole organization.
- needs more of collaboration, feedback andcontinuous improvement of customer and partner
- Modern company culture (Empowerment) and fast decisions (time-to-market) will become an asset.
- Partnering, or value-based procurement seems to be the most promising approach for procurement of business services
Special Thanks to Erik Hoffmann and the Team of procure.ch, it was a pleasure meeting you in person!
Sources (Content & Images):
- Presentation and Performance Excellence Study 2016 of UNISG
- Presentations of the top performers ÖBB, MunichRE, Deutsche Post DHL, Schindler Management AG, Commerzbank AG
How Karlstad Hospital accomplished Objectives through Partnering and Agile Contracts
Karlstad Hospital has procured new construction and extension in order to conduct effective care with a budget of about €105 million. The new construction was built on time, on budget and was ready for business on Day 1. The hospital has also saved Värmland County Council €300 million. The secret?-Agile contracts, partnering and fully focusing on the target. So what created the conditions for success? We interviewed Lars Nilsson, the Head of Procurement at Karlstad Hospital.
Karlstad Hospital has procured new construction and extension in order to conduct effective care with a budget of about €105 million. The new construction was built on time, on budget and was ready for business on Day 1. The hospital has also saved Värmland County Council €300 million. The secret?-Agile contracts, partnering and fully focusing on the target. So what created the conditions for success? We interviewed Lars Nilsson, the Head of Procurement at Karlstad Hospital.
Big thanks to agilakontrakt.se for sharing and translating this awesome case from Swedish into English!
Interview with Lars Nilsson, Property Manager @ Värmland County Council held and translated by members of the conference board, published on agilakontrakt.se
Lars Nilsson, Head of Procurement at Karlstad Hospital.
Tell us a little about Karlstad Hospital
The Central Hospital in Karlstad suffered from severe indoor environment problems and huge overcrowding since the early 90's. To address these problems, we needed both renovation and new construction. For reasons of capacity, healthcare operations could not simply be evacuated from the existing buildings. We needed to find new ways to ensure that health care operations could be continued safely in parallel with the construction.
The first rebuilding/refurbishment phase comprised about 25,000 sq. meters. We have used the same approach for the construction of facilities for medical services and internal medical care of about 24 000 sq. meters, new psychiatry premises of approximately 13,000 sq. meters, a new surgery building of 26,000 sq. meters and we continued rebuilding and refurbishing about 30,000 sq. meters of care premises in Karlstad.
The construction projects entailed huge economic investments, that is why it required a careful quality assessment of the economic circumstances in order to make all involved parties feel reassured.
What made you choose the “partnering” model for procurement?
It seemed absurd to us that the problems we were facing could be unique to us. Surely we were not alone. We have seen precedents in England where hospitals have started to work in a new and different way in new construction projects. The clients agreed with the contractors upfront about the profit they would need to make to take on a building project. The care business, the contractors and planners then work closely together to seize all opportunities to create maximum patient benefit within the financial constraints. With our Swedish law as a starting point, we tried to create conditions for something similar in Karlstad. Sure, some think it was a gamble, but we were convinced that we had no alternative and we did not really know what "partnering" was all about.
You did not choose the traditional fixed-price contract, why not?
For the rebuilding project, it was not possible to provide the clear conditions needed for a fixed-price contract. Given the poor condition of the buildings, we were not sure of the best order in which the projects should be implemented. Once we were able to determine which sub-projects were the most acute, we wanted to take advantage of all opportunities to create the best conditions for health care operations. So we allowed those who were to physically do the work of designing this as closely as possible, to have a dialogue with the people who would operate in the premises. We wanted every project participant's focus to be 100% directed towards creating the most optimal care in our new hospital, rather than seeking to maximize one’s own economic gains. All of this would take place in an environment where everyone felt safe. We met both our financial objectives and our delivery dates.
Looking back, what was the outcome?
Operationally,
If we look at the operational outcome, there are three points I want to emphasize:
- We succeeded in creating two new and innovative solutions that made the premises well suited to the care that would be conducted and to have a low maintenance cost. For example, by using smart materials, we have minimized the maintenance disruptions to the care business.
- We have also found good solutions to energy issues that have reduced our need to purchase energy. As a reference, in 1999, Värmland County Council purchased the most energy of all county councils in Sweden per square meter of floor space. In 2011, Värmland County Council bought the least. This saved Värmland County Council some €250 to €300 million over a 10-year period when compared with other similar local stocks for care (similar hospitals). We have a registered patent in heating as a result of the project. This change is not merely the result of having made good decisions in construction projects. Rather, it is the culmination of the efforts of many people in focusing on efficient energy use. Värmland County Council now has low local costs compared to other premises in which care is conducted to a similar standard.
Time and Budget
We have kept all our schedules and we have also saved quite a few million Euros compared to initial budgets. The Operation building was completed four months before actual scheduled use (built between 2011 and 2016). The execution phase only took 40-70% of the normal time for comparable projects.
Quality
We chose our materials wisely to minimize the use of chemicals in sensitive areas such as the Neonatal Department (for premature babies). The Operation building which has just been put into use was awarded the “Lead Healthcare Gold” building classification.
We would not have been able to achieve this had we taken other approaches such as using contractor forms. The difference was due to the fact that we always chose materials that have characteristics best suited to the situation, rather than purely based on economic incentives for the supplier.
Design and Construction
We have also innovated in the development of new construction techniques over time. A small but concrete example is how we solved the logistics of fastening pipes and conduits for water, gas, electricity and heat when the new rooms were being built. Since pipes are usually mounted a bracket at a time, it can be harder and harder for the contractor down the line to access the wall or ceiling to attach the next pipe or conduit. In our case, we innovated a new way of work which allowed the first contractor to create mounts that would work for all types of pipes and conduits, which makes it both faster and smoother for subsequent construction workers to do their jobs.
An important factor for this was that we were able to make decisions on the spot, as soon as we discovered that conditions have changed. If we find on inspection that the existing walls were in worse condition than we believed, the staff in place could make decisions on the spot about the changes that the project needed to make. No need to wait for decisions to be made in steering groups, we could move to action on the spot.
The time between completing half of the quality assured space is usually extremely short, like 1-2 days. In a typical project, the time between the completed building and inspection can take anywhere from 6 to 12 months.
As you can see, we innovated in several areas, from the way health care business is conducted to energy and building technology.
What are the key factors behind the success?
I want to highlight three factors:
1st
The first important factor is that we have been able to choose appropriate skills, partners and materials most suited to solve the business problems at hand, without anyone having a personal interest in the choices made. It has been made possible because suppliers know what they will earn on the project upfront and that both parties have found it reasonable. As for financial compensation, all participants in the project can put 100% of their energy on solving business problems instead of pushing for their own more expensive solutions in order to maximize gain.
2nd
The second factor is our power control. We set up clear business goals we want to achieve early on and we continuously monitor how we were reaching our goals during the project. This allows us to adapt the solution to business problems instead of the other way around. It may sound obvious, but in reality, it’s very difficult to achieve. For the goals to be effective, they had to be formulated to be easily comprehensible, actively followed up and acted upon.
3rd
The third factor is the use of prototyping and the fact that the buildings were built step by step. We did not build all of the buildings all at once, but one at a time. It enabled us to benefit from what we’ve learned from building one building to the next.
We used prototyping for many types of rooms, from the operating room to the restrooms. Step 1: we model the building throughout and the rooms in 3D. Step 2: we create prototypes of the rooms in full scale, equipped with the intended equipment. This allows doctors and nurses to try out real life scenarios and make adjustments to the room in order to find the optimal setup for smooth operation. In the final step, the real room is built.
But don’t you know how to build a toilet?
To build a toilet is quite simple. But how do you adapt that to the space outside or to a number of different care situations? Usually, such a room is designed by an architect with limited experience of care situations. This means that they may not always be optimal when used in real life.
Let's talk a little about procurement. What did you procure in terms of performance, skills and abilities?
In practice, we procured resources and knowledge in several areas. In parallel, we made sure to build up the client's skills so that they could have meaningful dialogues with contractors and manage the project.
Can you describe the criteria for selecting vendors? How much weight was attributed to economics and how much to other factors?
The financial part is about 20%. The other 80% is made up of knowledge, quality and competence.
What did the economic model look like?
It’s a twofold economic model. The first was to eliminate all economic and short-term incentives. We simply removed the issue of economics from the table. The second was to ensure that the vendors (construction companies) remained within the framework laid out.
Compensation is broken down into fixed and variable. For the moving part, we pay the net cost for all expended time and materials, without mark up. Examples would be all of the participant's salary or purchase cost of materials net of contractor discounts. To ensure transparency, it is a requirement that all parties work with open books.
The fixed part is a supplement to the moving part. It covers central administrative overhead costs and the profit margins of contractors. Contractors would bid on the profit margin percentage. To avoid frivolous bids, we specified a percentage range based on the industry average. The result is that the contractor knows what they will earn on the project upfront and that it is reasonable.
How did you estimate the financial framework for the project?
The project is divided into phases. The contract covers the supplier for both Phase1 and Phase2. Legally however, the order letter (range) has to be on hand for Phase2 to be launched.
Phase 1 - Effect
Here the business objectives and the solution is designed in 3D. It gives us a rough estimate of the time and the material scope.
We validate the solutions we come up with to see if the client's goals are met or not. For us to move on to the next phase, we need to be confident that we can meet the business requirements as well within our time and financial constraints.
Options and Obligations
Phase 1 provides an opportunity for the client to implement Phase2, but not an obligation.
To move to the next phase, an Order Letter is created.
Order Letter
The Order Letter indicates the final range for Phase2.
Here we get a more detailed picture of the total cost and project planning.
The purchaser has the option to terminate the project if the deviation proves to be too great.
The supplier does not however have the option to pull out.
Phase 2 - Implementation
Purchaser’s goals are broken down into project goals, and then further into targets for each construction partner participant in the project.
The solution is implemented during this phase.
The economy is monitored continuously.
The project objectives are monitored as part of the project plan 2 times per year.
There is also a built-in risk sharing model for all participants. If the variable costs have a variance of more than 5% (which in turn impacts central administration costs and profit), this variance is then deducted from the profit margin.
Are there other clauses of importance in the tender documentation?
Here are some clauses worth mentioning:
- The first is that the contractors agree to use open books to ensure financial transparency and that all forms of discounts that are somehow linked to the project business is returned to the project.
- The other is that the turnkey contractor must procure their suppliers with the same contract terms. The whole supply chain, from the general contractor to smaller building shops (architects, craftsmen, planners), must follow the same rules.
- The third is a bit more quirky. We have a loyalty declaration the CEO of the contractor must sign. In short, it says that the CEO agrees that his employees are expected to make choices that benefit the project, even if these conflict with the wishes of the employer. It may sound drastic, but the project puts great trust in the participants' ability to make decisions and it is important that they feel secure that they can be loyal to the goals of the project. The supplier’s willingness to sign the declaration of loyalty is a criterion in the tender documentation.
The loyalty declaration clause was necessary to solve a practical problem. We observed that knowledgeable people whom we trust to find the right solutions hesitated to make the right choices for the project for fear of being at odds with their employers.
The financial incentives for delivering on time is not very strong. What then is the incentive for participants to overcome difficulties and to innovate during the project?
We must not forget a very strong incentive for every participant in the project - to make a difference. We put a lot of work into making sure that everyone in our project understood the effect of the goals we set and how they contribute to making this happen. This allowed every participant to feel proud that they made a difference.
Part 2 - "Project organization, decision-making forums follow-up and future"
This part is coming soon at agilakontrakt.se. Follow us on Twitter @agilakontrakt and we’ll let you know when it goes live.
Contact
Public sector in the Nordics is showing us what's possible with agile@procurement
The agile procurement conference in Stockholm, organized by members of crisp.se, is a unique format with a unique audience. It proofs what would be possible in the public sector and purchasing using agile. This blog post is about my personal summary about it. I really can recommend it, meet you there next year!
The agile procurement conference in Stockholm, organized by members of crisp.se, is a unique format with a unique audience. It proofs what would be possible in the public sector and purchasing using agile. This blog post is about my personal summary about the version 2017 from February the 22nd. I really can recommend it, meet you there next year!
The agile procurement conference brings together the agile community and it’s modern approaches with the governance authority, professional procurement managers, lawyers, customers and vendors from the public sector. Generally it was a very good mix of talks, networking and active learning. I was surprised how interested the audience followed all the talks, no matter if it was about a success story of a project (done different), frame conditions by the law (tipps and tricks to use those right) and agile practices (to improve classic behaviors).
Talks were held by (summary translated from http://agilakontrakt.se):
Lars Nilsson - how they procured and built Karlstad Hospital, an awarded project with a budget of about €1'000 million. --> Read the interview with Lars Nilsson
x-functional working groups split by customer need
- Results: Effective health care, centered on the patient, on time and with 300Mkr of the Värmland County Council.
- The most important lessons: The importance of the target work, prototyping and to remove short-term economic incentives so that all participants put 100% of their focus on building the right solutions. Those turned out more cost/time-effective in implementation and later on in usage and maintenance
Rikke Halland - On the digitized Danish Company Agency using 5 suppliers and agile contracts. A 600Mkr applications containing 29 sub-projects.
Customer & user benefits
- Results: 100 & projects delivered 100% of the budget, 80% of the time. Number of support calls / application has decreased by 40% and the average time an employee spends on each case has fallen by 69%.
- The most important lessons: The importance of shared vision, shared risk, and building a culture of learning that builds trust between the customer and the supplier was essential building blocks.
Bjorn Bergström lawyer at Ramberg, the possibilities of using Agile contracts under the LOU. Bjorn pointed to the most common pitfall for attorneys, focusing on legal definitions and details, and thus missed to create the conditions for the business objective.
Tomer Shalit client expert from Crisp how they Sussagruppen (several counties) found a moderate level when ordering healthcare solutions. The trick is to identify the needs (instead of the requirements) and create a visual overview of the content using the User Transaction Flow.
Mirko Kleiner creator of lean agile procurement from flowdays.net how a more lean and agile approach for procurement could disrupt and reduce classic procurement (Examples in Energy-/Insurance Sector) to days instead of months. The trick is to focus to customer needs (using the lean Procurement Canvas) and allow collaboration of all stakeholders at one time.
Common building blocks for these projects are:
- Clear outcome targets (and the importance of anchoring the target image of all participating parties)
- An active customer and partner
- Choosing partner of maturity and demonstrated ability (rather than promises and lowest price)
- To build the solution with partial deliveries and prototyping. (Lars showed eg. How prototypade develop new operating room before they were built)
- Visual planning and joint overview
- Collaboration and co-location
Special Thanks to Mia and her Team, it was a pleasure meeting you in person!
Find out more about the agile procurement conference visiting https://agila-upphandlingar-inom-lou.confetti.events and the organizers website http://agilakontrakt.se.
1st Survey: State of Agile Procurement
It's my pleasure to present the 1st survey "State of Agile Procurement" summarized and translated from the German, Source: Komus : Kurzstudie Agiler Einkauf (2017).
My key learning of the survey is that lean-agile procurement is leading edge and might become the option to disrupt the procurement industry. Nevertheless the transformation is still at the very beginning.
It's my pleasure to present the 1st survey "State of Agile Procurement" summarized and translated from the German, Source: Komus : Kurzstudie Agiler Einkauf (2017). My key learning of the survey is that lean-agile procurement is leading edge and might become the option to disrupt the procurement industry. Nevertheless the transformation is still at the very beginning.
Prof. Dr. Ayelt Komus published a representing survey about the state of procurement and it's application to agile in Germany. In this blog post I've summarized and translated the survey and the conclusions from the German. Find below the visualized summary. Feel free to share it!
Conclusions
Reading the results of the survey might create more uncertainty for classic procurement managers, as every change does. In his blog post Prof. Dr. Ayelt Komus concluded with the following 9 recommendations. Please find below the answers that lean-agile procurement offers you. Btw. I personally agree to all of his recommendations!
Conclusions
Answers by LAP
1. Provide basics
Every employee in the team should understand how fundamental the change is, that the business will profit from that and that the implications of these developments imply both opportunities and risks.
LAP is easy to understand, learn and to implement. It's promising improvements reduce through-put time, costs, increase transparence, cooperation with all stakeholders and so LAP meets the current market demands of agility.
→ Provide basic information on agile methods, digital transformation and, if necessary, industry 4.0!
2. Understand the specific situation
Determine with the various stakeholders how and where the agile / digital transformation makes sense and the purchasing has to be adopted.
LAP is a flexible approach, based on agile and lean principles. It could be adapted to specific situations, negotiations and even per procurement case.
→ Be clear about the specific situation in your company!
3. Appropriate differentiation
Basic variants of the purchasing process and procurement strategies should, among other things, take into account, in addition to the goods / services to be procured, your actual purchasing power, interdependent dependencies with the supplier, as well as the complexity and suitability of the trade union / service for the description.
LAP doesn't claim to be the one solution for everything. It's perfect for complex sourcing cases e.g. if the solution is not yet that clear and will be developed agile. On the other hand it could make totally sense to stick on classic procurement approaches for sourcing e.g. simple goods.
→ Ensure that the differentiation in purchasing processes and strategies is practiced appropriately!
4. Working closely together
Agile methods live from small steps, critical testing and learning curves. This applies to all areas: products, methods, techniques and technologies. All this is based on a tight and short-clocked interaction. You should also take this into account when focusing on this new topic. Look for a suitable path for your organization / projects.
One of the key aspects of LAP is improving the social integration and collaboration of all stakeholders during the whole procurement process. So that everybody needed, e.g. legal, business stakeholders, etc are involved from the beginning till the decision.
→ Work closely together - especially with the department and the legal department!
5. Develop skills and contract framework
With agile methods, the meaning of certain skills changes in negotiation, contract conclusion and accompaniment. New contract framework and procedures have to be developed. Even if any agile activity is unique. Develop solutions. You practice. Watch. Learn.
LAP is based on the same agile leadership principles, so that implementing LAP will support you in learning those and the change in paradigm. Furthermore the lean procurement canvas is an agile contract, so that you already have an important component of your new contract framework. Furthermore LAP transforms the role of the purchasing manager into an enabler, coach, moderator that facilitates all stakeholders during procurement in a much more efficient way. As a servant leader you'll become the main contact if it comes to procurement.
→ Develop appropriate skills and contract framework!
6. Make processes fit for agile shopping
Agile methods and industry 4.0 are faster and more value-oriented than traditional methods. Agile processes change the role and the typical focus of purchasing from a one-time purchasing activity before the service delivery to a sustainable accompaniment also during the service provision. Ensure that your processes can keep pace with procurement. Provide the basis for the implementation of the advantages of agile methods in the process of purchasing the implementation, control security and transparency.
LAP is fokusing to the users and customer needs instead of their wants. On the same time LAP is looking for building an oekosystem of sustainable partners instead of just finding the one-time, most cheap vendor. This ensures the maximum business value and the needed flexibility for innovation. Note: The lean procurement canvas is also a tool for partner management.
→ Make your processes fit for agile purchasing!
7. Reflect the profiles of the employees
Consider what new requirements mean the new agile processes and success factors of purchasing. In many places, changed skills and tendencies will gain in importance. Against this background, you should reflect the current profiles of your employees and colleagues. Check the personnel development options and selection / promotion criteria.
LAP requires a deep understanding in agile principles, better an agile mindset. The employees in procurement will find out hands-on in the CLAP workshop if there fitting the new requirements.
→ Reflect the personality traits, abilities and tendencies of your employees!
8. Use Agile methods
Agile methods have been so widely used already. Even innovative legal and purchasing departments already use the opportunities of agile methods and principles. In the best possible way, you can only support procurement in an agile context if you also take advantage of agile methods.
LAP is the first pure agile approach for procurement. All it's elements are agile, so that the implementation of LAP will be agile too.
→ Use agile methods also in your processes!
9. Start today!
Agile methods mean continuous development, continuous improvement. So there is no reason not to start today and start the learning process. Avoid paralysis through analysis - especially in an agile context.
LAP and the lean procurement canvas are ease to understand on the first view. However, the lean procurement canvas and the moderation of a big room planning session with 20 and more people is never easy. Hands-on exercises, real cases and our agile coaches will help you to understand LAP more deeply.
Register for the next certified lean-agile procurement workshop today and become a wanted expert, that has a promising option to transform the world of procurement into agile!
→ Start today!
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Download the visual summary for FREE and join the lean-agile procurement community
Thank you!
A big thank you to Prof. Dr. Ayelt Komus and the University of Applied Science Koblenz, Germany for sharing the results of their survey.
1st purchaser of the book: lean-agile procurement
It feels awesome, the book is in a very early state and the first purchaser decided to buy the book. Thanks a lot!-This motivates us to continue our journey
It feels awesome, the book is in a very early state and the first purchaser decided to buy the book. Thanks a lot!-This motivates us to continue our journey
GOTO Night with Mirko Kleiner & Joe Justice
The GOTO Night with Mirko Kleiner & Joe Justice was split into 2 parts. First the Inspiration Speech by Mirko Kleiner, the Creator of Lean-Agile Procurement presented a new promising approach for procurement, followed by an intro in scrum@hardware by Joe Justice, CEO of Wikispeed and Scrum@hardware at Scrum inc. The Slides, as well as impressions are published in this blog post
The GOTO Night with Mirko Kleiner & Joe Justice was split into 2 parts. First the Inspiration Speech by Mirko, the Creator of Lean-Agile Procurement and co-founder of flowdays presented a new promising approach for procurement, followed by an intro in scrum@hardware by Joe, CEO of Wikispeed and Scrum@hardware at Scrum inc. The Slides, as well as impressions are published in this blog post. Thank you very much for your interest and your awesome feedback!
A warm thank you to the Organisators of Trifork!
Find out more about the participants and there Feedbacks at Meetup
Recorded talk (45mins)
SLIDES
After my talk Joe gave an intro in scrum@hardware and told us why with that approach wikispeed is able to build twice the teslas in half of the time. Find some impressions below.
Upcomming classes with Joe about scrum@hardware you'll find below:
Contact & Speaker
Interview (German): «Agile as Enabler for effective IT-Procurement»
Mirko shows with Lean-Agile Procurement a more agile Alternative to the current procurement Approach. In the Interview with Netzwoche he explains, why a more agile procurement is a win-win for the customer and the vendor.
The Interview was published in German in the print magazine and online.
Mirko shows with Lean-Agile Procurement a more agile Alternative to the current procurement Approach. In the Interview with Netzwoche he explains, why a more agile procurement is a win-win for the customer and the vendor.
The Interview was published in German in the print magazine and online.
Contact & Interviewee
Agile Breakfast 08/2016 - Intro in Lean-Agile Procurement
At Agile Breakfast Luzern August 18th 2016 flowdays presented Lean-Agile Procurement to bigger audience of agile experts at once. The feedback was positiv!
Find in this post the slides of the speech and some results of the open space.
At Agile Breakfast Luzern August 18th 2016 flowdays presented Lean-Agile Procurement to bigger audience of agile experts at once. The feedback was positiv!
The Agile Breakfast at August 18th was split into 2 parts. First the Inspiration Speech by Mirko Kleiner, the Creator of Lean-Agile Procurement followed by an Open Space. The Slides, as well as the results from the Open Space are published in this blog post.
We kindly wanna say thank you to the Organisators and SwissICT !
find more about the participants there Feedbacks at Meetup
SLIDES
Results from the Open Space
Contact & Speaker
US Department of Defense (DoD) embracing Agile contracts
Under the direction of Jeff Sutherland (Co-Creator of Scrum) the US Department of Defense has begun to embrace Agile contracts for procurement
Under the direction of Jeff Sutherland (Co-Creator of Scrum) the US Department of Defense has begun to embrace Agile contracts for procurement.
Read a summary of the " Greater Accountability and Faster Delivery Through Modular Contracting "
Their solution is called "modular approach", where the core is incremental delivery and that the specification can be rewritten after each delivery. A typical contract shall contain at least 3 deliveries per year. Read about their procurement guidelines and order " Contracting Guidance to Support Modular Development ".
Thanks to http://agilakontrakt.se for the summary.