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STRATEGIC SOURCING
A System-wide, Collaborative Purchasing Process
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To develop and implement an effective system-wide, collaborative purchasing process designed to maintain or increase customer satisfaction (by enhancing product quality and service levels) and significantly lowering total cost by coordinating and leveraging common purchases across the UC system.
MISSION
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Strategic Sourcing
Complete Customer Satisfaction.Continuous Improvement of Internal
Service Levels and Product Quality.Process Excellence. Significant Total Cost Reduction
(5%-15% Target).
Goals
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Strategic Sourcing
Visible, Active Executive Sponsorship– A Single Vision– Internal Cooperation and Participation
End User Focus and Involvement– Clear Understanding of User Requirements– Use of Cross Functional/Departmental Teams
Data Integrity– Rigorous Analysis– Fact Based Decisions
Appropriate Use Of Technology– Internet Enabled E-Procurement– Solid, Reliable System Infrastructure
Continuous Process Improvement– Establish Best Practices/ Key Performance Indicators– Constantly Measure Results and Implement Improvements
CRITICAL SUCCESS FACTORS
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Road Map
INCREASED CUSTOMER SATISFACTION and
SIGNIFICANT COST REDUCTIONS
Technology
Implementation of Best Practices
Identify/Prioritize Opportunities
Establish User requirementsExecute RFP Process/Select Supplier
Develop Timely and Accurate View of Spending Data
Simplify and Stream-line Processing (P-Card)
E-Procurement Development
Strategic Sourcing
Products and Services
Processes
Rationalize Current Specifications
Evaluate New/Alternative Products
Identify Non-Value Activities
Best Practices Analysis
Business Process Analysis
Implement Continuous Improvement Practices/Metrics
Conduct Spend Diagnostic
Launch Cross Functional/Divisional Teams
MISSION STRATEGIES TACTICS
Monitor Compliance
Collaborative Purchasing Process
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Major Commodity Relationship Groups
Professional Services– Professional Services– Temporary Services
Miscellaneous– Utilities– Misc. Equipment– Printing Services and Supplies– Furniture– Business Equipment– Freight & Shipping Supplies– Misc. Other, Includes:
• Athletic & Rec. Supplies• Auto Rental• Collections• Departmental Stores• Explosives & Firearms• Literary Services• Medical Equipment• Misc. Supplies• Site Maintenance• Theater Supplies
Services– Medical Services– Food Services– Entertainment Services– Travel– Misc. Services– Security– Environmental Services
Supplies– Laboratory Supplies– Maintenance/Repair/Operations– Medical Supplies– Multimedia Supplies– Office Supplies– Pharmaceuticals
Telecommunications/Computer– Computer Equipment– Computer Supplies/Software– Telecommunications Equipment/ Services
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Strategic Global Sourcing
A business model related decision on thetrade-off between: o Full Costs o Quality o Potential for Commoditisation o Lead Time o Delivery reliability o Product Innovation o Capabilities of Supplier o Public Security and Safety Risk o In-company focus
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Global Sourcing ExcellenceFrom Fringe to Core • Sourcing as integral part of the business model • Securing Business Buy-In • From potential costsavings to monitoring thereal
benefits • From low cost to highquality sourcing • Managing the SourcingBusiness Processes –
recallmanagement • End-User Involvement
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Strategic Sourcing
An analytical acquisition approach to achieve best value through standardization and leverage that results in significant savings and fulfillment of socio-economic and environmental requirements.
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Strategic Sourcing -- Strategic Sourcing -- the the collaborativecollaborative and and structuredstructured process of critically analyzing an process of critically analyzing an organization’s spending and using this organization’s spending and using this informationinformation to make business decisions to make business decisions about acquiring commodities and services about acquiring commodities and services more effectively and efficientlymore effectively and efficiently
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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
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Conduct Opportunity Assessment
Market AnalysisDevelop Commodity Strategy
Execute Acquisition Strategy
Implement & Manage Performance
2 3 4 5
ProfileCommodity
COMMODITY STRATEGIC SOURCING PROCESSCOMMODITY STRATEGIC SOURCING PROCESS1
Commodity Identification
Identify and Prioritize Develop plan and strategy Implement, Measure and Adjust
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New Tools & Techniques
Conduct product value analysis and engineering
Substitute materials Pursue system buying alternatives Optimize life cycle costs
• Reengineer joint processes• Share productivity gains• Integrate logistics• Support supplier operations improvement
Establish/develop key suppliers Employ strategic alliances/partnering Examine strategic make versus buy Develop integrated supply chain
Expand geographic supply base Develop new suppliers Profit from global supply/demand imbalances
Compare “total” costs Model “should-costs” Renegotiate prices Unbundle pricing
Consolidate number of suppliers Pool volume across units Redistribute volume among suppliers Combine volume from different
commodity categories
Exploit Buying Power Create an Advantage
ExpandSupplyBase
Best PriceEvaluation
VolumeConcentration
ProductSpecificationImprovement
JointProcess
Improvement
RelationshipRestructuring
StrategicSourcing
Profile OfSourcing Group
Sourcing Strategy ForSourcing Category
Supplier Portfolio Generation
Competitive Supplier Selection
Operational IntegrationWith Suppliers
Continuous Benchmarking OfSupply Market
Selection Of Implementation
Path
4
1
2
3
5
6
7
Online (“e”) RFPsInternet Negotiations (Reverse Actions)
New Tools
Source: http://www.naspo.org/documents/Strategic_Sourcing_All.ppt....
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Strategic Sourcing in the Public Sector
Overall Sourcing ApproachFairness ConsiderationsOpen Competition
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
GlobalSourcing
Best PriceEvaluation
VolumeConcentration
ProductSpecificationImprovement
JointProcess
Improvement
RelationshipRestructuring
StrategicSourcing
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Sourcing Activities
Training
Savings Administration
Change Management
Major Project Components
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State of California RoleTeam CGI-AMS Role
Communications and Change Management — Internal Stakeholders and External Vendors
Phase I – 45 Days Phase II
September 2004
Opportunity Assessment
Wave I SourcingOpportunities
Wave II SourcingOpportunities
January - July 2005 April – May 2005 June 2007
Example- Project Roadmap Plan
4 + Months depending on category
Savings Collection
Three Year Project Outlook
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RevenueGrowth
Effective Cost Management
Effective Asset Management
•Broaden Offerings•Improve Customer Value Proposition
•Internal Cost Structure•External Cost Structure
•Reduce Assets•Improve Utilization
How to Economic Value Added
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The Key Players
Internal Customers Suppliers Subcontractors Contract Admin Legal Finance Quality Others
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Goal Comparison
Business Operations wants
– Continuity– Quality of Service– Budget Optimization– Supplier
Management
Business Strategy Demands
– Maintain or improve competitive position
– Maintain product or service performance
– Reduce controllable spend by 3% per year
– Supply Chain Optimization
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Analyze Current Situation
Initial GO
1 2 43
Assess Supply Base
Develop Sourcing Strategy
Strategy GO
Engage Suppliers
Execution GO
5
DevelopTransition
Plan
Gather Information
Implement Strategy
6
Manage Supply Base
Strategic Sourcing
Procurement Source: http://www.pptsearch365.com/Sourcing-Improvement.html....
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Critical Elements
IdentificationAnalysisTotal Cost Modeling
– Process redesign– Supplier reduction– Leverage– Disintermediation
Supplier Management
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• What is the $$spend• Who are the users • Who are the suppliers• What is service level• What is value-added• How many transactions are involved• What is the impact on cash flow• How long do they take• How much inventory exists• Where does inventory exist• Is this asset intensive
Establish Baseline Metrics
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Additional Baseline What is the labor cost How does technology fit Who will lead the team What skills are needed What resources are available to the team What is the scope What are the boundaries How will we secure commitment How will we maintain commitment What are the incentives
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Why is this team being formed?
What authority does the team have?– Perform a task?– Improve a process?– Solve a problem?– Make a decision?
How will decisions be made?
Forming
Storming
Norming
Performing
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• History of purchases (G/L)• Unit prices by suppliers
(invoice files)• Volume purchased by
supplier (A/P)• Seasonality of purchase
(A/P, G/L)
• Information on current and past suppliers
• Unit prices• Price and pricing bases• Supplier characteristics
— Capacity— Quality— Location
• Term of payments• Supplier constraints• Product specs• Potential suppliers• Spend Analysis Software
• Product specs• Potential suppliers (name,
capabilities, quality)• Current supplier (capability,
quality, certification)• Bill of material structure• Possible alternative
products
• Seasonality of end product• Sales Dept. requirements to
Purchasing Dept. (local, content, advantaged suppliers…)
• Target sales markets
• Incoming quality history• Volume by site• Seasonality of usage
• Volume history• Pricing• Service performance• Technical specs
Sales Dept. Manufacturing Dept Suppliers/Others
Accounting Dept Purchasing Dept Technical/Engineering Dept.
Sources of Preliminary Category Information
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Suppliers
Financials Total Annual Revenues Total Assets Annual revenues in the outsource
segment Financial rating Sales Growth
Processes• Implementation and acceptance of
technology• Strength of management
experience• Qualifications of operating
management• Qualifications of the work force• Quality of labor management
relations• Current best accounts
Organization• Structure• Culture• Dedication to business development • Accounts lost in last 3 years• Policy on open book cost disclosure
and independent financial audits• Incentives for performance• Years providing product or service
Where to find• Directories
– Yellow Pages– Chamber of Commerce– Minority Purchasing– Thomas Register
• Networks– Internet– Minority Councils– SBA– Trade Shows– Other buyers
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What is Outsourcing?Outsourcing -
“the strategic use of outside resources to perform activities traditionally handled by internal staff and resources” Dave Griffiths
Why Outsource?Provide services that are scalable, secure, and efficient, while improving overall service and reducing costs
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What is outsourced?
Advertising Architecture/Engineer
ing Audio Visual Asset Repair Communications Computer systems
support Construction Customs Brokerage Environmental Facilities
Management Fleet Management Food Service Fork Truck Repair Graphic Arts
Hearing Testing Human Resources
Internal Audit Inventory
Management Investment Recovery Janitorial/Custodial Laboratory Services Legal Logistics Mailroom Management
Information Systems Manufacturing
Engineering Manufacturing --
Subassembly
Marketing Medical Order Entry Payroll Printing Purchasing Quality Assurance
and Control Research and
Development Real Estate Records Managment Recruiting Relocation Risk Assessment
and Management Safety
Security Security Alarm
SystemsTelecommunications
TelemarketingTemporary Labor
Training Translation Services Travel Vehicle Maintenance Vending Management Vibration Analysis Warehousing Waste Hauling Wellness Programs
OUTSOURCING
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Outsourcing Decision Model
1. Is this product or service critical to the success of our business?
Definite candidate foroutsourcing
Outsource, develop relationship with one or moresuppliers as required, develop measures andawareness of performance requirements.
YesDo we understand and can we fund and implement the
process or technology?
YesCan we manage it?
NoOutsource
NoOutsource
YesThe “yes” answer implies that this isan area where we are capable ofdistancing ourselves from ourcompetition. Develop as a specificsource of differentiation, a possiblecore competency of the business, anecessity of the marketplace; wedefinitely want to be doing this longterm.
3. Non Strategic Determination
Manage Outsource Relationship
2. Non strategic determination 2. Strategic determination
3. Strategic DeterminationShoot for Best in Class, what is the gap between wherewe are and present best in class - what will it take toclose the gap,
4. Non Strategic Determination
Evaluate -- has anything changed that would movethis fron tactical to strategic activity. If so, shouldwe reconsider outsource decision?
4. Strategic DeterminationEvaluate - if in a reasonable period of time sufficientprogress is not made to close the gap, consideroutsourcing to a strategic supplier, this just might not beyour thing.
5. Exit StrategyCan you develop an exit strategy if you commit tooutsourcing? If not, outsourcing may not be yoursolution.*Adapted from a model developed by Hamel and Prahalad
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Reasons to Outsource Improve the business focus Improve service level Access to larger capabilities Share risksAccelerate benefits of re-engineeringReplace outdated systemsReduce or control costs
– Provide a cash infusion– Make capital funds available– Free non capital resources
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Dependent on the category and the supplier
• Define Appropriate Management Structure
• Contract Management• Issue Resolution• Market Dynamics - suppliers position
relative to market• New Products,services & technology• New suppliers• Competitor evolution• Pricing relative to market
• Communication Plan
• Confirm goals• Understand issues & current
metrics• Create metrics• Confirm collection methods• Set up review procedure• Take action based on metrics• Communicate results
Supplier Management
• Set Goals• Review progress• Communicate results
Structured Process ImprovementRelationship Management Metrics
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Why do Companies Outsource?
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When to Outsource
GreyArea
Not Outsourced
In House if Possible Outsource
Competitive
Strategic Non-Strategic
Non-Competitive
PricewaterhouseCoopers Model
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How to Implement Outsourcing Program initiation
– Opinions and ideas shared to form draft contract
Program implementation– Transferring staff – Service Level Agreement (SLA) – Establish communications between partners – Actual transfer of the service – Establish management procedures
Contract agreement Contract fulfillment
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Problems With Outsourcing
Loss of Control Increased cash outflow Confidentiality and security Selection of supplier Too dependent on service provider Loss of staff or moral problems Time consuming Provider may not understand business environment Provider slow to react to changes in strategy
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Strategy – checklist of applications• Reassess – check for internal resources• Selection – evaluate vendor(s) SWOT• Negotiate – schedules and contracts• Implementation – start activities, training• Monitor – Reports, resources and activities• Accept – Validate and accept or reject• Renew – All is well, renew/extend contracts• Exit – All is not well, accept and exit
Outsourcing Life Cycle - Detail
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Outsourcing Models
• Data administration – Local and Remote• Application development and maintenance• Remote Infrastructure management
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Business Continuity – Data Storage• Business Processes, Engineering Processes• Complete testing processes- Reduce time to market• Knowledge Processes
Outsourcing Models