Initiating Transformational Change: The CSU Procure-to-Pay Initiative

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

2. 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. Project Background and Process:

8. The Initiative Charge • 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:

9. 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.

10. 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.

11. 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

12. 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

13. 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

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

15. Future State Catalog: • Purchaser on-line shopping from shared catalogs at CSU negotiated terms. • 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

16. Future State Direct Purchase Orders: • Purchase of goods and services <$10,000 * which are not offered through on-line catalogs and do not require a contract. • 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 * $10,000 threshold will cover 96% of current commodity transactions

17. Future State Full Service Purchase Orders: Transactions of > $10,000 or for purchases of any value requiring a contract. • 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)

18. Future State Full Service Purchase Orders (cont): Workflow for Purchases Requiring a Contract • 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)

19. Future State Miscellaneous Direct Payments Payment requests for goods and services where a Purchase Order is not necessary. (e.g., registrations, honoraria, etc.) • 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

20. Future State Employee Reimbursements Reimbursement to employees for business related expenses including travel. • 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

21. Key Design Components of Future State

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

23. 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

24. 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 2010-11 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

25. Utilizing Electronic Payments • In fiscal year 2011-12, 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.

26. P2P Review Conclusions and Recommendation 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.

27. 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

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

29. P2P 2013 Executive Steering Committee 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

30. P2P Project Validation

31. 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

32. Next Steps

33. THANKS FOR THE INTEREST • Questions • Comments