Initiating Transformational Change: The CSU Procure-to-Pay Initiative UC – CSU Shared Services Conference PLANNING TRACK July 11, 2013 Streamline Automate Simplify

Larry Furukawa-Schlereth Vice-President for Administration and Finance and Chief Financial Officer at Sonoma State University Michael P. Redmond Senior Director CSU Chancellor’s Office Budget and Special Initiatives Initiating Transformational Change: The CSU Procure-to-Pay Initiative

3 Overview of the CSU P2P Initiative The California State University Procure to Pay Shared Services Initiative seeks to: leverage the success of implementing the CSU Common Financial System improve the efficiency and effectiveness of processes to purchase and pay for goods and services A transformational redesign of processes is being considered which is very similar to those now common in the private sector and currently being adopted successfully by other higher education institutions.

4 Overview of the CSU P2P Initiative These changes would seek to: Implement a common process approach across the university Deploy a common system to support common processes Implement shared services Enable strategic procurement Support movement to electronic invoicing and payments Provide metrics for managing services and promote continuous improvement

5 Overview of the CSU P2P Initiative The transformation effort will be a multi-year project and require significant investment in time and financial resources. Some aspects of the proposed design, such as expanded strategic sourcing and wider use of electronic payment options, are already underway. Once fully implemented, proposed changes represent an overall cost savings opportunity of tens of millions of dollars per year

6 Steps Leading to Transformational Change: Project Background and Process The Initiative Charge Methodology for Current State Assessment Current State Analysis Results Future State Design Goals Future State Design Guiding Principles Future State Development Methodology Future State Business Process Design Where we are now

7 December 2011Presidents Armiñana and Morishita initiate Procure-to-Pay (P2P) synergy review January 2012Common Financial Systems (CFS) Steering Committee re- established to lead review April 2012Sub-committee of financial services associate vice presidents appointed to conduct detailed review and recommend improvements July 2012Sub-committee completed current state assessment November 2012High level future state design completed and presented. December 2012CFS Steering Comm. accepted sub-committee’s work and developed its final report February 2013Approval is given by Chancellor and CSU Presidents to move forward with detailed design and planning. Project Background and Process :

Describe a Future State Procure-to-Pay (P2P) system for CSU Identify and estimate the opportunities for savings and efficiencies in the proposed Future State The following functions were assessed: The Initiative Charge 8 Choosing and sourcing needed goods and services Placing orders or creating contracts Receiving a good or service Handling invoices or expense documentation Paying invoices

Methodology for Current State Assessment Identified core business processes for analysis Developed detailed process maps Surveyed campus representatives to validate process maps and gather process issues Attempted to develop transaction counts by process and costs of each using several sources  Found that current systems cannot provide transaction data at the process level for all types.  Different campus practices contribute to inconsistencies in existing data.  Lack of relevant process metrics inhibits potential improvements and usable management data. 9

Current State Analysis Results The Committee identified inefficiencies in current processes including: Inefficient methodologies for supporting common requirements Lack of holistic process automation Fragmented approach to strategic procurement These inefficiencies were seen as driving up costs, extending cycle time, required significant manual handling and produced many errors. 10

Future State Design Goals Improve quality of processes Reduce cost Simplify the purchaser’s and vendor’s experience Maintain or improve the ability to meet compliance requirements Can work within a shared-services environment 11

Future State Design Guiding Principles Processes can be simplified and standardized Policies and procedures can be changed Organization structures can be changed Roles and responsibilities can be changed Automation necessary to support the design will be implemented Savings opportunities will be identified and estimated based on a high level conceptual design Note: Costing of implementation to be conducted in the detailed design phase 12

Future State Development Methodology The Sub-Committee performed the following steps: Visualized a desired Future State process framework Interviewed other universities for their processes (UC Davis, UC Berkeley, University of Michigan and Stanford) Obtained leading practice information from vendors and other organizations (U.S. Bank, Wells Fargo, IO Consulting, and Oracle) Synthesized the information into a sustainable and workable design, and Measured the probable impacts of the design utilizing participating campus and system-wide financial data 13

Future State Business Process Design 14 Single on-line entry point portal for all transaction types

Future State Catalog: 15 Provides optimum pricing for the CSU Drives strategic sourcing to the desktop Most expeditious for the purchaser (using automation and workflow) Captures management data not available today Replaces much of current Procurement Card (P-card) transactions Should eventually encompass 50% or more of all purchases Purchaser on-line shopping from shared catalogs at CSU negotiated terms.

Future State Direct Purchase Orders: 16 Focuses Procurement Dept effort on more value-added transactions Saves labor time Expeditious for the purchaser (using automation and workflow) Significantly reduces individual use of P-Card Enables identification of new catalog opportunities and spend analytics to decrease reliance on this approach over time Purchase of goods and services <$10,000 * which are not offered through on-line catalogs and do not require a contract. * $10,000 threshold will cover 96% of current commodity transactions

Future State Full Service Purchase Orders: Automated processes and online guidance for purchaser Focuses Procurement Dept added value on higher dollar transactions (75% of commodity transaction dollars) Expeditious for the purchaser (using automation and workflow) Cycle time can be reduced and can be measured through service level agreements (SLA) 17 Transactions of > $10,000 or for purchases of any value requiring a contract.

Future State Full Service Purchase Orders (cont): Automated process with online guidance and workflow Compliance with delegations of authority enforced via workflow Electronic document management Focuses Procurement Dept added value on higher dollar transactions Cycle time can be reduced and can be measured through service level agreements (SLA) 18 Workflow for Purchases Requiring a Contract

Future State Miscellaneous Direct Payments 19 Common data capture in an automated system Expeditious for the purchaser and approver (using automation and workflow) Activity can be monitored Use of this method would be minimized Payment requests for goods and services where a Purchase Order is not necessary. (e.g., registrations, honoraria, etc.)

Future State Employee Reimbursements 20 Data is captured through common smart-forms Expeditious for the purchaser and approver (using automation and workflow) Simplifies compliance with travel policy/ procedures Reduces cycle time, i.e. time from reimbursement request to payment Reimbursement to employees for business related expenses including travel.

Key Design Components of Future State 21 Purchaser/DepartmentProcessing UnitSupplier  Online access with user friendly front-end.  One-Door Access Point for all transaction types  Online Guide for purchasers  Catalog shopping options  Automated Workflow  Electronic document management  Metrics/management information  Standard travel process/forms  Automated Workflow  Electronic document management  One Supplier Master file  Automated Requisition & P.O.  Electronic Invoicing  Electronic Payments  Supplier self-service  Electronic P.O.  Electronic Invoicing  Electronic Payment

Enabling Technologies Required for Future State E-procurement Supplier self-service Catalog management Workflow Imaging and document management Online Help Business Intelligence Analytic applications 22

P2P Opportunities for Savings and Efficiencies With full participation, and after complete implementation, the overall cost savings opportunity available to the CSU was conservatively estimated at $30 million per year. The three main areas identified for savings opportunities are: Spending reductions through strategic sourcing integrated with shared E-Procurement catalogs - $27 million Reduced or reallocated labor processing time by 10% by eliminating process steps and manual touch points - $2.8 million Better cash management and reduced costs through electronic payments - $1.0 million 23

Reduced or Reallocated Labor Processing Time and Manual Touch Points Fewer Vendors and Reduced Vendor Maintenance Time Directing more purchases to strategic vendors Online self-service for vendors Obtaining complete vendor information One vendor master file vs. 24 Increase Threshold for Purchases Using the Direct P.O. Method 96% of FY commodity transactions were under $10,000 in value but covered only 25% of the related spend. Increasing the threshold will save processing time, yet still provide appropriate oversight for majority of dollars expended Fully automated process will reduce touch time Paperless processes will save printing, mailing, paper, filing time and storage space 24

Utilizing Electronic Payments In fiscal year , the University processed nearly 290,000 payments, 96% of which were issued via paper check. Electronic payments (Automated Clearinghouse, Electronic Funds Transfer or credit cards): Are faster, cheaper and not as prone to fraud Can provide rebates or payment discounts Electronic payments translate to lower costs for suppliers and leverages CSU’s negotiating position. 25

P2P Review Conclusions and Recommendation 26 Based on projected savings and improved service potential, the Committee recommended proceeding with and ROI Validation Analysis and Detailed Project Planning to move to the Future State P2P design. Streamline Automate Simplify

Critical Success Factors: Executive leadership Comprehensive planning and implementation strategy that progressively moves the CSU to meet the Future State design Process centric design approach Actively engaged management throughout the organization Adequate resources including effective change management (early/ongoing) for effective customer adoption Empowered and accountable Global Process Owner to maintain policy/procedure consistency Shared services managed and measured through Service Level Agreements for accountability and continuous improvement Maximum benefit can only be achieved with universal participation Purchasers must find the on-line system easy to use 27

P2P Where Are We Now 28 P2P Executive Steering Committee P2P Project Validation Current Status Next Steps

P2P 2013 Executive Steering Committee 29 Members Rubin Armiñana President, Sonoma State University Leroy Morishita President, CSU East Bay Laurence Furukawa-Schlereth Vice President, Administration & Finance/CFO, Sonoma State University Benjamin Quillian Executive Vice Chancellor/CFO Ephraim Smith Executive Vice Chancellor/CAO Lars Walton Chief of Staff, CSU Office of the Chancellor Advisory Staff Robert O’ Leary Oracle Advisor Michael Redmond Sr. Dir. CO Budgets & Special Initiatives Chancellor’s Office

P2P Project Validation 30

Current Status Proposals have been received from seven reputable firms The process to review proposals has begun, campus support is needed Communication to various constituencies has begun Recruitment for an Executive Director for Shared Services is in progress 31

Next Steps 32 Mobilize Project Establish Governance Change Management and Communications Planning Empower Interim Project Team Consultant and Request for Proposal Coordinate Consultant Activities Hire Executive Director Groundwork Required PeopleSoft 9.2 UpgradeFinalize CFS ConversionE-Procurement/CatalogBusiness IntelligenceDocument Management Organizational and Staffing Metrics Map Data Configuration i.e. Chart of Accounts Policy/Procedure/Practices Review Quick Wins Strategic SourcingElectronic PaymentsManagement of Credit Cards Travel Policies and Procedures Common Forms

THANKS FOR THE INTEREST Questions Comments 33