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Getting better value from complex system procurement

By Paul Finley, Harjit Lota and Ben Barnes, PA procurement experts

Procuring complex systems and getting good value for money is difficult. To achieve it, your business must understand not just the range of suppliers that could supply the system or its sub-systems, but also exactly how to maximise value for money.

One key problem is that technology and system suppliers often seek to optimise their position in the market by offering complete system solutions. But to get the full functionality that you need in a single, off-the-shelf procurement often means buying elements of functionality that you don’t need – diminishing overall value.

Just as importantly, complete system solutions typically include bespoke or modified interfaces that increase the integration risk if you seek to source sub-system components from alternative suppliers. Through-life support for such ‘closed’ sub-system interfaces is likely to be expensive.

Retaining control of internal interfaces opens up a range of commercial and engineering approaches that can help you get much greater value for money from your complex system procurement.

Achieve value for money through architecture management

To maximise value for money, you will just need to buy the functionality required to support your business through the full lifetime of the system. So understanding the architecture of the proposed system, where sensible partitions and key interfaces exist, and what the integration risks might be is key. This will enable you to understand the full range and mix of suppliers that could meet the needs of your business, putting you in a position to choose from the full range of supply options and to choose the approach that promises the best value for money.

Even if your organisation doesn’t have the in-house capability to undertake the system partitioning that enables this approach, it is still possible. Many independent systems engineering and design houses offer this expertise, which can be much cheaper than maintaining an in-house capability. 

Choose the right commercial model

The right commercial model will allow you to deploy incentives that promote open supplier behaviours, introduce competition for the supply of sub-systems and manage integration risk effectively. Options include:

  • A market-driven model – This establishes an architecture that makes it easier for new suppliers to come into the market, stimulating innovation and encouraging competitive pricing.  A market-driven model puts your organisation in a position to develop the market and gives you significant influence over supplier performance.

  • An innovation-driven model – This is all about nurturing future technologies and gives your organisation the chance to gain control of intellectual property that may confer a significant competitive advantage in future.

  • A framework-contracts model – This allows your organisation to secure a better price from suppliers in exchange for long-term contracts. The desire to hold onto a contract can serve as a powerful motivator for suppliers.

  • An architecture-driven model – This ensures the new system is designed exactly to your organisation’s requirements, and offers you strong control over key interfaces and the precision with which the initial requirement is met. It also sets out very clearly the product packages that must be procured, helping to simplify the procurement process.

We have helped a major organisation in the defence sector implement two of these approaches on a single complex procurement. We defined the system architecture using a combination of:

  • a market-driven approach – where non-customised off-the-shelf solutions could be used and integrated into the wider system architecture

  • an architecture-driven approach – where integration with legacy systems and hence careful interface management was required.

By understanding the system architecture and how it mapped to options for the commercial model, this organisation has secured tailored functionality and great value for money.

Of course, the initial procurement is only the first step. Maintaining a wide supplier base for through-life support can help to ensure security of supply and maximise value for money over the full lifetime of the new system.

Be clear on how you want to handle systems integration

To ensure the successful delivery and operation of the new system, your chosen commercial model must be coupled with an effective engineering approach. If you have approached multiple suppliers to procure exactly the functionality you want, you will need to find an effective way to manage integration. There are plenty of options:

  • Act as the prime systems integrator yourself – This allows your organisation to retain control and, with the support of an expert partner, can be an option even if you have no integration capability in-house

  • Divide responsibility for integration among individual suppliers – This is suitable only where there are clear boundaries between sub-systems and limited integration is required

  • Make a major supplier responsible for integration – This is useful if one supplier is expert in the delivered system, but beware of bias on the part of the supplier, which can produce less than optimum results

  • Appoint an independent systems integrator – This enables an architecture which is independent from suppliers without the cost of maintaining an ‘in-house’ capability, but you have to know that the integrator is good and has sufficient vested interest in your success

  • Promote collaboration among suppliers – This can provide access to a wide skill and knowledge base, but can also introduce commercial and operational management issues.

Plan to maximise value for money from the start

Cost overruns on major new systems are often attributed to poor project management. In fact, for many projects, the die is cast even before the new system is procured. A system architecture that puts control of key interfaces in the hands of system and sub-system suppliers limits opportunities for developing commercial and engineering models that improve value for money and supportability though-life.

As commercial and competitive pressures continue to increase in many sectors, getting great value from complex system procurement will become more important than ever. Intelligent system architecture that anticipates and addresses the issues around procurement and integration can go a long way to getting programmes off on the right foot.

To find out how we can help your organisation get better value from your complex system procurement, please contact us now.

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