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Strategic Sourcing: Current Trends in State Government

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Strategic Sourcing: Current Trends in State Government Moderated by: Dianne Lancaster, OR Panelists: Charles Covington, FL Paul Higgins, VA Mike Smith, IL – PowerPoint PPT presentation

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Title: Strategic Sourcing: Current Trends in State Government


1
Strategic Sourcing Current Trends in State
Government
  • Moderated by Dianne Lancaster, OR
  • Panelists Charles Covington, FL
  • Paul Higgins, VA
  • Mike Smith, IL

2
General Overview
  • What is it?
  • Ask 10 different people, youll likely get 10
    different answers!
  • The Merriam-Webster dictionary doesnt even
  • have one. Instead they have words like
  • stereochemistries and psuedotuberculosis!

3
We like this definition
Strategic Sourcing -- the collaborative and
structured process of critically analyzing an
organizations spending and using this
information to make business decisions about
acquiring commodities and services more
effectively and efficiently (Federal Office of
Management and Budget)
4
Broad Overview of the Process
  • Investigation
  • Examine/collect data establish baselines
  • Define needs
  • Develop specs and sourcing strategy
  • Solicitation
  • Determine methodology
  • Evaluate bids
  • Contract negotiation
  • Total cost of ownership
  • Vendor selection
  • Implementation
  • Vendor management/contract administration
  • Performance monitoring
  • Change management

5
Florida
  • MyFloridaMarketPlace-- eProcurement
  • 66,000 Registered Vendors
  • 21,000 Minority Women Vendors
  • 194, 000 Annual Purchase Orders
  • 1.3 Billion Annual Spend
  • 32 Executive Agencies on the System
  • Florida One Initiative
  • Equity in Contracting
  • Environmental Considerations
  • Certification of Drug Free Workplace
  • RESPECT
  • PRIDE
  • 75-State Term Contracts
  • Mandatory use by Executive Agencies
  • Optional use for all other government entities
    (OEUs)
  • Eliminated over 100 State Term Contracts
  • Approved Cooperative Contract Sources - WSCA
  • - HIRE
  • - MMCAP
  • - US Communities
  • - Other
  • Spend Management
  • MFMP-Analysis Tool
  • State Accounting System
  • P-Card
  • Vendor Sales Information
  • User Data

6
250MM in Contract Savings for Waves 1 and 2
  • Office Consumables
  • Maintenance Repair and Operating Supplies
  • Wireless Voice
  • Communication backbone infrastructure
  • Dry-Cell and Rechargeable Batteries
  • Office Paper
  • Gasoline other fuels
  • Medical Dental Supplies
  • Courier Services
  • Officers Uniforms
  • Can Liners
  • Audio Visual Equipment
  • Pest Control Services
  • Hand Held Power Tools
  • Envelopes
  • Tissue and Towels
  • Lawn Care

7
Potential Strategic Sourcing Events for Wave 3
  • Telephone System Equipment
  • Lab Supplies
  • Security Services
  • Janitorial Services
  • Mail Equipment
  • Office Equipment
  • Maintenance Services
  • Metal Detection and Scanning Equipment

8
Virginia
  • Procurement Scope
  • Local Government
  • 350 Cities, Counties Towns
  • Plus Public Schools, Airports, Districts,
    Authorities and Commissions
  • Use state contracts
  • Variety of systems
  • Approximately 5 billion annual spend
  • State Government
  • 171 Agencies/Institutions of Higher Education
  • Central oversight of state contracts
  • Variety of systems, including 44 Enterprise
    Resource Planning (Financial) Systems
  • Approximately 5 billion annual spend
  • Vendors
  • 20-30,000 for state government
  • Mix of local vendors versus statewide vendors
  • 20 get 80 of the orders (Approximately 6,000)

Virginia equals a Fortune 300 Corporation
9
Profile Spend Baseline
Area
Category
Building MaterialsHVACLighting, Fixtures
AccessoriesPipes, Valves Fittings
Facilities
Furniture Furnishings Office Equipment Office
Supplies
General Equipment Consumables
Janitorial SuppliesMRO SuppliesSafety Equipment
SuppliesSecurity EquipmentSpare PartsVehicle
Parts and Accessories
Goods
Industrial Equipment Supplies
Packaging Storage Materials(Containers,
Corrugated, Pallets, Tape)Paper, Stationery
Materials
HardwareSoftwareTelecom Equipment
Technology
Building MaintenanceEnvironmental
ServicesEquipment MaintenanceIndustrial
Cleaning Services Infrastructure SupportSecurity
Guard ServicesWaste Disposal Services
Industrial Services
Cargo Transport (Air, Rail Road)Courier/Messeng
erExpress DeliveryPostageWarehousing Storage
Logistics
BenefitsContract LaborDomestic
ServicesRelocationTemporary StaffingTrainingTr
avel Entertainment
Services
Personnel Services
AccountingAdvertising MarketingCommercial
PrintComputer ServicesFleet ManagementInsurance
IT ConsultingLegalReal Estate
Professional Services
ElectricityTelecommunicationsUtility Billing
Services
Utilities
10
Savings Results
150 Million in Contract Savings Created
Selected Target Categories and Percent Savings
  • Temporary Services 32
  • Uniforms 17
  • Hotels 31
  • Heavy Trucks 20
  • Storage Media 30
  • School Buses 3
  • Printers and Accessories 15
  • Maintenance, Repair, and Operating Supplies
    (MRO) 13
  • Computer Hardware 12
  • Janitorial Supplies 11
  • Lab Supplies 13
  • Office Supplies Paper 18
  • Computer Software 8
  • Off-Road Equipment 6
  • Enterprise Storage Devices 15
  • Ultimately saved over 150M in 2 separate
    waves of strategic sourcing
  • Leveraged purchases across 200 state
    agencies, institutions of higher education and
    other public entities

11
Illinois
  • Organization
  • Chief Procurement Officers
  • Dept. of Transportation Highway Construction
  • Capital Development Board Capital Projects
  • Higher Education
  • Supplies and Services
  • Authority/Applicability
  • Illinois Procurement Code
  • All state agencies, boards and commissions
  • Competitive selection on all procurements with
    few exceptions
  • Preferences for small business
  • Goals for diversified businesses
  • Agencies required to use master contracts
  • Contracts available to local governments -- Joint
    Purchasing Program

17 billion in procurable spend
  • Central Management Services
  • Center-leads all Supplies and Services
    procurements
  • Manages Illinois Procurement Bulletin
  • Created comprehensive Knowledge Management system
    -- an electronic reference library and
    communications system
  • Provides access and contracting opportunities for
    all vendors
  • Transparency
  • Accountability
  • Cost Savings

12
ILLINOIS PROCUREMENT INITIATIVE STRATEGIC
SOURCINGAugust 2003 - Present
  • Goals
  • Save 200 million in two years
  • Organizational transformation
  • Standardize/streamline processes
  • Improve transparency and increase vendor
    participation
  • Build capabilities/knowledge management system

Results 27 projects -- 216 million of
Validated Savings
Examples ---- Project Strategy Savings Food P
roduct substitution, bulk purchasing, 6.3
million elimination of unnecessary items Can
Liners Change in specifications,
renegotiation 737,000 Cleaning
Supplies Combined multiple contracts, extended
term 182,000 PCs/Laptops/Monitors Demand
management 1.8 million Emissions
Testing Renegotiation 10.2 million Utilities/El
ectricity Changed rate plans to best suit state
facilities 3.0 million consumption
patterns. Paper and Envelopes Combined multiple
contracts, extended term 715,000 Family Case
Mgmnt Enhanced federal reimbursement 24.2
million
13
ILLINOIS PROCUREMENT INITIATIVE ACCOMPLISHMENTS
  • 216 million in validated savings
  • Created new center-led organization to better
    manage procurements statewide and identify
    sourcing opportunities
  • Implemented 5-step procurement approach
  • Streamlined processes eliminated unnecessary
    and/or redundant steps
  • Implemented procurement business case system to
    ensure all purchases are justified and to
    identify opportunities for savings
  • Implemented a toll-free call center to assist
    agencies and vendors ensures consistent
    responses and that caller gets to appropriate
    person
  • Created comprehensive Knowledge Management
    system -- an electronic reference library and
    communications system
  • Greatly improved transparency into the process
    more detailed publications of procurement
    notices, supplier workshops, enhanced
    documentation of how decisions are made,
    published procurement opportunity reports
  • Increased opportunities for small and diverse
    businesses

14
Oregon Smart Buy Project
15
CATEGORIZING PURCHASED EXPENSE Fiscal Year 2003
Spending Billions
KEY OBSERVATIONS
  • The State purchased 1.62 billion of goods and
    services from vendors in fiscal year 2003, 1.35
    billion of which is on purchases that are
    potentially source-able
  • The initial Opportunity Assessment (conducted in
    October-December 2003) evaluated spending in the
    largest spending categories where there was
    significant cross-agency leverage 65 of the
    States spending is with vendors who serve only
    one agency
  • Government Services
  • Interest

Note Purchased expenses exclude interagency
transfers Source State financial systems (SFMA,
ODOT, Lottery Corrections, p-card) Silver Oak
Solutions analysis
16
Category Selection Criteria By evaluating
top-spending areas with joint leverage
opportunities in a number of areas, two waves of
spending categories were identified.
SCREENING MATRIX
PRIMARY SELECTION CRITERIA
High
  • PC Hardware/Peripherals
  • ITPS
  • Office Supplies
  • TCPERS
  • Telecom LD/Data
  • Express Mail
  • Tires
  • Telecom Cellular

Savings Opportunity
  • Software
  • Copiers

Lab Supplies
Hot Mix
Food
Postage Meters
Janitorial Supplies
Emulsions
Blade Server/Mainframes
Low
Low
Ease of Capture
High
17
Identified hard dollar impact is projected to be
9.1 million per year (or 18 of baseline spend)
and will accrue to the State over many years.
HARD DOLLAR IMPACT 1 BREAKDOWN By Completed
Category Thousands
1 Includes spend reduction savings, rebates and
increase in VCAF (Vendor Collected Administrative
Fee), due to fee increase in some Smart Buy price
agreements 2 Contracts vary in length by category
from 2 6 years, and savings are expected to
accrue over the lives of these contracts 3
Defined as (Annual Run-Rate Savings/Annual
Spend) 4 Information gathered as of February 2,
2005
18
SOURCES OF SAVINGS AND SERVICE IMPROVEMENTS By
Category
19
Impact on the Vendor Community
20
  • Small, Minority and Women-Owned Businesses
  • - Policies to increase opportunities, i.e.,
    utilization plans
  • - Marketing efforts/outreach
  • - Supplier diversity programs
  • - Monitoring/tracking activities
    (requesting/requiring more information)
  • - Counter-balancing activities (bundling vs.
    unbundling)

21
  • Different from Business as Usual
  • - Reduction in the Number of Overall Awards
  • - Best value vs. best price
  • - Changes in the RFP process, i.e., reverse
    auction
  • - Total cost of ownership
  • - More purchasing options, i.e., lease vs. buy
  • - Data-driving decision making
  • - More RFPs and multi-step bids
  • - Understanding of the industrycontract staff
    has increased knowledge of supply chains costs
  • - Uniform Price Card

22
Commodities/Categories of Items
  • Popular items that have already been sourced
  • Office supplies/equipment
  • Cleaning/janitorial supplies
  • Copiers
  • IT hardware/software/services
  • Food
  • Telecom services
  • Mail services
  • HMO/Hospital rate negotiations

23
Commodities/Categories of Items
  • What is planned for the future?
  • Commercial services
  • Utilities
  • Lease vs. purchasesequipment facility space
  • Professional services

24
Questions?
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