FedBid – Saving $ for Government and Transforming Procurement in Detroit’s Public Schools (Part 2)

Part 1 of our story gave you background on FedBid, their solution and business model. In this installment, we will turn our attention to examining their successes within procurement at Detroit Public Schools (DPS).

Governorship – About a year ago, the fiscally deeply troubled State of Michigan passed Public Act 4 (the Local Government and School District Fiscal Accountability Act), and also Act 72, aka the Emergency Manager Law, designed to improve financially troubled cities. Spend Matters understanding of these Acts is that they allow the Governor to appoint an overseer of a city or public school district's finances if a financial emergency exists. (The intent is to correct problems before they escalate beyond control – after a few lawsuits, these Acts will now be on the ballots in Michigan this November, but that's a separate story.) In May 2011, Governor Rick Snyder appointed Roy Roberts, previously VP, NA Vehicle Sales, Service and Marketing for GM, to serve as the Detroit Public School's Emergency Manager.

Upon appointment, Roberts publically stated that he would start to cut deficit spending, and in five years eliminate it, while also restructure the district's bond debt, fix the financial and purchasing systems and otherwise overhaul the central office. Roberts wants to bring Detroit to a position as the nation's public education leader. This is a tall order for anyone.

CPLO appointment – Roberts clearly took procurement seriously upon coming into the turnaround role in Detroit's schools. He reached out to another GM veteran, Dr. Tracy Joshua (a person with considerable procurement and supply chain experience in automotive and pharma) and appointed her as CPLO (Chief Procurement and Logistics Officer) in Q4 of 2011. Dr. Joshua faced a major challenge of working with her team to develop an overall procurement strategy capable of significantly reducing the $83.9M school district budget deficit while procuring over $800M per year in goods and services.

She remarked, "Very quickly I understood that we needed to balance saving money while making sure that our students are provided with the necessities to guarantee a safe environment and an excellent education." She added, "We needed to rapidly and dramatically overhaul the way we were sourcing purchased goods and services."

Technology – including modern sourcing solutions were high on Joshua's list and after negotiations with FedBid, a pilot for DPS began in May-June of 2012. The pilot went well and DPS is now up and running in the solution, meeting the goals set by Joshua and DPS. DPS also uses Oracle and PeopleSoft, and Joshua validates FedBid's claim that it works well as a complement.

Change management – This often underinvested in area is clearly an enormously important factor in the private sector as well as in the more sedate public space. Joshua is a proven strong leader and she is developing the staff she inherited, along with making changes along the way and hiring new resources from outside. Change management has been integral to the DPS procurement transformation. When Spend Matters spoke with Joshua, she said that "this is the most predictable business I have ever been in," and with predictability comes routine behavior that she will have to change. Not unfamiliar to corporate procurement – change management is critical. Joshua adds that "culture is steep in DPS" and the leadership team is a huge help, with Roy Roberts taking the Great Communicator role to engage with people throughout the organization. Again, same as in the private sector: strong executive support is vital to any initiative involving behavioral change.

Mandate culture – if not in name, this is what it is in practice; something that helps DPS as procurement is highly centralized and there really isn't any of the typical maverick spend at the business unit level to uncover and address. Joshua commented that this kind of internal adoption was further helped by FedBid's attitude of "I'm in and I'm committed" where the company embeds itself far more than software companies typically do, in her experience. Slightly cynically, Spend Matters adds that FedBid has to go all out since they get paid only on implemented activities – they have skin in the game, so to speak. That said, it's nice to see that it is working out so well at DPS.

Results – The speed with which DPS has moved for a public sector procurement organization is nothing short of exceptional. In only a few months, all indirect spend has started flowing through FedBid. One recent sourcing process, a book buy, resulted in 50% savings. As a rule, anything greater than $3K but below $150K goes through FedBid.

DPS' "buy" requirements are placed in FedBid's online marketplace, with each " buy" staying open for approximately three days. During this time, FedBid's Market Operations team offers customer support. Ongoing development of a competitive supply base is as critical to success as the actual sourcing event itself. The original type of "market making" that FreeMarkets originally pioneered plays a large part in driving to negotiated and implemented savings in the FedBid environment.

Consider the results of this one event:

FedBid and DPS have worked together across a range of additional categories including furniture, AV equipment, pipefitting accessories, medical equipment, school supplies, to clothes, and much more. The implemented savings (these are not merely negotiated) generated at DPS are attractive. Spend Matters analysis suggests two elements at work here. First, the high savings percentages indicate both that FedBid is succeeding at matching the right suppliers with the activities at hand. Second, DPS most likely had not previously competitively sourced these spends – relatively low hanging fruit in other words.

Stay tuned as we conclude our series on FedBid.

- Thomas Kase

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