Productivity Partnership Newsletter October 2012

PROMOTION

INVITATION TO AUCKLAND PROCUREMENT FORUM

You’re invited to contribute to shaping the future of Auckland’s construction sector at the Auckland Procurement Forum’s industry event on 16 November.

Guest speakers include the Hon Maurice Williamson, Minister for Building and Construction.

This Productivity Partnership initiative is a rare opportunity to collaborate with Auckland’s largest construction clients and senior members of the building and construction sector to provide a combined view on future capital investment across the Auckland region. It will provide a better understanding of the future state and nature of the Auckland construction market. The end goal is to improve the efficiency of construction planning and delivery processes.

If you would like to attend this event, please email

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FEATURE

TAKING STOCK AGAIN

The Partnership has revisited a cross-section of the construction clients it interviewed last year to reassess their procurement readiness for the Canterbury rebuild. This Canterbury stocktake is about understanding procurement initiatives being developed as part of the Canterbury rebuild and promoting innovative procurement approaches arising from it.

Partnership Programme Director Peter Cunningham and Partnership Secretariat Manager Chris Kane talked to CERA, SCIRT, Christchurch City Council, Selwyn District Council, Canterbury DHB, the NZ Transport Agency and a range of construction firms, supply chain organisations, PMOs for insurers, and legal services agencies. This work builds on Peter’s Canterbury Procurement Project report published in December 2011 in conjunction with Constructing Excellence NZ.

“We took the opportunity to update our baseline information and get a fresh view of the forward workload in Canterbury,” says Chris Kane. “We found that construction clients are collaborating more with supply chain partners, mindful of the anticipated increase in workload in the next six months. There is a high degree of enthusiasm for establishing a Canterbury procurement forum, similar to the one we set up in Auckland.”

The information gathered in the stocktake provides a useful view of procurement models and captures the relationships between different participants throughout the construction supply chain. It also links to the Ministry of Business, Innovation and Employment’s work in supporting CERA with Canterbury’s rebuild and recovery.

“We hope that learnings from Canterbury can be applied more widely to other parts of the country and the construction sector,” says Chris.

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FEATURE

RESEARCH IN ACTION IN CHRISTCHURCH

The Partnership’s Evidence Workstream hosted its second Research Action Workshop on 11 September. Following on from the first workshop in Auckland in May, this workshop was held at the Christchurch Polytechnic Institute of Technology (CPIT) and focused on residential and Christchurch projects.

“Our research on the Canterbury rebuild is starting to show important results in terms of improving productivity and we wanted to share those with the industry,” says Evidence Workstream Leader, Dr Helen Anderson.

Strong emerging themes from the Productivity Partnership’s Christchurch case studies are:

The workshop also looked at Canterbury labour market dynamics and explored the big question of whether enough people with the right skills will be available when the big flood of recovery work starts to flow.

The programme featured speakers from both the industry and Partnership on topics as varied as how procurement practice is changing in Christchurch, the productivity challenge for Canterbury’s construction SMEs, and a demolition recycling pilot run by GIB. The workshop was facilitated by Kevin Golding of Winstone Wallboards and provoked lively discussion among 50 attendees including representatives from CERA, RMBF, construction companies and local authorities.

An industry panel chaired by Mainzeal CEO and Partnership Governance Group member Peter Gomm concluded the formal part of the day, and participants also took advantage of an opportunity to visit the HIVE exhibition showcasing prefab homes at Canterbury Agricultural Park. The industry panel was very helpful for researchers to understand the practical challenges facing the industry in Canterbury.

Regular workshops provide important pulse points to touch base with industry throughout the implementation of the Partnership’s Research Action Plan. If you are interested in participating in future Research Action Workshops please email:

View the presentations and summaries from the second Research Action Workshop.

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GUEST COMMENTARY

VALUE BUILDER – MIKE BLANCHARD

MANAGER, SOURCING SUPPLY AND CONTRACTS, TRANSPOWER AND MEMBER OF THE PRODUCTIVITY PARTNERSHIP’S PROCUREMENT WORKSTREAM.

Does “good procurement” create value?

Let’s start with the old adage “if you don’t measure it, then you can’t manage it.” The first step is to know your procurement environment and then quickly understand what your organisation does and what issues it is facing. Are you tactically purchasing? Do you have multiple procurement processes? Do you know what your supplier spend is? Do you know how many suppliers you have? Are you a customer of choice or are you a customer who is being exploited? A customer of choice consistently receives competitive preference for scarce resources across a critical mass of other customers. This is symbolised by productivity improvements, preferential supply, availability and service innovation.

Once you have grasped all this, then you can decide how you are going to strategically manage your environment. “Why bother?”, I hear you ask. Well, short-term decisions that you haven’t thought through usually end up costing you money. Short-run manufacturing always adds a premium (manufacturing volume, cost to tool up, etc). Customisation and/or specialisation are other areas that drive costs up.

In a crowded, global supply market New Zealand is always going to find it difficult to secure supply when we are purchasing volumes that are low compared with the rest of the world. We are an island nation with a very long supply chain, only accessible by sea and air, so cost and security of supply become issues that cannot be ignored.

After you have segmented your suppliers, then you introduce supplier relationship management for your top/key suppliers. (Note, this is not just about $ spend - it is also about delivery importance and supply risk to your business.) Put a framework around the delivery expectations of your stakeholders. Make sure that suppliers don’t divide and rule. Manage them to achieve consistent delivery and then look to working with them strategically.

Become a customer of choice

As a global supplier why would I deal with you when you don’t buy much in global terms? How do you become a customer of choice? If you are only a small percent of the global spend in your industry (like we are at Transpower), how do you make yourselves attractive?

Procurement diamond

Finally, value is not purely about delivery on time and on budget. In procurement, we have to look at what is commonly known as the procurement triangle (time, cost, quality). Poor quality deliverables can significantly increase costs. Procurement in Transpower does not use the triangle but a diamond. Along with time, cost and quality comes safety. This is our number one consideration in all that we do. There is a cost associated with administering a zero harm and safe environment. However, evidence has shown that, when accidents occur in the supply chain, costs can escalate considerably – let alone the impact they have on people’s lives.

Mike’s tips for creating value through procurement

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PARTNERSHIP PEOPLE

RICHARD MAY

PRODUCTIVITY PARTNERSHIP PROCUREMENT
WORKSTREAM LEADER AND DIRECTOR OF PMMS
(GLOBAL SPECIALISTS IN PROCUREMENT)

Procurement people sometimes complain they’re not invited to join the
conversation when it comes to key decisions on construction projects and at company “top tables”. Richard May believes the solution often lies in their own hands. Recognising that procurement is actually an important, and often strategic, business process and being able to speak the same language as the industry enables a different level of understanding.

“If you talk about procurement, a builder is likely to say ‘What the bloody hell is that?’ because the construction sector recognises it differently,” says Richard. “For example, some confuse quantity surveying with procurement.”

Business view of procurement

He took over as Chair of the Partnership’s Procurement Workstream in 2011 because he was intrigued by the issues surrounding procurement and the sector. “I hoped I could make an improvement to sector productivity through my global, business view of procurement.” When Richard returned to New Zealand in 2007 after many years overseas there were few in that space and he was delighted to be invited to become involved in the Government’s procurement reform programme from its early days.

Richard’s perspective on procurement comes from years working for Dow Chemicals – building and running chemical plants, becoming involved in business and then a serendipitous crossover into procurement as Dow’s Procurement Manager for Australia/New Zealand and then Procurement Director Asia Pacific. This also saw him move from Toronto to Melbourne to Hong Kong. “From not knowing anything about procurement, I was given the task of reviewing procurement practices across 13 countries, working across many different cultures and functions in an organisation that was growing very fast,” says Richard.

“It was fascinating. What struck me was that, whether you were in an IT, engineering or marketing function, procurement was a consistent, thinking, business process but the people at the front end of the process often didn’t get any training in it, even though that was when you could add the greatest value. In my own case, I had been responsible for building a $50 million chemical plant without understanding procurement. Incredible when you think about it! I realised people often didn’t ask the right questions, like ‘Should we outsource this or do it ourselves?’ or ‘What combination of carrots or consequences will make a difference to a supplier’s performance?’.”

Developing procurement capability

In 1994 the insights Richard gleaned from Dow enabled him to set up a consultancy focused on helping businesses develop better procurement capability to lift their overall performance. This became linked to the UK based PMMS consultancy group. “I became their Asia Pacific arm with a partner in Sydney and we established a reputation in the emerging area of strategic procurement. We moved from sector to sector – from airlines (re-engineering the procurement processes for Cathay Pacific, Air New Zealand and Ansett) to the building and construction sector.

In 2007 he and his Korean wife decided their son and daughter needed the “reality check” of Kiwi life and returned to Richard’s hometown, Wellington. Richard divides time between a home at Raumati Beach and a city apartment. He loves the small city feel of Wellington and takes time out playing a bit of golf, skiing and following current affairs and sport. He has an interest in a Wairau Valley vineyard which had its first harvest this year. For Richard, sitting down to tackle a cryptic crossword with a glass of excellent pinot noir tops it off.

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PEOPLE MOVES

APPOINTMENT

The Productivity Partnership has a new Programme Director – Peter Cunningham. Peter comes to the Partnership from Constructing Excellence NZ with the right tools in his belt to take the Partnership through its next phase.

“The Partnership is at a critical stage in its evolution,” says Peter. “It has spent the last 18 months establishing itself as a successful, joint government and industry initiative. There’s a lot of goodwill from industry and support within government for the Partnership and that’s of great credit to the people who have led it. My role is to take it forward into a new phase focused on delivery and implementation.”

Priorities

Peter’s priorities in the Programme Director role, working closely with Productivity Partnership Secretariat Manager Chris Kane and the secretariat team, include:

The Partnership also contributes to the broader Ministry’s key priorities which include:

“The Partnership is directly involved in the last of these priorities and has the capability to make a huge impact on the other two,” says Peter. “So the Partnership has a fairly critical role to play for the Ministry and for the industry going forward.”

Background

Peter is well positioned to make a difference. His background over the last 12 years is in construction industry reform. Prior to moving to New Zealand in March 2010, he worked for Constructing Excellence in the UK (and its predecessor organisations) straddling government and industry to drive change in the UK construction sector following the Latham report in 1994 and the 1998 and 2002 Egan reports. Prior to joining CEUK, Peter worked for major UK contractor firm Mowlem ($1.5b turnover) in their building division. On arriving in New Zealand he joined Constructing Excellence NZ to manage their Construction Clients’ Group and worked closely with the Productivity Partnership, managing and delivering projects on behalf of the Partnership.

Mutual benefits

Peter now works two days each week with the Partnership and two days on MBIE business, reporting to Building and Housing, Director Canterbury Recovery, David Kelly, who has overall responsibility for matters relating to the Christchurch rebuild. Peter says there are mutual benefits from the cross-over of responsibilities. “The two roles dovetail well. Some of the projects and initiatives we are delivering in the Partnership are critical to the Government’s aspirations for the Christchurch rebuild,” says Peter. “Being part of MBIE provides a bigger platform for industry to have a voice.”

He intends to build on the goodwill already attracted from industry for the Partnership. “The work done to date has been fantastic and reflects the skill, energy and commitment of the Board and workstream leaders. The team are really looking forward to the next phase of activity and working towards our overall goal of delivering a 20% productivity improvement by 2020.”

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