Beginning in 2003, strategic sourcing became a well-traveled buzzword in government procurement circles, winding its way through state capitals across the country. A technique that had been proven to be highly effective at reducing costs through wide adoption in the private sector in the 1990s, it gained traction in the middle of the decade among state governments. Today, more than half of the states have implemented a strategic sourcing initiative of one variety or another, often with remarkable results.

However, in most states, those great results did not come without tremendous costs. In many cases, the states elected to retain the services of a management consulting firm to source individual commodities and to train the incumbent work force on how to implement strategic sourcing. In addition to consulting fees, strategic sourcing often placed an enormous burden on the procurement organization itself, with buyers being pulled from their “day jobs” and assigned full-time to a sourcing project.

As the economy has foundered in the final years of the decade and tax revenues fail to meet projections, governments at all levels are facing tremendous budgetary challenges. Local governments and school districts are seeking to benefit from the same kind of cost savings that state governments have seen through strategic sourcing. However, few municipal procurement departments have the resources to fully fund a sourcing initiative that their brethren in state government can afford. How can they see similar benefits without the resources to fund a sourcing effort? Officials in Indiana think they have the answer.

Change starts at the top

In 2004, Gov. Mitch Daniels was elected after a campaign in which he pledged to introduce private-sector management techniques to Indiana state government. One area of particular interest for the new governor was procurement.

“Gov. Daniels came into office in 2005 and asked us to look at how we were spending our money. Were we leveraging our spend on outside goods and services to save taxpayer dollars?” said Rob Wynkoop, deputy commissioner of the Indiana Department of Administration. “He led a similar sourcing initiative during his tenure as budget director at the federal Office of Management and Budget. He also saw what other states had done, like Pennsylvania and Virginia.”

To replicate the successes of other states, Indiana went through a competitive RFP process and selected Silver Oak Solutions (now CGI Spend Management Solutions). The state created a leadership team made up of commissioners and deputy commissioners from the Indiana Department of Administration, the newly created Indiana Office of Management and Budget, the governor's office and the Office of Technology. Daniels was the sponsor of the strategic sourcing initiative, with day-to-day leadership provided by the Department of Administration and the state Office of Management and Budget.

The initiative had three phases. Like most states, Indiana had no idea how much it spent in individual goods and services categories or how that spend was distributed across its suppliers. In the first phase, the sourcing team went through the state's myriad IT systems to conduct a thorough spend analysis.

Armed with the spend data, in the next phase, the team sourced 32 distinct commodities. The team chose those categories that offered the greatest amount of savings with the quickest timeline with the greatest ease.

Finally, the team was tasked with examining the current environment and diagnosing what obstacles prevented future sourcing activities. As a result of this examination, the team recommended a reorganization of the procurement group within the Department of Administration, which since has been implemented, and the revision of statutes that kept the state from conducting more competitive procurements.

Wynkoop noted that state leadership took the initiative very seriously.

“Every six weeks during our two year project, we had to present a progress report in person to the governor and his executive cabinet,” Wynkoop said. “He was personally active and engaged in this project. He wanted to know where our sourcing activities stood and where there were problems in specific agencies where he could help us.”

As a result of the sourcing engagement, the Department of Administration reorganized to give itself the ability to carry on the sourcing successes from the previous months. The department created two new divisions within its procurement organization — one dedicated to supplier performance and contract management, and another focused on strategic sourcing.

According to Wynkoop, the reorganization bore fruit soon after its completion.

“The success of the whole process is evidenced by the fact that within IDOA, procurement is the only division that received the Governor's Public Service Award every year since its inception.” The award is given to individuals and teams that go “above and beyond” to make government more efficient and to save taxpayer dollars.

Director of Strategic Sourcing Jessica Robertson noted that the awards were a real boost to the morale of the department.

“It speaks well of IDOA,” Robertson said. “It makes you feel good to work for an agency that is recognized at such a high level. Getting this feedback from the governor himself was a great thing for our team.”

A morale booster

According to Erin Kremer, director of vendor management and supplier performance at the Department of Administration, strategic sourcing has boosted morale within the department.

“We went from an organization that just processed purchase orders to an organization that acts as a strategic arm of state government,” Kremer said. “We are constantly interacting with agency heads who proactively ask for our take on their important projects. That is the best way to describe the morale and overall tone of our division. We're all focused on strategic sourcing.”

Kremer cited success with negotiations as another morale-builder.

“We haven't always had the ability to negotiate on competitive sealed bids; in the past, we just accepted the supplier that met specifications and had the lowest initial price,” Kremer said. “Now, negotiating is part of our process. I think people saw this in action and saw that after a negotiation they could go back to an agency and say, ‘I just saved you $60,000 on this bid.’ It empowered them. They loved going back to an agency saying they saved money and knowing that they were a part of it. They saw the direct benefit of that, and the agencies really appreciated the buyer's efforts.”

Now, Kremer added, saving money is “part of our culture.”

“When they are involved in saving money for the taxpayers, they feel like they are part of something larger than just a procurement organization,” Kremer said. “This is very different for [department employees], who never really felt much direct interaction with citizens.”

New habits

The reorganization brought with it an influx of procurement professionals from outside the Department of Administration and outside state government, mixing with veterans from the department.

“We've hired a lot of new staff,” Kremer said. “We recognized that we'd need skills we didn't have in our division, especially within the newly created strategic sourcing and vendor management teams.”