State of North Carolina

Transcription

1 State of North Carolina Cronin Award Nomination July 28, 2015 Submitted by: Patti Bowers, State Purchasing Officer North Carolina Department of Administration Division of Purchase and Contract

2 Executive Summary In 2010 the State of North Carolina launched a comprehensive Procurement Transformation Program to overhaul the way in which the State conducts procurement. The overall objectives of the program were to create sustainable cost savings, improved service levels to internal and external customers, and more efficient procurement operations. North Carolina has accomplished these goals by simultaneously overhauling processes, reorganizing people, implementing strategic sourcing, enacting changes to procurement laws, emphasizing training for central procurement and agency procurement personnel, and making technology improvements; something no other state has undertaken at one time. The impetus for the program stemmed from a number of factors converging that indicated there was a need for change in procurement. These factors included the 2007 to 2009 recession that created a significant budget shortfall for the State and a resulting need for the State to generate cost savings. In addition, procurement related problems had been identified by accountability entities such as the State s Budget Reform and Accountability Commission (BRAC) and the State Auditor s Office. In response to the call to action, in late 2010 the State, led by the Division of Purchase and Contract (P&C), began a six month effort to assess and redesign the State s procurement function. The six month Assessment and Design Phase of the Procurement Transformation Project resulted in over 230 actionable recommendations, designs for a new procurement function, and an implementation roadmap. Upon completion of the Assessment and Design Phase in early 2011 the State began the Implementation Phase and actual changes in the procurement function began to occur. While there was incremental progress in 2011 and 2012, it was not until early 2013 that the large scale and major implementation efforts were fully initiated. Over the four+ year history of the program, significant achievements have been made and those achievements, along with the overall approach to the program, align closely to the four areas considered as part of this award. A summary of each area is provided below. Innovation The State s overall approach to its transformation is unique and innovative based on its comprehensive nature. Many entities have implemented a strategic sourcing program or reorganized a division but no other states have holistically redesigned the entire procurement function at one time and integrated all the parts so the value of the changes are amplified and optimized. A number of the solutions implemented during the program are unique, including the organizational redesign of the central purchasing function. In this effort, North Carolina leveraged a pilot Restructuring through Reorganization Program (RTR) devised by the Office of State Human Resources to offer early retirement and/or unique severance package options to refresh the skillset available in the division. This resulted in ultimate changes to over 60% of the roles within P&C over an aggressive four month period. And in conjunction with the personnel changes, the organization structure was totally changed to be more strategic and aligned with the State s procurement objectives. Another example of innovation is the redefinition of all core processes for the central procurement function. This resulted in the State having a single manual that integrates and standardizes roles, tasks, technology enablers, templates, and guidelines across common processes into North Carolina s Procurement Operating Procedures Handbook. There are additional examples of solution innovations included in the sections below. Transferability The issues that North Carolina has addressed and is continuing to address with this program are many of the same issues that other State procurement organizations are facing. State government procurement across states varies in implementation and nuances. However, most, if not all, of the developed materials could be readily leveraged by other states. North Carolina has provided public access to many of these materials and has served as a resource to 2

3 other states undergoing some degree of transformation. Some of the materials that are expected to be of high value to other organizations include: Assessment and Design Phase Deliverables 17 deliverables and over a 1,000 pages of content explaining the procurement issues North Carolina was facing and the solutions developed to solve them. Operating Procedures Handbook A handbook detailing for central procurement processes the associated task, roles responsible for completing them, templates and technologies associated with each task, and guidelines on key concepts such as supplier relationship management. P&C Scorecard A balanced scorecard that utilizes 24 metrics across four areas to monitor the health of procurement and provides management with critical information. Organizational Restructuring Approach The RTR Program is a new state program that was piloted by P&C in order to make a large number of personnel changes. It could serve as a model that could be leveraged by other States, and not just in procurement, as a way to bring new people and skills into a business area. Service Improvement Customer service is a central theme that has been overarching to the transformation effort in North Carolina which has included expanding the definition of customers to include any internal or external parties with which procurement is interacting. While it is difficult to demonstrate a change in culture, some examples of customer service improvements include: use of extended teams to support strategic sourcing (to-date approximately 70 agency and community college stakeholders have participated on these teams); developing category teams within the organization for relationship consistency with key stakeholders; reduction in the backlog of requisitions awaiting central procurement processing from nearly 200 at the start of the reorganization to an average of 100 in process at any given time after its completion; standardization of processes; and development of a new training program. Cost Reduction The State will generate over $49M in savings over a three year period as the result of strategic sourcing. These savings have undergone extensive review for accuracy with formal sign-off being required on the baseline total cost of ownership (e.g. cost prior to the start of sourcing), category strategy to achieve the savings, and the savings results summary. The formal sign-off process included review by the Office of State Budget Management to verify accuracy. There are other efficiency savings that have been achieved by the program, such as, the reduction in central procurement transaction process cycle times from 38 days to 28 days, but due to the challenge in quantifying these accurately they have not been included. Additional cost savings have been realized through the elimination and/or realignment of several positions as part of the RTR Program. Assessment and Design Phase Too often governmental projects achieve short term benefits that erode shortly after the project is completed. North Carolina s vision for procurement transformation was different; the State s vision was to create sustainable change that would not only generate initial benefits but continue to grow those benefits over time. As a result the State took a comprehensive approach that focused on three main areas: Strategy; Processes; and Enablers. The underlying concept being that it s the processes that create results but those processes are governed and managed by the Procurement Strategy and enabled by the Workforce and Organization and Technology. The State recognized that it would be impossible to achieve full transformation without considering all the pieces. The assessment portion of this phase gathered information, points of view, and recommendations from numerous stakeholder groups. More specifically, over 60 State executives were interviewed, all 25,000+ vendors registered with the State were surveyed, each of the 464 State Agency and Community College employees that conducted procurement as part of their job were surveyed, and numerous working sessions were conducted. In addition to these efforts the State also conducted extensive research and analysis including benchmarking against other States and private entities. 3

4 Upon completion of the assessment the State had an understanding of what areas for improvement existed and a redesign phase could begin to address these improvement opportunities. While too extensive to explain in depth, the key redesign effort developed included: Redesigned Central Purchasing Organizational Structures Standardized Purchasing Role Descriptions Redesigned Operating Model (including high-level processes and associated responsibilities) Balanced Scorecard (metrics to manage the procurement function) Identified, Quantified, and Prioritized Strategic Sourcing Opportunities Recommended Statute Changes Redesigned Procurement Technology Footprint Change Readiness Assessment (to support successful implementation across all areas) Redesigned Procurement Governance Structure Training The Assessment and Redesign Phase resulted in the creation of 17 formal deliverables and over 1,000 pages of deliverable content. We believe, based on our understanding of similar efforts in other States, that this represents the most comprehensive procurement assessment and redesign effort conducted by any State. Implementation Phase Upon the completion of the Assessment and Design Phase the State began to move forward with implementing the changes that were developed. This section outlines the major implementation achievements and associated changes across each of the three main transformation areas Strategy Statute Changes - In order to provide the State with additional procurement tools and the flexibility required to operate in a leading practice manner, the Department of Administration worked with the legislature to pass a bill to modernize procurement statutes. The result of these changes included an expanded ability to use best value procurement which allows for consideration of factors other than cost when evaluating suppliers; ability to use reverse auctions; ability to utilize cooperative purchasing agreements when beneficial to the State; and to allow the central procurement organization to request reporting from all State entities including higher education institutions. Balanced Scorecard P&C has established a balanced scorecard to track results and provide management with an objective view of procurement. The scorecard contains 24 metrics across the four dimensions of Financial, Customer, Operations, and People and Organization. These dimensions, and their associated metrics, provide a holistic view of the status of procurement. While most visible with the scorecard, the concept of managing by metrics is an approach that is being used much more frequently by P&C. Processes Process Redesign and Standardization Based on the high-level operating model developed during the Assessment and Design Phase, P&C completely redesigned its core operating processes. The redesign effort not only standardized processes, but through cross functional team workshops, made the processes more efficient. The final product was a P&C Operating Procedures Handbook that captured all the redesigned processes, described each task, assigned each task to a particular role owner, and linked technology and templates that supported each task. In addition the handbook described key P&C guidelines such as the approach to supplier relationship management. This work also developed 50+ standardized templates to be utilized by the department. Strategic Sourcing The State has implemented a strategic sourcing program in order to generate cost savings while maintaining and improving vendor service levels. The strategic sourcing program has utilized representatives from entities that are key buyers of the goods and/or services being strategically sourced; this is also a significant customer service improvement as previous statewide contracts were established with minimal end user input. To-date six 4

5 categories have been completed with another four categories in progress. The six categories strategically sourced had a total addressable spend of $192M and the State was able to identify an annual savings of $18.5M or a three year savings of $49M (some savings were one time savings). Use of the strategic sourcing methodology is now the standard process within P&C to establish all state term contracts. Enablers Central Procurement Reorganization In 2012 the State passed legislation, Restructuring through Reorganization (RTR), allowing State Agencies to restructure organizations and, if needed, hire new resources with a different skill set to meet the needs of the new organization. P&C was the pilot organization for the RTR program and underwent a full reorganization. The reorganization developed more specialized purchasing roles in order for resources to specialize in particular areas and skills. P&C was also the pilot organization for a Professional Associate Program which allows the state to consider what recent college graduates without years of experience can bring to the organization such as new perspectives, ideas and energy. In all, 23 (including 3 Professional Associates) of the division s 35 positions underwent a resource change which is virtually unheard of in government. Technology Capabilities The State updated its E-Procurement System which processes all of the State s purchase orders in order to maintain leading class technology. The upgrade also provided an opportunity to make improvements to the purchasing process by re-examining agency purchase order approval flows. Additionally, while not fully implemented, the State is actively working to establish technology solutions in the area of integrated vendor registration, electronic bid submittal and contract management. It is expected that over the next 1 2 years these technologies will be fully implemented. Training - P&C worked collaboratively with other stakeholders to deliver a comprehensive procurement training program that includes contract management as well as other curriculum to equip State procurement professionals with the necessary training to succeed in their roles and to enhance the procurement function. Conclusion North Carolina s Procurement Transformation Program has made the State a leader in government procurement. The extensive work and results produced by the program over almost five years are difficult to capture in only a few pages, but clearly aligns to the concepts of innovation, transferability, service improvement, and cost reduction. Parts of the transformation such as the approach to the reorganization could have been a Cronin Award nomination and winner in and of itself but we have selected to submit the program in its entirety because the true value comes from the interconnectedness of the pieces to create lasting procurement change in North Carolina. 5