STRATEGIC SOURCING

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STRATEGIC SOURCING

• A System-wide, Collaborative Purchasing Process

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MISSION

• 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.

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Strategic Sourcing
Goals

• Complete Customer Satisfaction.
• Continuous Improvement of Internal Service Levels
  and Product Quality.
• Process Excellence.
• Significant Total Cost Reduction
  (5-15 Target).

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Strategic Sourcing
CRITICAL SUCCESS FACTORS

• 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

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Road Map

• Strategic Sourcing

Conduct Spend Diagnostic
Identify/Prioritize Opportunities
Collaborative Purchasing Process
Launch Cross Functional/Divisional Teams
Establish User requirements
Execute RFP Process/Select Supplier
Monitor Compliance
INCREASED CUSTOMER SATISFACTION and SIGNIFICANT
COST REDUCTIONS
Develop Timely and Accurate View of Spending Data
Technology
Simplify and Stream-line Processing (P-Card)
E-Procurement Development
Rationalize Current Specifications
Products and Services
Evaluate New/Alternative Products
Implementation of Best Practices
Best Practices Analysis
Business Process Analysis
Processes
Identify Non-Value Activities
Implement Continuous Improvement Practices/Metrics
TACTICS
MISSION
STRATEGIES
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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

• 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 -- 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
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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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High Level Overview of the Strategic Sourcing
Process
COMMODITY STRATEGIC SOURCING PROCESS
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Conduct Opportunity Assessment
Develop Commodity Strategy
Execute Acquisition Strategy
Implement Manage Performance
Commodity Identification
Profile Commodity
Market Analysis
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Identify and Prioritize
Develop plan and strategy
Implement, Measure and Adjust
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New Tools Techniques
Profile OfSourcing Group
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Exploit Buying Power
Create an Advantage

• Consolidate number of suppliers
• Pool volume across units
• Redistribute volume among suppliers
• Combine volume from differentcommodity categories

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• Conduct product value analysis and engineering
• Substitute materials
• Pursue system buying alternatives
• Optimize life cycle costs

Sourcing Strategy For Sourcing Category
ProductSpecification Improvement
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VolumeConcentration
Supplier Portfolio Generation

• Reengineer joint processes
• Share productivity gains
• Integrate logistics
• Support supplier
• operations improvement

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• Compare total costs
• Model should-costs
• Renegotiate prices
• Unbundle pricing

JointProcess Improvement
Best PriceEvaluation
Strategic Sourcing
Selection Of Implementation Path
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Expand Supply Base
RelationshipRestructuring
Competitive Supplier Selection

• Establish/develop key suppliers
• Employ strategic alliances/partnering
• Examine strategic make versus buy
• Develop integrated supply chain

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• Expand geographic supply base
• Develop new suppliers
• Profit from global supply/demand imbalances

Operational Integration With Suppliers
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Continuous Benchmarking Of Supply Market
New Tools

• Online (e) RFPs
• Internet Negotiations (Reverse Actions)

Source http//www.naspo.org/documents/Strategic_S
ourcing_All.ppt....
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Strategic Sourcing in the Public Sector
Overall Sourcing Approach
Fairness Considerations
Open 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

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Major Project Components

• Sourcing Activities
• Training
• Savings Administration
• Change Management

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Example- Project Roadmap Plan
June 2007
January - July 2005
April May 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
Savings Collection
State of California Role
Team CGI-AMS Role
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How to Economic Value Added

• Broaden Offerings
• Improve Customer Value Proposition

• Reduce Assets
• Improve Utilization

• Internal Cost Structure
• External Cost Structure

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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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Strategic Sourcing
Procurement
Source http//www.pptsearch365.com/Sourcing-Impro
vement.html....
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Critical Elements

• Identification
• Analysis
• Total Cost Modeling
• Process redesign
• Supplier reduction
• Leverage
• Disintermediation
• Supplier Management

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Establish Baseline Metrics

• 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

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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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Sources of Preliminary Category Information
Accounting Dept
Purchasing Dept
Technical/Engineering Dept.

• 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

Sales Dept.
Manufacturing Dept
Suppliers/Others

• 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

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Suppliers

• 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

• 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

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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?
OUTSOURCING
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Outsourcing Decision Model
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Reasons to Outsource

• Improve the business focus
• Improve service level
• Access to larger capabilities
• Share risks
• Accelerate benefits of re-engineering
• Replace outdated systems
• Reduce or control costs
• Provide a cash infusion
• Make capital funds available
• Free non capital resources

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Why do Companies Outsource?
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When to Outsource
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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Outsourcing Life Cycle - Detail
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
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Outsourcing Models
Data administration Local and Remote
Application development and maintenance Remote
Infrastructure management
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Outsourcing Models
Business Continuity Data Storage Business
Processes, Engineering Processes Complete
testing processes- Reduce time to market
Knowledge Processes