by Brad Douglas
State government officials have not faced a budget crisis this severe since the end of World War II. According to the National Conference of State Legislatures (NCSL), the 50 U.S. states had to face a collective budget gap of $83.9 billion for FY 2011. For many, this marks the fourth year in a row that they have had to slash programs or raise taxes to balance their budgets.
Unfortunately, the problem is not improving. New gaps have opened in at least 15 states for 2012, and 2013 is expected to bring more of the same, according to the NCSL.
Georgia has not been spared. The 2012 state budget is projected to be 20 percent smaller than it was when the recession began, down from $20.5 billion to $16.5 billion. But the situation could have been much worse. Thanks to an effort to transform procurement, Georgia has brought $1.6 billion of an estimated $5 to $6 billion of total spending under central management, and the state expects to double the amount under management in 2011.
Without this procurement transformation, Georgia would be in much worse shape.
A Bold Experiment
In 2005, one of Governor Sonny Perdue’s highest priorities was to apply best practices from the private sector to state operations to increase efficiency. Perdue and his staff sought experienced executive talent from the business sector to oversee this transformation.
That year, Perdue hired me as assistant commissioner of purchasing for Georgia’s Department of Administrative Services (DOAS).It was my first position in the public sector. I had previously spent nearly two decades in the private sector, including eight years running the procurement operations at large companies in the staffing services and hospitality industries.
I took the job because, after 18 years in the private sector, I wondered whether the business principles that I had used in the private sector could be successfully applied to government operations.
Notably, Georgia changed the purchasing code, which provided DOAS with the authority to make the significant changes that Perdue’s vision required. Just five months into my post as assistant commissioner, I was promoted to commissioner and brought in Tim Gibney to fill my assistant commissioner post. Gibney had previously headed procurement at the University of Notre Dame, where he had implemented a procurement transformation initiative that included successfully rolling out eProcurement technology from software firm SciQuest. Additional hires from the private sector followed. These included the director of strategic sourcing, who was lured away from Microsoft; an experienced procurement hand recruited from Bell South and put in charge of technology purchasing; and another procurement veteran – and Georgia Tech grad – from Advanced Micro Devices (AMD).
From Tactics to Strategy
When I arrived, Georgia quite literally had no idea of the exact size of its spending or where that spending was going―a situation that the vast majority of states still find themselves in today. It was also cumbersome for state employees to find vendors who had contracts and then buy from them. Additionally, the contracts themselves differed greatly according to price and coverage of the right goods and services. Most important, these contracts did not work together toward achieving a larger strategic goal.
Without a strategic sourcing process, the procurement operation ends up being a group of people sitting in an ivory tower saying, “Well what can we go source today?” It’s this mentality that produces a statewide contract for trash bags, instead of a contract for maintenance, repair, and operating supplies covering 20,000 line items. With a strategic sourcing process, government professionals ask , “What are all the items that go into running a building?” The procurement team then leveraged the marketplace to put together a broader set of goods that can be combined on a contract, with a rationalized supplier base.
My team and I envisioned a procurement process that made it as simple to buy items on statewide contracts as it is for consumers to purchase books, clothing, and music from commercial websites. We believed that through the judicious use of technology, we could capture spending in exquisite detail, which would empower us with the information needed to negotiate smarter deals. And by streamlining the process, we could eliminate waste and cut the cost of processing purchases. The opportunity, we felt, was enormous.
The first order of business was to set up an organizational structure that could execute on this new vision. We had a set of general guidelines because Gov. Purdue had already set up the Procurement Taskforce of the Commission for New Georgia to establish a vision for the transformation of state government, but creating and implementing a structure according to those guidelines―a collection of principles that if achieved would result in the nation’s first statewide reform of government procurement―would require some extra help. We hired consulting firm A.T. Kearney to be our “transformation assistant.” It provided more than 20 people to assist us through the initiative.
A.T. Kearney helped us define an optimal organizational structure under the committee’s guidelines, while we outlined new workflows and defined the capacity that the state’s procurement office could sustain to ensure it maintained adequate staffing levels. Kearney also helped us rewrite job descriptions, perform a fit-gap analysis of technologies to support the transformation, and revise and re-engineer the entire purchasing process and related policies to streamline administrative actions that didn’t add value to procurement.
The roadmap required procurement staff to move away from a transactional focus to a more strategic role. Technology would automate routine transactions and take the paper-pushing out of procurement. This would free up procurement staff to focus on higher-level, strategic tasks such as negotiation, project management, collaboration, and strategic sourcing. Early in the transformation initiative, employees in our procurement office were evaluated to determine whether their skill sets―and mindset―matched our more strategic direction. Of the 40 staffers who entered the process, more than 50 percent were rated as not being capable of taking on a new strategic role, which meant that substantial education and training efforts were needed.
As a part of the transformation, Georgia created a new team structure with a different approach to doing business. Today, the state procurement office includes a strategic sourcing group built around four commodity groups: technology (headed by the Bell South veteran), goods (a recruit from AMD), services (led by a longtime staffer who stayed on with the procurement team) and infrastructure (headed by a retired U.S. Air Force officer who previously helped lead the introduction of strategic sourcing to that branch of the military). A group dubbed “the Knowledge Center” supports the sourcing teams by conducting spending analyses that identify gaps in spending under management and opportunities for a leveraged, statewide contract. The Knowledge Center staff also evaluates, selects, and implements technologies that support the state procurement function, process improvement, and Georgia’s new training and certification program for procurement.
Emphasis on Training and Certification
The renewed emphasis on training was a big change. Previously, Georgia had just two purchasing courses for staff―“Welcome to State Purchasing” and “Purchasing Fundamentals.” Today, the state procurement office offers more than 30 courses that are both instructor-led and computer-based. To date, Georgia has had more than 5,000 “course sittings” by buyers and staff both within the state procurement office and also among hundreds of buyers across the different agencies and universities. The office also instituted its own three-tiered certification program, offering the Georgia Certified Purchasing Associate (GCPA), which covers fundamental workflows; Georgia Certified Purchasing Manager (GCPM), which includes higher-level negotiating and RFP skills; and Georgia Certified Purchasing Card Administrator (GCPCA), which is for staff who manage P-card programs. Plus, these courses are by no means limited to staff within the state purchasing office. Other state agencies and state universities have access to the courses and certification programs.
Procurement as E-Commerce
Once we had new staff in place and new processes outlined, we turned to the technology side of the equation. We intentionally waited until we had the people and new processes in place before we began working with the enabling technology, because we didn’t want to automate a bad process with people who would not be able to execute it. We did not want to harden procedures that would hurt our ability to provide good service and cost avoidance.
With technology, the goal was to create an “Amazon.com-like” experience―to make it so simple for state employees to find the right product on the right contract, including specs or an image of the item, that it was easier for them to buy on contract than it was to buy items on their own without going through procurement.
Team Georgia Marketplace
After evaluating our options, we deployed an eProcurement system that was based on a solution from SciQuest and integrated with the state’s existing backend PeopleSoft financials system. We dubbed it Team Georgia Marketplace. The SciQuest solution helped us populate Team Georgia Marketplace with products from negotiated statewide contracts. The SciQuest solution provides a familiar and user-friendly shopping experience on the front end that drives both a more efficient procurement process on the back-end and ensures contract compliance and better spending practices by end users.
The software automatically tracks and reports on spending, giving the strategic sourcing teams a wealth of information on spending according to supplier, product, or category. In addition, the marketplace allows buyers from Georgia’s local public entities to see the terms and discounts of the state’s supplier contract. As a result, local government employees within the state can now “window shop” to get the best pricing by leveraging the state’s buying power.
Georgia is rolling out its procurement transformation in waves, with the first wave now completed. The results have been impressive. The organization ran $1.6 billion through the system in fiscal year 2010, but leadership believes that the real spending could be between $5 and $6 billion. Georgia is finally learning what the state’s true spend really is. Twelve months ago, procurement had no details on that $1.6 billion in spending, but the day the fiscal year closed on July 1,2010, we had detailed information on every purchase right at our fingertips.
Today, approximately 3,800 agency users from 17 agencies and 21,000 registered bidders and suppliers are live in the system. In December, the Department of Revenue, the Georgia Bureau of Investigation, the State Personnel Administration, Georgia Public Broadcasting, and the Department of Early Care and Learning/Bright from the Start all went live.
Reduced Cycle Times, Automation, and Going Paperless
Seven additional departments in the state―the Department of Community Affairs, the Department of Behavioral Health & Developmental Disabilities, the Department of Defense, the Department of Driver’s Services, the Office of the Secretary of State, the Department of Education and the Department of Public Safety―are expected to go live later this year. The entire Technical College System of Georgia, which encompasses 26 technicalcolleges, will be the next entity to go live.
The initiative currently encompasses 17 state agencies. Yet, even at this early stage, the project has yielded impressive results. Prior to undertaking the initiative, the state effectively had just 6 percent of its spending under management, while today that figure has increased to nearly 60 percent, with a goal of reaching 80 percent by the end of fiscal year 2012. For the agencies using the system, requisition-to-purchase order cycle times have dropped dramatically, from as much as 20 days to just two days.
Strategic sourcing efforts have yielded additional discounts from 5 to 20 percent on the goods covered under new contracts, and easy access to these contracts through a simple online interface have ensured that the state actually realizes thesebenefits. In addition, improved workflows and efficiencies, along with purchasing automation, allow thousands of users to take advantage of next-day deliveries for a wide range of goods. Automation has helped the Georgia Department of Audits to completely eliminate paper from its procurement processes.
Expansion to County and Municipal Organizations
The prospects for savings and better service do not stop with state government. Our vision is for Team Georgia Marketplace to be accessible to all public entities in Georgia that use the required technologies. This will allow county and municipal organizations to access the state’s contracts, even while they increase the buying volume that strategic sourcing managers use in their negotiations with suppliers. In effect, Georgia will create the nation’s largest group purchasing organization in the public sector.
Cost-Saving Model for Public Sector
With this program, Georgia is giving the nation a concrete example of the future of public procurement, in which purchasing on contract is as easy as filling an electronic shopping cart, and where the procurement office can focus not on pushing paper, but on analyzing data on spending and negotiating contracts that public employees will use to save taxpayer dollars.
I am the first to admit that Georgia’s procurement transformation is an ongoing process. While the state believes it has addressable spend in the range of more than $5 billion, the success of the procurement initiative to date has opened up the possibility that the state procurement office could eventually capture significantly greater amounts of spend―and drive much greater efficiencies―as the initiative progresses.
Georgia offers a powerful example of the significant opportunity states have to drive bottom-line results with an entirely new approach to procurement.
It is not always what you buy that makes the difference, but how you buy it. The steps that Georgia has taken and the completely new way that it uses taxpayer funds has enabled the state to achieve far more with each and every dollar. Citizens deserve that diligence, not just in Georgia, but throughout the nation.
Brad Douglas is the former commissioner of the Department of Administrative Services for the State of Georgia. Contact him at email@example.com.