Agenda • Strategic Sourcing • Total Cost of Ownership • Best Value • eProcurement • Cooperative Purchasing • Organization • Shared Services • Commodity Alignment
Introduction • Deputy Secretary of Pennsylvania Department of General Services (2003-2005) • Responsibilities: • Statewide procurement ($4B in annual spend) • Fleet management (17,000 vehicles) • Inventory management (17 warehouses) • Print • Accomplishments: • $360 million in annual procurement savings • Quadrupling of state’s MWBE participation rate • Warehouse consolidation, closing 14 warehouses • Eliminated 1,000 vehicles from fleet
Two Divergent Public Sector Procurement Philosophies • “Share the Wealth” • Goal – Spur economic development through procurement • Tactic - Allow autonomy by agencies to disaggregate volume and ensure that procurement pie is split among a multitude of suppliers. • “Strategic Sourcing” • Goal – Generate best value for agencies and taxpayers – decrease cost, enhance quality, increase MWBE participation. • Tactic – Aggregate demand across all agencies and consolidate number of suppliers to maximize leverage.
Multi-award Contracts with Local Decision Making Leads to Wide Pricing Variances
Profile Internally & Externally Build TCO Model Collect Supplier Information Develop Sourcing Strategy Solicit & Evaluate Bids Negotiate & Select Suppliers Implement Contracts Seven Step Sourcing Process Seven Step Sourcing Process • Research capabilities of supply base • Determine supplier diversity opportunity • Analyze risks and opportunities in the industry • Develop evaluation criteria and weighting • Select sourcing and lotting strategy • Establish streamlined to-be ordering process • Select sourcing strategy and review with executives • Select DGS lead and agency end users to commodity team • Collect and analyze detailed data from agencies and suppliers • Review as-is ordering process • Identify cost drivers • Develop specifications and market basket of items • Develop and publish bid document (RFP, RFQ, IFB) • Evaluate responses • Negotiate Best and Final Offers (BAFOs) • Finalize contract terms and conditions and sign • Train end users on new ordering processes • Data Gathering • Total Cost of Ownership • Requests for Information • Requests for Proposal • Negotiations
Results: $140.7M in Annual Savings Through 2005, $360M to Date. Quadrupling of Small Business, MWBE Participation Rate
Critical Success Factors • Unwavering (chief) executive support • e.g., 6 press conferences with PA Governor • Best value awards – not low bid – to select world-class suppliers • e.g., PA food contract that went south • Drive adoption of contracts
eProcurement Reduces “Maverick Spend” For strategically-sourced contracts to have value, they need to be used. If the system for ordering is too difficult, end users will find other ways to obtain product, including paying retail. End users are accustomed to buying items online for personal use. Make the way they buy at work just as easy.
eProcurement Can Improve Efficiency from “Procure-to-Pay” Sourcing Catalogue Management (like ordering from Amazon) Workflow Creating/Distributing Purchase Orders Goods Receipt Invoicing Distributing Payment to Vendors
Case Study: Georgia Implemented eProcurement system Integrates with PeopleSoft ERP system Adoption of contracts increased from 20% in FY08 to 80% in FY11 $2.1B additional spend being managed by FY11 $303M in savings through FY12
Cooperative Purchasing Most states, cities, counties, school districts have the ability to “piggyback” on contracts established by other jurisdictions. Piggybacking entity receives same or better pricing as original entity. Piggybacking entity can insert its own terms and conditions which take precedence. Cooperative purchasing is a widely accepted, procurement best practice, endorsed by American Bar Association (ABA), National Institute of Government Purchasing (NIGP), National Association of State Procurement Officials (NASPO).
PA’s Legacy Organization Lacked Commodity Expertise Compacting Equipment Cleaning Supplies Furniture Pharmaceuticals Shelving Filing Equipment Drinking Water Commodities managed, by buyer Asphalt Line Paint Glass Beads Paint Motor Oil Vehicle Decals Paper Detection Equipment Eyeglasses Mattresses Flags Uniforms Food Air Compressors Drafting Supplies Surveying Instruments Lab Furniture Steel Reflective Sheeting Trays Food Service Equipment Vending Machines Office Supplies Vacuum Cleaners Toiletries Forklifts Salt Herbicides Anti-freeze Fish Energy Copiers Printing Equipment Highway Equipment Dictation Equipment Shopping Bags Fuses Syringes Wheelchairs Folders Courier Services Interpretation Services Bookbinding Maps Envelopes Voter Registration Cards Forms Cement Deer Fencing Joint Sealer Recycling Containers Paper Tablets Plastic Bags Signs Aluminum Metal Pipes Defibrillators Lab Equipment Compost Bins Tapes/Cartridges Traffic Counters Computers Servers Peripherals Networking Gear Computer Maintenance Dump Trucks Pass Vehicles Comm Vehicles Tires Lamps Electrical Supplies Flooring Carpeting Body Armor Telecom Equipment Software Headgear Cell Phone Service IT Staff Augmentation Auction Services Legal Research Water Treatment Chemicals Coal Testing Coal Propane Gas Diesel Fuel Envelopes Tax Booklets Fishing Licenses Silk Screening General Printing Magazines Personal Protection Equipment Auto Parts Snow Plows Graders, Loaders Vehicle Maintenance Office Supplies Catering Surveillance Equipment Court Reporting Pest Control Armed Guards Call Centers Mail Processing
Challenges of Legacy Organization • Each buyer had to manage a large number of unrelated commodities. • Example: One buyer had to manage the following commodities: • Body Armor • Telecommunication Equipment • Software • IT Staff Augmentation • Auction Services • Legal Research • With such a wide portfolio, it was impossible to spend the time required to strategically source a commodity and execute the implementation of the contract. • It was also impossible to develop deep expertise in an individual commodity because buyers could never focus within a specific industry.
Benefits of Shared Services Center • Reductions in cost of purchasing goods and services by: • Aggregating demand of all agencies to maximize volume and decrease cost. • Building commodity expertise where shared service center buyers are experts in the industry • Training buyers on online bidding, value engineering, cost-modeling, negotiating, etc. • Eliminates redundancy of multiple individuals in multiple agencies contracting for the same goods and services. • Consistent application of Rendell Administration procurement policy objectives • Simplifies state procurement for suppliers with consistent RFPs, terms and conditions, protest processes. • Frees up agency management time to focus on programmatic goals, not administrative functions.
Shared Services Org Chart: Goods 1 Goods Supplies & Consumables Raw Materials Equipment & Vehicles IT & Communications 1 1 1 1 Vehicles Consumables Equipment Supplies IT MRO Printing & Commun. 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Fuels/Oil/ Lube HW & Peripherals Roadway Passenger Vehicles Fire & Police Cleaning Food Publications 1 1 1 1 2 1 1 1 HVAC Plumbing Electrical Lab Medical Pharma Highway Mat SW Machinery Commerc. Vehicles Envelopes, Forms 1 1 1 1 1 1 1 Furniture & Fixtures Pass Veh Main’t Office Clothing Office Equipment Public Utilities Construct/ Bldg Comm Equipment 1 1 1 1 1 IT Equip M/R Appliances & Equip Com Veh Main’t Textiles & Toiletries 1 1 1 1 1 1 1 1 1 Business Analyst Business Analyst Business Analyst Business Analyst Business Analyst Business Analyst Business Analyst Business Analyst 1 1 1 1 1 1 1 Contract Coordinat. 1 Contract Coordinat. Contract Coordinat. Contract Coordinat. Contract Coordinat. Contract Coordinat. Contract Coordinat. Contract Coordinat.
Shared Services Org Chart: Services Services 1 Professional Operational 1 1 Bldg/Fac/Road Main’t Equip Main’t & Travel IT Services Support Services Specialty Services 1 1 1 1 1 3 2 2 1 1 Consulting & Training Administrative Consulting (Non-IT) Electrical Telecom 3 1 2 2 HVAC 1 Prog & Development Advertising Marketing Professional Services Office & Printing 1 2 1 Non-Vehicle M/R 1 1 Plumbing IT System Support Fin, Legal, & Temp Labor Lab/Medical 1 1 1 General M/R Specialty 2 1 Telecom Prof’l Development Construction Bldg 1 1 Janitorial Food Services 1 1 Agricultural Environmental Conference 1 1 Ground/Road Main’t Trans & Delivery 1 1 1 1 1 Business Analyst Business Analyst Business Analyst Business Analyst Business Analyst 1 1 1 1 1 Contract Coordinator Contract Coordinator Contract Coordinator Contract Coordinator Contract Coordinator
Questions / Thank You Feel free to call/email with any follow up questions: David Yarkin President Government Sourcing Solutions 202-244-1820 firstname.lastname@example.org