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Tales from the Trenches: Evolution of Strategic Sourcing Chuks Amajor – State of TexasMike Smith – NASPO Life Member.

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Presentation on theme: "Tales from the Trenches: Evolution of Strategic Sourcing Chuks Amajor – State of TexasMike Smith – NASPO Life Member."— Presentation transcript:

1 Tales from the Trenches: Evolution of Strategic Sourcing Chuks Amajor – State of TexasMike Smith – NASPO Life Member

2  Emerging Issues Committee – To keep NASPO members aware of important issues affecting state procurement, identify, and assess procurement trends and emerging issues as to their potential to affect the states.  Developed Project Plan  Interviewed States (CA, CO, IN, MA, ME, MI, NC, NY, OK, PA, TN, TX)  Presentation at NASPO Annual Conference  Develop Briefing Paper Background

3  History  Strategic Sourcing Overview  What is it? Strategic Sourcing Defined  Common Misconceptions  Strategic Sourcing vs. Traditional Procurement  Steps, Stakeholders & Challenges  Survey Results  Discussion Questions Agenda

4  Introduced in private sector in 1980’s/1990’s  State government – early adopters started in 2003/04/05  Implemented by federal government (OMB) in 2005 History

5 Defining Strategic Sourcing “Strategic sourcing is an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company.” Wikipedia “Strategic sourcing is 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/GSA “A system and fact-based approach for optimizing an organization’s supply base and improving the overall value proposition.” University of Michigan A systematic continuous improvement process that directs supply managers to assess, plan, manage, and develop the supply base in line with the agency’s stated objectives. It involves the constant re-evaluation of purchasing activities to insure alignment with long-term organizational goals. 2008 NASPO State and Local Government Procurement Guide

6 Common Misconceptions PerceptionReality Strategic Sourcing = Single SourceStrategic sourcing initiatives often result in multiple awards Strategic Sourcing means buying the cheapest product, regardless of quality Maintaining or enhancing quality is a key component of most SS engagements Strategic Sourcing is about changing suppliers A Strategic Sourcing initiative will sometimes, if not often, result in using the same supplier Small, local and/or diverse business always lose out when contracts are strategically sourced Socio-economic policies will often dictate these suppliers be included in Strategic Sourcing activities.

7 Common Misconceptions PerceptionReality Strategic Sourcing is a one-size-fits-all approach to procurement SS methodology anticipates and provides for unique circumstances and challenges Strategic Sourcing is about strong arming suppliers Strategic Sourcing is about understanding the marketplace, the category and the supplier community in order to obtain best value Strategic Sourcing is a one-time projectStrategic Sourcing involves continuous improvement over the life cycle of many contract iterations

8 Strategic Sourcing vs. Traditional Procurement Key Differentiators  Advance research and analysis plays critical role  Decisions driven by data  More emphasis on aggregating demand  Process leads to optimal number of suppliers  Total cost of ownership  Quality of goods and services measured  Enhance relationship with supplier community  Different skill set required of buying staff

9 Strategic Sourcing Process Flow Draft and Issue RFP Establish Evaluation Committee Evaluate Responses Conduct Vendor negotiations Award Contracts Track Actual Savings Monitor Customer Satisfaction Market contract Survey Customer Conduct Price Audits Lessons Learned & Best Practices Identify key stakeholders Identify Roadblocks Validate research & Analysis Identify potential process improvements Finalize Strategy Conduct Market Research Expand Benchmarking Assess current state Contact other states Determine preliminary strategy Research & Analysis Stakeholder Discussions Procurement Event Performance Management 1 4 3 2

10 Often not interested unless/until they hear from their constituents Will be interested in potential savings, but also in economic impact on SMWB and local businesses Elected Officials Can be sensitive to potential loss of independence Can be concerned with the potential loss relationships with current vendors Customers Too often get forgotten in the process Important to understand their perspective Sometimes can be averse to change Affected State Employees Upfront communication is key Will fight hard to protect their interests Vendors & Advocacy Groups Who are the stakeholders and what is their prospective?

11 Challenges for State Government  Lack of support/buy-in at Executive level  Restrictive laws/rules/policies  Legislative resistance/pushback  Ability to train staff  Strong policies regarding small/local/diverse business  Agency resistance – decentralized environment

12 Reduce number of suppliersLook at total cost of ownership Low price does not equal best valueUse a defined process Consolidate enterprise needs Standardize Comprehensive review of contracts Conduct market research Evaluate timing of solicitation Conduct front end spend analysis Systematic and structured approachEstablish sustainable contracts Determine best procurement methodologyTarget specific categories Engage others in decision making process BUYING SMARTER! How Do You Define Strategic Sourcing? Survey Results

13 58% of states reported carve-outs for DOT 50% of states reported an independent procurement shop for IT goods and services Is your Procurement function Centralized? 92% of states interviewed reported their procurement operations as centralized or partially centralized procurement 100% had negotiated multiple mandatory-use contracts However, most state reported agency-specific carve-outs or delegated authority

14 On a scale from 1-10 (with 10 being the highest) how much emphasis and focus does your state place on formal strategic sourcing activities? Survey Results High = 9.5Low = 3Average = 6.5 Some states noted their focus was increasing. Others have experienced a decrease in focus in recent years.

15 Does your states’ procurement organizational chart include a section, role or title specifically related to strategic sourcing? Survey Results A majority (58%) of the states interviewed have incorporated a formal strategic sourcing section or unit. Size of section/unit ranged from ‘we just created it’ to as many as 16 staff.

16 Did your state retain a consultant to implement Strategic Sourcing? Survey Results 83% of states interviewed reported use of a consultant. Extreme variance in total price paid – from tens of thousands to tens of millions Typical project duration was 1-3 years

17 What are some skills set attributes needed for strategic sourcing? Survey Results detailed oriented -- creative/innovative thinker strong communication skills -- analytical skills think outside the box – negotiation skills see the big picture – rapport with stakeholders understand total cost of ownership

18 Survey Results: Which Categories have been most Successful/Challenging?

19 Sourcing Complexity/ Time Required HighLow Savings Opportunity Low High Typical Categorization Matrix to Assist in Determining Opportunity Tier 2: “Big Impact/High Complexity”Tier 1: “Quick Hits/Big Impact” Large spending Data takes longer to compile and validate More fragmentation in category spend across the all departments High complexity in current supplier relationships Large spending Available and complete data Known and competitive supplier base Centralization/Concentration of spend Ease of specifications Tier 4: “Low Impact/ High Complexity” Tier 3: “Medium Impact/Less Complexity” Smaller spending High fragmentation of spend Difficulty in collecting data High fragmentation of coverage by suppliers Less competitive supplier base Smaller spending Some fragmentation/de-centralization of spend Longer timeframe for collecting data WAVE I WAVE 2

20 Prioritize Waves (Multi-Dimensional) Assess each category and prioritize efforts on three or more of the most important factors. WAVE I

21 What level of Support Have you Received from… Survey Results 83% of respondents indicate neutral or positive view. Education/Communication is Key Legislature 83% had full support of their administration Mid-stream administration changes can drastically change level of support Administration 67% reported unsupportive Vendor Communities However, a vast majority (88%) of them reported that this negative view was shifting SMWB Community

22 How has the growth of cooperative purchasing impacted strategic sourcing? Survey Results Consensus among states is that use of cooperative purchasing as an approach will continue to grow and be used as part of the strategic sourcing analysis.

23 Will strategic sourcing continue to grow, fade or change in state government? Survey Results Grow… With caveat -- change in administration can sometimes change focus on strategic sourcing.

24 Discussion Questions If your state is new to strategic sourcing, is it necessary to hire a consultant to help implement a program? Is it necessary to create an organizational structure that includes a section/unit dedicated to strategic sourcing activities?

25 Discussion Questions Will strategic sourcing work in a decentralized environment and/or an environment where select agencies have a high level of autonomy? Is a robust eProcurement system required to engage in strategic sourcing activities? How do you train staff to do strategic sourcing?

26 Conclusion: Why Do We Do It? Reduces the need to make even tougher cuts in other areas when budgets are tight Fulfills our obligation to be thoughtful and cost-effective with Taxpayer dollars

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