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Agenda Strategic Sourcing eProcurement Cooperative Purchasing

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Presentation on theme: "Agenda Strategic Sourcing eProcurement Cooperative Purchasing"— Presentation transcript:

0 State Procurement: An Engine for Taxpayer Savings

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

2 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 state’s MWBE participation rate Warehouse consolidation, closing 14 warehouses Eliminated 1,000 vehicles from fleet

3 Strategic Sourcing

4 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.

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

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

7 Results: $140. 7M in Annual Savings Through 2005, $360M to Date
Results: $140.7M in Annual Savings Through 2005, $360M to Date. Quadrupling of Small Business, MWBE Participation Rate By using a new set of tools and this seven step sourcing process, we were able to dramatically increase our buying power and our leverage with suppliers. Pennsylvania became a buyers market, not a sellers market. And the taxpayers of the state benefited to the tune of $140M in annual savings. Unfortunately, we don’t have time today to go into detail about each of the contracts. If you would like to learn more about how we sourced any of the commodities, feel free to give me a call or . My contact information will be available on the last slide of the presentation. But I am going to give you some detail now about two of the contracts because I think they give you a good sense of the shortfalls of the old system, the benefits of strategic sourcing and the road we took to get there.

8 Media Coverage

9 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

10 eProcurement

11 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.

12 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

13 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

14 Cooperative Purchasing

15 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).

16 Organizational Optimization

17 PA’s Legacy Organization Lacked Commodity Expertise
Commodities managed, by buyer 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 Computers Servers Peripherals Networking Gear Computer Maintenance Envelopes Tax Booklets Fishing Licenses Silk Screening General Printing Magazines Bookbinding Maps Voter Registration Cards Forms Trays Food Service Equipment Vending Machines Office Supplies Vacuum Cleaners Toiletries Shelving Filing Equipment Drinking Water 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 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

18 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.

19 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.

20 Shared Services Org Chart: Goods
1 Supplies & Consumables 1 Raw Materials Equipment & Vehicles 1 1 IT & Communications 1 MRO Supplies Consumables IT Printing & Commun. Equipment Vehicles 1 1 1 1 1 1 1 Fire & Police 1 Cleaning 1 Food 1 Fuels/Oil/ Lube 1 1 HW & Peripherals 1 1 Publications Roadway Passenger Vehicles 1 HVAC Plumbing Electrical 1 Lab Medical 1 Pharma 1 Highway Mat 2 1 SW 1 Envelopes, Forms Machinery Commerc. Vehicles 1 1 Office 1 Clothing 1 Public Utilities 1 1 Office Equipment 1 Furniture & Fixtures Pass Veh Main’t 1 Construct/ Bldg 1 1 Comm Equipment 1 IT Equip M/R 1 Appliances & Equip Com Veh Main’t 1 Textiles & Toiletries 1 Business Analyst 1 1 1 1 1 Business Analyst Business Analyst Business Analyst Business Analyst 1 Business Analyst 1 Business Analyst Business Analyst 1 Contract Coordinat. 1 1 1 1 1 Contract Coordinat. Contract Coordinat. Contract Coordinat. Contract Coordinat. 1 1 Contract Coordinat. Contract Coordinat. Contract Coordinat. 1

21 Shared Services Org Chart: Services
1 Professional 1 Operational 1 IT Services 1 1 Support Services 1 Specialty Services 1 Bldg/Fac/Road Main’t Equip Main’t & Travel 1 Consulting & Training 3 2 Administrative 2 Consulting (Non-IT) 1 Electrical Telecom 1 Prog & Development 3 2 Advertising Marketing 2 Professional Services 1 HVAC Office & Printing 1 IT System Support 2 1 Fin, Legal, & Temp Labor 1 Lab/Medical 1 Plumbing Non-Vehicle M/R 1 Telecom 1 2 Prof’l Development 1 Construction Bldg 1 General M/R Specialty 1 1 Janitorial Food Services 1 1 Agricultural Environmental Conference 1 1 Ground/Road Main’t Trans & Delivery 1 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

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

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