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Strategic Sourcing:

Strategic Sourcing:. Navigating the Waters 2005 NASPO Annual Conference Mystic, Connecticut. Moderated by: Ellen Phillips (MA). Panel Members: - Terese Butler, Project Director (CA) - Carol Wilson, Director of Procurement (CT) - Tim Walker, State Procurement Analyst (OR).

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Strategic Sourcing:

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  1. Strategic Sourcing: Navigating the Waters 2005 NASPO Annual Conference Mystic, Connecticut

  2. Moderated by: Ellen Phillips (MA) • Panel Members: - Terese Butler, Project Director (CA) - Carol Wilson, Director of Procurement (CT) - Tim Walker, State Procurement Analyst (OR)

  3. Strategic Sourcing: What is it? • Ask 10 different people, you’ll likely get 10 different answers! • The Merriam-Webster dictionary doesn’t even have one. Instead they have words like stereochemistries and psuedotuberculosis!

  4. We like this definition: • Strategic Sourcing -- 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 (Office of Management and Budget)

  5. Every State Does it Differently… You’re going to hear from a few states that have been involved in the process for some time. Each has a different approach.

  6. California Strategic Sourcing Initiative August 30, 2005

  7. Once upon a time….

  8. and then the Governor said…

  9. and the result was Strategic Sourcing

  10. Strategic Sourcing is… • A Disciplined Analysis of Purchases, Markets and Suppliers • To Identify Opportunities for Savings • By Negotiating Contracts and Employing New Tools and Practices • That Lowers Costs and/or Adds Value • While Maintaining Goods and Services

  11. New Tools & Techniques 1 Profile OfSourcing Group Exploit Buying Power Create an Advantage • Consolidate number of suppliers • Pool volume across units • Redistribute volume among suppliers • Combine volume from differentcommodity categories 2 • Conduct product value analysis and engineering • Substitute materials • Pursue system buying alternatives • Optimize life cycle costs Sourcing Strategy For Sourcing Category ProductSpecification Improvement 3 VolumeConcentration Supplier Portfolio Generation • Reengineer joint processes • Share productivity gains • Integrate logistics • Support supplier • operations improvement 4 • Compare “total” costs • Model “should-costs” • Renegotiate prices • Unbundle pricing JointProcess Improvement Best PriceEvaluation Strategic Sourcing Selection Of Implementation Path 5 Expand Supply Base RelationshipRestructuring Competitive Supplier Selection • Establish/develop key suppliers • Employ strategic alliances/partnering • Examine strategic make versus buy • Develop integrated supply chain 6 • Expand geographic supply base • Develop new suppliers • Profit from global supply/demand imbalances Operational Integration With Suppliers 7 Continuous Benchmarking Of Supply Market New Tools • Online (“e”) RFPs • Internet Negotiations (Reverse Actions)

  12. ProductSpecification Improvement VolumeConcentration JointProcess Improvement Best PriceEvaluation Strategic Sourcing GlobalSourcing RelationshipRestructuring Strategic Sourcing in the Public Sector Open Competition Fairness Considerations Overall Sourcing Approach Drivers of Competition • Broad participation, enabled by effective outreach • Transparent procurement processes • Effective documentation of results and approach Factors for Consideration • Disabled Veterans Business Enterprise requirements • Small business participation goals • Other federal and special fund requirements Effective and Balanced Approach to Drive Results • Competition and fairness used to drive traditional sourcing approach to achieve savings and preserve policy priorities

  13. Major Project Components • Sourcing Activities • Training • Savings Administration • Change Management

  14. Project Roadmap June 2007 April – May 2005 January - July 2005 September 2004 Three Year Project Outlook Phase II Phase I – 45 Days Opportunity Assessment 4 + Months depending on category Wave I Sourcing Opportunities Wave II Sourcing Opportunities Communications and Change Management — Internal Stakeholders and External Vendors SavingsCollection State of California Role Team CGI-AMSRole

  15. CSSI Challenges • Quality of the State’s Purchasing Data • Multiple Stakeholders with Conflicting Agendas • Savings Administration/Baseline Establishment • Change Management

  16. Quality of the State’s Data • AP Data • $23.7m • 1,914 suppliers • Classified using • G/L codes • Supplier name/SIC codes • Line Item Detail Spend Data • CDC PO database – all categories (7/2003 – 9/2004) • Supplier provided State spend data – 16 of 70 vendors provided • AP Data • $16.0m • 1,871 suppliers • Further refinement using • Supplier name classification using sub sic detail • Refinement of target sub-categories • Refined Line Item Detail Spend • $6.6m • Product and volume detail • Validated categorization • Validated costs

  17. Multiple Stakeholders • Department of Finance • Reducing Budgets • Supplier Community • SB and DVBE Communities • Protecting Turf • State Departments • Baselines • Conformance to Standards • We Can Do Better

  18. Savings Administration • Establishing Baselines • Line Item Detail • Quality of Supplier Data • Level of Scrutiny

  19. Results to Date CategoryEstimated Annual Savings Proprietary Pharma $ 1, 000,000 Office Supplies $ 6,000,000 IT – PC Goods $ 22,500,000 Office Equipment – Copiers $ 4,000,000

  20. Stay Informed! http://www.pd.dgs.ca.gov/stratsourcing strategicsourcing@dgs.ca.gov Toll Free Help Line: 1-866-885-8344

  21. Buy Smart...Buy TogetherConnecticut’s Spend Management Initiative

  22. Overview • Project Background • Critical Success Factors • Results • Lesson’s Learned • Current Successes and Struggles

  23. Project Background • 5/2003 – RFP issued for Spend Mgmt. Services • 9/2003 – Contract Awarded to Silver OakSolutions • 10/2003 – 6/2004 • Data Gathering/Analysis • Formed Users Groups • New RFP’s, Heavy User Group Interaction • Knowledge Transfer • Communications – WIN and new Website • Evaluations, Negotiations, Savings Creation/New Awards

  24. Critical Success Factors • Commitment of Procurement Staff • Communications and Buy-in with State Agencies • Ongoing Communication at Agency Head Level and through Newsletters • Attention and commitment to SBE/MBE Issues • Positive Communications with Media • Positive and Informative Communications with Legislators.

  25. Expected Savings Results on Completed Categories • Office Supplies - $2.6 million • Office Equipment - $1.8 million (rolling) • MRO - $1.5 million • Food - $2.1 million • Police Cruisers - $827,000 • Envelopes, Printing & Forms - $257,000 Forms Only

  26. Lesson’s Learned ? • Aligned Staff workloads to have less impact on project needs – Initiative was an intensive effort with big impact on Staff! • More pro-actively educate legislature and media of positives with the initiative. • Planned more effectively for spend and savings measurement and monitoring in initial project negotiations.

  27. More Lessons Learned? • Knowledge Transfer Sessions and Staff involvement are critical to success. • Product Categories were easier than service categories. • All Using State Agency (DAS controlled) contracts were less problematic than Agency specific contracts. • buy-in/compliance. • Formulation of Agency Head Steering Committee would have helped with agency

  28. One Year Later, Where are we Now? • Actual Savings Determinations • Successes/Struggles with new Contracts • Agency Compliance/Feedback

  29. Actual Savings Case Analysis:Police Cruisers • Savings Per Car $1,443 • 520 Cars Purchased • $750,350 Total Savings • Falls within range estimated by SO ($485k - $971k)

  30. Actual Savings Case Analysis:Copiers and Printers

  31. Actual Savings Case Analysis:Boise Office Supplies • Estimated Contract savings during first year of contract: 20.60% • First year contract spend = $3,377,074.19 x .2060 $695,842/yr. x 3 Years = $2,087,526

  32. Actual Savings Case Analysis:Eastern Bag and Paper • Estimated Contract savings during first year of contract: 19.74% • First year contract spend = $3,898,968.32 x .1974 $769,615/yr. x 4 Years = $3,078,459.33

  33. Successes/Struggles with new contracts and measures: • Currently looking to determine actual • savings for fy 04/05 – only successful with data extract for with police car purchase. • Savings measures/data more challenging to extract/analyze than what consultants portrayed. Need dedicated staff with no other assignments. • Data extracts from new in-house financial system not totally reflective of actual purchases. Users not utilizing system in manner conducive to line item data (blanket orders/general descriptions to pay after the fact).

  34. Successes/Struggles (continued): • Vendor reports have proven to us to be more reliable on agency specifics than in-house data. • Most Vendor reports indicating that savings goals will be met (Food contract right on target at $2 million 1st year savings).

  35. Agency Compliance/Feedback • Generally, Agencies utilizing contracts and satisfied with most contracts. • Due to consolidated product groupings in certain contracts, agencies indicate that product needs (or comparables) aren’t covered resulting in some product dissatisfaction. • Pricing higher on a large number of items on certain contracts (“b” list) – certain contracts. • Complaints that contracts are much too large and cumbersome to work with effectively.

  36. Summary of Effort: • Project successful in creating savings. • Beware of “business as usual” mentality after consultants leave the state. • Need Staff dedicated to ongoing measures. • Satisfied with new strategies and approaches to contract efforts that are resulting in savings to the state.

  37. Thank You Carol Wilson Procurement Director State of Connecticut 860-713-5093 carol.wilson@po.state.ct.us

  38. Oregon Smart Buy Project

  39. Oregon Smart Buy – Background________________________________________________________________________________________________________________ • Project Process • Project Research Began 4/2003 • RFP for Strategic Sourcing Consultant Released 6/2003 • Contract Awarded 8/30/2003 • Phase I Opportunity Assessment Completed 12/2003 • Phase II/Wave 1 Category Implementation • Began in 2/2004 • Wave 1 Completed (some implementation currently underway) • Wave 2 started April 15, 2005

  40. Oregon Smart Buy – RFP Structure________________________________________________________________________________________________________________ • Key Elements of the RFP • Responsibility for outcomes at the State Procurement Office level and not at cabinet level • Solutions Based RFP • Phased Rollout • Phase I – Assessment Phase • Phase II – Category Implementation Phase • Ability to Amend for additional Wave(s) • Engaged an independent 3rd Party Auditor to review savings calculation methodology and results

  41. Oregon Smart Buy – Governance Structure_____________________________________________________________________________________________________________________ Project Oversight SteeringCommittee Core Team

  42. Oregon Smart Buy – Governance Structure_____________________________________________________________________________________________________________________ Project Oversight and Execution Project Team User Groups (each commodity)

  43. Oregon Smart Buy – Lessons Learned_____________________________________________________________________________________________________________________ • Strategic Sourcing Works • Actual Hard-Dollar Impact for the biennium (4/04 – 6/05) - $10.4 million • Best Estimate for Wave 2 Hard-Dollar Impact $8.0 million • Best Estimate for Hard-Dollar Impact over contract length (Wave 1 only) - $59.8 million

  44. Oregon Smart Buy – Lessons Learned_____________________________________________________________________________________________________________________ • Performance measurement matters • Strong project discipline on measuring savings • Relative to target (18% identified vs. 12-23% target) • Realized vs. identified (first period: $10.42 million realized vs.$ 10.45 million identified) • Sustainability impact • Important for credibility with legislature and agencies • Methodology and calculations reviewed by steering committee, auditor, reported back to legislature • Buyer compliance and savings measurement • 96% compliance with statewide price agreements across all categories (most incumbents) • From 50% to 93% compliance over 6 months in some categories (with new suppliers) • (The most complex category, IT Professional services, underway…)

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