Want to be a procurement superstar? 3 things you must do

Wed, 2015-05-20 06:00 -- Kevin Ebi

There’s never been a time when it has been so easy for cities large and small to buy technology and expertise. But for the investment to be a success, it’s not just what they buy — it’s how they buy it.

Council Lead Partner IBM conducts an annual procurement study, which finds a strong link between the quality of an organization’s procurement strategy and its overall performance. Companies that used model procurement strategies ranked in the top 15% for profit growth and the top 20% for revenue growth.

While IBM’s study looks at large enterprise businesses, there’s truth for cities too. Cities that take procurement shortcuts can end up with costly projects that fail miserably and shake the public’s confidence.

Here are the top three procurement traits that leading companies share:

1. Focus on overall success
Breaking down silos that divide city departments is a key theme of most smart cities projects, but procurement superstars go even further: Procurement success is defined by the success of the overall project.

The idea is that the procurement process should find the solution that delivers the best return, and therefore should qualify suppliers to make sure they can deliver what they promise. It’s obvious when this doesn’t happen: Bungled photo tolling systems are frustrating commuters in the San Francisco Bay Area and have triggered a class-action lawsuit in Washington state. Those horror stories are prompting a lot of debate in Florida over its efforts to qualify suppliers for its tolling system upgrade.

Your procurement performance is the project’s performance. They are one and the same.

2. Engage stakeholders and anticipate needs
Just as the buying process isn’t the entire project, one person never has all of the answers. A smart procurement strategy brings in key stakeholders to truly understand their priorities and develop insight to identify and overcome potential project hurdles. IBM says companies that have model procurement practices try to learn as much as they can from suppliers; cities should look to a wide range of experts as well.

A project to revitalize Memphis neighborhoods hard hit by the foreclosure process provides an example of an effective use of this strategy. Memphis tried to plug-and-play affordable housing programs that had worked in other cities, but they never seemed to gain any traction there, so it gathered what it calls cross-sector stakeholders to craft a truly local solution.

Experts from government, business, foundations and other non-profits came together to combine their knowledge and resources. This approach resulted in more solid plans to transform three neighborhoods -- plans that drew the attention not only of local charities, but national foundations and six banks.

3. Embrace progressive procurement practices
While the first two steps -- building relationships and consulting experts -- are decidedly low tech, technology should play a key role too. IBM found that the top performers used technology to automate mundane elements of the procurement process, while using analytics to help people perform better in other areas.

Its study found a significant gap between companies. Nearly half the top performers used integrated, advanced analytics. Another 26% were able to do forecasting. By contrast, half of the lowest performers had only basic analytics or worse.

Procurement innovations worth noting
California is overhauling its procurement process, focusing on automation and pooling resources. There’s already a statewide master vendor file for use by any level of government. It’s adding electronic bidding, online certification and online interaction to its new FI$CAL system, which is going online now. Local government is already embracing this new collaborative approach: 19 agencies in the Bay Area are issuing a joint request for proposal for solar power generation. Even though the panels will be installed over nearly 200 different locations, by working together on design and fabrication, they expect to spend 45% less than they would have by going it alone.

Others are using data and analytics to drive improvements. North Carolina, for example, discovered 84 IT projects were $356 million over budget -- nearly double the cost estimates -- and more than a year late, prompting it to adopt a try-before-you-buy pilot project. This approach allows it to test the latest technology, see what works and share knowledge with the rest of the state government to avoid wasting precious funds.

Meanwhile, Franklin County, Ohio, replaced its procurement system with a web-based interface that lets anyone see where any purchase is in the process. This transparency builds accountability -- something that was lacking before -- and helps eliminate waste.

Watch the incentives
Despite best intentions to overhaul a city’s procurement strategy, efforts can be held back if staff are given the wrong incentives.

Mark Headd describes these disincentives in a blog post he wrote about his time at the Delaware Department of Technology and Information. The state’s revenue director allowed people to start filing their taxes online, giving the public more options, while cutting the amount of staff resources needed to process the returns. Sounds great, right? When asked to share his approach with other state leaders, the director refused. He was worried that if lawmakers found out how much money his initiative saved, his department’s budget would be reduced.

If those government employees have those fears, it can derail any effort to improve procurement, which takes us back to the first step: everything really should be about overall success.


Kevin Ebi is a staff writer and social media coordinator for the Council. Follow @smartccouncil on Twitter.

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