Tales from the Trenches:
Evolution of Strategic Sourcing
Chuks Amajor – 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
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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
Common Misconceptions
Perception
Reality
Strategic Sourcing = Single Source
Strategic sourcing initiatives often result
in multiple awards
Strategic Sourcing means buying the
cheapest product, regardless of quality
Maintaining or enhancing quality is a key
component of most SS engagements
Strategic Sourcing is about changing
suppliers
A Strategic Sourcing initiative will
sometimes, if not often, result in using
the same supplier
Small, local and/or diverse business
always lose out when contracts are
strategically sourced
Socio-economic policies will often dictate
these suppliers be included in Strategic
Sourcing activities.
Common Misconceptions
Perception
Reality
Strategic Sourcing is a one-size-fits-all
approach to procurement
SS methodology anticipates and provides
for unique circumstances and challenges
Strategic Sourcing is about strong arming
suppliers
Strategic Sourcing is about understanding
the marketplace, the category and the
supplier community in order to obtain
best value
Strategic Sourcing is a one-time project
Strategic Sourcing involves continuous
improvement over the life cycle of many
contract iterations
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
•Conduct Market Research
•Expand Benchmarking
•Assess current state
•Contact other states
•Determine preliminary strategy
•Track Actual Savings
•Monitor Customer Satisfaction
•Market contract
•Survey Customer
•Conduct Price Audits
•Lessons Learned & Best Practices
1
2
Research &
Analysis
Stakeholder
Discussions
Performance
Management
Procurement
Event
4
3
•Identify key stakeholders
•Identify Roadblocks
•Validate research & Analysis
•Identify potential process improvements
•Finalize Strategy
•Draft and Issue RFP
•Establish Evaluation Committee
•Evaluate Responses
•Conduct Vendor negotiations
•Award Contracts
Who are the
stakeholders
and what is
their
prospective?
Elected Officials
• Often not interested unless/until they hear from their
constituents
• Will be interested in potential savings, but also in economic
impact on SMWB and local businesses
Customers
• Can be sensitive to potential loss of independence
• Can be concerned with the potential loss relationships with
current vendors
Affected State
Employees
Vendors &
Advocacy Groups
• Too often get forgotten in the process
• Important to understand their perspective
• Sometimes can be averse to change
• Upfront communication is key
• Will fight hard to protect their interests
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
Low price does not equal best value
Consolidate enterprise needs
Comprehensive review of contracts
Evaluate timing of solicitation
Systematic and structured approach
Determine best procurement methodology
Engage others in decision making process
Look at total cost of ownership
Use a defined process
Standardize
Conduct market research
Conduct front end spend analysis
Establish sustainable contracts
Target specific categories
BUYING SMARTER!
Survey Results
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
• 58% of states reported carve-outs for DOT
• 50% of states reported an independent procurement shop
for IT goods and services
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?
# of Instances
6
5
4
3
2
Successful
1
Challenging
0
Office
Supplies
MRO
Print
Food
Category
IT
Hardware
Fleet
Typical Categorization Matrix to Assist in Determining Opportunity
WAVE I
WAVE 2
High
Tier 2: “Big Impact/High Complexity”
•
•
•
•
Savings
Opportunity
•
•
•
•
Low
•
•
•
•
•
Tier 4: “Low Impact/
High Complexity”
•
High
Large spending
Data takes longer to compile and
validate
More fragmentation in category spend
across the all departments
High complexity in current supplier
relationships
Tier 1: “Quick Hits/Big Impact”
Large spending
Available and complete data
Known and competitive supplier base
Centralization/Concentration of spend
Ease of specifications
Tier 3: “Medium Impact/Less
Complexity”
Smaller spending
High fragmentation of spend
Difficulty in collecting data
High fragmentation of coverage by
suppliers
Less competitive supplier base
•
•
•
Smaller spending
Some fragmentation/de-centralization of
spend
Longer timeframe for collecting data
Sourcing Complexity/
Time Required
WAVE 2
Low
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…
Legislature
• 83% of respondents indicate neutral or positive view.
• Education/Communication is Key
Administration
• 83% had full support of their administration
• Mid-stream administration changes can
drastically change level of support
SMWB
Community
• 67% reported unsupportive Vendor Communities
• However, a vast majority (88%) of them reported
that this negative view was shifting
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