STRATEGIC SOURCING

A System-wide, Collaborative
Purchasing Process

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.

Strategic Sourcing

Goals

Complete Customer Satisfaction.

Continuous Improvement of Internal

Service Levels and Product Quality.

Process Excellence.
Significant Total Cost Reduction
(5%-15% Target).

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

Strategic Sourcing

Road Map
Conduct Spend Diagnostic
Identify/Prioritize Opportunities
Launch Cross Functional/Divisional Teams
Establish User requirements
Execute RFP Process/Select Supplier
Monitor Compliance

Collaborative
Purchasing
Process

INCREASED CUSTOMER
SATISFACTION and

Develop Timely and Accurate View of Spending Data

Technology

Simplify and Stream-line Processing (P-Card)

SIGNIFICANT COST
REDUCTIONS

E-Procurement Development

Products and
Services

Rationalize Current Specifications

Evaluate New/Alternative Products

Implementation
of Best Practices
Best Practices Analysis
Processes

Business Process Analysis

Identify Non-Value Activities
Implement Continuous Improvement Practices/Metrics

MISSION

STRATEGIES

TACTICS

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

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

 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

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.

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

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

COMMODITY STRATEGIC SOURCING PROCESS

Conduct
Opportunity
Assessment

Identify and
Prioritize

2
Commodity
Profile
Identification
Commodit
y

Market
Analysis

Develop
Commodity
Strategy

Develop plan and

strategy

Execute
Acquisition
Strategy

Implement &
Manage
Performance

Implement, Measure and

Adjust

Page 12

New Tools & Techniques

1

Profile Of
Sourcing Group

Exploit Buying Power

Sourcing Strategy For

Sourcing Category
Supplier Portfolio
Generation
Selection Of
Implementation
Path

Compare total costs

Model should-costs
Renegotiate prices
Unbundle pricing

Best Price
Evaluation

Expand geographic supply base

Develop new suppliers
Profit from global supply/demand imbalances

Continuous Benchmarking Of
Supply Market

Product
Specification
Improvement

Strategic
Sourcing

Expand
Supply
Base

Consolidate number of suppliers

Pool volume across units
Redistribute volume among suppliers
Combine volume from different
commodity categories
Volume
Concentration

Competitive Supplier
Selection
Operational Integration
With Suppliers

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

Joint
Process
Improvement

Reengineer joint processes

Share productivity gains
Integrate logistics
Support supplier
operations improvement

Relationship
Restructuring

Establish/develop key suppliers

Employ strategic alliances/partnering
Examine strategic make versus buy
Develop integrated supply chain

New Tools
Online (e) RFPs
Internet Negotiations (Reverse Actions)

Source: http://www.naspo.org/documents/Strategic_Sourcing_All.ppt....

Strategic Sourcing in the Public Sector

Open Competition

Fairness Considerations

Overall Sourcing Approach

Product
Volume
Concentration Specification
Improvement
Best Price
Evaluation

Strategic
Sourcing

Global
Sourcing

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

Joint
Process
Improvement

Relationship
Restructuring

Effective and Balanced

Approach to Drive Results

Competition and fairness used

to drive traditional sourcing
approach to achieve savings
and preserve policy priorities

Major Project Components

Sourcing Activities
Training
Savings Administration
Change Management

Example- Project Roadmap Plan

January - July 2005

September 2004

April May 2005

June 2007

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
Team CGI-AMS Role

State of California Role

How to Economic Value Added

Effective
Asset
Management

Revenue Growth

Broaden

Offerings
Improve

Customer Value
Proposition

Effective Cost
Management
Internal Cost

Structure

External Cost

Structure

Reduce

Assets

Improve

Utilization

The Key Players

Internal Customers
Suppliers
Subcontractors
Contract Admin
Legal
Finance
Quality
Others

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

Strategic Sourcing
Gather
Information
2

Initial
GO

Implement
Strategy

Analyze
Current
Situation

Assess
Supply
Base

Develop
Sourcing
Strategy

Strategy
GO

Engage
Suppliers

Develop
Transition
Plan

Execution
GO

Manage
Supply
Base

Procurement
Source: http://www.pptsearch365.com/Sourcing-Improvement.html....

Critical Elements
Identification
Analysis
Total Cost Modeling

Process redesign
Supplier reduction
Leverage
Disintermediation

Supplier Management

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

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

Why is this team being formed?

Forming
Storming
Norming
Performing

What authority does

the team have?

Perform a task?
Improve a process?
Solve a problem?
Make a decision?

How will decisions be

made?

Sources of Preliminary Category Information

Accounting Dept

Purchasing Dept

History of purchases (G/L)

Unit prices by suppliers

Information on current and

(invoice files)
Volume purchased by
supplier (A/P)
Seasonality of purchase
(A/P, G/L)

Unit prices
Price and pricing bases
Supplier characteristics

Sales Dept.
Seasonality of end product
Sales Dept. requirements to

Purchasing Dept. (local,

content, advantaged
suppliers)
Target sales markets

past suppliers

Capacity
Quality
Location
Term of payments
Supplier constraints
Product specs
Potential suppliers
Spend Analysis Software
Manufacturing Dept
Incoming quality history
Volume by site
Seasonality of usage

Technical/Engineering Dept.
Product specs
Potential suppliers (name,

capabilities, quality)
Current supplier (capability,
quality, certification)
Bill of material structure
Possible alternative
products

Suppliers/Others
Volume history
Pricing
Service performance
Technical specs

Suppliers
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

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

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

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

OUTSOURCING

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
Systems
Telecommunications
Telemarketing
Temporary Labor
Training
Translation Services
Travel
Vehicle Maintenance
Vending Management
Vibration Analysis
Warehousing
Waste Hauling
Wellness Programs

1. Is this product or service critical to the success of our business?

2. Non strategic determination

2. Strategic determination

Yes
Do we understand and can we fund and implement the
process or technology?

Definite candidate for

outsourcing

No

Yes

Outsource

Can we manage it?

Outsource, develop relationship with one or more

suppliers as required, develop measures and
awareness of performance requirements.

No
Outsource

3. Non Strategic Determination

Yes
The yes answer implies that this is
an area where we are capable of
distancing ourselves from our
competition. Develop as a specific
source of differentiation, a possible
core competency of the business, a
necessity of the marketplace; we
definitely want to be doing this long
term.

Manage Outsource Relationship

3. Strategic Determination
Shoot for Best in Class, what is the gap between where
we are and present best in class - what will it take to
close the gap,

4. Non Strategic Determination

Evaluate -- has anything changed that would move
this fron tactical to strategic activity. If so, should
we reconsider outsource decision?

4. Strategic Determination
Evaluate - if in a reasonable period of time sufficient
progress is not made to close the gap, consider
outsourcing to a strategic supplier, this just might not be
your thing.

5. Exit Strategy
*Adapted from a model developed by Hamel and Prahalad

Can you develop an exit strategy if you commit to

outsourcing? If not, outsourcing may not be your
solution.

Outsourcing
Decision
Model

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

Supplier Management
Relationship Management
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

Metrics
Confirm goals
Understand issues & current

metrics
Create metrics
Confirm collection methods
Set up review procedure
Take action based on
metrics
Communicate results

Dependent on the category and the supplier

Structured Process
Improvement
Set Goals
Review progress
Communicate results

Why do Companies Outsource?

When to Outsource
PricewaterhouseCoopers Model
Strategic

Non-Strategic

Competitive

Not
Outsourced

Grey
Area

Non-Competitive

In House
if Possible

Outsource

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

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

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

Outsourcing Models

Data administration Local and Remote

Application development and maintenance
Remote Infrastructure management

Outsourcing Models

Business Continuity Data Storage

Business Processes, Engineering Processes
Complete testing processes- Reduce time to market
Knowledge Processes