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 OverviewCarol 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

Spend Commodity SpendShort-Term FY 2011-13

Short-Term %

Long-Term Beyond FY 2013

Long-Term %

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

IT Hardware$15,347K Office

Equipt.$4,298K

MRO$12,530K

ORP$4,624K

Courier$2,682K

SCI SUPPLIES & EQUIPT.

$27,538K

Food$15,085K

Books$11,938K

Med Prod & Svcs.$8,477K

Furniture$5,156K

Telecom$5,350K

Printing Svcs.$2,792K

Fleet$2,333K

Staffing Svcs.$755K

Linens & Apparel$994K

IT Software $ Svcs.

$13,969K

Prof. Svcs.$14,540K

Facilities Svcs.

$15,870K

Facilities Equipt.$4,762K

Admin Svcs.

$1,959K

Retail$97K

Real Estate$1,439K

Savi

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Degree of Difficulty

Strategic Sourcing Master PlanFY 2009-10 Category Savings Opportunity and Implementation Complexity

Highest Priority Areas

Medium Priority Areas

Lowest Priority Areas

Low

High

High

Low

Total $172M FY 09-10 annual spend for 22 commodities

Strategic Sourcing Master PlanFY 09-10 Commodity Savings Opportunity and Implementation Complexity

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 Sourcing1.Analysis

2.Develop Commodity Team

3.Sourcing Strategy

4.Identify & Prequalify Suppliers

5.Supplier Selection & Contracting

6.Integrate Suppliers

7.Monitor & Follow-Up

Strategic SourcingStrategic Sourcing 2011 Operating Plan

Commodity Commodity Specialist

Medical Products & Services

Noah AnalysisDevelop

Commodity Team

Identify & Prequalify Suppliers

Integrate Suppliers

Monitor & Followup

Office Related Products

Noah Analysis Develop

Commodity Team

Sourcing Strategy

Identify & Prequalify Suppliers

Integrate Suppliers

Monitor & Followup

Printing - external Bradley AnalysisDevelop

Commodity Team

Identify & Prequalify Suppliers

Integrate Suppliers

Monitor & Followup

Scientific Supplies Bradley &

KellyAnalysis

Develop Commodity

Team

Sourcing Strategy

Identify & Prequalify Suppliers

Integrate Suppliers

Monitor & Followup

Maintenance, Repair, Operations

Mayes & Noah

AnalysisDevelop

Commodity Team

Integrate Suppliers

Monitor & Followup

IT Hardware Smith AnalysisDevelop

Commodity Team

Identify & Prequalify Suppliers

Integrate Suppliers

Monitor & Followup

IT Software & Services

Smith AnalysisDevelop

Commodity Team

Identify & Prequalify Suppliers

Integrate Suppliers

Monitor & Followup

Office Equipment Smith AnalysisDevelop

Commodity Team

Identify & Prequalify Suppliers

Integrate Suppliers

Monitor & Followup

Telecommunications Smith AnalysisDevelop

Commodity Team

Identify & Prequalify Suppliers

Integrate Suppliers

Monitor & Followup

Supplier Selection & Contracting

Supplier Selection & Contracting

Sourcing StrategySupplier Selection &

Contracting

Supplier Selection & Contracting

2011 Q4

Sourcing Strategy

Sourcing StrategySupplier Selection &

Contracting

Supplier Selection & Contracting

2011 Q1 2011 Q2 2011 Q3

Sourcing StrategyIdentify & Prequalify

SuppliersSupplier Selection & Contracting

Sourcing StrategySupplier Selection &

Contracting

Sourcing StrategySupplier Selection &

Contracting

Sourcing Strategy

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