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Strategic Sourcing

Introduction
• Fiscal Challenge for current year and beyond requires cost
reductions
• Strategic Sourcing –Sustaining New Synergies Task Force
Initiative
• Purdue engaged Huron Consulting Group to conduct an
overall assessment of procurement to pay operations and to
help Purdue develop a Strategic Sourcing Master Plan
• Implemented new organizational structure
Strategic Sourcing

Strategic Sourcing Overview


Carol Conner, Business Process Manager
Denny Feldman, Manager, Strategic Sourcing
Strategic Sourcing

What is Strategic Sourcing?


Strategic sourcing is a procurement process
that continuously improves and re-
evaluates the purchasing activities of an
organization.
Strategic Sourcing
Strategic Sourcing Primary Objectives
– Reduce the costs of goods and services
– Capture resulting savings
– Create contractual alliances with suppliers to
support the long-term goals of the University
– Maintain and improve product quality
– Improve business functions
– Optimize the total purchasing process
Strategic Sourcing
In-Scope: Purchases that are expected to be made in
competitive markets where multiple vendors are
present or negotiable purchasing opportunities exist
for the University.
The Strategic Sourcing Master Plan identified 22
different in-scope commodities with a total annual
spend of approximately $172 million in FY 09-10.
Out-of-Scope: Insurance and benefits, travel and
employee travel expense reimbursement, sponsored
research subcontracts, utilities (excluding data and
voice), and construction.
Strategic Sourcing

Potential Savings from Strategic Sourcing


Short-Term Short-Term Long-Term Long-Term
Spend Commodity Spend FY 2011-13 % Beyond FY 2013 %
Quick Wins (Sourceable Spend) $14.0 M $2.4 - $4.0 M 17% - 29% $2.4 - $4.0 M 17% - 29%
Additional Sourceable Spend $166.0 M N/A N/A $4.6 - $9.0 M 3% - 5%
Spend Excluded from Scope $245.0 M N/A N/A $7.4 - $17.0 M 3% - 7%
TOTAL $434.0 M $2.4 - $4.0 M N/A $14.4 - $30.0 M 3% - 7%

Includes all funding sources, such as general funds, gifts, sponsored programs, and auxiliary.

Source: Huron Consulting Group


Strategic Sourcing
Approach for prioritizing commodities or categories within
a commodity
Strategic Sourcing
Strategic Sourcing
Strategic Master
Sourcing MasterPlan
Plan
FY 2009-10
FY 09-10 Category Savings
Commodity SavingsOpportunity and Implementation
Opportunity Complexity
and Implementation Complexity
Highest Priority Areas
ORP
High $4,624K Medium Priority Areas
Lowest Priority Areas

IT Hardware
Office SCI SUPPLIES & Telecom
$15,347K Facilities Equipt.
Savings Opportunity

Equipt. EQUIPT. $5,350K


$4,298K $4,762K
$27,538K
MRO Printing Svcs. Total $172M
$12,530K $2,792K

Courier
Med Prod Staffing Svcs. FY 09-10 annual
& Svcs. $755K Facilities
$2,682K $8,477K Svcs. spend for 22
Linens & $15,870K
Food
$15,085K
Fleet Apparel
$994K
commodities
$2,333K Prof. Svcs.
Retail
$97K $14,540K

Furniture Books IT Software


$5,156K $ Svcs. Admin
$11,938K Real Estate
$13,969K Svcs.
Low $1,959K $1,439K

Low Degree of Difficulty High


Strategic Sourcing
Initial Quick Win Categories
• IT Peripherals
– Removal of CDWG catalog
– Goal to reduce/eliminate spending via newegg.com,
amazon.com, Best Buy, etc. which represents
$1.3M of $4.3M total annual spend.
• Desktop/Laptop
– Dell and HP agreements; leveraged entire campus
• Custodial Supplies
– HP Products, Kimberly Clark
– Free shipping
Strategic Sourcing
Initial Quick Win Categories (cont.)
• Office Related Products
– Deeper discount and broader discount base
• Copiers and Printer
– Analysis showed 10 different manufacturers with
over 150 different models on campus
– 350 machines leased/rented; lease rate range 14%
to 24%.
– Internal loan
– Right Sizing
Strategic Sourcing
Additional Executed Categories and Annual
Spend
• Computer Hardware Server Maintenance – $284K
– Changed vendor; leveraged entire campus
• Janitorial Supplies (Trash bags) – $290K
– Showcase Supplier identified in BOILERMART
• Renegotiated Cannon IV agreement for ITaP and
Libraries labs – $645K
– Benchmark data used to renegotiate 40% savings
Strategic Sourcing
Current Category Initiatives and Annual Spend
• Computer Hardware Server (Purchase) – $4.5M
• Cylinder Gasses – $374K
• Audio Visual – $1.5M
• Plumbing – $2M
• Electrical – $1.8M
• Renegotiating HP Janitorial Supplies Agreement –
$640K
• Scientific Supplies – $7.7M
• Outside Printing Services – $2.8M
• Medical Products and Services – $8.5M
Strategic Sourcing

Seven Steps of Strategic Sourcing


1. Analysis
2. Develop Commodity Team
3. Sourcing Strategy
4. Identify & Prequalify Suppliers
5. Supplier Selection & Contracting
6. Integrate Suppliers
7. Monitor & Follow-Up
Strategic Sourcing
Strategic Sourcing 2011 Operating Plan
Commodity
Commodity Specialist
2011 Q1 2011 Q2 2011 Q3 2011 Q4
Develop Identify &
Medical Products & Supplier Selection & Integrate Monitor &
Noah Analysis Commodity Sourcing Strategy Prequalify
Services Contracting Suppliers Followup
Team Suppliers
Develop Identify &
Office Related Sourcing Supplier Selection & Integrate Monitor &
Noah Analysis Commodity Prequalify
Products Strategy Contracting Suppliers Followup
Team Suppliers
Develop Identify &
Supplier Selection & Integrate Monitor &
Printing - external Bradley Analysis Commodity Sourcing Strategy Prequalify
Contracting Suppliers Followup
Team Suppliers
Develop Identify &
Bradley & Sourcing Supplier Selection & Integrate Monitor &
Scientific Supplies Analysis Commodity Prequalify
Kelly Strategy Contracting Suppliers Followup
Team Suppliers
Develop
Maintenance, Mayes & Identify & Prequalify Integrate Monitor &
Analysis Commodity Sourcing Strategy Supplier Selection & Contracting
Repair, Operations Noah Suppliers Suppliers Followup
Team
Develop Identify &
Supplier Selection & Integrate Monitor &
IT Hardware Smith Analysis Commodity Sourcing Strategy Prequalify
Contracting Suppliers Followup
Team Suppliers
Develop Identify &
IT Software & Supplier Selection & Integrate Monitor &
Smith Analysis Commodity Sourcing Strategy Prequalify
Services Contracting Suppliers Followup
Team Suppliers
Develop Identify &
Supplier Selection & Integrate Monitor &
Office Equipment Smith Analysis Commodity Sourcing Strategy Prequalify
Contracting Suppliers Followup
Team Suppliers
Develop Identify &
Supplier Selection & Integrate Monitor &
Telecommunications Smith Analysis Commodity Sourcing Strategy Prequalify
Contracting Suppliers Followup
Team Suppliers
Strategic Sourcing

Visit web site for commodity updates:


www.purdue.edu/purchasing/Sourcing
For more information or to schedule a unit
meeting contact:
Denny Feldman, Manager, Strategic Sourcing
Email: dkfeldman@purdue.edu
Phone: 765 49-41856
Strategic Sourcing

Path Forward
• Procurement Organization
• Commodity Groups
• Procurement Council
• Your Role