Strategic Sourcing Methodologies, Tools, Processes and Outcomes E&I’s Strategic Sourcing Process

Strategic SourcingMethodologies, Tools, Processes

and Outcomes

E&I’s Strategic Sourcing Process

Fernando I. Prieto

&

Vince Patriarco

April 21, 2009

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What Will We Cover Today?

• Introduction

•Methodology

•Higher Education Sourcing Challenges

•E&I Sourcing Program – An In-Depth Look

Spend Analytics

Building Sourcing Teams

Strategy Development

Benchmarking

Contract Administration

•Questions

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Introduction

BUYER MENTALITY

•Procedural

•Spontaneous

•Immediate

•Narrow Viewed

•Need driven

•Depletes Assets

•Transactional

SUPPLY CHAIN MGMT MENTALITY

•Methodical

•Organized

•Time Sensitive

•Collaborative & Altruistic

•Data Driven

•Managed Assets

•Strategic

There are key differences between buying and strategically sourcing.

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All Strategic Sourcing Methodologies:All Strategic Sourcing Methodologies:

Strategic Sourcing Methodology

Understanding the importance of a methodology is essential.

• Most importantly a Strategic Tool***

• A written 6 to 8 step framework for sourcing initiatives

• Is a set of guidelines for skilled procurement professionals

• Becomes the high level project plan for the initiative

• Lists at a minimum the most important analyses required

• Enables organizations to achieve procurement led cost reduction savings

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E&I Strategic Sourcing Methodology

Our E&I strategic sourcing methodology continues to evolve and correspond with our unique cooperative purchasing contract business.

• Assemble member volunteers, committee

• Engage functional experts

• Ensure cross-location views

• Establish roles & team scope

• Organizational and stakeholder buy-in

• Establish desired outcomes

• Draft action plan to reach outcome

• Select target industry sector

• Select target suppliers

• Receive management approval & buy-in

• Communicate strategies to membership

Develop Strategy

• Leverage member relationships w/suppliers

• Conduct pre-sell supplier meetings

• Gauge supplier willingness

•Determine solicitation approach

• Communicate plans internally

• Update membership communications

Engage Suppliers

Build Sourcing Team

Assess Opportunity

MEMBERSHIP:

• Analyze member demand drivers

• Profile member spend & related costs

• Gauge membership interest and management buy-in

EXTERNAL:

• Evaluate Industry & supplier landscape

• Benchmark & assess competing contracts

Execute Solicitation

Pre-Solicitation:

• Comply with state bid requirements

• Determine evaluation criteria•

•Draft solicitation & release publicly

Post-Solicitation:

• Evaluate supplier solicitation responses

• Perform benchmark comparisons

• Negotiate & Finalize Award

Admin & SRM

MEMBERSHIP:

• Create & publish contract docs

• Collaborate with member services

SUPPLIERS:

• Establish supplier partner relationship

• Conduct monthly operational update meetings

• Hold quarterly supplier meetings

• Measure contract performance

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Audience Survey

Assessment Stages

Data Analysis

Developing Strategy

Supplier Screening

Sourcing Events

Negotiating

Contract Implementation & Administration

What areas of sourcing methodology do procurement folks in Higher Ed find most challenging?

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The E&I Sourcing Program – Let’s take a look

• Highlight key steps in the methodology

• Discuss key work done in the areas of

Approaches Utilized

Examples of Capabilities

Develop Strategy Engage SuppliersBuild Sourcing

TeamAssess Opportunity Execute Solicitation Admin & SRM

E&I relies heavily on collaborative and exhaustive approaches to formulate its overall sourcing program

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Spend Analytics

Assess Opportunity

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The spend cube approach is a more direct approach rather than the survey approach taken with the 2006 spend survey.

E&I Spend Cube Advantages Over Prior Survey Process

Key Approach Key Approach DifferencesDifferencesFactors 2006 Spend Study 2007 Spend Cube

Method - Online Survey - Actual Data Exchanged

Collection - Survey Software Driven - People & Database Driven

Spend requested - Top Supplier Spend - All Supplier Spend- Cost Center Spend

Other data - Acquistion Practices, Procurement Tools

- No Procurement Metrics

Results - Responder Driven Results

- Data Driven Results

Bias Potential Bias Less Potential for Bias

Assess Opportunity

This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.

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E&I Key Initiatives Spend Cube Background

The spend cube is the key methodology proposed for improving visibility of data available to the contracts team.

• Expected benefits include:

Insight to member spend data beyond surveys

Source information for potential new contract areas

Better way to benchmark information along with other data aggregation and procedures

Additional data points for better informed sourcing decision making

Data Aggregation

Spend & Trend Analysis

External Assessment

Spend Cube

Database

Spend Reports

User Surveys

Supply Mkt Analysis

Benchmark Analysis

Assess Opportunity


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The Spend Cube methodology drives the development of our overall member spend profiling activities.

Data SourcesData Sources

General General LedgerLedger

Accounts Accounts PayablePayable

Vendor Vendor CRM DataCRM Data

Paid Paid InvoicesInvoices

Comm

odity

Suppliers

Cost Center

3 Dimensions of Cube3 Dimensions of Cube

• Suppliers

From whom members are buying

• Cost Center

The departments driving the purchasing

• Commodity

The goods or services being purchased

OutputOutput

E&I Spend Cube What is a spend cube?

Assess Opportunity


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Various information sources were tapped by member to submit the requested data.

E&I Spend CubeOur Sample Group of School Data

Main:Main:All payments provided. Did not include salary payments

Main: Contract or Non ContractMain: Contract or Non ContractSeparate spend provided for both contracted and non contracted suppliers

P-Card:P-Card:In some cases p-card spend was provided separate from main spend

Paid PO’s:Paid PO’s:Cases where most spend is largely controlled through purchase orders

Main: Over $25kMain: Over $25kAll spend excluding payees with payments totalling less than $25k

School 1 – Main: Non Contract

School 1 – Main: Contract

School 2 – Main

School 3 - Main

School 4 - Main

School 5 - Main

School 5 – P-Card

School 6 - Paid PO's

School 6 – P-Card

School 7 - Main: Over 25K

Consolidated Consolidated Data PartsData Parts

Assess Opportunity


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Understanding the characteristics of the members participating is important.

E&I Spend CubeSample Population - Characteristics

InstitutionInstitution GeographyGeography

EnrollmentEnrollment

FTE Range Count Spend Dollars

% of Total

>20,000 5 $1,473,040,360 64%

10,001-20,000 1 680,302,161 30%

5,001-10,000 1 142,310,404 6%

<5,000 0 - 0%

All Ranges 7 $2,295,652,925 100%

Regions Represented Count Spend Dollars

% of Total

Mid Atlantic 2 $1,177,832,204 51%

Southeast 1 651,885,371 28%

Midwest 1 145,632,186 6%

New England 1 142,310,404 6%

Western 1 90,076,912 4%

Great Lakes 1 87,915,848 4%

South 0 - 0%

All Regions 7 $2,295,652,925 100%

Type Count Spend Dollars

% of Total

Private 3 $1,320,142,608 58%

Public 4 975,510,317 42%

All Types 7 $2,295,652,925 100%

Assess Opportunity


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Assess Opportunity

E&I Spend CubeSpend Data Categorization Standards

Spend analysis builds from the amount of taxonomy available to us. Much of it we had to create

No PayeeCategory1 A/V & Electronics2 Advertising & Marketing3 Architect/Engineer4 Associations, Charities, & Societies5 Athletic Training Supplies6 Books & Subscriptions Services7 Computer & Networking8 Computer Software9 Construction

10 Entertainment11 Express Delivery & Post12 Financial Intermediaries13 Financial Services14 Food Services15 Furniture16 Government17 Individuals18 Insurance & Benefits

No PayeeCategory19 Maintenance & Facilities20 Medical Instruments & Equipment21 Medical Supplies22 Moving & Relocation23 Office Equipment & Related Supplies24 Office Supplies25 Other26 Other Services27 Other Univ & Colleges28 Pharmaceuticals29 Printing & Publishing30 Professional Services31 Scientific Instruments & Equipment32 Scientific Supplies & Services33 Telecom34 Temporary Services35 Travel36 Utilities & Energy

E&I Product GroupFinancial ServicesGeneral ProductsInterior ProductsServicesTechnology

Data CountConsolidated Data Rows 118,100

Cleansed Master Data Table 61,308

Cleansed Master Data TableNot

Categorized Categorized24,476 36,832

Main GroupUnique Consolidated Payees

4,500


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The data provided by seven schools amounted to approximately $2.3 billion in spend payments.

E&I Spend CubeTotal Spend Data Collected

Spend Dollars Spend Dollars CollectedCollected

Participant % of AllParticipant % of All

Participants Spend Dollars

School 1 $680,302,161

School 2 651,885,371

School 3 497,530,044

School 4 145,632,186

School 5 142,310,404

School 6 90,076,912

School 7 87,915,848

Total Group $2,295,652,925

School 130%

School 64%

School 56%

School 322%

School 228%

School 46%

School 74%

Assess Opportunity


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The $2.3 billion was categorized and filtered to determine a total initial affectable spend of $1.6 billion.

E&I Spend Cube Decomposition of Spend Data

Affectability Payee Categories Spend Dollars

Not Affectable Other Univ & Colleges $202,972,139

Not Affectable Associations, Charities, & Societies

80,664,270

Not Affectable Government 69,201,990

Not Affectable Individuals 1,221,675

All Not Affectable $354,060,074

Affectability Payee Categories Affectable Spend

Affectable 31 Payee Categories $1,598,988,168

Categorized Spend Dollars % of Total

Categorized $1,953,048,241 85%

Not Categorized 342,604,683 15%

All Spend $2,295,652,925 100%

Categorized Affectability Spend Dollars % of Total

Categorized Affectable $1,598,988,168 82%

Categorized Not Affectable 354,060,074 18%

All Categorized $1,953,048,241 100%

Assess Opportunity


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Spend gathered was organized at a high level first with 5 key contract product groupings.

E&I Spend CubeApplying The Data To Our Business

Interior Products2%

Financial Services 6%

Technology12%

Services29%

General Products 51%

Affectable Spend by Affectable Spend by E&I Product GroupE&I Product Group

% Breakdown% Breakdown

E&I Product Group

Affectable Spend

General Products $830,241,050

Services 463,619,445

Technology 187,628,788

Financial Services 92,968,346

Interior Products 24,530,539

All Product Groups $1,598,988,168

Assess Opportunity


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The percentage each school has in 5 key groupings varies only slightly.

E&I Spend Cube Further Understanding Spend Info

E&I Product Group School 1 School 2 School 3 School 4 School 5 School 6 School 7 TotalGeneral Products $337,211,367 $170,338,063 $169,553,088 $42,885,534 $43,027,443 $32,510,748 $34,714,807 $830,241,050Services 111,954,726 120,140,003 105,762,148 41,314,068 44,826,070 21,369,980 18,252,448 463,619,445Technology 59,522,580 45,302,968 44,896,426 17,916,978 8,786,338 5,751,089 5,452,410 187,628,788Financial Services 1,707,430 56,243,123 7,807,763 5,674,307 4,348,071 12,945,606 4,242,045 92,968,346Interior Products 4,323,892 6,751,346 4,581,396 2,502,251 2,161,321 533,408 3,676,927 24,530,539Total $514,719,995 $398,775,503 $332,600,820 $110,293,138 $103,149,244 $73,110,831 $66,338,636 $1,598,988,168

43%51%

39% 42% 44%52% 48%

22%

30%

32%

37%43%

29%

28% 32%

11%

13%16% 9%

8%8% 11%

14% 18%6%

7%

1% 2% 1% 2%

66%

12%5% 4%2%0.3%

2% 1% 6% 2%

0%

25%

50%

75%

100%

School 1 School 2 School 3 School 4 School 5 School 6 School 7 GroupAverage

Interior Products

Financial Services

Technology

Services

General Products

Assess Opportunity


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Suppliers under Services fall further into 12 payee categories.

ServicesPayee Category

Affectable Spend Description of Payee's Core Business

1 Utilities & Energy $121,447,236 - Gas or Electric providers, producers, resellers. Municipal water departments.

2 Maintenance & Facilities 109,184,320 - Rent, janitorial, groundskeeping, security, plumbers, electricians,

3 Architect/Engineer 70,486,302 - Architects/Engineers professionals (not part of an integrated construction builder)

4 Insurance & Benefits 34,654,629- Health insurance, property insurance, workman's compensation. Work perks Health Clubs

5 Travel 32,273,545 - Air travel, automobile rentals, athlete transportation, hotels, taxis

6 Professional Services 31,082,583 - Consulting, legal, executive search and external accountants

7 Other Services 15,371,427 - Service that do not fit in any catgory

8 Printing & Publishing 14,890,625 - Production, publishing, distribution suppliers of any print material. External.

9 Express Delivery & Post 12,884,160 - Air, ground, and courier shipping services providers

10 Advertising & Marketing 10,635,659 - Non-print marketing and advertising providers (e.g. television, radio) , Promotional goods, Public Relations)

11 Temporary Services 6,554,620 - Temporary employee services in accounting, finance, etc.

12 Moving & Relocation 4,154,340 - Moving & storage, freight services

All Services $463,619,445

E&I Spend CubePayee Categories for Services

Assess Opportunity


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Maintenance & Facilities can be further broken down into 20 subcategories.

E&I Spend CubeSubcategories are further created for analysis

Maintenance & FacilitiesSub Category

Vendor Count

Affectable Spend

% Of Total

Electrical 22 $15,311,345 14.0%

HVAC 9 12,027,539 11.0%

Specialty Service 27 10,110,549 9.3%

MRO & Facility Supplies 35 9,806,326 9.0%

Integrated Supply Service 2 8,979,836 8.2%

Security 13 7,852,578 7.2%

Roofing 8 6,805,724 6.2%

Elevator 8 6,337,797 5.8%

Landscaping 9 6,105,556 5.6%

Janitorial Cleaning 11 3,852,439 3.5%

Automotive 14 3,845,311 3.5%

Rent 7 3,520,361 3.2%

Waste Removal 5 2,653,351 2.4%

Painting 4 2,346,358 2.1%

Fire 3 1,404,868 1.3%

Temporary Structures 2 1,304,276 1.2%

Filtration / Treatment 5 1,173,416 1.1%

Hardscape 4 1,146,309 1.0%

Grounds Equipment 5 835,673 0.8%

Aircraft 5 563,950 0.5%

Other 22 3,200,758 2.9%Total Maintenance & Facilities 220 $109,184,320 100%

Assess Opportunity


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Building Sourcing Teams

Build Sourcing Team

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E&I Builds Sourcing TeamsImportance of Collaboration

William Cooper – University of Missouri

Lisa S. Deal – University of Florida

Mary Dukakis – The Berklee School of Music

Donald W. Green – Cal State – Fullerton

Ralph Maier – University of Pennsylvania

Jack Zencheck – Yeshiva University

Gina Arms – Colorado College

Tonia E. Lawson – Gulf Coast Community College

Kevin Maloney – University of Pittsburgh

Valerie Rhodes-Sorrelle – Grand Valley State University

Judith C. Smith – University of Michigan

Barry Swanson – University of Kansas

Build Sourcing Team

• Provide proactive leadership in the endorsement and utilization of contracts

• Helps cultivate relationships with suppliers, members, and member associations to identify new opportunities

• Advocates socially responsible and environmentally friendly purchasing initiatives

• Provides counsel and validation for sourcing opportunities

STRATEGIC SOURCING COMMITTEE

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E&I Builds Sourcing TeamsImportance of Collaboration

LIFE SCIENCES STRATEGY TEAM

Phil Abruzzi – University of Illinois

Kim Andrulonis – Johns Hopkins University

Paul Beyer – Johns Hopkins University

Jeanine Cahill – Washington University – St. Louis

Michael Durica – University of Pittsburgh

Lynn Hein – University of Minnesota

Tina Lowenthal – California Institute of Technology

Kevin Maloney – University of Pittsburgh

Anu Mathew – University of Illinois

Greg Mosley – Washington University, St. Louis

Candace Plog – University of Washington

David Staskin – University of Pennsylvania

Darryl Sweet – University of California, Office of the President

TECHNOLOGY STRATEGY TEAM

Amir Dabirian – Cal State Fullerton

Donald W. Green – Cal State Fullerton

Richard A. Haugerud – University of Nebraska , Lincoln

John Louis – University of Kansas

Tom Roberts – Cal State, Chancellors Office

Barry Swanson – University of Kansas

Richard Beynon – University of Pennsylvania

FACILITIES STRATEGY TEAM (NEW!)

Jack T. Baker – University of Maryland

Aurelia Brandenburg – Berea College

William Elvey – University of Texas, Dallas

Margaret Kinnaman – University of Maryland

Brad Larson – University of Oklahoma

E. Lander Medlin – APPA

William Propst – UCLA

James Stirling – University of Maryland

Paul Watson – University of Texas, Dallas

Build Sourcing Team

• Identify and develop current and future contracting opportunities in targeted commodity area

• Comprised of members with specific expertise in targeted commodity area

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Strategy Development

Develop Strategy

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E&I Strategy DevelopmentUsing GPO Evaluation Criteria

Is this area suited for a cooperative contract?

Could a contract here compete against our other contracts in this area?

Is the supply based consolidated or fractured?

Will this be more suited for regional or national efforts?

Is this an area school have currently HIGH, MEDIUM, or LOW contract coverage?

Our contract team considers some key questions and criteria as we evaluate each area.

Evaluation Evaluation QuestionsQuestions

Develop Strategy


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E&I Strategy DevelopmentLeveraging Other Experts

We teamed up with functional experts, in facilities for example, to determine areas of opportunities.

Line Comparison: Spend vs Priority

$0

$3,000,000

$6,000,000

$9,000,000

$12,000,000

$15,000,000

$18,000,000

Electrical HVAC MRO Security Fire BldgAutomation

Facilities Area

Sp

end

Est

imat

es

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

AP

PA

Pri

ori

ty

SC Spend APPA Priority

Develop Strategy


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Benchmarking


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E&I Solicitation Process Benchmarking

Understanding where you are, what you have and what it

means going forward is critical for decision making.

A key area we have added some methodology and procedure is

Measurement


Measurement Analysis

• Baseline Development

• Projected Savings Estimate

• Actual Savings Achieved

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• KEY COMPONENTS OF BENCHMARKING

Keeping it simple

Comparing apples to apples

Maintaining usefulness over time

Ensuring confidentiality

Designing proper metrics

Understanding vendor relationships

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Benchmarking contract pricing is essential to our process for creating these unique contracts


• Supplier TypesExact Match - Same Supplier

Same Product – Same Product Different Suppliers

Like Product – Like Product Different Suppliers

• Pricing StructuresDiscount off List

Item Pricing

Create Market Basket

Combination of Discount off List and Item Pricing

Create Market Basket Calculate Discount off List

• Pricing Agreements to use in ComparisonState Contracts (Note some states use member agreements. I.E. – Wisconsin, Colorado, California etc.)

GPO’s

Member Agreements

Public Agreements (Education Discount)

GSA


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E&I Solicitation Process Bid & Proposal Evaluation

Evaluation of responses is typically a methodical & collaborative process


Evaluation ApproachesEvaluation Approaches

COST PER QUALITY POINT SYSTEM

Pre-Solicitation

• Evaluation criteria created before hand

• Possible point values assigned

Post-Solicitation

• Evaluate responses to criteria

• Follow ups & clarifications

• Look at pricing separate / revisit benchmarking

** Variations on this approach used also


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Contract Administration

Admin & SRM

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E&I Contract Admin & SRM Performance Measurement

Much like a school should measure contract savings, we also measure the utilization of our contracts

Admin & SRM


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Questions and Answers

VINCE Patriarco:

Phone: 607-428-0543

E-Mail: [email protected]

FERNANDO Prieto:

Phone: 773-376-0988

E-Mail: [email protected]

Documents

Strategic Sourcing Methodologies, Tools, Processes and Outcomes E&I’s Strategic Sourcing Process