Getting Smart About Sourcing: How One Educational and Resource Institution Rebuilt Its Procurement Organisation

The ability to track suppliers 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, this educational and research institution reached out to Protiviti for help reviewing its supplier 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 suppliers to obtain goods and services, making it difficult to leverage spend volume and control the institution’s overall budget.

Initial meetings with the institution's head of procurement revealed systematic 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 largely decentralised. For example, only about two 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 and lacked a more strategic focus to drive savings and efficiencies.

Change drivers

The uncovered systemic problems led the client to recognise the need for broader reform of its sourcing and procurement practices and an opportunity to create a holistic end-to-end solution.

Over 12 weeks, Protiviti led an institution-wide effort to analyse spending, view 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 and existing pain points, identify bottlenecks and improvement opportunities, perform time studies and activity analysis and conducted 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 applying to internal requests outside of their core job responsibilities.

A three-faceted solution

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 practices and capabilities, developed and executed strategies to identify suppliers and benchmark their competitiveness, and negotiated with suppliers and award contracts. A five-year wave plan, developed after identifying high-priority site sourcing categories, projected institute-wide savings up to $72 million, with year one savings of $9.4 million.

Improvements across Requisition to Payment transactional processing established reliable, streamlined and efficient capabilities that supported the strategic sourcing model. As part of the discovery process, the team found that more than 90 percent of annual transactions – about 320,000 – fell between $5,000 and $25,000 each, but that those purchases amounted to only 10 percent of total spend each year. The procurement department established a plan to work with suppliers to negotiate blanket pricing agreements for those items and improve automation of low dollar transactions. Procurement staff then ordered the goods and services using automated systems with the agreed-upon prices, removing the cost of negotiating or bidding on individual purchases.

The institution then identified working capital savings achievable through a combination of standardising terms with suppliers and negotiating discounts if certain payment conditions were met.

The third component, including an improved operating model, future state organisation design, communication, training and monitoring program, 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 programs for procurement personnel, publishing monthly newsletters to highlight successes, and using dashboards to track spending, performance metrics, saving targets and actual savings realised across all departments and schools.

In the end, the institution transformed its procurement process and generated substantial savings. It achieved that by articulating a holistic procurement vision and strategy, focusing on value drivers, streamlining processes and enabling sourcing competencies.