Transcript Strategic Sourcing: The Wave of the Future

Strategic Sourcing: Current
Trends in State Government
Moderated by: Dianne Lancaster, OR
Panelists: Charles Covington, FL
Paul Higgins, VA
Mike Smith, IL
General Overview:
What is it?
• Ask 10 different people, you’ll likely get 10 different
answers!
• The Merriam-Webster dictionary doesn’t even
have one. Instead they have words like
stereochemistries and psuedotuberculosis!
We like this definition:
Strategic Sourcing -- the collaborative and
structured process of critically analyzing an
organization’s spending and using this
information to make business decisions about
acquiring commodities and services more
effectively and efficiently (Federal Office of
Management and Budget)
Broad Overview of the Process
Investigation:
1)
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Examine/collect data & establish baselines
Define needs
Develop specs and sourcing strategy
Solicitation:
2)
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Determine methodology
Evaluate bids
Contract negotiation
Total cost of ownership
Vendor selection
Implementation
3)
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Vendor management/contract administration
Performance monitoring
Change management
Florida
MyFloridaMarketPlace-- eProcurement
• 66,000 Registered Vendors
• 21,000 Minority & Women Vendors
• 194, 000 Annual Purchase Orders
• $1.3 Billion Annual Spend
• 32 Executive Agencies on the System
75-State Term Contracts
•Mandatory use by Executive Agencies
•Optional use for all other government
entities (OEU’s)
•Eliminated over 100 State Term Contracts
•Approved Cooperative Contract Sources
- WSCA
- HIRE
- MMCAP
- US Communities
- Other
Florida One Initiative
• Equity in Contracting
• Environmental Considerations
• Certification of Drug Free Workplace
• RESPECT
• PRIDE
Spend Management
• MFMP-Analysis Tool
• State Accounting System
• P-Card
• Vendor Sales Information
• User Data
$250MM in Contract Savings for Waves 1 and 2
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Office Consumables
Maintenance Repair and
Operating Supplies
Wireless Voice
Communication
backbone infrastructure
Dry-Cell and
Rechargeable Batteries
Office Paper
Gasoline & other fuels
Medical & Dental
Supplies
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Courier Services
Officer’s Uniforms
Can Liners
Audio Visual Equipment
Pest Control Services
Hand Held & Power Tools
Envelopes
Tissue and Towels
Lawn Care
Potential Strategic Sourcing Events for Wave 3
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Telephone System
Equipment
Lab Supplies
Security Services
Janitorial Services
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Mail Equipment
Office Equipment
Maintenance Services
Metal Detection and
Scanning Equipment
Virginia
Procurement Scope
State Government
Local Government
 171 Agencies/Institutions of Higher Education
 350+ Cities, Counties & Towns
 Central oversight of state contracts
 Plus Public Schools, Airports, Districts,
Authorities and Commissions
 Variety of systems, including 44 Enterprise
Resource Planning (Financial) Systems
 Use state contracts
 Variety of systems
 Approximately $5 billion annual spend
 Approximately $5 billion annual spend
Vendors
 20-30,000 for state government
 Mix of local vendors versus statewide vendors
 20% get 80% of the orders (Approximately 6,000)
Virginia equals a Fortune 300 Corporation
Profile Spend & Baseline
Area
Category
Facilities
General Equipment & Consumables
Goods
Furniture & Furnishings
Office Equipment
Office Supplies
Industrial Equipment & Supplies
Materials
Technology
Industrial Services
Packaging & Storage Materials
(Containers, Corrugated, Pallets, Tape)
Paper, Stationery
Building Maintenance
Environmental Services
Equipment Maintenance
Industrial Cleaning Services
Infrastructure Support
Security Guard Services
Waste Disposal Services
Logistics
Services
Personnel Services
Professional Services
Utilities
Benefits
Contract Labor
Domestic Services
Relocation
Temporary Staffing
Training
Travel & Entertainment
Electricity
Telecommunications
Utility Billing Services
Building Materials
HVAC
Lighting, Fixtures & Accessories
Pipes, Valves & Fittings
Janitorial Supplies
MRO Supplies
Safety Equipment & Supplies
Security Equipment
Spare Parts
Vehicle Parts and Accessories
Hardware
Software
Telecom Equipment
Cargo Transport (Air, Rail & Road)
Courier/Messenger
Express Delivery
Postage
Warehousing & Storage
Accounting
Advertising & Marketing
Commercial Print
Computer Services
Fleet Management
Insurance
IT Consulting
Legal
Real Estate
Savings Results
$150 Million in Contract Savings Created
Selected Target Categories and Percent Savings
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Computer Hardware 12%
Janitorial Supplies 11%
Lab Supplies 13%
Office Supplies & Paper 18%
Computer Software 8%
Off-Road Equipment 6%
Enterprise Storage Devices 15%
•
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•
•
•
•
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Temporary Services 32%
Uniforms 17%
Hotels 31%
Heavy Trucks 20%
Storage Media 30%
School Buses 3%
Printers and Accessories 15%
Maintenance, Repair, and Operating Supplies (MRO) 13%
 Ultimately saved over $150M in 2 separate “waves” of strategic sourcing
 Leveraged purchases across 200+ state agencies, institutions of higher education and other public entities
Illinois
Organization
Chief Procurement Officers
 Dept. of Transportation – Highway Construction
 Capital Development Board – Capital Projects
 Higher Education
 Supplies and Services
$17 billion in procurable spend
Central Management Services
Center-leads all Supplies and Services procurements
Manages Illinois Procurement Bulletin
Created comprehensive Knowledge Management
system -- an electronic reference library and
communications system
Provides access and contracting opportunities for all
vendors
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Transparency
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Accountability
Authority/Applicability
Illinois Procurement Code
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All state agencies, boards and
commissions
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Competitive selection on all
procurements with few exceptions
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Preferences for small business
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Goals for diversified businesses
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Agencies required to use master
contracts
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Contracts available to local
governments -- Joint Purchasing
Program

Cost Savings
ILLINOIS PROCUREMENT INITIATIVE
STRATEGIC SOURCING
August 2003 - Present
Goals
 Save $200+ million in two years
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Organizational transformation
Standardize/streamline processes
Improve transparency and increase vendor participation
Build capabilities/knowledge management system
Results: 27 projects -- $216 million of Validated Savings
Examples ---Project
Food
Savings
$6.3 million
Can Liners
Strategy
Product substitution, bulk purchasing,
elimination of unnecessary items
Change in specifications, renegotiation
Cleaning Supplies
Combined multiple contracts, extended term
$182,000
PC’s/Laptops/Monitors
Demand management
$1.8 million
Emissions Testing
Renegotiation
$10.2 million
Utilities/Electricity
$3.0 million
Paper and Envelopes
Changed rate plans to best suit state facilities
consumption patterns.
Combined multiple contracts, extended term
Family Case Mgmnt
Enhanced federal reimbursement
$24.2 million
$737,000
$715,000
ILLINOIS
PROCUREMENT INITIATIVE ACCOMPLISHMENTS
 $216 million in validated savings
 Created new center-led organization to better manage procurements statewide
and identify sourcing opportunities
 Implemented 5-step procurement approach
 Streamlined processes – eliminated unnecessary and/or redundant steps
 Implemented procurement business case system to ensure all purchases are
justified and to identify opportunities for savings
 Implemented a toll-free call center to assist agencies and vendors – ensures
consistent responses and that caller gets to appropriate person
 Created comprehensive Knowledge Management system -- an electronic
reference library and communications system
 Greatly improved transparency into the process – more detailed publications of
procurement notices, supplier workshops, enhanced documentation of
how decisions are made, published procurement opportunity reports
 Increased opportunities for small and diverse businesses
Oregon Smart Buy Project
How Opportunities Were Identified
State Spending Overview
To facilitate identification of high-savings opportunities, the team created a consolidated picture
of the State's spending, classifying spending into common expense categories, and conducting
a “deep dive” diagnostic into a large number of spending categories.
CATEGORIZING PURCHASED EXPENSE
Fiscal Year 2003 Spending
KEY OBSERVATIONS
$ Billions
$1.62
0.27
• Government Services
• Interest
1.35
0.30
$1.05
Total
Purchased
Expenses
NonAddressable
Potentially
Addressable
Purchased
Expenses
Evaluated
In-Depth
Potentially
Addressable
in Future
Waves
• The State purchased $1.62
billion of goods and services
from vendors in fiscal year
2003, $1.35 billion of which is
on purchases that are
potentially “source-able”
• The initial Opportunity
Assessment (conducted in
October-December 2003)
evaluated spending in the
largest spending categories
where there was significant
cross-agency leverage – 65%
of the State’s spending is with
vendors who serve only one
agency
Note: Purchased expenses exclude interagency transfers
Source: State financial systems (SFMA, ODOT, Lottery; Corrections, p-card); Silver Oak Solutions analysis
Category Selection Criteria
By evaluating top-spending areas with joint leverage opportunities in a number of areas, two waves of spending
categories were identified.
SCREENING MATRIX
PRIMARY SELECTION CRITERIA
•
Wave 1 Categories
Wave 1
Potential Wave 2 Categories
•
High
•
• PC Hardware/Peripherals
•
• ITPS
• Office Supplies
• TCPERS
• Telecom LD/Data
• Express Mail
• Tires • Telecom Cellular
Savings
Opportunity
• Copiers
•
•
•
Hot Mix
•
Food
Blade Server/Mainframes
Postage Meters
Emulsions
•
•
Low
Low
Ease of Capture
Medium to High ease of capture
Potential Wave 2
• Software
Lab Supplies
Janitorial Supplies
Sufficient baseline to warrant
detailed spend review
Historic savings experience in
category
Cross-agency leverage
Positive results from benchmarking
and market analysis
High
Smaller, but still sufficient baseline to
warrant detailed spend review
Significant savings percent range
based on benchmarking or historical
savings experience
Support from key stakeholders or no
anticipated push back
Can be agency-specific categories
without cross-agency leverage, as long
as above 3 criteria are satisfied
Identified hard dollar impact is projected to be $9.1 million per year (or 18% of baseline spend) and will
accrue to the State over many years.
HARD DOLLAR IMPACT 1 BREAKDOWN
By Completed Category
$ Thousands
Category
Annual Spend
ROB
Impact
Annual RunRate Impact
Contract
Length
Impact2
% Impact3
$3,036
$16,396
25%
2,994
14,403
27%
738
1,267
7,519
16%
2,479
670
690
2,077
28%
PC Peripherals
3,663
579
682
3,422
19%
Telecom Cellular
1,758
148
133
272
8%
Express Mail
1,397
140
140
376
10%
Copiers
3,039
122
152
2,998
5%
Software
5,276
35
38
198
3%
$48,861
$10,215
$9,132
$47,597
18%
PC Hardware
$12,318
$4,151
11,106
3,634
Telecom CPE & Related Services
7,826
Telecom LD
Office Supplies
Total
1 Includes spend reduction savings, rebates and increase in VCAF (Vendor Collected Administrative Fee), due to fee increase in some Smart Buy price agreements
2 Contracts vary in length by category from 2 – 6 years, and savings are expected to accrue over the lives of these contracts
3 Defined as (Annual Run-Rate Savings/Annual Spend)
4 Information gathered as of February 2, 2005
The type of savings vary by commodity spending category.
SOURCES OF SAVINGS AND SERVICE IMPROVEMENTS
By Category
Source of Savings
Lower
Negotiated
Pricing
RightSpec’ing
(Demand
Management)
Best-inClass
Buying
Practices
Office Supplies & Paper
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•
In addition to lower negotiated pricing, significant
incremental savings can be obtained through adoption of
essential items list and best-in-class buying practices
PC Hardware
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•
•
In addition to lower negotiated pricing, significant
incremental savings can be obtained through adoption of
standard configurations
Additional savings possible through quarterly bulk-buys
•
Created new peripherals contract where one did not exist
Category

Comments
PC Peripherals
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Telecom Customer Premise
Equipment and Related Services
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•
Competitive solicitation created savings with incumbent
vendor
Long-Distance Telecom
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•
Competitive solicitation created savings with incumbent
vendor
Express Mail
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•
Incumbent negotiations resulted in lower pricing
Cellular Phones and Services
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•
Savings through migration to optimal price plans that
minimize cost based on observed usage
Copiers

•
Savings through adoption of 48-month rental terms and
copier specifications that meet, but not exceed, actual
needs
•
Incumbent negotiations resulted in lower pricing
•
Short-term savings identified but not recommended
Larger Wave 2 savings approach identified
Software
Telecom Data
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•
Impact on the Vendor
Community

Small, Minority and Women-Owned
Businesses
- Policies to increase opportunities, i.e.,
utilization plans
- Marketing efforts/outreach
- Supplier diversity programs
- Monitoring/tracking activities
(requesting/requiring more information)
- Counter-balancing activities (bundling vs.
unbundling)

Different from “Business as Usual”
- Reduction in the Number of Overall Awards
- Best value vs. best price
- Changes in the RFP process, i.e., reverse auction
- Total cost of ownership
- More purchasing options, i.e., lease vs. buy
- Data-driving decision making
- More RFP’s and multi-step bids
- Understanding of the industry—contract staff has increased knowledge of
supply chains & costs
- Uniform Price Card
- Length of Contracts
- Performance Management: Data driven vendor performance, i.e., automated
and electronic tracking systems
- Improving Relationships with Suppliers: More communication, face-to-face
meetings (quarterly review sessions)
Commodities/Categories of
Items
Popular items that have already been sourced:
 Office supplies/equipment
 Cleaning/janitorial supplies
 Copiers
 IT hardware/software/services
 Food
 Telecom services
 Mail services
 HMO/Hospital rate negotiations
Commodities/Categories of
Items
What is planned for the future?
 Commercial services
 Utilities
 Lease vs. purchases—equipment & facility
space
 Professional services
Questions?