L4M3 Chapter 2 Notes

To test yourself, try 40 L4M3 practice questions here (paid)

 

2.1: Specifications

2.2: KPIs

2.1: Specifications

The specification needs to cover the Five Rights of procurement.

Recap: Types of specifications:

•        Conformance (or input-based) specifications

•        Performance (or output-based) specifications

•        Outcome-focused (end goal focused rather than specific performance)

 

Market dialogue to refine specifications

Suppliers may share their specifications / catalogue openly as this is business development for them. This is convenient for procurement teams looking to build a specification.

This also helps procurement professionals keep up to date with developments in the market. It would be good practice to initiate market dialogue early in the sourcing process.

How do you start market dialogue?

• This can be quite informal, but it’s important to have clarity on what you want e.g. why are you reaching out to them? What are your intentions over the procurement?

• When doing market dialogue, it is good to involve a broad range of stakeholders, since they will have an interest in the product. Bear in mind that there is a risk of leaking of information

• In the public sector, this could be quite sensitive, given a need to maintain public perception that competitions aren’t being biased

• It’s important to do dialogue fairly and openly

• Dialogue stops once the procurement begins, to prevent bias

• Generally, procurement professionals in the public sector should frequently engage the market, to keep abreast of developments.

There are different types of market dialogue, ranging from very early in the sourcing process (just networking), through to formal negotiations.

The usual best practices of formal meetings apply i.e. taking minutes and sending these around, following up on questions raised and reviewing progress against these over time.

 

Drafting the specification

Procurement needs to follow solid project management principles. This starts with project scoping.

• Who will draft the specification?

• Do we need to create it from scratch? If not, how can we iterate an existing one?

• Define the technical bubble / constraints around the specification

• Stakeholder management plan for the iteration of the specification

Iterating a sample specification: this is basically an existing specification.

• Some sample specifications might be easily available, but if it’s more complex, this might be more difficult

• There will be sensitivities around the sharing of these; suppliers will use specifications to influence the requirements setting, but may require non-disclosure agreements (NDAs) to prevent loss of IP

• This sample specification should then be iterated.

• Does it fit your needs?

• What do other stakeholders in the organisation think?

• Does it align with your regulatory and legal requirements?

 

Advantages of sample specifications

• Saves time

• May align to industry standards and best practices

• More likely to align to regulatory requirements

 

Disadvantages of sample specifications

• Could bias your requirement in a certain angle

• Parts of it might not be relevant

• It might be outdated

 

What methods can enable specifications to be written quickly?

• Use industry / legal standards e.g. ISO-9001 quality standard.

• You can narrow the range of possible outcomes by using recognised brands (this isn’t recommended as good practice, particularly in regulated environments)

Key parts of a specification

• Version control table

• Context / background for the specification

• Technical requirements: the characteristics of the product required, timescales, location etc

• Legal and regulatory standards

Ultimately, specifications will go into the contract and therefore be legally binding. This can take a long time, with a lot of input required from various parties, including lawyers.

You might want to standardise requirements. This has positives and negatives when compared to maintaining a range of products.

 

Positives of standardising requirements	Negatives of standardising requirements
Assured level of quality	Lack of product variation
Universally recognised in industry	May stifle innovation
Enables suppliers to specialise, creating economies of scale benefits	May restrict exportability

2.2: KPIs

Why are KPIs used? Key performance indicators are used to monitor contract performance.

• It enables performance management, both in a positive and negative sense

 

KPIs need to be strategic (remember SMART objectives). You would ordinarily only need 5-6 KPIs.

 

3 types of KPIs:

• Qualitative: more intangible, opinion-based e.g. through surveys

• Quantitative: this is a statistic that can be measured

• Binary: a yes or no measure

You need to be able to measure KPIs with the right data. You might use:

• ERP or other enterprise system data on supplier or buyer’s side

• Self-reporting data from a supplier

• A third party monitoring service 

Also think about the costs associated with the above: it might be too expensive to collect that data.

 

For a quantitative KPI, you’ll need to visualise what ‘good’ looks like; for example, you might want to use a ranking system to track whether a given number is good enough or needs redress.

• It’s important that the KPIs align to the specification i.e. that the ranking matches to the expectation of ‘good’ under the specification

 

When setting a KPI, you need to think about what’s worth measuring, and then the practicalities/governance of this (i.e. regularity of data collection, who reports it and the data source).

 

Remember ‘IPA’ when thinking about good KPIs: Important, Potential Improvement and Authority. Basically: 

●       Is the data you’re collecting important?

●       Would collecting it lead to some improvements?

●       Do you have the authority to collect it?

 

Service-level agreements (SLAs)

This is an important part of a contract, defining the minimum level of service that the buyer can expect.

It would include things like:

• Levels of service

• How the above will be monitored and frequency of review

• Escalation procedures and remedies

• The responsibilities of both parties to fulfil the SLA

As usual, if a supplier has provided it themselves, this needs to be scrutinised since it would be on their terms.

Benefits of good SLAs (these are similar to KPIs):

• More clarity on what is being measured and what ‘good’ looks like

• Helps focus attention and build transparency in contract management

• Makes monitoring easier for the buyer since the process has already been defined

How you create an SLA

• Gather information

• Negotiation and clarifications

• Drafting and consultation

• Implementation

• Ongoing monitoring

 

You can download these notes here for a small fee!