Making Spend Matter Toolkit - Vila Nova de Famalicão basic and advanced spend analysis case studies

The following case studies provide practical examples of how Vila Nova de Famalicão carried out the following two processes to understand, explore and adapt the Making Spend Matter Good Practice into their city:

Core transfer (basic spend analysis)
Optional transfer (advanced spend analysis, developing a strategic approach to public procurement, SME engagement and using social and environmental criteria)

Basic spend analysis case study

Vila Nova de Famalicão (Famalicão) is based in North- Western Portugal and came to the Making Spend Matter Network with a desire to change and improve the way in which the Municipality in particular undertakes procurement. Famalicão understood the good practice of Preston and the accompanying spend analysis tool as being about three things:

First, they saw the tool as a way in which they could understand and measure procurement spend, with this measurement being about where money goes geographically, which sector, and in business type terms.
Second, they saw spend analysis as the fundamental starting point to a more strategic approach to public procurement. By this, they meant that the findings could be used as evidence to shape aims and objectives for a Strategic Procurement Plan, and as the basis for doing procurement differently, particularly in terms of embedding local economic, social and environmental considerations into the process.
Third, Famalicão saw spend analysis as a tool that was useful for the city itself and a key political and policy making instrument - spend analysis has given Famalicão access to data that they never gathered and measured previously.

They therefore created their own bespoke database which was relevant to their circumstances and which enabled them to collect information about activity sector and supplier size, in particular;

Adapting the methodology

Famalicão made four main changes to the spend analysis tool to fit their local circumstances and contexts:

First, they recognised that the way in which they currently collected data around procurement did not give them the right information to undertake such spend analysis - they therefore created their own bespoke database which was relevant to their circumstances and which enabled them to collect information about activity sector and supplier size, in particular;
Second, they recognised that municipality spending contained lots of different facets (goods and services, contracts, HR, financial costs, transfers, and others) - they therefore split their analysis down into different facets of this spend, with the spend analysis focusing specifically upon the 'goods and services' and 'contracts' categories;
Third, whereas Preston looks at two key geographies in their spend analysis, Famalicão decided to explore three, namely Vila Nova De Famalicão, Ave Sub Region, and North of Portugal;
Fourth, Famalicão adapted the way in which the sectors of suppliers were categorised. Instead of industrial classifications, they used internet searches and Tax Identification Numbers.

In the last two months, all that was going round in my head were names, numbers, zip codes, sector, division and subclasses of the activity... Actually, I am talking about 3000 suppliers! That's really a lot! After this step... that was the time to start the spend analysis of the Municipality.
Pivot tables, Excel formula, charts... that what I really needed to go beyond the spend analysis tool that was given by our partner leader'.
Carla Franco, Famalicão URBACT Local [stakeholder] Group Coordinator

The spend analysis findings

Famalicão undertook spend analysis for each of the years of 2017, 2018 and 2019 exploring 44 Million Euros, 35 Million Euros, and 40 Million Euros respectively. In terms of findings, the following was identified:

Spend in Famalicão has fluctuated from 45% in 2017 to 36% in 2018 to 38% in 2019, with spend in the Ave Sub Region being 48% in 2017, 41% in 2018, and 43% in 2019;
Spend with SMEs has consistently been 83%-84% in 2017 and 2018 but in 2019 has increased up to 91%;
The sectors with the highest levels of spend have been consistently: collection, treatment and water distribution; construction; and electricity, gas, steam, hot and cold water and cold air.

Interpreting the findings

Famalicão has largely viewed interpretation of spend analysis being about broadening out the types of analysis they can undertake. They have concluded that levels of spend in Famalicão, Ave Sub Region and North of Portugal are already relatively high and are therefore focusing their interpretation on the other aspects of advanced spend analysis (see case study on Advanced Spend Analysis), and in particular upon understanding the impact suppliers have through their re-spending and delivering upon wider social and environmental considerations.

Re-using the transfer

Famalicão recognises that spend analysis has been an incredibly important tool for them in terms of understanding and realising the importance of the process of procurement and in creating an evidence base - they will continue to use the tool and guide into the future. They are also utilising the findings of the spend analysis and the whole Making Spend Matter process to engage with both suppliers and communities; indeed, they have developed a newsletter for this awareness raising purpose. Famalicão are also utilising their learning from Making Spend Matter and their spend analysis to transfer the principles of the network to other Portuguese cities.

Advanced Spend Analysis case study

The city of Vila Nova de Famalicão (Famalicão) is based in the Minho region of Northern Portugal.

After Porto, it is the second largest economy of the region. The urban area of Famalicão has a population of around 135,000 and is strategically well located in geographical terms.

In economic terms, Famalicão is seen as an entrepreneurial city which is fostered by knowledge and innovation. Emphasising this focus, the economy is diverse with new enterprises developing all the time, supported by both the municipality and the technical universities. Famalicão was built on the textile industry, and with municipality support, that industry is starting to reinvigorate itself. Textiles is the core economic sector of Famalicão, alongside food production and Agri-food. In terms of private sector anchor institutions, there are three major German manufacturing companies, with branches within the city.

In social terms, Famalicão has very low levels of unemployment; indeed, there is currently a greater supply of jobs in Famalicão than there is demand for jobs from local residents. Famalicão does however have challenges with the quality of employment and is a relatively low wage economy. The city is focused upon twinning strong entrepreneurial and economic growth, with a better quality of life for its residents.

The key anchor institutions in Famalicão are the municipality itself, two technical universities, a hospital, several public and private schools, parish councils, and several social economy organisations. The Municipality of Famalicão is therefore seeking to grow its economy through attracting new enterprise and enabling the growth of local entrepreneurs and SMEs; and also provide the conditions through which residents' well-being can be enhanced and flourish.

Why undertake Advanced Spend Analysis

Basic Spend Analysis allows the gathering and interpreting of data relating to where a public organisation spends its money geographically, per sector and with what type of business. Advanced Spend Analysis enables a deeper exploration of this basic data using three different types of analysis - gap analysis (which provides an understanding of whether areas of spend could be delivered by a different type of supplier or in a different way), re-spend analysis (which provides an understanding of what happens to procurement spend once it reaches the supply chain5), and wider impact analysis (which explores how procurement decisions impact upon the achievement of a public organisation's priorities).

Barriers / challenges

There are a number of barriers / challenges which Famalicão faced in relation to undertaking Advanced Spend Analysis:

How to make their spend analysis more robust through exploring different elements of the analysis around business sectors, SMEs and gaps
How to link the results of their analysis to Famalicão's strategic plan
How to overcome businesses' concerns about sharing potentially commercially sensitive information regarding their spend

Actions taken / changes made:

Famalicão undertook a gap analysis to understand whether their largest contracts could be delivered by other suppliers - as these contracts related to specific and specialist sectors such as waste, electricity, water treatment etc it was clear that the opportunities for different types of suppliers to deliver these contracts in the future was limited.

They also undertook a re-spend analysis using the LM3 methodology, which included sending a survey to 270 of their suppliers based in Famalicão, 60 of whom replied (which equates to a response rate of 22%) asking about how they re-spent the procurement spend both in relation to their employees and their suppliers.

Re-spend analysis

Famalicao followed the LM3 methodology (which can be found in Vila Nova de Familcao document).

All of the invoiced amounts were based in 2018, the year chosen by the Municipality to undertake the re-spend analysis.

Round one

Round one represents the total spend in goods and services, work contracts and staff costs, which were taken from the Basic Spend Analysis.

Goods and services	€28 088 021
Work contracts	€7 844 963
Staff costs	€25 106 279
Total spend	€61 039 263

Round two

Round two represents the total local spending, which includes both the local suppliers' and the local employees' spending.

The local suppliers spending is related to goods and services and work contracts while the local employees spending is related to staff costs, which both were taken from the Basic Spend Analysis.

Goods and services	€28 088 021		Staff costs	€25 106 279
Work contracts	€7 844 963		% Local suppliers	100%

Local suppliers' spending + Local employees' spending = €38 042 153

Round three

Round three represents an analysis for our local suppliers in terms of re-spending with their own suppliers and employees and in local goods and services.

In order to understand their suppliers behaviour, Famalicão sent a survey to 270 of their suppliers based in Famalicão, 60 of whom replied (which equates to a response rate of 22%) asking about how they re-spent the procurement spend both in relation to their employees and their suppliers.

For each supplier the Municipality enquired:

A- The number of employees;

B- The percentage spent annually with employees' wages;

C- The number of employees living in Famalicão;

D- The percentage spent annually with suppliers;

E- The percentage of suppliers with headquarters in Famalicão.

To obtain:

The local economic benefit retained in Famalicão to promote new job opportunities:

Contract value for the Municipality x B x (C / A)

The local economic benefit retained in Famalicão with the supplier network:

Contract value for the Municipality x D x E

Total contract value for the Municipality (2018)	Local Economic Benefit retained in Famalicão to promote new job opportunities	Local Economic Benefit retained in Famalicão with the supplier network
€4 702 004	€614 172	€759 125

Total Economic Benefit per euro being retained within Famalicão

13%

(€614 172 / €4 702 004)

16%

(€759 125 / €4 702 004)

Re-spending of Local Suppliers with their own suppliers/employees + Re-spending of Local Employees upon local goods and services = (13% + 16%) x 35 932 984 € = 10 420 565 €

In conclusion

LM 3 = (€61 039 263 + €38 042 153 + €10 420 565) / €61 039 263 = 1,79

What worked

As a result of these actions:

Famalicão knows more about their suppliers;
Famalicão's suppliers have collaborated more since they now know more about the "Making Spend Matter" project;
Famalicão has successfully calculated LM3;
Famalicão now understands whether certain types of contracts can be delivered in a different way and also how much money is re-spent in their economy - for every euro of procurement spend, a further 80 cents is spent by their suppliers' employees living in Famalicão and on Famalicão-based suppliers of their suppliers.

What worked less well

The survey's response rate could have been higher;
The supplier database is not set up in a way that provides the information Famalicão needs to undertake the Advanced Spend Analysis.
The community is not aware of and does not know about the LM3 results.

Lessons learned

Famalicão could only influence local purchases;
Famalicão now has a deeper knowledge of itself as a buyer;
Famalicão needs a comparator to better understand the extent of the impact in its local economy