Getting smart about sourcing: How one educational and research institution transformed its procurement organization with Protiviti’s help
Better visibility into the institution’s third-party spend, stakeholder interaction, efficiency of processes and use of technology.
Broad transformation of the procurement organisation, supported by automation, improved policies and procedures, and training.
Efficient procurement function focused on savings & efficiency; identified savings targets of $53.5 million; improved response times/customer service.
The ability to track vendors and spending is critical for all organisations but even more so for those that receive millions of dollars in federal funds. Aware of certain pain points and inefficiencies, one such organisation — an educational and research institution — reached out to Protiviti for some concrete help to review its vendor master file and accounts payable processes. A broader but less clearly articulated concern of the institution was the lack of spend visibility: Each department used its own processes and vendors to obtain goods and services, making it difficult to leverage spend volume and control the overall budget of the institution.
Initial meetings with the institution’s head of procurement revealed systemic problems that were adversely affecting the entire procurement process. While schools and departments did use a common online portal to buy office supplies and other day-to-day basics, spending for more substantial items was a largely decentralised and lenient process that thwarted the ability to leverage contracts to optimise savings. For example, only about 2 percent of the institution’s annual spend was managed under contracts or strategic agreements. Additionally, individuals involved in procurement activities were primarily focused on tactical procurement, but lacked the more strategic focus to drive savings and efficiency.
The university decided to expand Protiviti’s role to perform a detailed spend analysis, develop a center-led procurement process along with updated policies and procedures, and create and conduct a procurement training program for more than 50 individuals. One driver behind the decision was the opportunity to extend schools’ and departments’ budgets by instilling a more strategically-oriented procurement culture. The initiative also coincided with a call by a higher-level financial planning committee at the institution for better insight into spending and purchasing processes as part of broader finance improvement plan.
Drivers for Change
The uncovered systemic problems led the institution to recognise the need for broader reform of its sourcing and procurement practises and an opportunity to create a holistic end-to-end solution.
Over a period of 12 weeks, Protiviti led an institution-wide effort to analyse spending, review the organisation’s procurement procedures and capabilities, and design recommended solutions to optimise processes and leverage automation where possible.
Using data analysis, for example, Protiviti reviewed every purchase and payment transaction that took place throughout the organisation. We used surveys and interviews to understand the current-state process, existing pain points, bottlenecks and improvement opportunities, and to conduct a skills assessment of the procurement organisation to develop a tailored and comprehensive training program. This detailed diagnostic revealed how many of the activities were automated versus manual, which of these added significant value to a department or school and which did not, and how much time staff spent in meetings, developing reports or replying to internal requests outside of their core job responsibilities.
The team used these findings to design a solution that focused on three core components: strategic, transactional, and communication and monitoring.
The strategic component concentrated on a process that assessed the state of the organisation’s sourcing practises and capabilities, developed and executed strategies to identify suppliers and benchmark their competitiveness, and negotiated with suppliers and awarded contracts. A five-year wave plan, developed after identifying high-priority sourcing categories, projected institution-wide savings of between $35 million (6 percent) and $72 million (11 percent).
Categories were assigned to waves and prioritised by ease of implementation and highest savings potential. Wave 1 categories, for example, included temporary staffing services; office supplies; janitorial supplies; and maintenance, repair and operating supplies. Wave 2 categories, which provided still significant savings but with more difficult implementations, included computer hardware, mobile devices, vehicles and lodging.
Wave 3 identified additional easy-to-implement but less impactful savings in landscaping and maintenance, hardware, printing, and more. All in all, in the first three waves alone, the team identified $9.4 million in savings on $74.4 million of spend, to be achieved within 12 to 18 months.
The transactional piece of the solution established reliable, streamlined and efficient capabilities that supported the strategic sourcing model. As part of the discovery process, for instance, the team found that more than 90 percent of annual transactions — or some 320,000 — fell between $5,000 and $25,000 each, but that those purchases amounted to only 10 percent of total spending each year. The procurement department established a plan to work with vendors to negotiate blanket pricing agreements for those items. Procurement staff then ordered the goods and services using automated systems with the agreed-upon prices, removing the costs of negotiating or bidding on individual purchases.
Finally, the institution identified working capital savings achievable through a combination of standardising payment terms with vendors and negotiating discounts if certain payment conditions were met.
The third component, communication and monitoring, was designed to support the strategic and transactional solution design. This element was developed to provide robust capabilities around spend analysis and reporting, to foster operational excellence through continuous improvement, and to promote awareness, compliance and alignment among procurement staff.
Features included establishing training programmes for procurement personnel, publishing monthly newsletters to highlight successes, and using dashboards to track spending, performance metrics, savings targets and actual savings realised across all departments and schools.
In the end, the institution was able to transform its procurement process and generate substantial savings, in accordance with its finance improvement mandate. It achieved that by articulating a holistic procurement vision and strategy, focusing on value drivers, streamlining processes and enabling sourcing competencies. More importantly, those savings gave schools and departments the ability to make their budgets go further, and contributed to the improved financial picture of the institution.