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Tales from the Trenches : Evolution of Strategic Sourcing. Chuks Amajor – State of Texas Mike Smith – NASPO Life Member. Background. Emerging Issues Committee –
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Tales from the Trenches: Evolution of Strategic Sourcing ChuksAmajor – State of Texas Mike Smith – NASPO Life Member
Background • 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
Agenda • History • Strategic Sourcing Overview • What is it? Strategic Sourcing Defined • Common Misconceptions • Strategic Sourcing vs. Traditional Procurement • Steps, Stakeholders & Challenges • Survey Results • Discussion Questions
History • 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
Defining Strategic Sourcing “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 StrategicSourcing.gov “Strategic sourcing is an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company.” Wikipedia “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
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
Strategic Sourcing Process Flow 1 2 3 4
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
Survey Results How Do You Define Strategic Sourcing? Reduce number of suppliers Look at total cost of ownership Low price does not equal best value Use 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 approach Establish sustainable contracts Determine best procurement methodology Target specific categories Engage others in decision making process BUYING SMARTER!
Survey Results • 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
Survey Results 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? High = 9.5 Low = 3 Average = 6.5 Some states noted their focus was increasing. Others have experienced a decrease in focus in recent years.
Survey Results Does your states’ procurement organizational chart include a section, role or title specifically related to strategic sourcing? 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.
Survey Results Did your state retain a consultant to implement Strategic Sourcing? 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
Survey Results What are some skills set attributes needed for strategic sourcing? 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
Survey Results: Which Categories have been most Successful/Challenging?
Typical Categorization Matrix to Assist in Determining Opportunity WAVE I WAVE 2 High Savings Opportunity Low WAVE 2 High Low Sourcing Complexity/Time Required
Prioritize Waves (Multi-Dimensional) Assess each category and prioritize efforts on three or more of the most important factors. WAVE I
Survey Results What level of Support Have you Received from…
Survey Results How has the growth of cooperative purchasing impacted strategic sourcing? 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.
Survey Results Will strategic sourcing continue to grow, fade or change in state government? Grow… With caveat -- change in administration can sometimes change focus on strategic sourcing.
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?
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?
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