Spend Matters welcomes this guest post from Alvarez & Marsal by Julie Diehl, managing director, Jefferson Howell, director, and Erin Campbell, manager.
The transition from a procurement organization serving as a process facilitator to a true strategic business partner is a daunting task — structures that have evolved without formal design, limited communication, resource skill gaps and disparate data can often create barriers to progression. Though these challenges are not unique to the public sector, the regulatory and statutory constraints under which these agencies operate are. In this article, we will walk through three ways agencies overcome these challenges and begin to move up the maturity curve to provide real, strategic value.
Analyze and Define the Regulatory Barriers
When increasing procurement efficiencies in the public sector, first it is important to define and analyze the parameters set by the legislative statues and ordinances on your agency’s procurement activities.
Here are some questions that can help agencies define and analyze the particular parameters:
- What are the particular statutes or local ordinances under which you operate?
- Who or what (departments, divisions, programs, etc.) do they govern?
- What was the original intent of each statute? Is it still relevant, or is it dated?
- Specifically – how do the statutes or ordinances impact timelines associated with the bid and contracting process?
- What opportunities does your organization have for creating new purchasing avenues (e.g., cooperative purchasing agreements, master service agreements, piggy-back purchases, etc.) with other public sector and non-profit organizations with similar needs?
Once you understand those constraints fully, consider how the process can be reworked to accommodate them while permitting you to transform the process and speed to which you serve your customers. One way to do this is through a facilitated value stream mapping (VSM) exercise. A VSM provides a visual representation of the process through a customer-centric lens while highlighting the areas where improvements can be identified and designed to achieve the greatest process efficiencies.
Unveil Opportunities Through Data
Utilize and Analyze All the Data at Your Disposal
Securing and cleaning the data you need to make decisions can be challenging. Create an inventory of available data and develop a plan for collecting, segmenting and analyzing the data on a regular basis. Start with what is available through internal systems and supplement with supplier provided data to best improve decision-making. Internal systems data should be reviewed and validated with your internal customers or user departments. The end user of any good or service will have the best understanding of the historical cost data, product specifications and purchasing requirements.
Consider using a data analytics tool to visually represent the data. The importance of “telling a story” through visuals can be the critical difference when you need the internal customer (i.e. the departmental counterpart) to understand the opportunities and what portion of spend can be assessed for increased efficiencies.
Understand the Source and the Quality of Your Data
When interpreting the data, it is important to consider data quality — how is it captured and by whom? Who or what is the data source? Is it reliable? If the data is of poor quality, consider upgrading your technology or providing training to help the organization advance their data entry and analytical capabilities. Investing in technology and developing these skills today will help build a more empowered, strategic function tomorrow, and will be necessary for driving additional and sustainable savings and synergies.
Focus on Realization and Sustainability
Finally, develop a repeatable methodology (that is approved by the internal customers) that will enable the organization to capture reoccurring savings through a consistent and standardized approach. This methodology should outline the:
- Potential types of savings (i.e. cost reductions, cost avoidances, etc.),
- Formulas for calculating the savings by category, and a
- Process for managing and reporting out the savings.
To deliver the best decision-making capabilities to the procurement department and the extended customer base, the team should instill a process for calculating the savings, benchmarking the savings results with other governmental procurement pricing schedules or peer organizations and revising the applicable budgets to reflect the lower spend/costs.
Building and Branding the ‘New’ Procurement Mindset
Even when the regulatory environment is analyzed and the data is in place, transforming public sector procurement functions from a process facilitator to a strategic business partner requires time and consideration for the growth and maturity to occur. Significant transformations may take three to five years to shift an organization from siloed activities to a collaborative approach. To support this, develop an organization structure, roles and responsibilities, and training plans to transition and develop experienced category managers who are accountable to themselves, to senior leadership and to each other.
Most importantly, it is critical to make sure the procurement organization feels supported each step of the way. Engage stakeholders and leaders (e.g., commissioners, councils, legislators, mayors and citizens) for guidance and ask them for their support in championing the change. Develop a communication plan to “rebrand” procurement. Build in small pilots of the new process where the team can test their new approach and skills. Celebrate the successes. This will not only build confidence in the team, it will prove valuable in winning internal stakeholder or department customer advocates who can spread the message that the “new” procurement department is a value-generating organization.