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State Procurement: An Engine for Taxpayer Savings.

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Presentation on theme: "State Procurement: An Engine for Taxpayer Savings."— Presentation transcript:

1 State Procurement: An Engine for Taxpayer Savings

2 Agenda Strategic Sourcing – Total Cost of Ownership – Best Value eProcurement Cooperative Purchasing Organization – Shared Services – Commodity Alignment 1

3 Introduction Deputy Secretary of Pennsylvania Department of General Services ( ) 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 states MWBE participation rate – Warehouse consolidation, closing 14 warehouses – Eliminated 1,000 vehicles from fleet 2

4 Strategic Sourcing

5 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. 4

6 Multi-award Contracts with Local Decision Making Leads to Wide Pricing Variances 5

7 Seven Step Sourcing Process 6 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 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 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 Negotiate & Select Suppliers Solicit & Evaluate Bids Build TCO Model Develop Sourcing Strategy Collect Supplier Information Implement Contracts Profile Internally & Externally Data Gathering Total Cost of Ownership Requests for Information Requests for Proposal Negotiations

8 Results: $140.7M in Annual Savings Through 2005, $360M to Date. Quadrupling of Small Business, MWBE Participation Rate 7

9 Media Coverage 8

10 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 9

11 eProcurement

12 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. 11

13 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 12

14 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 13

15 Cooperative Purchasing

16 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). 15

17 Organizational Optimization

18 PAs Legacy Organization Lacked Commodity Expertise 17 Paper Detection Equipment Eyeglasses Mattresses Flags Uniforms Food Copiers Printing Equipment Highway Equipment Dictation Equipment Shopping Bags Metal Pipes Defibrillators Lab Equipment Compost Bins Tapes/Cartridges Traffic Counters Body Armor Telecom Equipment Software Headgear Cell Phone Service IT Staff Augmentation Auction Services Legal Research Catering Surveillance Equipment Court Reporting Pest Control Armed Guards Call Centers Mail Processing Asphalt Line Paint Glass Beads Paint Motor Oil Vehicle Decals Forklifts Salt Herbicides Anti-freeze Fish Energy Cement Deer Fencing Joint Sealer Recycling Containers Paper Tablets Plastic Bags Signs Aluminum Water Treatment Chemicals Coal Testing Coal Propane Gas Diesel Fuel Compacting Equipment Cleaning Supplies Furniture Pharmaceuticals Air Compressors Drafting Supplies Surveying Instruments Lab Furniture Steel Reflective Sheeting Fuses Syringes Wheelchairs Folders Courier Services Interpretation Services Dump Trucks Pass Vehicles Comm Vehicles Tires Lamps Electrical Supplies Flooring Carpeting Personal Protection Equipment Auto Parts Snow Plows Graders, Loaders Vehicle Maintenance Office Supplies Computers Servers Peripherals Networking Gear Computer Maintenance Envelopes Tax Booklets Fishing Licenses Silk Screening General Printing Magazines Bookbinding Maps Envelopes Voter Registration Cards Forms Trays Food Service Equipment Vending Machines Office Supplies Vacuum Cleaners Toiletries Shelving Filing Equipment Drinking Water Commodities managed, by buyer

19 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. Challenges of Legacy Organization

20 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. 19

21 Shared Services Org Chart: Goods 20 Goods IT & Communications HW & Peripherals SW Comm Equipment Office Equipment Printing & Commun. Publication s Supplies & Consumables Food Consumab les IT Equipment & Vehicles Roadway Machinery Furniture & Fixtures Equipment Pharma Clothing Appliances & Equip Raw Materials Fuels/Oil/ Lube Highway Mat Public Utilities IT Equip M/R MRO Fire & Police HVAC Plumbing Electrical Construct/ Bldg Textiles & Toiletries Cleaning Lab Medical Office Supplies Envelopes, Forms Business Analyst Contract Coordinat. Business Analyst Contract Coordinat. Business Analyst Contract Coordinat Business Analyst Contract Coordinat. 1 1 Business Analyst Contract Coordinat Business Analyst Contract Coordinat. 1 1 Business Analyst Contract Coordinat Passenger Vehicles Commerc. Vehicles Vehicles Business Analyst Contract Coordinat. Pass Veh Maint Com Veh Maint 1 1

22 21 Services Operational Bldg/Fac/Road Maint Professional Fin, Legal, & Temp Labor Administrative Advertising Marketing Consulting (Non-IT) Support Services Electrical Telecom Non-Vehicle M/R Office & Printing HVAC Profl Development Equip Maint & Travel Specialty Services Professional Services IT System Support Consulting & Training Prog & Development Telecom Lab/Medical Construction Bldg General M/R Janitorial Agricultural Environmental Ground/Road Maint Specialty Food Services Conference Plumbing Trans & Delivery Business Analyst Contract Coordinator Business Analyst Contract Coordinator Business Analyst Contract Coordinator Business Analyst Contract Coordinator 1 1 Business Analyst Contract Coordinator IT Services Shared Services Org Chart: Services

23 Questions / Thank You Feel free to call/ with any follow up questions: David Yarkin President Government Sourcing Solutions

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