Slide 1

Wayne Muckley

Head of Procurement, National Nuclear Laboratory Limited

Transforming Procurement and the Supply Chain to Deliver Value for the National Nuclear Laboratory

28 September 2010

Slide 3

Overview

•Introduction

•National Nuclear Laboratory - background

•Historical Procurement process

•Strategic Procurement

•Successes 2005 to 2009

•2010/11 way forward

•Questions

Slide 4

National Nuclear Laboratory – Heritage and Timeline

• Pre 1996: Multi Centred Nuclear Technology

• 1996: Integrated Research and Technology

• 2003: Nuclear Sciences and Technology Services

• 2003: Acquired AEA (T) Nuclear Science Business

• 2004: Shadow Subsidiary (NSTS)

• 2005: Full Subsidiary Status (Nexia Solutions Ltd)

• 2008: National Nuclear Laboratory

• 2009: NNL Managing Contractor

Slide 5

SBM - NNL Managing Contractor

• Atomic Weapons Establishment

• National Physical Laboratory

• Dalton Nuclear Institute

• 7 National Laboratories

• 2 International Laboratories

Slide 6

Shareholder ExecutiveNNL Ltd Board - Chair, 2 Non-

execs, 3 execs

Management Contract

• Management Secondees

• Reach-back

• 3yr+1yr+1yr contract

• Deliver Strategic and Business Plans

Executive Leadership Team

Management Structure

Department of Energy and Climate Change (DECC)

Slide 7

National Nuclear Laboratory

Governance

• Government owned Contractor operated (GoCo)

Funding

• Commercial/Customer

Operation

• Managing Contractor

Slide 8

National Nuclear Laboratory Vision

Our Vision for the NNL is:

To become a valued and successful nuclear science and technology laboratory, world renowned for its exceptional staff, cutting edge facilities and excellent value

for money.

Slide 9

National Nuclear Laboratory

• International nuclear R&D centre

• Support new build and clean up

• Safeguard nuclear expertise, facilities and skills

• Deliver value for customers

• Trusted advisor

• Collaborations/Partnerships/Links

• Socio-economic focus

Slide 10

The Role of National Nuclear Laboratory

Slide 11

• Sellafield (429 people)

– Central Laboratory (288)– Windscale Laboratory (141)

• Workington Laboratory (51)

• Springfields– Preston Laboratory (139)

• Risley (144)

• Stonehouse (16)

• Harwell (14)

National Nuclear Laboratory - Facilities

Slide 12

Historical Procurement Process

Symptoms: -

• Poor relationships

• Increased sole source

• Inappropriate T’s & C’s

• Reduction in negotiation power

• Poor payment profile

• Value for money not achieved

• Process / project delays

• Increase existing barriers to entry

• Reactive, transactional Procurement

• Procurement becomes last option problem solver

Time

Historical State

Invo

lvem

ent

Business Development /

Operations

Procu

remen

t

Slide 13

Example / Impact of Bad Practice

Examples: - Impact: -

No contract management Potential late deliveries

Advance payments Retention of Title

Informal discussions Invalidation of Contract

Sole source justification Supplier views and treats NNL as a captive customer

Work not competed NNL’s customers do not get value for money

Not involved at estimating Work not competed; wrong supplier selection; opportunism; no T’s & C’sunnecessary delays

Slide 14

What suppliers can be good at!

•Creating relationships

•Profit maximisation

•Reducing accountability

•Creating confusion and contractual ambiguity

•Opportunism

•Social capital

•Manipulating / Creating barriers to entry

•Avoiding Procurement

Slide 15

Three Key Strategies for Adding Value - 2005

Added Value

CustomerService

Least CostAcquisition Internalisation

Slide 16

Strategic Aspects

Estimating / Bid

Staff & Support

Purchase Order

ProcessingDocumentation

Supplier Performance

Slide 17

Estimating Process

•Must engage Procurement at estimating stage

•Notification to be as early as possible – if you are going to the supply chain tell us in advance

•Peer review of technical specifications

•Joint efforts in delivering best practice

•Regular reviews

•Internal learning via vendor management

Slide 18

Vendor Management

•Vendor management / Close out reports

•Historically, NNL was perceived as a “Soft Touch”

•Measure supplier performance

•Static data – accreditation, financial, capability

•Evolving data – supplier performance

•Contract management

•Non conformances

•Close out reports

•Organisational learning / Supplier development

Slide 19

Current Procurement Process

Benefits: -

• Appropriate supplier selection

• Robust T’s & C’s

• Competed work

• Incentivised suppliers

• Improved order processing

• Proactive management of suppliers

• Reduction in process delays

• Risk reduction in supply chain

• Appropriate risk sharing

• Introduction of new suppliers

Time

Current State

Procurement

Business Development / Operations

Invo

lvem

ent

Slide 20

Opportunity

Project inception(22%)

Supplier contact(18%)

Supplier selection(10%)

Checking the contract(2%)

Degree of involvement in goods and services10% 25% 50% 75% 100%

Savings

Savings

Savings

Slide 21

Successes – 2005 to 2009

• Cost savings in excess of £1m per annum consistently achieved since 2005/06

• Procurement seen as a strength in 2007 & 2008 Management Reviews

• Process now focuses on strategic aspects

• Team strengthened – internally / externally

• Supplier opportunities – NNL website

• Customer surveys 2005 & 2008 – improvements

• Executive sponsorship 2009 – reduce transactions, category management, operational efficiency, CI event

• Team size reduced by 25% in 2009, move Procurement up the value chain

Slide 22

Reduce Transactional Activity

Threshold No of PO Lines

% of all PO Lines

Value PO Lines

% of Overall Value

< £500 8,733 75% £813k 2.4%

< £1k 9,535 81% £1.4m 3.9%

< £5k 10,714 92% £4.1m 11.9%

Threshold No of PO Lines

% of all PO Lines

Value PO Lines

% of Overall Value

< £500 6,241 69% £619k 1.6%

< £1k 6,989 77% £1.1m 3.0%

< £5k 8,147 90% £3.7m 9.7%

2008/09

2009/10

Slide 23

2010/11 Procurement Strategy

Strategic Objective Procurement Objective

Strategic – support growthSound commercial footing

Deliver agreed benefit target

Continuous improvement (CI)Operational efficiency Standardise procurement

processes & tools

Maintaining skills Develop capabilities & performance

Slide 24

Strategic – support growth

Critical Success Factor

•Procurement delivers sub-contract solutions which contributes to NNL’s EBIT and turnover

Understand functional plans

Understand facility cost base

Involvement in key bids & NNL strategy

Reduce fixed price / incentivisation sub-contract costs

Slide 25

Deliver agreed NNL benefit target

Critical Success Factor

•Deliver £500k Towards NNL 2010/11 EBIT target

Agree benefit target with ELT

Track benefits through NNL Procurement Plan

Prioritise to focus on EBIT

Category management – NNL specific, NDA Shared Services, Serco reach-back

Slide 26

Continuous improvement

Critical Success Factor

•Deliver efficiency improvements in procurement processes

Review and implement CI recommendations

Further deployment of onecards

Implement e-catalogue links from Agresso

Supplier reduction through education and challenging the business

Slide 27

Supply Chain Management

TACTICALPROFIT

Leverage

TACTICALACQUISITION

Routine

STRATEGIC CRITICALStrategic

STRATEGICSUPPLY

Bottleneck

% of Total expenditure

Riskand/or

Exposure

Automate / simplify

Slide 28

Standardise procurement processes & tools

Critical Success Factor

•NNL Procurement has standard processes & tools

Review and implement CI recommendations

E-tendering & evaluation introduced

More effective supplier relationship management

Improved intranet page

Approved suppliers list

Supplier Sourcing& Negotiation

Contracting with selected supplier

Contract implementation & P2P

Supplierperformance management

Slide 29

Develop capabilities and performance

Critical Success Factor

•Procurement team deliver against stretching personal performance objectives

Set objectives in line with NNL Business Plan

Use new NNL performance management process

Review skill levels and what needs to be done to close skills gap

Continue regular 1:1s

Slide 30

Summary - From Tactical to Strategic

1 Infant Fragmented2005

2 Awakening Realisation of savings potential

3 Developing Control & development of price / negotiation 2009

4 Mature Specialist buyers, cost reductions, supply base management

2010

5 Advanced Supply chain management, relationship management, leverage buying

Target

Slide 31

Summary

• Clearer understanding of National Nuclear Laboratory

• Three clear strategies for adding value in 2005

• Focus on strategic aspects of Procurement

• Procurement – enabling competence

• Successes: -

• Move Procurement up value chain

• Reduce transaction activity

• Procurement Strategy 2010/11

Slide 32

Questions?