Strategic Sourcing: Renewed Emphasis in the New Environment

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2 Strategic Sourcing: Renewed Emphasis in the New Environment Breakout Session #: B15 Presented by: Knob Moses Date: July 22, 2013 Time: 2:30pm - 3:45pm

3 Agenda 1. Briefing Purpose 2. Definition & Objective 3. Federal Strategic Sourcing Experience & Results 4. GAO Report on USG Strategic Sourcing 5. Barriers to Strategic Sourcing 6. Current Government Initiatives 7. Commercial Strategic Sourcing Results & Experience 8. Summary 9. Questions and Answers 2

4 DoD s Better Buying Power Initiative The Under Secretary of Defense Directive Implementation of Directive for Better Buying Power Achieving Greater Efficiency and Productivity in Defense Spending, DTD 24 April Initiative implements best practices to strengthen DoD s buying power, improve industry productivity, and provide an affordable, valuable-added military capability to the Warfighter. Better Buying Power Initiative focus areas: Achieve Affordable Programs Control Costs Throughout the Product Lifecycle Incentivize Productivity and Innovation in Industry and Government Eliminate Unproductive Processes and Bureaucracy Promote Effective Competition Improve Tradecraft in Acquisition of Services Improve the Professionalism of the Total Acquisition Workforce 3

5 Strategic Sourcing: Definition Strategic Sourcing is a collaborative and structured process of analyzing an organizations spend and using the information to make business decisions about acquiring commodities and services more efficiently and effectively. Source: Office of Federal Procurement Policy Three Benefits: 1. Saves Money leveraging aggregated buying power 2. Saves Time placing tasks orders under existing contracts reduces cycle time 3. Reduces Internal Costs centralizing procurement functions reduces workload on the workforce 4

6 The Federal Government Needs to Expand its Strategic Sourcing Implementation In a 2012 report to Congress, GAO reported that the Federal government leveraged only a fraction of their buying power through strategic sourcing and achieved limited savings. Of the selected agencies that account for 80% of the $537B annual spend less than 5% ($25.8B) involved strategic sourcing and resulted in only $1.8B (.4%) in savings. Most agencies also failed to address their highest spend categories including services and lack execution knowledge. Agencies need guidance on how to strategically source. For example, DHS reported the highest percentage of savings through strategic sourcing at 2.3% relative to total procurement spending. Source: GAO Strategic Sourcing Report September % 9.3% 1.4% 19.8% DOD $332.1B Energy $25.1B Total Agency Procurement Spending Spending through Strategic Sourcing VA $17.4B DHS $14.2B Federal agencies can leverage strategic sourcing for savings 5

7 The DoD s Commitment to Strategic Sourcing Varies Total Procurement Spending, Spending through Strategic Sourcing, FY11 0.2% Army $125.2B 0.1% Navy $105.4B Total Agency Procurement Spending Spending through Strategic Sourcing 3.7% Air Force $65.5B 45.6% DLA $36B The Department of Defense comprises 61.8% of total Federal Spending yet only $19.3B is Strategically Sourced The use of Strategic Sourcing varies significantly by department and agency from 0.1% with the Department of the Navy to 45.6% with the Defense Logistics Agency (DLA) DLA has the highest percentage of Strategic Sourcing largely because it purchases commoditized items for the armed forces Strategic Sourcing opportunities differ among the agencies due to the complex and unique nature of weapons and systems requirements 6

8 Barriers to Strategic Sourcing Senior Leadership Support Culture Change and Lack of Control Collection and Analysis of Procurement Spend Fail to Measure Progress Key Practices Necessary for Success: 1. Prioritizing Investments 2. Research and Define Requirements 3. Match Resources to Requirements 4. Use Data to make key decisions 5. Ensure cost estimates are complete and accurate 6. Empower Managers to make decisions Source: GAO Strategic Sourcing Report September

9 Establishment of Strategic Sourcing Leadership Council Led by Administrator of Federal Procurement Policy Agencies include: DoD, Energy, Health and Human Services, Homeland Security, Veterans Affairs, and GSA DoD has Strategic Sourcing Directors Board ( SSDB) under Better Buying Power Initiative Updated the Charter in Jan 2013 Members include: Defense CIO, Assistant Secretary for Procurement from all Services, DLA Director of Acquisition, and DISA Director of Procurement Establishes the strategic direction, monitors and improves DoD wide effort Operates collaboratively with increased efficiency and effectiveness Renewed Leadership Commitment 8

10 Overview of GSA s Strategic Sourcing Process Federal Strategic Sourcing Initiative (FSSI) is built specifically for procurement in the Federal Government by GSA Process starts by prioritizing opportunities, engaging stakeholders, and using data to make decisions The operational structure is in place, now agencies need employee buyin to implement and follow through on strategic sourcing process Source: GAO Strategic Sourcing Report September

11 GSA 10 Strategic Sourcing Initiatives* GSA is working with the Office of Management and Budget (OMB) and partner agencies to create 10 new strategic sourcing solutions for commonly purchased products and services Goals Include: Increase transparency of prices paid for common goods and services for use by agency officials in market research and negotiations Deliver requirements, regulations and best practices for acquiring, using, and disposing of commodities managed through Strategic Sourcing Initiative 1. Domestic Delivery Services 2. Office Supplies 3. Print Management 4. SmartBUY 5. Wireless Services *6-10 Strategic Sourcing Initiative solutions are slated for FY2014 Source: Whitehouse.gov Source: GSA Strategicsourcing.gov 10

12 Commercial Strategic Sourcing Results Strategic Sourcing Projects How can Strategic Sourcing help? Many companies are increasingly pursuing strategic cost initiatives to meet shareholder expectations while managing the related risk. Delivering value through enhanced Strategic Sourcing capabilities through a combination of people, process, and technology improvements. Over $195 Billion in sourceable spend addressed recently 700+ experienced practitioners More than 250 projects in last 3 years Over 30 recent projects each with savings > $50MM Expertise in 250+ spend categories 140+ category-specific initiatives w/ savings results exceeding 20% Leading implementer of sourcing and procurement related technologies Common Types of Projects Spend Management and Analytics Sustainable Strategic Sourcing Process & Technology Implementations: Spend Analysis esourcing Contract Management Procure to Pay Supplier Management Supplier Relationship Management 11

13 Commercial Strategic Sourcing Experience Strategic Sourcing is a commercial best practice Not suitable for all spending leading companies strategically source about 90 percent of their procurements and report annual savings of 10% or more Many companies are increasingly pursuing strategic cost initiatives to meet shareholder expectations while managing the related risk Delivering value through enhanced sourcing and procurement capabilities through a combination of people, process, and technology improvements Consolidate Standardize Automate 12

14 Sourcing Methodology Includes Full Range of Activities Phase I: Opportunity Analysis Phase II: Strategy Phase III: Evaluate Phase IV: Manage Sourcing Process Mode Selection & Scope Category Analysis Develop Strategy Supplier Onboarding RFx Process Negotiate & Award Contract, Implement, & Monitor Key Steps Analyze and cleanse spend data Identify core team and stakeholders Create communications plan Develop team charter Pre-Kick-off interviews with core team Identify and examine subcategories in/out of scope Collect list of key suppliers Category Kick-off meeting Stakeholder interviews and data gathering Conduct plant visits Examine list of sub-categories Map current process Assemble and review current contracts Evaluate supplier relationships Develop interview questions and internal data request Examine specifications Evaluate data and interview findings Compile opportunities, process enhancement and supply strategies Compile opportunities for SKU rationalization Assess the feasibility of strategies Define pricing / supplier strategy Total cost of ownership (TCO) analysis (e.g. $/lb.) Draft an action plan Communicate strategies Develop plan to engage suppliers early Research supply market trends Conduct early talks with suppliers to understand industry Identify viable sources of supply Prepare RFI questionnaires / scorecards Build erfi Review with stakeholders Train/Inform suppliers Evaluate RFI and summarize results Reconfirm scope Develop RFX Strategy Build erfx and obtain approvals Train/Inform suppliers Issue RFP and collect responses Analyze results Revise and re-run RFX Conduct supplier presentations and follow-up Evaluate supplier collaboration opportunities Develop communication plan Analyze and optimize results (TCO) Develop negotiation strategy Negotiate Confirm TCO model Confirm T&C Select, obtain approvals and award contract Communicate agreements Launch implementation and communication Plans Implement operational changes including collaboration and SKU rationalization plans Monitor and report savings Monitor and report performance Develop supplier relationships 13

15 Strategic Sourcing category insights across a wide range Professional Services (5-18% savings) Accounting Services Advertising Architecture Collection Agencies Contract Labor Contract Programming Credit Bureau Services Engineering Event Management Financials Legal PR Agency R&D Labor R&D Services Tax & Audit Temporary Labor Credit Card Credit Reports Property Management Travel (5-25% savings) Agency Air Car Rental Events Expenses Hotel International Air Saving MRO & Packaging (5-15% savings) Conveyor Belts Corrugated Boxes and Shippers Engineered Service Parts Equipment Maintenance/Repair Equipment Parts Equipment Rentals Material Handling Equipment Safety Supplies Spare Parts Shrink Wrap Supply Bags Drums Pallets Container Board Compressors Millwork Plastic Containers Plastic Compacts Plastic Bags Wire & Cable Real Estate (5-15% savings) Landscaping Rents & Lease Property Maintenance Construction Print & Marketing (10-30% savings) Copy Paper Commercial Print Direct Mail Exterior Signage Forms Marketing Inserts Marketing List Marketing Research Promotional Material Corrugated Displays Signage Transportation/Fleet (5-7% savings) Auto Fleet Auto Glass Auto Leases Transportation Truckload International Truckload Refrigerated LTL Logistics Freight, couriers Fleet Bulk Fuel Tires Roadside Assistance Warehousing 3rd Party Logistics General & Admin. (10-30% savings) Archiving Batteries & Flashlights Envelopes Express Mail Check Printing General Administrative Labor Office Equipment Office Supplies Overnight Mail Online Bill Pay Paper Cups/Plates Postage Subscriptions Corp Services (8-16% savings) Janitorial Services Waste Management Janitorial Supplies Facilities Services ATM Utilities Food and Ingredients Catering Services Security Cleaning Services Coffee Toiletries P-Card Banking Services Concierge Services Carpet Information Tech. (10-30% savings) Software Software Rightsizing Computer Peripherals Servers, Laptops, Desktops PC Lease Buy-Back PC Maintenance Printers Maintenance Audio/Visual Equipment Mainframe Lease Extensions Midrange Systems Distributed Network Support Telecom (7-18% savings) Equipment Maintenance Services Cell/Pager Cellular Management\ HR/Benefits (3-15%) Benefits Hiring Insurance Payroll Recruiting Training 14

16 Summary Strategic Sourcing is a best practice, it can provide significant savings for commodities and conventional services Strategic sourcing provides savings by aggregating demand, reducing duplicity and leveraging buying power Companies maintaining spend visibility, centralize procurement and build spending and market knowledge is key GSA has proven that strategic sourcing can be applied in a Federal setting to achieve similar savings through Federal Strategic Sourcing Initiative (FSSI) Key agencies such as DoD, HHS, Energy, Homeland Security, and Veterans Affairs are engaging in strategic sourcing initiatives this is a target rich opportunity 15

17 QUESTIONS & ANSWERS 16