case study of procurement process

Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Procurement Strategy Case Studies — 5 Insightful Examples

Table of content

• InDemand’s co-creation model
• Copenhagen supplies seasonal and diverse organic fruit and vegetables
• Catalonia’s aim to clean air
• The Ministry of Defense of the Kingdom of the Netherlands procuring textiles
• Combining procurement models
• Procurement Expert’s Insights 
• Frequently Asked Questions

Key takeaways

• Procurement strategy case studies are real-life examples of how organizations make purchases, showcasing the challenges and decisions they encounter.
• Successful strategies depend on efficient coordination and collaboration between essential procurement players.
• Knowing the factors affecting procurement strategizing helps build better procurement outcomes for the company.

Setting the appropriate strategy in procurement is the first step to improving control and effectiveness of the procurement and sourcing activities. However, not everyone knows where to start in their strategy. 

In this article, we will check five procurement strategy case studies that can give you insight into strategies they have used to streamline their processes. We will explore the problems that arise and how they have conquered them with their strategy. 

After reading this article, you will gain enough knowledge on tackling the problems in your procurement by formulating your very own strategy. So, I’d like to make your procurement process more effective than before!

But before you read the whole article, I have created a free-to-download editable procurement strategy template. It’s a PowerPoint file you can use to create your own strategy. I even created a video where I’ll explain how you can use this template.

Example 1 — InDemand, Co-creation Model Helping to Procure Innovation in Public Organizations

Actual case:.

InDemand brought together procurers from three different European Regions namely: Murcia, Oulu, and Paris to test a new co-creation model which is said to be a model that is faster, leaner, and requires fewer resources and overheads. Thus, being more suited to everchanging technologies, such as digital solutions. 

InDemand aims to help promote innovation by combining what the clients need (health professionals of the Murician Health Service), and the development of the solutions in the process of co-creation (a collaboration of health professionals together with tech companies). 

The Murician Health Service (EPICO), used the InDemand model to know the challenges of enhancing accessibility for and follow-up epileptic patients. Thus, a call to companies to co-create an innovative solution alongside clinicians commenced. 

After a tender process was launched, Oxiframe (renamed Aircrum IT) was selected to work together with neurologists and patients. After the engagement process, Servicio Murciano de Salud (SMS) prepared an open tender for a solution. Thus, a bigger company named PULSO won the bid and collaborated with Oxiframe to make an innovative solution. 

Final Deal:

The InDemand model has been leveraged to more than 50 procurement innovation projects. It is estimated that more than 200 organizations submitted a bid for the different calls based on the InDemand model from the numerous procurement organizations. 

Additionally, there was a 100% acceptance of the tool which was found to truly help improve communication between doctors and their patients affected by epilepsy. It has heightened patient satisfaction by up to 50% and led to a quality of life improvement for direct communication between doctors and their patients. 

After the success, it was then tested on 54 patients at the Hospital of Cartagena for 2 months and eventually tested on a wider group. Thus, it is a great example of how to use a co-creation model with companies together with clinicians and their patients. 

What Can We Learn From It?

We can learn here that demand-driven co-creation works, at least in the healthcare sector, to address the problems perceived by parties involved in the creation of a solution. 

Together with the clinicians and the patients, the collaboration worked well. The exchange of ideas, needs, solutions, standard practices, and legal limitations has become a valuable component to co-create an innovative solution. 

Example 2 — The City of Copenhagen Supplying Seasonal and Diverse Organic Fruit and Vegetables

Copenhagen, the most populous city of Denmark, has set a target for 90% of the food served in municipal facilities to be organic. It has also ensured that it was buying seasonal produce to support efforts of strengthening biodiversity in agricultural production in both Danish and foreign producers. 

It is important to note that “seasonality” is not meant to be the seasons in Denmark. Rather, it defines the season somewhere in the world helping to ensure fairness and transparency. 

Furthermore, an extensive market engagement was conducted to ensure the requirements were ambitious and also achievable. The bidders were also asked to complete the “seasonal wheels’ to demonstrate the varieties of the typically used products available throughout the year. 

The first contract was issued in January 2014. However, the tender was abandoned due to multiple errors seen in the bids. The contract was reissued in April 2014. Seven tenders were then submitted and only two of those met the requirements. After that, the contract was awarded in July 2014. 

The innovation in the supply and delivery of products, improved relationships with the suppliers, and greater sustainability initiatives in sourcing food were all positive results of the extensive market dialogue. 

Additionally, the organic food market in Denmark has remarkably grown in recent years and the organic food service market increased up to 33% between the years 2013 and 2014. 

We should take note that there is a risk in carrying out the innovation procurement process that is susceptible to being abandoned due to a lack of competition. The extensive market engagement Copenhagen has done can be time-consuming. 

However, by building a strong knowledge of the market, it is achievable to produce realistic yet innovative specifications or requirements to attract necessary competition. 

Example 3 — Catalonia’s Aim to Clean Air through Clean Vehicle Procurement

Catalonia is an autonomous region in Spain. Its government has passed the responsibility for certain legislative and policy areas, including the environment. The Ministry of Territory and Sustainability is the expert body for environmental policies and leads the promotion of Green Public Procurement in Catalonia. 

The Catalonia government uses GPP to support numerous strategic policies such as reducing negative impacts of consumption and production, promoting eco-innovation and transformation, and supporting other policies that pursue sustainable objectives. 

The government of Catalonia focuses on low-carbon vehicles that align with wider environmental priorities within the region. Air pollution is a specific concern within the wider urban area of Barcelona where nitrogen oxide exceeds the annual limit. 

An Air Quality Plan of the Metropolitan Area of Barcelona has brought 40 municipalities together to solve the air pollution problem. Catalonia’s Government approach to combat air pollution is to provide guidelines on the GPP vehicles, government agreements regarding GPP, eco-labeling to identify low-carbon vehicles and the LIVE platform which is a public-private platform promoting sustainable mobility. 

The GPP guidelines laid out clear and simple criteria that public procurers procurement can follow to buy low-emission vehicles, as well as consider the use of vehicle fleets in the delivery of service contracts. It also includes the maximum energy consumption and technical specifications of the award criteria. 

Additionally, the Catalonia government supports the Catalan Ecolabelling. It is a regional voluntary ecolabel awarded to products and services that fulfill specific environmental quality requirements beyond what is compulsory under the current regulations. 

The result of vehicle-related tenders in the Catalonia region has produced positive impacts on the environment. It is estimated that through its procurement strategy, it has produced energy savings of 2,120 Tons of Oil Equivalent (TOE) and a reduction of 7,166.7 tons of carbon emissions compared to benchmark levels. 

Catalonia’s government approach demonstrates that procurement can play a significant role in contributing to wider environmental policies and public health goals. 

Additionally, by aligning the EU national and regional policies, it is achievable to send a clear message to markets and the citizens of Catalonia about the importance of the environment through sustainable activities. 

Example 4 — The Ministry of Defense of the Kingdom of The Netherlands Procuring Textiles Made From Recycled Fibers

The Ministry of Defense of the Kingdom of the Netherlands (MODNL) is a large public sector buyer that employs around 58,000 people across the army, military police, air force, and other supporting roles. 

It is also one of the 45 public sectors and private parties brought together by the Dutch Government’s Circular Procurement Green Deal, tasking participants in carrying out two circular procurement initiatives between the years 2014 and 2016 to increase knowledge and accelerate the transition to a circular economy. 

One of the areas of focus of MODNL was textiles because it needed to equip its large numbers of personnel with uniforms and other textile products. However, textile production is linked with numerous environmental and social problems. Ultimately, the energy to transform raw materials and manufacture new fibers in the production of textiles has great carbon emissions. 

Therefore, the MODNL began exploring the market for recycled textiles in January 2014 by publishing a request for information and conducting an open meeting with the textile suppliers. This market engagement aimed to know if it is possible to require recycled fibers to be used in the production of certain items. 

Through its market research , it identified that manufacturers were able to meet the requirements around the use of recycled content. However, MODNL must focus on the items’ ability to perform their use rather than the technical values such as the tensile strength. 

The contracts awarded in June 2016 are worth approximately $455,000 for towels and washcloths and $1.46 million for overalls. Only six suppliers submitted their bids and only four of them met the tender requirements. 

Now, two Belgian companies supply the MODNL with towels, washcloths, and overalls. The parties will innovate during the four-year term which could result in a higher percentage of recycled materials later on in the execution of the contract.

Subsequently, a separate eight-year contract was also signed for reuse services where a third party was contracted to sort items of clothing for reuse and resale with income being returned to MODNL. Thus, it results in considerable savings for the MODNL.  

Circular procurement needs suppliers to find alternative inputs and new ways of working. Thus, to assist innovation, the market engagement conducted by the MODNL found that functional rather than technical specifications provided suppliers with more space to innovate and find new ways to meet the MODNL’s material needs. 

We can learn here that when asking the market to work with new materials or in an innovative way, it is necessary to give them more lead-in and response time to consider and prepare non-traditional offers. 

Moreover, it is important to take note that you should not introduce price ceilings based on existing prices, and costs, as expected on a pilot test, can constrain the development potential of new areas. 

Example 5 — Combining Procurement Model For Sustainable Buildings

The South Moravian Region has over a million inhabitants and is the fourth-largest region in the Czech Republic. The landscape of the region is distinguished by its highlands as well as the Moravian Karst. The abundance of caves and gorges provides ideal conditions to treat respiratory diseases. 

The regional government aims to build a new treatment facility for respiratory diseases near the town of Ostrov u Macochy. The procurement approach was set up to give the market the chance to show the best they can offer to create the building as aesthetically pleasing, energy-efficient, and a comfortable place for patients. 

The process includes preliminary consultation and market dialogue to test the feasibility of the procedure and to provide a detailed description of the planned procurement process and requirements of the tenders. 

Furthermore, the procurement procedure combined various methods to filter the bids. The tender itself was awarded using a combination of a competitive procedure with negotiation and an architectural design contest. 

The preparation of the tender process started in April 2018 and the procurement commenced in April 2019 with a total contract value of $6 million. 

Seven suppliers submitted their bids which were to be assessed by an expert independent evaluation committee that recommended the exclusion of one supplier due to flaws in its bid. 

The remaining were then evaluated according to set criteria which are based on the reports of the expert examiners who examined in detail the values offered in the quality of technological and energy solution criteria. 

The contract was awarded to the selected contractor in April 2020. Since then, the construction started in June 2021 and is expected to be done by the end of 2022.

The winning bidder offered numerous sustainable solutions including reusable components of the main construction and interior design layout that enables simple layout adjustments that may be done in the future. The successful bidder also committed to achieving a reduction in the annual consumption of non-renewable primary energy. 

We can learn here that preliminary market consultations are crucial when the contracting authority undertakes a new approach to procurement. Additionally, it is important to present the intentions and goals to potential suppliers, get feedback from the market, and find other information significant to prepare the procurement process. 

All parties involved in the preparation of the actual procurement process were sent a request to identify the strengths and weaknesses of the procurement process they utilized. 

Using the BIM method leads to better execution and more efficient operation of the building. Furthermore, as the tender used numerous methods, it is significant to see the effectiveness of the DB approach as it can be an interesting and legitimate way for contractors to implement large-scale projects. 

Procurement Expert’s Insights on Procurement Strategy Case studies

For this article, we asked an experienced procurement expert to share her insights to help answer common questions about case studies regarding procurement strategy.

Nesrin Chabbah Senior Lead Buyer

LinkedIn Profile: linkedin.com/in/nesrin-chabbeh

1. What do most people get wrong about procurement strategy case studies?

“What’s commonly misconceived about procurement strategy, as evident in the given cases, is its potential to profoundly influence organizational objectives beyond mere acquisition efficiency. Procurement transcends simple procurement; it’s a strategic instrument capable of propelling innovation, sustainability, and social advancements. These examples underscore how procurement, when meticulously strategized and implemented, can yield positive effects not just on operational efficiency but also on the environment, public health, and society at large. It involves harmonizing procurement with grander visions and engaging stakeholders for impactful results.”

2. What should people know about procurement strategies if they are planning to start working on this?

“For those embarking on the journey of devising procurement strategies, understanding that it’s not merely about obtaining goods and services is pivotal. Procurement strategy extends to shaping innovation, sustainability, and social responsibility. Effective strategies align with broader organizational goals, incorporating sustainability, ethical sourcing, and fostering supplier relationships. Engaging stakeholders and fostering transparency is vital for success. Moreover, the ability to adapt strategies to emerging technologies and market shifts is essential for staying competitive and achieving long-term success in procurement.”

3. From your experience, what is the most important thing you learned about procurement strategy case studies?

“The core lesson in mastering procurement strategy is understanding its dynamic and multifaceted nature. It extends beyond the efficient acquisition of goods and services; it encompasses supply chain optimization, innovation encouragement, sustainable practices, and fostering strong supplier relationships. Crafting an effective strategy demands comprehensive knowledge of market dynamics, legal considerations, risk mitigation, and emerging technologies. Flexibility and adaptability are paramount, as strategies must evolve in response to evolving business landscapes and shifting consumer demands. Ultimately, a well-crafted procurement strategy profoundly influences an organization’s overall performance and its capacity to meet objectives both effectively and responsibly.”

4. What tips can you give them to be effective in procurement strategies?

“To ensure an effective procurement strategy, it’s crucial to align with organizational objectives and understand needs and goals thoroughly. Employ data-driven decision-making, leveraging insights for optimal choices. Prioritize risk management by identifying and mitigating potential supply chain risks. Cultivate strong, transparent relationships with suppliers, adhering to compliance and ethical standards. Foster a culture of continuous improvement, integrating sustainability practices, and optimizing costs through strategic negotiations. Maintain clear communication channels and invest in team training for skill development. Regularly measure performance and adaptability, embracing change as a part of the process. By following these guidelines, you can enhance your procurement strategy and achieve better outcomes.”

5. Can you give us examples of procurement strategy challenges and how you solved them?

“Monitoring supplier performance and their resilience posed significant challenges. However, implementing Key Performance Indicators (KPIs), conducting monthly meetings, improving communication, and setting clear goals engaged suppliers, fostering responsibility and driving them to deliver their optimal results.”

The five insightful procurement strategy case studies offer valuable lessons for organizations seeking to enhance their procurement processes.

These case studies emphasize the importance of understanding market dynamics, engaging stakeholders, aligning procurement with broader policy objectives, and fostering innovation through collaboration.

By drawing insights from these examples, organizations can tailor their procurement strategies to address specific challenges and achieve more effective and sustainable outcomes.

Frequently asked questions

What is a procurement strategy case study.

A procurement strategy case study is a real-world example of how organizations buy things, showing the challenges and choices they face.

What types of procurement strategies are commonly explored in case studies?

Case studies may cover a range of procurement strategies, including strategic sourcing, supplier relationship management, e-procurement, cost optimization, and sustainability initiatives.

What can organizations learn from mistakes in case studies?

Case studies highlight mistakes made by others, offering useful insights into what went wrong and how to avoid similar issues for better outcomes.

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

10 Procurement Case Studies: Examples & Lessons Learned in '24

Effective procurement practices are crucial across all industries. By examining procurement case studies, we gain valuable insights into the impact of procurement solutions and best practices that can drive success in any industry.

Explore a range of procurement case studies that showcase how organizations in various sectors— non-profit , technology, healthcare , and beyond—have leveraged innovative procurement strategies to overcome challenges and enhance overall efficiency:

Procurement case studies from different industries

By examining procurement case studies from different sectors, we can uncover how organizations have leveraged innovative solutions to address challenges, optimize operations, and achieve remarkable results.

1. Real-life example from energy & utilities sector

The leading utility company faced significant supply chain constraints that extended lead times for crucial transformers and electrical equipment to over two years, jeopardizing their expansion plans and project timelines. 1

A procurement software vendor partnered with the utility company to secure future production slots, negotiate favorable contract terms, and streamline internal processes. This collaboration resulted in a 5% cost reduction through competitive bidding, standardized pricing adjustments, and the creation of unique material codes for better forecasting and budgeting in future projects.

Lessons learned

The case highlights the importance of strategic supplier partnerships, direct negotiations to mitigate supply risk, and the value of streamlining internal processes to improve efficiency and cost savings in procurement.

2. Real-life example from oil & gas sector

A leading global oil and gas company faced inefficiencies, data silos, and governance issues in its procurement process due to reliance on 15 legacy custom solutions, which led to delays, a lack of visibility, and an overly complex approval system. 2

The procurement software vendor implemented its intelligent category management (ICM) system, consolidating the 15 legacy solutions into two centralized systems. This solution digitized contracts, increased eSourcing adoption by 20%, improved procurement ROI by 15%, and provided real-time insights to enhance category strategies, supplier relationships, and overall procurement efficiency. 3

The case demonstrates the benefits of consolidating and centralizing procurement systems, leveraging real-time data and insights for strategic decision-making, and using intelligent category management to improve efficiency, cost savings, and risk management in procurement.

3. Real-life example from the healthcare sector

For more information, check Healthcare Procurement Challenges & Effective Solutions .

Memorial Hospital of Sweetwater County faced frequent system failures and limited access to budget details during the purchasing process due to a problematic general ledger system, leading to workflow interruptions and high error frequency. 4

The procurement software provided a requisition solution that offered accurate budget reporting, visibility and transparency throughout the purchasing process, and seamless integration with the hospital’s materials management and ERP systems. This led to improved processing times, reduced errors, and enhanced efficiency.

The case underscores the importance of adopting tailored procurement solutions to overcome system inefficiencies, reduce errors, and streamline operations, leading to significant improvements in budgeting, transparency, and procurement professionals satisfaction. Technology can help procurement teams streamline their processes and improve communication with different suppliers.

4. Real-life example from the non-profit sector

For more information, check Nonprofit Procurement: Checklist & Challenges .

Central Park Conservancy faced a lack of control and chaotic ordering due to a paper-based requisition system that hindered tracking, approvals, and efficient order placement. 5

The procurement software vendor provided an integrated electronic procurement solution that included customized workflows, audit trails, and seamless integration with Blackbaud Financial Edge, enabling accurate tracking of expenditures, encumbrances, and accruals.

The implementation of procurement software significantly streamlined the procurement process, reinforced purchasing policies, and enhanced spend management, leading to improved efficiency, time savings, and better control over financial operations.

5. Real-life example from the financial sector

Hellenic Bank faced a lack of standardization, centralization, and digitalization in its procurement processes, leading to inefficiencies, high costs, and a need for improved compliance with regulatory requirements. 6

The bank implemented an AI-powered source-to-pay software to centralize procurement activities, streamline operations, and integrate key processes such as risk assessment, supplier management, and contract management. The deployment was phased, starting with the source-to-contract module and extending to procure-to-pay functionalities.

For more information, check 10 AI Procurement Use Cases & Case Studies .

The implementation of the procurement tool led to a significant transformation in procurement operations at Hellenic Bank, resulting in standardized processes, enhanced visibility, reduced cycle times, stronger supplier partnerships, and strategic insights. The bank also anticipates further benefits, including cost reductions and improved compliance, as they fully integrate their procurement activities on a single platform.

6. Real-life example from the construction sector

High Speed 2 Ltd. faced the greatest challenge of achieving supply chain transparency and resiliency for the UK’s largest infrastructure project. This involved managing a large number of suppliers and contractors in a complex market, with costs and risks exacerbated by external factors like hyperinflation and labor shortages. 7

HS2 implemented the supply chain management initiative, a focused approach using data-driven collaboration with suppliers to ensure transparency and mitigate risks. The effort involved mapping and assessing critical contracts and suppliers across multiple tiers, leveraging dashboards and innovative methods to deliver valuable insights into the supply chain.

The case study shows that commitment to collaboration and proactive risk management can achieve significant advancements in supply chain transparency, maintaining quality, and ensuring better deals for organizations. HS2’s successful development of supply chain management allowed them to focus on immediate needs, securing value for taxpayers by understanding and managing risks in real-time.

7. Real-life example from the chemical sector

Bioscience company Royal DSM N.V. (DSM)’s indirect procurement processes were fragmented, leading to inefficiencies and excessive time spent on operational tasks, detracting from value-creating activities. The purchase-to-pay process was also suboptimal, with potential payment delays introducing risk. 8

DSM implemented a procurement software solution to digitalize and automate procurement transactions. This included a comprehensive source-to-pay process supported by a robust governance structure and global rollout, starting with a pilot in Brazil to navigate complex tax regulations.

Starting the transformation in a region with complex tax systems, like Brazil, allowed DSM to learn valuable lessons that simplified the global rollout. Effective change management and extensive training, including local language support, were crucial for the successful adoption and deployment of the new procurement processes.

8. Real-life example from the transportation sector

Transport for London (TfL) faced a severe skills shortage and lack of diversity in the transport industry, with a workforce predominantly composed of older white males, while a significant portion of young Londoners were unemployed or out of education. 9

TfL established the Supplier Skills Team and implemented Strategic Labour Needs and Training (SLNT) requirements in contracts. This approach required suppliers to deliver specific skills and employment outputs, with a focus on apprenticeships and job starts for disadvantaged groups. TfL also partnered with charities and employability groups to support these efforts.

Successful outcomes were driven by strong internal buy-in, clear communication of goals with suppliers, effective partnerships with the right organizations, and recognition of achievements. TfL’s approach has led to thousands of apprenticeships, job placements, and the employment of disadvantaged individuals, setting a standard now being adopted by other public sector bodies.

9. Real-life example from the technology sector

Jumio faced challenges in managing its procurement and accounts payable processes , particularly with manual purchase order (PO) matching, which caused bottlenecks and inefficiencies, especially as the company scaled globally across multiple subsidiaries. 10

Jumio implemented an integrated procure-to-pay finance automation solution, which automated PO and invoice processing, self-service supplier onboarding, and improved month-end reconciliation.

Automation of procurement and accounts payable processes significantly reduced workload, improved efficiency by eliminating manual tasks, accelerated financial reconciliation, and ensured seamless integration with their ERP system.

10. Real-life example from the education sector

Pearson, a global leader in education, struggled with disjointed procurement systems that lacked comprehensive spend visibility and compliance enforcement, hindering strategic decision-making. 11

Pearson implemented a business spend management platform to unify their procurement processes, improve risk management, enhance compliance, and achieve better deals, with a focus on user-friendly adoption.

The integration of the procurement software platform significantly increased spend compliance from 22% to 85%, reduced operational inefficiencies, and resulted in high user satisfaction, demonstrating the value of streamlined procurement processes.

Summary of lessons learned from the procurement case studies

• Procurement software integration significantly increased spend compliance and reduced operational inefficiencies.
• Automation improved efficiency, reduced manual tasks, and streamlined financial processes.
• Effective change management and training were crucial for successful adoption.
• Commitment to collaboration and proactive risk management enhanced supply chain transparency and efficiency.
• Centralizing procurement systems and using real-time data led to better decision-making and cost savings.

What is a sustainable procurement process?

Sustainable procurement is a critical part of supply chain management, aiming to reduce energy consumption and environmental impact. Companies like Walmart have implemented sustainable procurement strategies to reduce their carbon footprint. 12 Sustainable procurement can have a significant impact on the environment and the bottom line.

What is supply chain optimization?

Optimizing the supply chain is a key aspect of procurement, involving the management of parties involved in the procurement process. Competitive bidding and digital solutions can help procurement teams streamline their processes and reduce costs. Data obtained from supply chain optimization can provide detailed information on procurement processes and help procurement professionals make better decisions. Procurement teams play a critical part in the procurement process, requiring strategic goals and specific contracts to achieve success.

Further Readings

• Top 10 Procurement Software Features & Pr i ces Analyzed
• 10 AI Procurement Use Cases & Case Studies
• Non-profit procurement: Checklist & Challenges
• Healthcare Procurement Challenges & Effective Solutions
• Procurement Software Comparison, Testing & Benchmarking

If you need further help in finding a vendor or have any questions, feel free to contact us:

External Links

• 1. Leading Utility Mitigates Supply Risk and Reduces Costs With GEP . GEP SMART. Accessed: 20/August/2024.
• 2. How a Fortune 500 Oil & Gas Major Partnered With GEP To Achieve a 15% Jump in Procurement ROI . GEP Smart. Accessed: 20/August/2024.
• 3. How a Fortune 500 Oil & Gas Major Partnered With GEP To Achieve a 15% Jump in Procurement ROI . GEP Smart. Accessed: 20/August/2024.
• 4. Memorial Hospital of Sweetwater County Reduces Costs with PairSoft . PairSoft. Accessed: 20/August/2024.
• 5. PairSoft Helps Central Park Conservancy Streamline Procurement . PairSoft. Accessed: 20/August/2024.
• 6. How Hellenic Bank Transformed Its Indirect Procurement Operations With GEP Software . GEP Smart. Accessed: 20/August/2024.
• 7. High Speed 2’s approach to building supply chain transparency . Procurement leaders. Accessed: 21/August/2024.
• 8. DSM: Digitalizing global procurement processes for strategic source-to-pay capability . SAP Ariba. Accessed: 21/August/2024.
• 9. Working with suppliers to achieve social opportunities . PROCURA+. Accessed: 21/August/2024.
• 10. Jumio Fights Fraud By Delivering a Smarter Identity Verification Experience . Tipalti. Accessed: 21/August/2024.
• 11. Pearson Gets an A in Business Spend Management . Coupa. Accessed: 21/August/2024.
• 12. Product Supply Chain Sustainability . Walmart. Accessed: 20/August/2024.

Next to Read

Healthcare procurement challenges & effective solutions in ‘24, 10 ai procurement use cases & case studies in 2024.

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Case Study: Transform a Procurement Organization

Investco’s purchasing demands were growing faster than their procurement capabilities could handle—the process was at a breaking point.

Despite a time of economic instability with headlines depicting a grim global economy plagued with debt crises, financial volatility, and lower commodity prices, Investco has continued to sustain its competitive advantage in hedge fund management. Similar investment companies recorded portfolio losses, while Investco experienced unprecedented growth, expanding its client roster, maintaining and improving historical returns, and substantially increasing the number of its personnel during this period.

Although Investco retained a competitive advantage, the company was growing organically faster than internal processes could adapt to scale and new demands. This growth challenge was exacerbated by the current procurement practices which varied by business unit with limited enterprise-wide standards or policy. Lengthy cycle times and redundant activities were common across the procurement to pay cycle as a result of this rapid growth and nonstandardized approach. Adding to the challenge, the existing procurement tool, a custom-developed solution, was inflexible and inefficient. While the tool was fixed and rigid, individual business unit processes and approaches were not. Some business units used purchase orders, where others did not. Each business unit had a variety of process and review steps for purchasing goods and services. The legal review process for contracts was not differentiated or scalable based on type of purchase, and the review steps were not consistently applied. Spend authorization thresholds were low relative to the large number of purchases at a smaller dollar value and had not been adjusted to reflect growth. For example, a $50 software license renewal went through the same review stages (technology, legal, and sourcing) as a one-off $100,000 specific piece of IT equipment. Investco’s existing tool did not have workflow capabilities that would meet the new needs of the business, and concerns existed regarding scalability. The inflexible workflow issues combined with poorly designed process also led to late engagement of the required reviewers. For example, a purchase would frequently go through sourcing or contract review before technology review.

The impact of these inefficient processes was being felt as a constraint to leveraging third party goods and services to support firm growth. When the firm identified a need for a new procurement software tool to address these constraints, KPMG was chosen to assist Investco with the selection of the tool and the initial design of the new procurement solution.

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6 essential steps in the procurement process flow

Reading time: about 6 min

For those of us who love shopping, the procurement process at first glance seems like a dream: It looks like it’s just shopping with someone else’s money. While that’s essentially true, procurement is much more complex than that. So complex, in fact, that procurement must be streamlined with a process called the procurement process flow.

Visualizing your procurement process helps all stakeholders be aware of the many moving parts involved in making purchases and helps identify potential issues.

The entire procurement management system can be tricky, but we’re here to help. We’ll define what the procurement process is and help you develop your own procurement process flow so that it is transparent for everybody. With the help of visualization, a typically complicated system can become efficient and painless.

What is the procurement process?

Proper procurement procedure consists of six main procurement process steps.

1. Need identification

This process starts when someone submits a request to the purchasing department. The request can be relatively simple (like a new software license for the marketing department) or complex (like a new office in Guatemala). Whatever it is, the request needs to be submitted in writing and sufficiently detailed.

2. Vendor selection

Next, the procurement department needs to investigate vendors, request quotes for the item needed, and select a vendor. This is an important part of the process because reputation, cost, speed of service, and dependability all need to be investigated before making a final decision. The rule of thumb is to get at least three quotes, but that’s a best practice that your organization will need to determine.

3. Submit purchase requisition

Now it’s time to get approval for the purchase. After you’ve identified the vendor and agreed on the details, you’ll need written approval from the department responsible for approving purchases. You should provide purchasing with the following details:

• Party requesting item or service
• Quantity and description of item or service required
• Vendor’s information

4. Generate purchase order

After the purchase request has been approved, the finance department will issue a purchase order to the vendor. That purchase order signals to the vendor that the purchase request has been approved and that they can proceed with the request.

If your company intends on ordering from this vendor long-term (or if your company relies on a lot of third-party suppliers in general), you may want to develop a supplier onboarding process  to ensure both parties understand what's expected.

5. Invoice and order

The vendor will then submit an invoice to the purchaser. The invoice is a request for payment and gives a detailed breakdown of the cost. The invoice will also give a deadline for payment, and you’ll need to submit payment before the deadline or else there may be a penalty (which is usually detailed in the invoice, as well).

The vendor will also send over an order, which is another detailed description of the goods or services requested. This is the last chance your organization has to change the request, so double-check both the invoice and the order for the correct items or services at the correct price.

After you've received the goods or services, it’s time to pay your vendor. Finance sends the payment over to the vendor in the preferred method of payment.

Keep for your records

All steps above need to be documented for internal and external audits, so you’ll need a central location to store invoices, orders, and other accompanying documentation. Make sure you’ve built in redundancy here; you’ll likely be using a digital purchasing method, so it may benefit you to print out paper versions of documentation and store them in a secure place in case of a total electronic apocalypse.

Your procurement process involves three main components.

This may seem obvious, but as you create your procurement process, remember to account for the busy schedules and complexities of the people involved. For instance, if one of the key decision makers is your CFO, and he’ll be in Hawaii for the next two weeks, you’ll need to consider that anomaly into your procurement cycle.

You should also remember that the cost and risk of the purchase will determine how many people are likely to be involved. If you’re purchasing a $750,000 hand-blown glass chandelier, you’ll need more approval than you would for the purchase of seven new Photoshop licenses. Decision makers may include:

• Manager of requesting department
• Legal department

Your organization’s process must be followed to complete the procurement. If it’s not, vendors may not get paid on time, purchases may be delayed, and your company's bottom line could be at stake. Following the process properly is vital to the health of procurement.

3. Paperwork

The third P is a bit of a misnomer because there’s often very little actual paper used these days. What we’re referring to here is the documentation used in the procurement process. Keep track of everything.  

Procurement vs. purchase

The seven steps above are much more complicated than hopping online and sending over your credit card for a new pair of leggings. Purchasing is a part of procurement, but it’s just one step in seven. When you think of the purchase, think of it in the context of your organization and in the procurement process. Consider everything from vendors to stakeholders to cost. Procurement is more complicated than just swiping a credit card.

Visualizing the procurement process

If the steps above are giving you some anxiety, don’t worry—we have a solution. Procurement cycles are more easily understood through visuals. With Lucidchart, you can create your own customized procurement process flowchart with one of our templates.

In our visual workspace, you can tweak the process in real time for greater efficiency. But it goes far beyond just tweaking the process. You can also:

• Link to approved vendors: If you have an established relationship with a vendor, keep that information on hand for the future right within the flowchart.
• Link to internal forms: Purchase orders, quote requests, and purchase requisition forms are all vital to procurement. Keep the most up-to-date versions of the forms right within your flowchart for easy access.
• List of stakeholders: It’s great to keep the email addresses of stakeholders right in their appropriate steps. For instance, if Janet in finance needs to review a purchase request before a purchase order can be created, put her contact info right in the “Reviewed by procurement/finance team” step.

If your organization still relies on paper and spreadsheets, it’s time to make the switch to a digital solution. Procurement software will help automate the entire process, allowing your organization to quickly complete purchases and get access to discounts while ensuring that the purchase being made adheres to the purchase request. Software eliminates many of the human errors that are often responsible for bungling the procurement process. And, with software, it’s easy to pinpoint what went wrong to avoid making the same mistake in the future.

Done incorrectly, the procurement process can be a nightmare of bloated costs and staggering inefficiency. But with a visualization of the process, you’ll have a recipe for a streamlined process that results in lower costs, better relationships with vendors, and happier internal stakeholders.

Start improving your processes today, try Lucidchart.

About Lucidchart

Lucidchart, a cloud-based intelligent diagramming application, is a core component of Lucid Software's Visual Collaboration Suite. This intuitive, cloud-based solution empowers teams to collaborate in real-time to build flowcharts, mockups, UML diagrams, customer journey maps, and more. Lucidchart propels teams forward to build the future faster. Lucid is proud to serve top businesses around the world, including customers such as Google, GE, and NBC Universal, and 99% of the Fortune 500. Lucid partners with industry leaders, including Google, Atlassian, and Microsoft. Since its founding, Lucid has received numerous awards for its products, business, and workplace culture. For more information, visit lucidchart.com.

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The Procurement Process – Creating a Sourcing Plan: Procurement : A Tutorial

The procurement process – creating a sourcing plan.

Introduction Identify Opportunities Analyze the Situation Undertake Strategic Analysis Case Study Create a Strategic Sourcing Plan

Introduction

The procurement process.

Business requirement for product or service

User need for product or service

Identify Opportunities

Opportunities are usually triggered by a business requirement for a product or service.

Material requirements might include:

• Raw materials
• Completely finished products

Service requirements might include:

• Computer programmers
• Hazardous waste handlers
• Transportation carriers
• Maintenance service providers

Users (also called internal customers ) identify a need for material or service requirements, and communicate this need to purchasing.

Analyze the Situation

Situation analysis can include “Purchase Requisitions” or “Statements of Work.”

Purchase Requisitions should contain:

• Description of required material or service
• Quantity and date required
• Estimated unit cost
• Operating account to be charged
• Date of requisition (this starts the tracking cycle)
• Date required
• Authorized signature

Statements of Work (SOW) for services specify the work that is to be completed, when it is needed, and what type of service provider is required.

• Marketing may want to purchase an advertising campaign.
• R&D may need a clinical trial.
• Human resources may need to print a brochure.

Undertake Strategic Analysis

Procurement must work with the suppliers and its internal customers to analyze the process to understand where opportunities exist to eliminate waste and increase value delivery.

Supplier evaluation

In-depth evaluation is required for major purchases. It is used for non-routine supply items of higher value. It begins with a list of potential suppliers. Existing suppliers with good track records should not be ruled out.

Supplier assessment criteria

1. Equipment and facilities

• Up-to-date?
• Ability to expand in the future?

2. Processes

• Ramp-up capabilities?
• Process cycle times?
• Reliable quality control program?
• General housekeeping?
• Working conditions?
• Status of back orders?

3. Management Capabilities

• Project management skills?
• Stable, harmonious team?
• How do they view your company as a customer?
• Long-range strategic vision?
• Leadership?

4. Information Systems

• Up to date?
• Training requirements?

Supplier evaluation criteria

1. Planning and control systems

Planning and control systems include those systems that release, schedule, and control the flow of work in an organization. As we shall see in later courses, the sophistication of such systems can have a major impact on supply chain performance. Among the questions the buying firm should ask: Does the supplier have well-developed systems for planning material, personnel, and capacity needs? If not, why not? Does the supplier track key performance measures, such as throughput time, quality levels, and costs? Are these measures compared to performance objectives or standards? How easy is it for customers to interact with the supplier’s planning and control systems? This last point is particularly important to organizations interested in effective supply chain management. When interaction is high, information about the customer’s needs flow easily to the supplier, and the customer can, in turn, retrieve important information from the supplier. Consider the relationship between Wal-Mart and Proctor and Gamble (P&G). When a Wal-Mart store sells a particular P&G item, the information flows directly to P&G’s planning and control systems. P&G can then plan production and schedule shipments accordingly. Furthermore, Wal-Mart can easily find out when a P&G shipment will arrive at one of its distribution warehouses, thereby allowing Wal-Mart to consolidate this shipment with others on the way to individual stores.

2. Environmental regulation compliance

The 1990s brought about a renewed awareness of the impact that industry has on the environment. The Clean Air Act of 1990 imposes large fines on producers of ozone-depleting substances and foul-smelling gases, and governments have introduced laws regarding recycling content in industrial materials. As a result, a supplier’s ability to comply with environmental regulations is becoming an important criterion for supply chain alliances. This includes, but is not limited to, the proper disposal of hazardous waste.

3. Minimum typical evaluations to consider

Weighted Point Method Using a Weighted Point evaluation system, purchasing can rank suppliers according to some of these criteria.

In this example, Supplier A has a score of 3/5 on quality, 4/5 on delivery, 2/5 on price, and 7 / 10 on service, with a total score of 63. Supplier B scores better than A on quality, not as well on delivery, but better on price and service. Given the associated weights on quality, delivery, price, and service that are important to the purchaser, the weighted scoring system suggests that Supplier B is better suited for this purchase, and should be awarded the contract.

Using the information provided in Case Study 2 , as well as the Excel spreadsheet, evaluate the following:

• Respond to your manager’s request by discussing the critical factors that you should consider when deciding whether to single source or multiple source this critical item.
• Provide your recommendation for awarding this contract using a formal weighted point supplier evaluation tool that you have developed.
• What other factors might a buyer or buying team consider when evaluating the worthiness of potential suppliers?

Create a Strategic Sourcing Plan

A strategic sourcing plan requires procurement to assess and manage the change so that the benefits of the procurement strategy are realized.

The plan must be created in a way that ensures:

• The benefits identified in the strategy are delivered in full and on time.
• Change will take place successfully and in accordance with a realistic time plan.
• Risks have been considered and the appropriate contingencies are built in to the overall plan.

What makes a good plan?

• Implementation is time-intensive and often has a high failure rate.
• Successful implementations are properly planned and communicated during the creation of the strategy, and then are actively executed and continually managed to completion.
• As the strategy is being developed, the procurement team will identify which areas of the business will be impacted, directly and indirectly.
• During implementation, measurement and attainment of results and the identification of key milestones help to ensure success.
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How Unilever changed procurement managers’ playbook

by Ron D’Andrea

“If you know the enemy and know yourself, your victory will not stand in doubt.” ― Sun Tzu , The Art of War

There is a new platoon in the buying world. The procurement department. A many-headed monster finely tuned to know everything about the art of buying and about the industry in which it works.

In less than a decade, purchasing has gone from ‘part of the job’ to a high-flying fast-paced multi-faceted career. It used to be that a bachelor’s degree in business studies was the nearest you could get to training for the world of procurement, but now business purchasing, supply-chain management, contract management and procurement courses have high enrolments in universities, business colleges and graduate schools worldwide [1] .

Many corporations have moved away from just celebrating the top line in corporate success and are looking to the number-crunching, detail-orientated guys, who do battle daily to improve costs, reduce overheads, and get innovative with the supply chain. [2]

The days of department heads buying the materials and services they need to keep things running smoothly are very much gone.

Research says that now the average B2B sale involves 5.4 people — including end-users, technical, financial, and operations people as well as professional buyers – which means buying committees (not individuals) often make purchase decisions.

This was something Unilever realized back at the turn of the century when it initiated its ‘war room’ to drive down costs and push profits through the roof: the company cut $1.58 billion in procurement costs, increasing Unilever revenue growth to between 5 percent and 6 percent a year by 2004 [3] .

The Unilever way

For decades, each Unilever product group had purchased goods and materials separately, each maintaining its own procurement system and staff, which meant Unilever missed opportunities to seek better deals by consolidating purchases of common goods, such as box packaging and receiving higher volume discounts from suppliers.

In a concerted effort to stop haemorrhaging money on “costly supply redundancies and inefficiencies” [4] , Unilever set up a SWAT team of procurement managers to delve into every element of company expenditure, from paper clips to pressed olives for Benecol and free-range eggs for mayo, to cookie dough for Ben and Jerry’s legendary ice cream.

Using wall displays of maps, strategies, project lists, plan schedules in their command centre, they drilled down to the tiniest expenses to find ways to streamline and save, efficiently.

Seeing benefit in the ‘better together’ idea, Unilever rolled out a corporate-wide application for buying indirect items, like office supplies. It then led the way with a standardized application for conducting reverse online auctions that could be used throughout the enterprise. Unilever pushed forward with web-based tools for sourcing suppliers and managing requests for proposals and in the process cut printing and postage costs to a minimum.

A whole new procurement world

Unilever’s bold leap forward in redefining procurement was the beginning of an international trend of forming elite, cross-divisional procurement teams who created collaborative rather than combative relationships with suppliers.

Procurement officers moved away from just getting the right product or service at the right price to being experts in the industries in which they procure, gaining an in-depth knowledge of up-to-date business requirements in all areas of the industry as well as its cutting-edge R&D progress.

By developing this solid understanding of the industry, procurement departments forge successful working relationships with their supply chains, often sharing their new business ideas and innovative ways of approaching old problems with service and product-providers.

Multi-nationals provide tools for more-precise scheduling of shipments and improve utilization of manufacturing equipment [5] , and procurement departments are fast becoming the backbone of many manufacturing, retail, military and other industrial organizations. [6]

In thinking laterally as they manage the finances, procurement officers get close to each internal department to gain a thorough knowledge of the products and services their company needs to make the process easier. Because knowledge is power – something sales people should also value. [7]

What does procurement do?

So contrary to popular belief, procurement in the 21st century is not just about buying goods and services. It is a vital element in any forward-looking company and has many roles [8] . If you have never looked at a job description for a procurement officer or purchasing manager or even a purchasing clerk, now might be a good time, because it will give you the clearest idea of what the guys on the other side of the fence are expected to do. [9]

Because the more you know about the people you do business with, the more likely you’ll get the outcome you’re looking for.

Procurement departments are responsible for

• acquiring supplies, services, and constructioncapabilities
• issuing of invitations to bid, requests for proposasl, requests for quotes and the issuing of contracts
• issuing purchase orders, developing term contracts, and acquiring supplies and services
• disposing of all surplus property and equipment
• identifying opportunities both internally and throughout the supply chain
• being the primary contact with the supplier
• nurturing a productive, two-way relationship with all suppliers
• having a great relationship and understanding of the business of all departments within the business
• maintaining records
• managing logistics
• keeping inventory at a reasonable level
• controlling cost
• securing the best possible price to maximize profitability [10]
• complying with all company policies

Who has the power?

Whereas the sales team used to deal with the decision maker in the buying process, today, sales professionals need to understand there are levels of power in the procurement department, and know which level of procurement they are dealing with.

With so many people involved in the modern procurement process, Malaysia’s Wawasan Open University course explored a range of approaches for organising the procurement department. [1]

Depending on the role of the buyer and the approach the company wants to take, procurement officers could specialise in one specific area, such as raw materials, spare parts, capital or services, and then focus that expertise in all departments across the corporation.

Procurement organisation for specialist buyers

While specialist buyers may help with channelling deals for bulk buying, the procurement team has a less-developed sense of each product or project’s needs.

Procurement organisation for generalist buyers

A second option is for the buyer to become an expert on specific products or projects and work across the providers to arrange the best solution for his or her team. The concern in this approach, as Unilever and many other globals discovered, is that they could be missing out on opportunities to leverage buying in bulk.

Many companies now use a hybrid procurement organisation, where the two approaches are combined:

“a few specialist buyers are each made responsible for developing and implementing procurement strategies for a specific portfolio of important procurement items required across a number of product-lines or projects. These items may be important because they are either of high total procurement value or critical to the operations of the firm.”

These portfolio managers work on framework agreements but stay out of the operational procurement elements of the deal. A different set of buyers work with customer groups, product line or projects on operational procedures and everyday supply issues within the framework agreements developed by the portfolio managers.

They’re watching you!

And within the procurement office, there is often a team dedicated to analysing the procurement process with an eye toward what they can learn at each stage and how they can further streamline processes using data, research and forecasting.

What does all of this mean for the sales team? Sales professionals:

• have to work harder to differentiate themselves, their companies, and their products from the competition. Price is often the focus of the procurement dialogue, even when buyers say value is key.
• can no longer work around procurement or delay involving them until the final stage.
• have to have a strategy for understanding and controlling the buying process.
• need to drill down to the core issues, uncover business and personal needs, and focus on desired outcomes. .?
• must discover ‘why’ the buyer wants what they say they want so you can demonstrate value
• need to build trust.

When asked how sales teams can better engage procurement professionals in provocative discussions, Michael Friede of Bayer Material Science, Andres Jaffé of BASF and Marc-Oliver Fleischer of T-Systems recommended:

• enhancing business knowledge so sales people can share insights with their clients
• honing negotiation tactics and countermeasures
• knowing what you can offer and how to position it for maximum value
• being very clear and direct in what you can do and what you cannot do
• demonstrating confidence in every communication
• being patient during the process: instead of closing quickly because the procurement team will see it as a weakness “Give me that extra 5%, and we can close by end of the quarter!”

“Thus,” as we return to Sun Tzu’s Art of War wisdom, “the expert in battle moves the enemy, and is not moved by him.”

https://procurementmanagement.pressbooks.com/chapter/the-key-influencing-factors-on-the-organisation-of-procurement-department/

https://www.cips.org/en/qualifications/about-cips-qualifications/accredited-degrees/

http://knowledge.wharton.upenn.edu/article/procurement-challenges-facing-procurement-organizations/

http://www.eweek.com/c/a/Finance-IT/Inside-EProcurement

http://smallbusiness.chron.com/functions-purchasing-department-organization-158.html

http://www.insidecareers.co.uk/career-advice/different-roles-in-purchasing/

https://scm.ncsu.edu/scm-articles/article/role-of-procurement-within-an-organization-procurement-a-tutorial

http://www.purchasing-procurement-center.com/purchasing-job-description.html

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Adexa is Recipient of 2024 Top Supply Chain Projects Award

JUNE 17, 2024

About Supply & Demand Chain Executive Supply & Demand Chain Executive is the only supply chain publication covering the entire global supply chain, focusing on trucking, warehousing, packaging, procurement , risk management, professional development and more. Food Logistics also operates SCN Summit and Women in Supply Chain Forum.

When the Rubber Hits the Road

SEPTEMBER 28, 2022

As a result, companies are writing new case studies through their actions or inaction. In this volatile world, efficient procurement led by a CFO is not the answer. The supply chain team’s past thirty-two months of disruption were a long, winding road full of surprises. Business continuity is the overarching issue.

AI and All That – Ivalua Now Looks to the Future

APRIL 12, 2019

Anyway, there were also a couple of very good customer cases studies , but we’ll save those for a future discussion and focus on AI here. Procurement leaders are being given more and more priorities, he said, but there are obstacles in their way that stop them delivering strategic decision making and real value.

Adexa is Recipient of 2023 Top Supply Chain Projects Award

JUNE 21, 2023

About Supply & Demand Chain Executive Supply & Demand Chain Executive is the only supply chain publication covering the entire global supply chain, focusing on trucking, warehousing, packaging, procurement , risk management, professional development and more. Go to www.SDCExec.com to learn more.

Achieving the Value of Digital Twins

DELMIA Quintiq

JUNE 5, 2023

While the promise is clear, and we see a growing number of case studies proving the benefits of the approach, many companies struggle to create and maintain digital twins. Please take the time to watch the webinar replay to learn more from research, case studies , and a very valuable question-and-answer session.

Pandemic Lessons For Supply Chain Leaders

FEBRUARY 18, 2021

I am currently working on a couple of case studies for this blog on how business leaders used digital twin modeling during the pandemic. Initially, the output was published to procurement to design strategic buying strategies. Procurement became an island–isolated from the demand signal except for MRP.

Rockwell Automation: A Case Study in Supply Chain Excellence

DECEMBER 4, 2018

As a B2B company, procurement management is essential. The company is now focusing on cognitive sourcing, demand-driven procurement , and enhancing visibility. Rockwell Automation is a case study of a company working a long-term plan focused on improving flows for the customer.

Case Study – CodeFour

MARCH 5, 2020

Case Study - CodeFour Media Group. The post Case Study – CodeFour appeared first on Purchasing and Procurement Software Solutions. From time to time we like to showcase a few clients during the year. Code Four media group is a fairly unique business – its actually 4 business’s all under one roof.

Electronics Kitting and Assembly with 3PL Solutions

ModusLink Corporation

APRIL 22, 2024

End-to-end management of component procurement , inventory management, and JIT delivery. Cost Efficiency and Value Optimization: Economies of scale realized through global procurement and resource pooling. Seamless coordination across borders for streamlined supply chain operations.

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This is not me

Snack giant unlocks savings to fuel growth

• Call for Change
• When Tech Meets Human Ingenuity
• A Valuable Difference
• Related Capabilities

Call for change

Companies are redoubling their efforts to give customers what they want when they want it in this highly competitive industry.

A fast-growing multinational food and beverage company wanted to become the global leader in the snack food market, but its fragmented finance and procurement processes meant it couldn’t keep up with changing customer demands or the company’s rapid growth. Employees worked in silos and the company’s operating margins were lower than its peers. Procurement, which was spending more than US $18 billion with suppliers annually, didn’t have visibility into spending and payments were often delayed and duplicative, posing an unnecessary risk.

To grow and meet customer demand, the company leaders knew they had to transform the core order to cash (OTC) and source-to-pay (STP) processes. The business saw shared services as an integral way of attaining greater efficiency, market responsiveness, improve productivity, grow the bottom line and meet customer demands.

When tech meets human ingenuity

Using SynOps , Accenture’s platform that connects intelligent technologies, talent and data and analytics, to move their OTC and PTP operations to an intelligent operating model would help to drive efficiency, accelerate business growth and help the company safeguard its financial health.

Order to cash

$217 million in working capital freed up due to improvements in process efficiencies, up by 34%. Enhanced productivity, analytics and automation helped strengthen management of customer payments.

Source to pay

The procurement team has implemented new technologies, analytics and ways of working have generated $23 million in identified savings.

A valuable difference

Using SynOps to accelerate its move to intelligent operations, the company operates faster and more efficiently and generated more than US $550 million in savings. The company can invest these savings in new products and better customer and supplier experiences.

in working capital savings due to new sustainable OTC processes that have improved efficiencies.

addition in cash flow, due to improvements in days payable outstanding (DPO)

increase in correct customer invoices through touchless cash applications that automatically match payments.

Related capabilities

Procurement, finance bps.

Case Study: Reducing Purchase Order Cycle Time, Part 1

Published: March 18, 2019 by Andy Atkins

This is a Green Belt project the author led at a large financial data services company. The project was designed to reduce the overall cycle time for procurement to issue a fully approved requisition into a purchase order dispatched to the supplier. Following the Lean Six Sigma (LSS) methodology, part 1 of the case study includes the Define and Measure stages of DMAIC. Part 2 features the Analyze, Improve and Control stages.

In the 16 months prior to the start of this project, the Strategic Sourcing department generated approximately $10 million in savings, an amount verified by independent associates in the Finance department . While Strategic Sourcing associates at the company are responsible for the large impact to the company’s bottom line, they are also burdened with the tactical work associated with issuing a purchase order to the supplier. The time spent on this tactical work represents a loss in the department’s ability to affect the bottom line through negotiations and supplier relationship management.

Project Charter

Project name : Requisition to purchase order process

Problem statement : 85 percent of purchase orders (POs) require manual intervention by buyers, resulting in an efficacy ratio of 44 POs/month/buyer. Company does not have a consistent process for the creation of POs in the system once a requisition is approved.

Benchmark efficacy ratios:

• Median: 50 POs monthly per buyer*
• Laggard: 21 POs monthly per buyer*

* According to the American Productivity & Quality Center (APQC).

Business case : Global procurement has reported cost savings (SAR) in the amount of $9.6 million/quarter for the past 16 months. If the department can increase the productivity per buyer by 6 POs/month, this would result in 9,485 hours or 4.5 full-time employees’ (FTE) ability to instead focus on strategic value to the company. Global procurement could increase SAR by $2 million/year.

In scope : Requisitions that are manually sourced to a PO by a buyer. The process begins when a requisition is submitted in the system of record and ends when a PO is dispatched to a supplier.

Out of scope : Current catalog auto-sourced (purchase orders generated directly from an online catalog that do not require a sourcing intervention) and interface (orders that come directly into the system from a vendor site and do not require the involvement of a sourcing associate) POs. International POs or POs not sourced through procurement.

Goal statement : Within three months, create a consistent, documented repeatable process for creation of POs to boost the efficacy ratio of 44 POs/month/buyer to 50 POs/month/buyer.

The cycle time for the purchase orders to be issued delayed the business units’ ability to receive the product and/or service associated with such savings (Figure 1). Additionally, the cycle time was interfering with the Sourcing associates’ ability to contribute toward the savings – avoidance or recovery – objectives (SAR). In addition to the dollar impact to the tactical work, multiple FTEs were needed to issue POs, creating inconsistency in timing as well as resource issues. The savings  was estimated at approximately $2 million in addition to a reduction in the number of FTEs required to process the POs.

SIPOC Analysis

The SIPOC (suppliers, inputs, process, outputs, customers) analysis begins with an email that is distributed to all sourcing associates that details a list of the requisitions with approval that need to be sourced to a PO. Since the categories for each sourcing associate are blurred, it’s a challenge for each associate to know who to send them to – creating distribution issues and adding to the cycle time.

Voice of the Customer (VOC)

We issued a one-question survey to about 170 employees – those who issue the most requisitions throughout the company.

Based upon your experience, how long does it take procurement to process a fully approved requisition into a purchase order?

• 41% = less than a business week
• 31% = 2 weeks
• 24% = 1 month
• 4% = longer than a month

Voice of the Business (VOB)

A similar question was asked to assess the VOB .

What is your desired timeframe for how long it should take procurement to issue a fully approved requisition into a PO?

• 72% = less than a week/5 business days

Process Map

Looking at the as-is process map (Figure 3), there are a striking number of steps and failure points in the process. It’s amazing that purchase orders are dispatched with any frequency! There are more than 40 steps in the current process, which has a direct result on cycle time.

Communication Plan

The communication plan shown in the table below was developed and shared with the project’s stakeholders.

Updated Project Charter

Changes to the charter were made after discussions on the potential impact of the project. It was determined that the project should result in an increase in productivity per buyer by at least 6 POs per month. The process would likely require fewer procurement representatives to process all the POs and could result in an increase in auto-sourced POs – or even move these to the Procurement to Pay (P2P) team. This, in turn, would free up resources from procurement to focus on strategic activities. This increase in productivity by the same 13.6 percent (the increase from 44 POs/buyer/month to 50 POs/buyer/month) should increase the SAR by an additional $5.5 million.

Updated business case : Global Procurement reported SAR in the amount of $9.6 million/quarter for the past 16 months. If the team can increase the productivity per buyer by 6 POs, this would result in a 13.6 percent increase in POs/buyer and allow the P2P team to source all POs under $50,000. This in turn would allow Sourcing to focus on strategic activities, which should increase productivity by the same 13.6 percent, resulting in an additional cost savings of $5.5 million.

In scope : PeopleSoft (supply chain management software) requisitions that are manually sourced to a PO by a buyer. The process begins when a requisition is submitted in PeopleSoft and ends when a PO is dispatched to a supplier.

Out of scope : Current catalog auto-sourced and interface POs.

Qualitative Analysis

In order to make the process efficient enough to either auto-source POs or transfer responsibility to the P2P team, it was necessary to review the as-is process map and determine which steps were non-value added. These steps couldn’t necessarily be immediately eliminated – it’s likely that a complete reconfiguration of the process would be needed. However, identifying the non-value added steps showed the team the complicated workflows that have high numbers of potential failure points and add additional stress to the outcome of the process. (See Figure 4.) The red process steps represented non-value added steps that do not contribute toward the completion of the activities. The yellow process steps represented value-enabled steps (steps that were added to satisfy stakeholder requirements). The green steps represented value-added steps (steps that contributed to the completion of the process).

The review revealed two key findings:

• 23 of the 43 steps were determined as non-value added steps.
• Fully one-half of the steps determined how to distribute requisitions to the correct buyer.

Measurement Plan

This measurement plan was originally sent out to determine the length of time taken for each PO. As the project proceeded in the Measure phase, the focus shifted from the time to complete the PO to the number of days it took before the PO was dispatched to the supplier.

The measurement plan included the total number of minutes spent processing purchase orders.

After the VOC survey it became clear that our internal clients were concerned with the length of time expressed as number of days as opposed to the number of minutes it took for an associate to produce a purchase order. It was also better data because we could precisely calculate the time the requisition was approved from the time the PO was dispatched thanks to the system’s time stamps.

In addition, when looking at the problems in the Define and Measure phases, it became clear that the actual time spent producing the PO was irrelevant because even if we were able to speed that up, it would still bottleneck at the distribution phase (from how the requisitions were assigned to each associate for processing into a PO). We couldn’t meet our clients’ requirements until the distribution was fixed.

Once the baseline data was collected, it became apparent the 40-step process was breaking down in the distribution of the requisitions to the buyers. While the mean number of days for 2015 and 2016 was relatively low (3 and 2, respectively), the standard deviation was another story. The standard deviation for 2015 was at 12 and 4.5 for the first part of 2016. This meant that the USL – upper specification limit, which was defined in this project as the number of days acceptable to issue a PO by our internal customers – was exceeded a whopping 47 percent (2015) and 33 percent (2016). Said another way, almost half of the POs that were being issued went beyond the five-day acceptable service level set by the internal customers (Figure 5).

Once the numbers provided insight to the significance of the problem, a fishbone diagram was created (Figure6) after a brainstorming session to highlight potential areas to test. The circled items represent areas the team wanted to test to determine how likely each issue was to affect the overall cycle time of the PO process.

Click here to read Part 2 .

About the Author

Andy Atkins

Vehicle Operator Recruitment, Retention, and Performance in ADA Complementary Paratransit Operations (2010)

Chapter: chapter 10 - case studies of procurement and contracting best practices.

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

108 It has been estimated that between 70% and 90% of ADA paratransit programs use one or more contracted operators. Some systems also use contractors to perform reservations and scheduling and sometimes the dispatch function as well; depending on the contractual arrangements and relation- ships, these can be part of a turn-key operation contract or could be a contract for call center management or brokerage management services, with separate contracts for operations. Because the use of contractors for ADA paratransit is so pre- dominant, the ways in which contractors are procured bears examination relative to their impact on the recruitment and retention of operators. Some transit agencies include in their procurement docu- ments (RFP, sample contract) terms and/or requirements that result in effective operator recruitment and a low turnover rate. For example, some transit agencies have developed procure- ment documents that specify a minimum vehicle operator wage rate or “livable wage rate” or even a “competitive wage rate.” Moreover, some transit agencies have asked in their RFP for proposers to provide detailed information about wage rates and the fringe benefits that are available to operators. These agencies have discovered that it is not sufficient to question whether or not a proposer offers health care coverage to its employees, which only tells half the story; a follow-up and more illuminating question asks for the percentage of health care premiums that the employee must contribute. For exam- ple, if the percentage contribution is unrealistically high for an employee, health insurance effectively becomes unattainable. Other transit agencies in their procurement documents have emphasized the importance of operator recruitment and the retention of a stable work force in a more circuitous manner by (1) including evaluation criteria and/or bonuses paid to the contractor for achieving a certain level of operator retention and/or (2) requiring or providing bonuses for 100% pull-out coverage. By including such terms, these transit agencies are working to discourage the submission of proposals that include low operator wages, which are too often a casualty of the compet- itive bidding process. The goal is to generate competitive cost proposals that also accurately reflect competitive vehicle oper- ator wage rates and fringe benefits and result in a more stable vehicle operator workforce. The objective of this portion of the research was to collect best practice examples of procurement documents that directly or indirectly resulted in a fair vehicle operator compensation pack- age and to determine how positively those strategies effected operator recruitment and retention. Approach and Methodology The first step in the research was to identify transit systems who indicated in the national survey that they crafted their pro- curement documents to contain one or more of the following provisions: • Statements that a stable, experienced operator workforce was expected, along with evaluation criteria that put more weight on proposals that include effective vehicle operator recruitment and retention efforts or which otherwise evi- dence how this is to be achieved. • Requirements to provide detailed information about spe- cific operator recruitment and retention activities and the associated level of effort and cost specific to each effort. • Requirements for a minimum operator wage rate or “living wage” or favorable or competitive operator wages rates, along with additional requirements to provide details of the operator wage rates, including training wage rates, starting wage rates, and maximum wage rates per vehicle type if appropriate for each year of the contract. • Requirements to provide detailed cost information or assumptions about the levels of fringe benefits provided and the required employee percentage of contributions for health care insurance for each category of employee (single, married, family, etc.). C H A P T E R 1 0 Case Studies of Procurement and Contracting Best Practices

• Requirements to provide total and average operator wages and fringe, and the assumptions upon which that total cost is based, e.g., number of full-time and part-time operators, average shift lengths, total service hours by operator type and how that was calculated, and total operator pay hours by operator type and how that was calculated. • Requirements to achieve certain standards for operator retainage (or turnover) and/or to maintain a sufficient oper- ator work force or surrogate measure, such as achieving a certain standard for pull-out coverage; as part of this requirement, the specification of bonus payments for achiev- ing these standards or penalties for not achieving these standards. Among the respondents to the national survey, 26 public transit/paratransit agencies indicated that they included such language in their RFPs and contracts, and 14 of these 26 agen- cies indicated that they had had moderate or good success as a result. These 14 systems and the success indicated are shown in Table 10-1. The following summarizes those results: • Eleven agencies reported moderate or good success with conveying that a stable and experienced work force was expected. Of these, ten stated that this was mentioned in the RFP, and seven stated that they included this as an eval- uation criterion in rating the proposals. • Seven agencies indicated moderate or good success with the inclusion of a living or minimum wage standard. • Nine agencies indicated moderate or good success with incentives and penalties related to maintaining an adequate workforce and/or covering runs. Follow-up contact was made with these 14 agencies to obtain more detailed information. Follow-up contact focused on the following: • Determining whether any measurable improvements to service could be traced to the procurement/contractual provisions; • Obtaining procurement/contract documents to get the exact language used (or point systems used in the case of evaluation criteria); and • Discussing their perspectives and experiences with these strategies. An attempt was made to also interview one contractor from each system to get a contractor perspective on the pro- curement process or contract provisions. Thirteen of the 14 agencies responded, and detailed infor- mation was gathered from 12 of these systems. The research team was able to obtain a contractor perspective for 11 of the 12 systems contacted. Information from 11 of the systems contacted is included in the mini case studies below. Lessons Learned The data obtained in this study provided a strong and com- pelling case for the positive effect that certain ADA paratransit contractor procurement and contract provisions have on oper- ator recruitment and retention of the paratransit contractors. The following are lessons learned: • Transit agencies that included clear expectations of a stable, experienced operator workforce in their RFPs often did report lower rates of operator turnover. The language in the RFPs did appear to encourage potential bidders to improve compensation and focus more on efforts to maintain a sta- ble operator workforce. In most cases, performance penal- ties did not have to be imposed because compliance with goals and contract provisions was achieved. • Operator compensation stands out as the key determining factor of operator recruitment and retention. Even in areas without a municipal living wage ordinance, it was found that contractors who paid more per hour than lower-paying companies tended to see a reduction in turnover. Other efforts, implemented along with wage increases were also reported to achieve lower turnover. • Contractors who were able to evidence in their proposals a successful track record of operator retention in their pro- posals claim to encounter minimal challenges in securing contracts and in implementing new contracts. At the same time, those agencies that did not include such expectation or requirement in their RFPs claim to value this experience when selecting a bidder. • The comparative importance of cost versus service quality varied somewhat amongst transit agencies as an evaluation criterion, though it is important to note that the agencies valuing service quality over cost consistently reported high satisfaction with their operating contractor(s). For many procurements, the evaluation process is conducted in two independent phases: first a technical evaluation and then a price evaluation; and in at least one case, the two phases were undertaken by two different evaluation committees. • Decreases in operator turnover rates and increases in ser- vice productivity were reported by agencies that selected contractors which evidenced competitive compensation packages and a commitment to maintaining a well-trained, experienced operator workforce. One agency was able to more than double its number of service hours provided as a result of the contractors’ ability to maintain operators who were capable of meeting an increased level of service demand. Whether expressed in evaluation criteria or contractual requirements, it is evident from the research that transit agen- cies that recognize the benefits of using contractors that can 109

City Transit Agency Living or Minimum Wage Standard in RFP Incentives and/or Penalties for Maintaining Adequate Workforce or Covering Runs Mentioned in RFP Evaluation Criteria Columbus, OH COTA Moderate Moderate Moderate Good Dallas, TX DART Moderate Moderate Good Denver, CO RTD access-a-Ride Good Good Good Good Everett, WA Community Transit Kalamazoo, MI Kalamazoo Metro Transit Good Good Los Angeles, CA Access Services Madison, WI Madison Metro Transit Moderate Good Good Nashville, TN Nashville MTA Moderate Moderate Moderate Orange County, CA OCTA Good Good Good Lake Worth, FL Palm Tran Good Moderate Phoenix, AZ Phoenix Public Transit Moderate Moderate Moderate Moderate Moderate Moderate San Diego, CA San Diego MTS Moderate Moderate San Mateo County, CA Redi-Wheels Good Seattle/King County, WA Access Transportation "Stable, Experienced Workforce" Table 10-1. TCRP project F-13 survey respondents indicating moderate or good success with operator recruitment/retainage as a result of procurement/contractual provisions.

attract and maintain a stable, experienced operator workforce attract contractors who either share this recognition or who modify their practices to achieve this goal. The following case studies summarize the approaches taken by 11 selected systems that were studied. Outcomes and expe- riences, as well as a contractor perspective on the changes, are provided. Case Studies Dallas Area Rapid Transit (DART), Dallas, TX DART is the regional transit authority serving the Dallas metropolitan area, including the city of Dallas and 12 sur- rounding cities. DART has approximately 130 bus routes, 45 miles of light rail transit (DART Rail), 75 freeway miles of high occupancy vehicle (HOV) lanes, and an ADA paratran- sit service. DART and the Fort Worth Transportation Author- ity (the T) jointly operate 35 miles of commuter rail transit (the Trinity Railway Express or TRE), linking downtown Dallas and Fort Worth with stops in the mid-cities and DFW Inter- national Airport. Use of Contractors for ADA Paratransit DART’s ADA paratransit service, called Paratransit, is organized as follows: DART staffs a call center that includes the reservations, scheduling and dispatch function for the entire system. DART also provides staff for contract admin- istration, eligibility certification, and customer service func- tions. Veolia Transportation, under contract to DART, oper- ates the service with a fleet of 186 vehicles supplied by DART. The contract payment structure includes a monthly fixed amount to cover fixed costs, a variable hourly rate for opera- tions, plus reimbursement for tolls. Procurement/Contractual Provisions In the survey, DART reported that it had moderate success with specifying a minimum wage rate in its procurement and contract documents and significant success with liquidated damages for uncovered runs. With respect to the minimum wage requirement, DART staff stated the following: We make it clear that we expect experienced, trained opera- tors; by setting the bar high, we have a better chance securing such a workforce through the contract. As a rule, happy people make contented workers. A contented workforce makes good decisions and they are reliable. Requiring the contractor to pro- vide a minimum or living wage helps to ensure a more contented workforce. Left to themselves, contractors will try to keep wages as low as possible. This low rate will eventually cause personnel to leave. The turnover rate increases and valuable experience and skills are diluted or lost. In DART’s solicitation, the two provisions related to the workforce were the following: Operators Minimum Wage Rates and Incentive Programs All persons employed as operators for performance of this con- tract or any subcontract hereunder shall be paid not less than $10.00 per hour while in training. The minimum wage standard imposed is a minimum and the Contractor is required to employ a systematic evaluation program and benefit package designed to encourage retention of well qualified and good performing oper- ators for the duration of the contract. Toward this end, the Con- tractor shall establish progressive wage increases beyond the train- ing level and offer such increases to employees who successfully graduate from the training program. Operators and mechanics shall also be provided a minimum of three (3) sick days as part of the benefit program. Failure to comply with this provision shall constitute noncompliance with the terms of this contract. Schedule of Liquidated Damages for Uncovered Runs Liquidated damages in the amount of $350 per occurrence shall be assessed for unavailability of operators or vehicles at Contractor scheduled operator report/clock-in time. The Contractor Perspective The Regional Manager for Veolia Transportation and for- mer General Manager for this contract felt that the minimum wage rate/sick day provision has contributed more signifi- cantly to operator retainage than the uncovered run provision. He reported that competitive wage rates and benefits attract a “higher-quality” job applicant which results in less voluntary attrition, whereas the liquidated damages for uncovered runs are more to ensure that operators depart on time. Reported Results The Regional manager reported that voluntary operator attrition totals no more than five or less operators per year since the RFP/contractual provision for minimum wage and sick day benefits was instituted. Denver Regional Transportation District (RTD), Denver, CO The Regional Transportation District (RTD) is the regional transportation agency for the Denver metropolitan area. The RTD has 140 local, express, and regional bus routes and six light rail lines that provide 35 miles of light rail service. The RTD also has three demand-response services: (1) call-n- Ride, a general public dial-a-ride in several neighborhoods that cannot sustain fixed-route bus service; (2) access-a-Ride, its ADA paratransit services; and (3) access-a-Cab, a supple- mental (non-ADA) taxi subsidy program that is available to access-a-Ride customers. 111

Use of Contractors for ADA Paratransit RTD’s ADA paratransit service is organized as follows: RTD contracts with First Transit to operate its paratransit call center. As part of this contract, First Transit provides reser- vations, scheduling, and dispatching services for access-a- Ride, and reservations for access-a-Cab. RTD has separate contracts with four different carriers to operate access-a-Ride services in Denver: Global Transportation, MV Transporta- tion, Special Transit, and Coach USA. Special Transit is also contracted for service in Boulder, CO. The call center con- tractor develops the daily schedules and transmits daily run manifests to each of the contractors. Procurement/Contractual Provisions In the survey, RTD reported that it had had significant suc- cess with (1) specific evaluation criteria for a stable experi- enced workforce; (2) requiring proposers to provide wage scales, and (3) specifying liquidated damages for uncovered runs. With respect to these strategies, the RTD access-a-Ride service manager attached the following note: Points are assigned via the evaluation process for a range of issues such as understanding and approach to the RFP, firm and staff experience and costs. While we do not mandate specific wages, we do identify current wage scales. Liquidated damages and incentives are designed to motivate contractors to perform within acceptable service standards. The relevant provisions in RTD’s paratransit RFP are: • Proposal Evaluation Criteria for Wage Rates. Proposers who state that they will maintain (or increase) the current wage scales are given points accordingly. Proposers who state that their wage scales are below the current ones are marked down. The purpose of this is to maintain a consis- tency in the wage scale from one contract to the next. RTD views this evaluation criterion as a significant contributor to this goal, which in turn has contributed to low operator attrition rates. • Contract incentives and/or penalties related to maintain- ing an adequate vehicle operator workforce or covering all runs assigned. As a contract provision, RTD assesses a $500 fine for each uncovered run, whether it is a result of not enough operators and/or not enough vehicles. On days when there are an unexpected and large number of operator call-outs, a carrier may not be able to cover all of the runs. In this circumstance, RTD allows a carrier to re-distribute trips from light runs to other runs where these trips might fit. However, in some cases, this may not be possible, and the carrier has no other choice but to give back the run. In this case, a $500 fine is assessed per “give-back.” This provision is thus an inducement for a carrier to size an extra board correctly and for the carrier to have a back-up plan for call- ing in operators willing to work overtime. The Contractor Perspective The Executive Director of Special Transit had a slightly dif- ferent take on the provisions in the RTD’s procurement/ contractual document, indicating that the provisions had per- haps less significant impact on vehicle operator recruitment in actual practice but also acknowledging that the liquidated damages for uncovered runs did provide an impetus for Spe- cial Transit’s maintaining a sufficient roster of operators. She stated that the challenge for Special Transit is to balance the potential for liquidated damages against the cost of having excess operators, since the Call Center contractor (First Tran- sit) can cut runs at any time. She added that RTD’s practice of providing transit passes to contractor operators (at no cost to the operators) had a positive impact on Special Transit’s ability to recruit and retain operators. Reported Results Special Transit reported an annualized operator turnover rate of about 35% for its access-a-Ride service in Denver. Interestingly, the Executive Director also reports a 0% turn- over rate for its access-a-Ride operators in Boulder. She attributed this dramatic difference to the fact that the Denver operators are unionized, and the Boulder operators are not (Special Transit inherited a union shop when it took over the entire regional service in 2000 on an emergency basis for RTD). She further explained that the seniority-based shift- bid process (which is required by the union agreement) results in the newer operators getting the worst shifts (nights, week- ends, etc.), and that the operator turnover in Denver is most acute among the newer operators. In contrast, Special Tran- sit has more flexibility in matching individual operators’ needs with shift requirements in the Boulder operation. Attrition Rate. RTD reported that its contractors have experienced operator attrition rates ranging from 20% to 35%. Run Coverage. RTD indicated that since the run coverage provision was instituted, the average number of “give-backs” have been reduced from 5 per week to perhaps 1 per month. Community Transit, Everett, WA Community Transit is a special-purpose municipal corpo- ration providing public transportation services in Snohomish County, WA. Community Transit’s services include fixed-route transit, vanpool, ride-matching, and paratransit (DART). In 2004, over 8 million passenger trips were made on the system, and Community Transit carried 57% of all Snohomish County- 112

Seattle commuters to work and back. The entire bus fleet is wheelchair accessible, either by low-floor ramped vehicles or buses equipped with wheelchair lifts. Dial-a-Ride Transportation (DART) is Community Transit’s ADA paratransit service. With an existing fleet of 53 vehicles, the service operates 7 days a week, covers 1,400 square miles, and provides an average of 800 one-way trips per weekday. Use of Contractors for ADA Paratransit DART service is operated by Senior Services of Snohomish County (SSSC), a private non-profit organization, through a contract with Community Transit since 1981. Although the contractor manages all day-to-day operations, the hardware and software, including an automated client file, reservation, mapping, scheduling, and dispatch system, is provided by Community Transit. Vehicles are also provided by Commu- nity Transit, but maintenance is provided by the contractor. SSSC manages the day-to-day operations of the service. The organization’s responsibilities include customer eligibility screening, customer service, scheduling, reservations, routing, dispatching, supervision, fare collection, and operations. Procurement/Contractual Provisions Community Transit places a high value on service quality when selecting contractors, recognizing operator pay as an indicator of that quality. The agency’s Contracted Services Coordinator stated the following: We make it clear in our RFPs that we expect experienced, trained operators; by setting the bar high, we have a better chance of securing such a workforce through the contract. While the expectation of paying operators well and valuing employment longevity is not explicitly indicated in the RFPs, it acts as a strong determinant in selecting winning proposals. For example, Community Transit’s most recent contractor was chosen largely because its proposal touted high wages for operators and extremely low turnover. Community Transit’s RFPs also include a detailed set of serv- ice standards, incentives, and liquidated damages, although Community Transit reported that the incentives do not have a significant impact on service. One of the liquidated dam- ages provisions relates to run coverage. The following is an example: Contract incentives and/or penalties related to maintaining an adequate vehicle operator workforce or covering all runs assigned The Contractor shall provide adequate staffing to ensure that staff or manpower shortages are compensated for with qualified personnel in a manner which does not detract from staffing lev- els in other areas of this project. The RFP includes the following language regarding penal- ties for poor performance by the Contractor: One hundred dollars ($100.00) for each occasion that the Contractor does not have the number of vehicles available for revenue service as specified by Community Transit in operating service. The Contractor Perspective The General Manager of Senior Services of Snohomish County stated that the high expectations for experienced operators and high wages are “definitely a draw” when recruit- ing operators. He explained that before hiring operators, they go through intensive training, and 60% “make it out.” The agency looks for vehicle operators that have the following: “good driving records, good people skills, and want to assist people. Those are the ones that stick around a long time.” The agency reported the turnover rate for operators is about 20–30%, depending on the month. The General Manager reported that Senior Services meets the goals set forth by Community Transit. The 91% on-time performance standards are always met, and the general man- ager stated that they “never miss a trip.” He explained: “We meet all goals. We don’t turn anybody down. We really don’t have financial disincentives happen.” Although he is aware that the financial disincentives exist in the contract, the main motivation for Senior Services is to be a good service provider. Reported Results Turnover has not been a problem for Community Transit since they began contracting with Senior Services of Sno- homish County, the contractor who proposed to provide high operator wage rates and to maximize operator retention to the extent possible. It was noted that Senior Services only loses one or two operators a month out of about 70 operators. Community Transit believes that the combination of RFP language requiring a stable, experienced operator workforce and the contractor’s natural desire to treat operators well and provide them with sufficient training has contributed to a paratransit system that provides high quality, on-time ser- vice, and satisfied and experienced operators. Access Services, Inc. (ASI), Los Angeles, CA Access Services (ASI) is a local public agency organized as a public benefit corporation that operates ADA complemen- tary paratransit service. ADA paratransit service is provided for the Los Angeles County Metropolitan Transit Authority (LACMTA) and 40 other fixed-route transit operators in Los Angeles County pursuant to the Los Angeles County Coordi- nated Paratransit Plan. In addition to operating the ADA 113

complementary paratransit service, known as Access Para- transit, ASI acts as the Los Angeles County Consolidated Transportation Service Agency (CTSA). It is governed by a nine-member board appointed by the Los Angeles County municipal fixed-route operators, the Los Angeles County local fixed-route operators, the City of Los Angeles, the County of Los Angeles, the Transportation Corridor Representatives of the Los Angeles branch of the League of Cities, the Los Angeles County Commission on Disabilities, and the Coalition of Independent Living Centers. Use of Contractors for ADA Paratransit Service is provided by six principal contractors in six regions as shown in Table 10-2. Requests for service are auto- matically routed to the appropriate carrier based on the cus- tomer’s telephone number. Each of the contractors provides turn-key services in their region. Each provider except for MVT in the Southern region is responsible for taking reservations, verifying customer eli- gibility, scheduling rides onto vehicles, and providing service using ASI-certified vehicles and operators. GPI accepts all reservations for the West/Central and Southern regions and passes on a portion of the reservations for the Southern region to MVT. Each provider is responsible for all trips originating in its region regardless of whether the destination is in the region or another one within the Los Angeles Basin. Trips between the Basin, Santa Clarita, and the Antelope Valley require a transfer. Service is provided using a mix of ASI-owned vehicles, provider-owned vehicles dedicated to Access service, and taxi- cabs certified for Access Paratransit service. ASI manages the system, providing contractor oversight and monitoring, and also directly provides customer service functions, fleet management functions (for its own vehicles), community outreach functions, and all administrative and planning functions. Procurement/Contractual Provisions Access Services reported in the survey that it had moderate success with the inclusion of “living wage” and benefit infor- mation in the RFP. Evaluation criteria are used to evaluate proposals, and points are earned on a sliding scale. Criteria are based on the following: • Comparability of pay (to other carriers); • Quality of the heath care plan (e.g., the percentage split of premiums between the company and the operator); • Inclusion of medical, dental and vision benefits versus medical only • Family package; • Number of vacation, sick and PTO days; • Educational reimbursement; and • 401K/retirement plan. In its paratransit solicitations, Access Services supplies wage information by position for the current contractor; this includes the starting hourly rate, the top hourly rate, and any qualifying notes, such as whether there are annual or merit increases. The two most relevant provisions in the solicitations are as follows: Expectations for Operator Wages / Retention The selected Proposed shall establish and maintain an employee pay and benefit structure, which will serve to attract and retain high-quality employees for all positions required to successfully perform the work. Proposer must submit rates and graduated rate increases along with timelines for the increases. Proposal Evaluation Criteria Access Services will substantially downgrade proposals that do not incorporate appropriate wage and benefit packages that will facilitate successful recruitment and retention of qualified employees. Access Services will also downgrade proposals that do not provide for reasonable medical benefits for all full time employees. Proposer should carefully consider adequate and comparable rates of compensation, public sector and private sec- tor, which exist for similar positions within Los Angeles County. Proposals are evaluated with both qualitative and quanti- tative measures. The quantitative measures are as follows: Quality of Technical Approach 30% Paratransit Operating Experience 20% Cost/Price Proposal 20% Employee Pay and Benefits 15% Qualifications and Availability of Proposed Staff 15% 114 Region Contact Providers San Fernando Valley (Northern) MV Transportation (MVT) Eastern San Gabriel Transit (SGT) West/Central Global Paratransit Inc. (GPI) Southern Global Paratransit Inc., and MV Transportation Santa Clarita Santa Clarita Transit Authority Antelope Valley Antelope Valley Transit Authority (AVTA) Table 10-2. ASI service regions and contractors.

The Contractor Perspective MV Transportation’s General Manager reported that wage scales have had a positive impact on vehicle operator retention, but he said that because of the competitiveness of the procure- ment process, the company is unable to increase hourly wages. However, operator retention is encouraged through increasing wage scales at 6 month and yearly increments. In addition, the company offers incentive programs for retention, such as a financial retention bonus, paid at multiple stages up to an operator’s first 6 months of work. He also reported that the company’s employee referral program has been extremely successful. If an operator refers a new applicant, and if the new hire works for at least 90 days, both receive bonuses. The general manager said that this program also “encourages the experienced operators to be mentors for the new hire referrals.” Despite retention programs, there is about a 45% turnover rate. As far as the evaluation criteria, the general manager sug- gested that “it is a good concept, although the current con- tract was renegotiated due to the current budget crisis.” Reported Results ASI’s Executive Director noted that ASI purposely did not quote a minimum wage rate in their RFP because in Califor- nia, that would constitute ASI being an “implied” employer. However, in the past, ASI has encouraged contractors to set a vehicle operator wage above the minimum ($8.50), but in many cases, the wages came in at the figure. She said that ASI is exploring how to actually set the wage without becoming the implied employer of the operators. The Executive Director also was quick to point out though that operator wage rates alone do not tell the entire story, reporting that the contractor with highest operator wage rates in the system was one of the poorest performers, and the con- tractor with the lowest wage rates was one of their best per- formers. In the survey, ASI noted that many contractors are still focused on submitting the “lowest bid” since operator wages make up the majority of the overall cost. She also men- tioned that some of her contractors include a benefits pack- age that provides English-as-a-second-language benefits, an operator recognition program, and “stepping stone” career programs and internships that pave the way for operators to advance to senior/management positions. Madison Metro Transit, Madison, WI Madison Metro Transit is the municipal transit provider for the city of Madison, WI, covering an area of 60 square miles. With more than 450 full-time employees, Madison Metro Transit serves an average of over 54,000 daily passenger trips during the school year. The service has 56 fixed-routes and operates a fleet of 204 buses. Its ADA paratransit service, Metro Plus, provides nearly 300,000 annual trips to 1,774 clients. Metro also operates Group Access Service (GAS) for Madison, Middleton, and Monona adults who live in their own homes and apartments, are over 60 years old, and have a physical or sensory disability. GAS is a scheduled, routed, group service to meal sites, farmers’ markets, pharmacies, libraries, and grocery stores. Use of Contractors for ADA Paratransit Beginning in 2009, nearly a quarter of Metro Transit’s paratransit operations are in-house, with the remainder of the work contracted to Transit Solutions, Badger Cab Com- pany, and Badger Bus. All customers call Metro Transit, and transit agency staff either serves the customer themselves or delegates the work to one of the three contractors. Transit Solutions operates about 20% of the ADA service on week- days only, with no weekends or holidays; Badger Bus handles about 30% of the requests on weekdays, nights, and week- ends; and Badger Cab provides ambulatory services and takes over leftover ADA paratransit runs, about 23%. Procurement/Contractual Provisions There is a municipal and county-wide living wage ordi- nance that is articulated in Madison Metro’s RFPs. It states: LIVING WAGE (Applicable to contracts exceeding $5,000). CONTRACTOR agrees to pay all employees employed by CONTRACTOR in the performance of this contract, whether on a full-time or part-time basis, a base wage of not less than CITY minimum hourly wage as required by Section 4.20, Madison General Ordinances. One of the contractors, Transit Solutions, adds to this liv- able wage by providing benefits and an incentive plan that pays operators for safety and attendance. Madison Metro has also established standards in its con- tracts with penalties on a per-trip basis. Since 2006, this sys- tem of collecting performance data from contractors and then generating a percentage of compliance has been used to calculate this per-trip penalty fee: It is the responsibility of CONTRACTOR to make every effort to comply with all service standards established by CITY. CITY has established a service standard of passenger pick up no later than twenty (20) minutes after the scheduled time. For each instance in which a passenger is picked up outside of this service standard, the following reimbursement will be applied: On-Time Performance Reimbursement 94% On-Time 100% of the reimbursement rate 90–93% On-Time 98% of the reimbursement rate Less than 90% On-Time 90% the reimbursement rate 115

While the CITY pays the lesser of the cost of the ride or $3.00 for each “no show” a passenger has when service is provided by the CONTRACTOR on a per trip basis, this cost must be absorbed by the contractor if they are over twenty minutes late. The Contractor Perspective The owner of Transit Solutions commented that the “liv- ing wage” outlined in the contract is “great because it gives people a higher starting wage.” Transit Solutions also has benefits for employees like health insurance, retirement pack- ages, and paid holidays, which all help to maintain a steady workforce. In addition to the incentive plan in the contract, the owner noted that Transit Solutions has an incentive plan for vehicle operators that: “pays people for safety and atten- dance . . . all of those things play into recruitment and reten- tion.” The company uses the financial incentives in the con- tract with Metro Transit in a similar fashion with its other employees. The owner stated, “Overall, I think the system they [Metro Transit] have is reasonable and it works.” Reported Results Contractors are almost always within the 94% to 100% on- time rate. Madison Metro Transit’s Paratransit Program Man- ager reported that rarely, if ever, is the 10% reduction penalty enacted. Contractors work hard to meet the 94% compliance rate and have found that the only time they fall short is dur- ing bad weather (in which case the penalty is waived by the City). In March 2009, Transit Solutions achieved a 98% on- time performance rate. It was noted that paying a living wage has definitely helped to retain vehicle operators. The Paratransit Program Manager said she believes this higher pay has also contributed to higher quality driving and service. She stated, “Operators stay when there is better pay, and they drive better, too.” Vehicle operator turnover at Transit Solutions is extremely low. In 11 years of business, over half of Transit Solutions’ orig- inal operators remain. The owner attributes this to a combi- nation of good wages, benefits, and hands-on management; he and his partner are present and available each day, and they make an effort to treat people well and with respect. They even maintain a special account for employee pay advances which are paid back via paycheck deduction at no interest. The owner stated: “We do things to help our work- ers and make it easier and more enjoyable to work here. And it really works.” Orange County Transportation Authority (OCTA), Orange County, CA The Orange County Transportation Authority (OCTA) serves Orange County through bus, commuter rail, Express Lanes, and paratransit service. OCTA operates approximately 80 bus routes, covering every city in Orange County and sev- eral cities in Los Angeles County. OCTA also operates express service to Los Angeles and to San Bernardino and Riverside counties. OCTA’s ADA paratransit service is called ACCESS. Most recently, in 2007, OCTA initiated a Vanpool Program to provide assistance to commuters who work in Orange County and live in neighboring counties. Use of Contractors for ADA Paratransit Until July 2009, OCTA’s fixed-route, express bus, and ADA paratransit service were operated by Veolia Transporta- tion. After July 2009, Veolia Transportation began running only the ADA paratransit service, ACCESS, utilizing a fleet of 350 vehicles. Veolia provides a turn-key operation, providing all day-to-day operations and vehicle maintenance on OCTA provided vehicles. OCTA has a managerial role and has close oversight on all service provided by Veolia. Procurement/Contractual Provisions In the survey, OCTA reported that it had significant suc- cess with specifying a minimum or “living wage” rate in its procurement and contract documents, as well as including language regarding an experienced workforce and incentives or penalties in the contract related to maintaining an ade- quate vehicle operator workforce. OCTA also reported that they include strict and specific evaluation criteria in the RFP. OCTA includes the following language to indicate its expec- tations for vehicle operator wages/retention: AUTHORITY recognizes the expense and negative effect of employee turnover. Therefore, the CONTRACTOR must demon- strate they have an acceptable recruitment and hiring program that is intended to minimize employee turnover and retain a high quality work force. Several service performance standards, incentive payments, and penalties are also included, as shown in the Table 10-3. The Contractor Perspective The Project Director for Veolia reported a low turnover rate of 7%. He reported that there is a dedicated commitment to training which has paid off, as evidenced by the high retention rate. He said that with better training the company sees better results. He noted that another reason for the high retention is the benefits package provided to employees, including good health care, a living wage, and help with flexibility on travel to work, which is an issue in and around the Los Angeles area. The Project Director reported that the incentives outlined in the scope of work are hard to achieve. He said: “In 36 months, 116

we’ve received only one performance incentive. They are chal- lenging incentives to meet.” He explained that the complaint standard is the toughest and perhaps the strongest in the coun- try, so the company has never met it. Veolia is striving to meet it and is establishing a new program with increased training for better results. Reported Results OCTA’s Field Administrator commented that the contrac- tor performs well according to obligations outlined in the scope of work. He reports that good communication between the contractor and the agency is the best way to have a shared understanding of expectations, since language in a contract can be tricky and interpreted in more than one way. He said that since April 2007, Veolia has maintained an on-time per- formance level average of 93%. Palm Tran CONNECTION, Lake Worth, FL Palm Tran, Palm Beach County’s public transportation service, provides fixed-route public bus transportation and coordinated paratransit service. Fixed-route bus service is provided on over 30 routes, serving nearly all destinations in the county. Buses generally operate weekdays with 30-minute headways during peak rush hours and 60-minute headways during mid-day and on the weekends. Palm Tran CONNECTION is the county’s shared ride, door- to-door transportation specialized service. CONNECTION schedules all trips, prepares vehicle manifests, handles cus- tomer concerns, determines eligibility, and monitors the per- formance of transportation providers. Veolia runs a turn-key operation, performing all ADA paratransit functions. Use of Contractors for ADA Paratransit Palm Tran contracts with MV Transportation, Palm Beach Metro Transportation, and Two Wheels Transportation. The contractors operate 190 vans, providing door-to-door service for senior citizens, persons with disabilities, and persons with low-income. The service provides an average of 4,025 sched- uled passenger trips each weekday. Veolia runs a turn-key operation and performs all ADA paratransit functions. Procurement/Contractual Provisions Palm Tran includes language in RFPs indicating that a stable, experienced vehicle operator workforce is expected. Under- standing that a great deal of operator retention is determined by compensation, Palm Tran gives preference to respondents with the highest operator pay rates. Palm Tran also includes a specific liquidated damage fee in contracts to offset the cost of uncovered runs. While this fee has provided an effective incentive for contractors to cover runs, there have not been many problems, and the fee penalty has been scarcely implemented. The Contractor Perspective The General Manager of MV Transportation believes that factors such as benefits, work atmosphere, and communica- tion are key ingredients in maintaining a stable and experi- enced workforce. MV Transportation takes extra care in mak- ing the company an enjoyable place to work by providing full-benefits, substantial vacation time, and an open door pol- icy with all managers. The general manager reported that the company no longer has to spend significant time and money 117 Category Standard Incentive Penalty ACCESS On Time Performance 95% or above $5,000 for each percentage point above 96% on time $5,000 for each percentage point below 94% on time Service Delivery Failure All qualified requests must be served. None $1,000 per occurrence Call Center Hold Time Average of 90 seconds or less None $1,000 deduction if monthly average exceeds 90 seconds Call Center Valid Complaints No more than 1 valid complaint per 1,000 passengers each month None $100 for each valid complaint over 1 per 1,000 passengers Accident Report Report all within 24 hours, verbal and written. None $5,000 per accident not reported. Table 10-3. OCTA service standards, incentives and penalties.

recruiting employees because the pay is higher than other companies. MV Transportation increased hourly pay for the Palm Tran contract, and the general manager reported that this has helped to retain operators. The general manager also reported that she aims to main- tain a stable operator workforce and works towards adhering to contract requirements. She uses the liquidated damages clauses set forth in contracts as incentives to provide good service. Reported Results Palm Tran CONNECTION’s Fiscal Analyst reported that, generally, contractors perform well and meet their contractual requirements. There are rarely, if ever, any uncovered runs. Turnover has become less of a problem not only because of the RFP provisions, but as unemployment rates have increased, operators tend to hold onto to their jobs for longer periods of time. City of Phoenix Public Transit Department, Phoenix, AZ The City of Phoenix Public Transit Department is responsi- ble for the overall supervision of the City of Phoenix Transit System. The City manages local buses, Phoenix Dial-a-Ride paratransit, Reserve-a-Ride senior service, RAPID and Express commuter services, and several neighborhood circulators. The City’s paratransit service is called Dial-a-Ride. The service operates seven days a week in almost all areas within Phoenix city limits. Dial-A-Ride serves individuals who are ADA paratransit eligible as well as seniors. ADA paratransit customers are encouraged to call at least one day in advance for service; where possible, same day demand service is also available after reservation requests have been scheduled. The City also manages Reserve-a-Ride, a specialized, door- to-door transportation service for senior citizens over 60 years old and certified persons with disabilities. Reserve-a-Ride pro- vides transportation to senior centers, medical appointments, social service agencies, and shopping. The primary responsi- bility of the service is to provide transportation to and from senior centers, and other trip requests are accommodated wher- ever possible. These two services, Dial-a-Ride and Reserve-a- Ride, are operated by the same contractor with the same fleet of vehicles. Use of Contractors for ADA Paratransit MV Transportation has been the City’s paratransit contrac- tor since 2001. MV Transportation manages all day-to-day operations, including maintenance on over 100 vehicles and scheduling service for both advance and same-day service requests. Out of the 300 or so MV Transportation employees, about 215 of them are vehicle operators. Procurement/Contractual Provisions In the survey, Phoenix reported that it had moderate success when specifying that a stable, experienced vehicle operator workforce was expected, and also moderate success when including a “livable wage” requirement in its procurement and contract documents. While there is no living wage ordinance in Phoenix, the City understands that a livable wage scale is sig- nificant for job retention and stability. The City’s RFP requests a detailed plan with specific strate- gies for maintaining a stable workforce. The City encourages proposers to be creative in their approach to operator reten- tion, stating that preference will be given to proposers who can successfully demonstrate to City their ability to retain quality operators. In addition to requiring the proposer to outline hir- ing, training, and retraining programs for operators, Section VII of the RFP asks proposers to respond to the following: Discuss the PROPOSER’S philosophy on providing a “livable wage” given the current state of the economy and how the pro- posed employee wage and benefit package and other innovative programs ensure that they meet that standard. Describe in detail the methods to be taken in order to attract and retain the appropriate staffing levels. Include any incentive and/or merit programs to award outstanding employees. Describe in detail the type and level of employment benefits provided or available to employees addressing vacation, sick and other leaves, health and welfare benefits, wage and salary classi- fications and progressions, and employer contributions for all programs for all job categories. When evaluating RFP responses, a points system is utilized. The Director of Transportation Contract Services explained, “Our approach is that we want to make sure the company we hire is going to fulfill our needs as far as service—we take an approach of service over price.” The evaluation criteria out- lined in the RFP are the following: Qualifications 50 points Professional References 50 points Management 150 points Maintenance and Operations Experience 100 points Understanding of Scope 400 points Price 250 points The RFP also provides a system of incentives and sanctions to reward exemplary performance and ensure adherence to performance standards, but the survey indicated that these incentives and/or penalties did not have even a moderate impact on contractor performance. 118

The Contractor Perspective The General Manager for MV Transportation reported that the success it has had working with the City of Phoenix is due to a “successful, true partnership” between the two organiza- tions. He gave credit for the positive working relationship to the City’s understanding of the operation, saying: “[The Director of Transportation Contract Services] knows how our system works—he understands the nuts and the bolts.” The current average wage for an operator is $14.45, which is adequate according to the terms outlined in the RFP. In addition to a reasonable wage, though, the general manager said it is important to look for individuals who are customer- service oriented. He also indicated that a good work environ- ment and other non-monetary rewards have measurable pos- itive effects on turnover. He noted that these methods were helpful in MV Transportation’s response to the City’s RFP requirement of a description of “methods to be taken in order to attract and retain” employees. Annually, MV Transporta- tion in Phoenix sees about a 21% turnover rate. It was noted that 83 of MV’s 180–200 paratransit vehicle operators have over 8 years of experience. Both the City staff and MV General Manager reported that the financial incentives or penalties were not a motivator to provide good service. MV Transportation does adhere to goals outlined by the City, and they have “monitors all over the place,” indicating current levels of on-time performance, aver- age hold time for a customer on the phone, etc. This keeps all personnel informed of the current situation and helps to strive for the best customer service possible. Regardless of whether the motivation for good service is the contract with the city or just good business practice, MV Transportation receives more financial rewards than penalties. The MV General Manager also commented that RFPs and contracts should be specific: “The more specific the agency can be when putting the proposal together and creating the vision that they want, then the end result will be more successful.” Reported Results The contractor for paratransit service has a relatively low turnover rate for a private contracted operation (reported to be 21%). A third of operators have been employed with the contractor for over 8 years. City of Phoenix transportation staff also reported that “this has improved service and produc- tivity by volumes.” The Director of Transportation Contract Services commented, “It definitely improves productivity and service quality when you treat your employees well.” On the books, the City and contractor have yet to experience a day with high numbers of closed runs. Budgeted hours from the most recent contract indicate that the contractor is always able to meet allotted hours, whereas before contractors in pre- vious periods fell short of the requirements due to lack of oper- ators, which caused the City to over-budget. For the past five or so years, the City has been able to maintain its budget pre- cisely. Important to note, immediately prior to the most recent contract with MV Transportation, the City approved a sales tax measure that allocated more money to transit. In just a 2-year period, the City was able to double its number of service hours provided, and the contractor was able to provide an adequate workforce to meet this new induced demand. According to City staff, the greatest challenge when nego- tiating contracts is trying to convince bidders to change their mindset or approach when developing their proposals. He said that most bidders are accustomed to winning a contract based almost entirely on price rather than service. He noted that in the Phoenix process, when reviewing proposals, the price for each bidder was not revealed to the evaluation com- mittee. As a result, the committee was only able to evaluate based on the merits of the proposals. A City staffer expressed: “I feel that we had a successful procurement in that the suc- cessful proposer is still with us and doing a very good job, which was our objective to have them competing on the qual- ity of service, rather than the price. By the way, the successful proposer was not the lowest bidder.” San Diego Metropolitan Transit System, San Diego, CA San Diego Metropolitan Transit System (MTS) is the public transit agency that provides bus and rail services directly or by contract with public or private operators. MTS manages the scheduling, frequency of service, and hours of operation for its existing services covering approximately 570 miles in and around San Diego. Existing passenger services include 82 bus routes, three trolley lines, and ADA paratransit service that together serve over 3 million residents. ADA paratransit service is called MTS Access. Use of Contractors for ADA Paratransit First Transit is the contractor for MTS Access. The contrac- tor is 100% turn-key and handles all operations functions. Vehicles are owned by MTS. Procurement/Contractual Provisions In the survey, MTS reported that it had moderate success including (1) language that a stable, experienced operator workforce was expected; (2) requirements for proposers to provide wage scales, and (3) specific incentives and/or penal- ties for uncovered runs. RFPs include wage standards, which are set to increase or decrease according to the market, thus creating a level playing 119

field for new bidders which allows operators to keep up with the cost of living and retain employees. New contractors must maintain existing operators at current seniority levels. MTS mandates in its contracts that a certain percentage of each invoice is allocated to operators’ benefits. For example, for fiscal year 2011, the minimum wage is $10.14/hour for train- ing, $10.71/hour after training, and $11.27/hour base wage after a probationary period. The contractor is required to con- tribute 5%, or $2.10, from the base wage towards employee benefits. There is also a requirement that all operators who work more than 20 hours per week should have full medical coverage. MTS provides a 10% preference to contractors who are able to prove in proposals that they are able to retain their operator workforce and who agree to retain their current staff upon contract. The evaluation criteria are as follows: Corporate Capacity/Qualifications 10 points of the Firm Corporate Experience 30 points Key Personnel 50 points Facility Plan 20 points Safety and Training Plan 10 points Start-up Plan 20 points Customer Services 20 points Cost and Price 70 points 10% Bidding Preference 23 points MTS also sets performance standards, financial incentives, and liquid damages. These are shown in the Table 10-4. The Contractor Perspective The District Manager at First Transit reported that the livable wages clause included in the RFP helped to drive the company to meet the high standards for wages. The responsible wage requirement “helps maintain a level of wages that are competi- tive” and, in turn, helps to prevent a high turnover rate. The District Manager also commented on the incentives and disincentives included in the RFP. “We have met the highest level of incentive thresholds for productivity for the past four years,” he explains. He said that the incentives and disincen- tives were set “at a level where the dollar level wasn’t significant enough.” He noted that instead of financial motivation, cus- tomer service and good business practice are instead drivers for service. The District Manager noted that the responsible wage requirement only applies to vehicle operators that are not cov- ered by a collective bargaining agreement. First Transit oper- ates under labor contracts now and it is expected that when the company responds to the June 2009 RFP, the responsible wage requirement will not be applicable. Reported Results Despite the focus in the procurement on workforce stability, it was reported that turnover has continued to be a problem over the past few years running at “upwards of 100%” according to the First Transit District manager. With the economic down- turn, the turnover rate has decreased and has been running at about 40% for the past year. San Mateo County Transit District (SamTrans), San Mateo, CA The San Mateo County Transit District is the administrative body for the principal public transit and transportation pro- grams in San Mateo County: SamTrans bus service, Redi- Wheels paratransit service, Caltrain commuter rail, and the 120 Performance Measure Incentive LiquidatedDamages Contractor shall achieve a monthly no- show rate of under 5% $2,000 per each month no-show rate is below 5% Any month in which no-shows are greater than 7.5% may carry a damage of $1,000, and $2,000 in which no- shows are greater than 10% Contractor shall ensure that all trips arrive within the established MTS On-Time Performance Window $5,000 per month may be paid Contractor for each month that 90% or more of trips arrive in the MTS established On-Time Window none Contractor shall ensure that hold times don’t exceed an average of two (2) minutes None $5,000 for each month where average hold times exceed two minutes Table 10-4. MTS performance standards, incentives, and liquidated damages.

San Mateo County Transportation Authority. Caltrain and the Transportation Authority have contracted with the District to serve as their managing agency, under the direction of their appointed boards. The SamTrans fixed-route bus system con- sists of 54 routes (44 operated by the District and 10 contracted to MV Transportation), which carry nearly 50,000 passengers on an average weekday. The District’s paratransit service, Redi- Wheels, transports approximately 1,000 customers every day on 83 buses, vans, and sedans, with some additional taxi ser- vice. RediCoast operates nine vehicles on the coastside and provides about 100 rides each day. Use of Contractors for ADA Paratransit Redi-Wheels, RediCoast, and a portion of fixed-route service are contracted to MV Transportation. For Redi-Wheels service, SamTrans performs ADA eligibility and marketing and owns, maintains, and fuels 59 vehicles. MV Transportation manages the remaining day-to-day operations. MV Transportation provides 15 vehicles, all sedans. MV has about 110 vehicle operators. Procurement/Contractual Provisions In the survey, SamTrans reported that it had significant suc- cess with specifying a minimum wage rate and incentives and disincentives relating to an adequate workforce in its procure- ment and contracting documents. SamTrans emphasizes the importance of an experienced workforce in both the pre-bid meeting and in the RFP, stating specifically that operators must be fairly compensated with competitive wages and ben- efits. While SamTrans legally cannot require a specific pay scale, the transit district consistently places strong emphasis on a stable workforce, and staff monitors the contractor to ensure a competitive wage is provided. The most recent RFP contained a specific section on Para- transit Operator Longevity, which is closely monitored by SamTrans throughout the duration of the contract: It is of paramount importance to the District and in the best interest of its customers that Paratransit Operators are not only properly trained, but gain hands-on experience in their craft. It has been the District’s experience that a high turnover rate among Paratransit Operators reduces overall service quality through lack of efficiency and familiarity with the areas in which they operate. In order to indicate a high level of commitment, a Contractor must encourage and promote longevity of its Paratransit Opera- tors. Proposers are required to complete and submit Appendix D, “Staffing Plan Summary” and Appendix E, “Wage and Benefits Summary,” and disclose a plan to accomplish this end with its Proposal. Proposers should disclose information such as award programs and other incentives offered to their Paratransit. There is also a monetary penalty if the contractor is not able to meet the daily demand or maintain at least a 90% on- time performance level. If the contractor fails to provide an adequate number of vehicle operators to meet the required level of service as defined in the contract, a $1,500 fine is insti- tuted. The contract also clearly states that no trips shall be missed or dropped due to unavailability of operators, and the contractor is fined $500 for each missed trip. The Contractor Perspective The General Manager for MV Transportation reported that “We have a low turnover rate at Redi-Wheels, mainly because we have a very good pay rate and fringe benefits.” Employees receive 100% full health benefits, paid by MV Transportation, which equates to about $10 per hour for health benefits on top of their hourly wage. As a result, the general manager esti- mated that the annual turnover rate is about 10% which he felt was “incredible in our industry.” He also comments on the current economic climate, which has dramatically changed operator recruitment: “Before, it was difficult to find opera- tors in the Bay area because there is so much competition for jobs in other sectors. Now, I’m finding 10–20 people a month looking for employment.” As for financial incentives outlined in the contract, the gen- eral manager reported that bonuses and disincentives in the contract have worked “substantially.” He said that four of the standards, productivity, on-time performance, accidents/ safety, and wait time on the phone, have huge bonuses and repercussions for MV Transportation if the company does not meet the standards. He reported that these financial repercus- sions influence his business decisions, saying “It is cheaper for me to add a person to the reservations taking function than to exceed the standards for wait time on the phone.” Currently, MV Transportation meets Redi-Wheels’ 90% on-time per- formance standard. The general manager said that the com- pany has been at this 90% level for a long time, and he is trying to figure out how to improve it, but so far has been unsuccess- ful. As for productivity, he reported that the service operated at about 1.5 to 1.6 trips per revenue-hour. Reported Results The SamTrans Accessibility Coordinator reported the paratransit contractor experiences extremely low turnover rates, especially in comparison to others in the region. She noted that by paying just $1 to $2 more per hour, operator turnover was reduced significantly, making a clear case that paying a higher wage dramatically reduces turnover. She also noted that she believes the more experienced operators tend to be safer and more efficient, which is both a financial and a community benefit. It was noted that while the monetary penalties have acted as an incentive for on-time performance, they have yet to be leveraged with the current contractor, who has consistently been able to meet the 90% on-time performance rate. 121

SamTrans also recognizes good performance by individu- als and reinforces good behavior by making both the transit district and contractor employees eligible for the “I Made a Difference” award. The award, generally an honor rather than a monetary award, is usually presented by a supervisor to an operator while mid-route. The award has created a good atmosphere and appreciation in the workplace, which was felt by managers to contribute to maintaining a stable vehicle operator workforce. King County Metro Transit (Metro), Seattle/King County, WA King County Metro Transit (Metro) is a public transit agency serving more than 1.7 million residents in King County, Washington. Metro operates a fleet of about 1,300 vehicles, including standard and articulated coaches, electric trolleys, dual-powered buses and hybrid diesel-electric buses that serve an annual ridership of 100 million in a 2,134 square mile area. In addition, Metro operates the largest publicly owned vanpool program in the country, with more than 600 vans providing transportation to 5,000 people every day. Metro also manages Access paratransit service, its ADA paratransit service. The program provides next-day, shared rides within three-quarters of a mile on either side of non- commuter fixed-route bus service during the hours and days of operation those routes are in service. In 2007, Access ser- vice provided over 1.1 million rides with a fleet of 300 vans. Use of Contractors for ADA Paratransit Metro contracts its Access paratransit service call center to First Transit, who manages scheduling, reservations, and dis- patching. Two other private companies are then under con- tract to Metro to provide vehicle operation and maintenance. The service provider contractors are Veolia Transportation, which operates about 70% of the runs, and Solid Ground, a local non-profit organization that operates about 30% of the service. Procurement/Contractual Provisions In the survey, Metro reported that it had moderate suc- cess with including language in the solicitation indicating that a stable, experienced vehicle operator workforce was expected. Metro Transit also noted a specific points system used in the evaluation of prospective contractor proposals. The following language is included in the 5-year service provider contracts: The Contractor shall ensure that sufficient staff are hired and retained to meet this Contract’s service requirements. The County reserves the right to reduce the Contractor’s monthly invoice appropriately for any management or supervisory position such as Project, Operations, Information Service or Maintenance Manager, left vacant for more than sixty (60) Days. The Contractor’s provision of qualified, capable and experi- enced personnel is essential to the performance of its contractual obligations herein. As such, failure to provide suitable personnel consistent with the County’s contractual expectations as set forth herein shall be deemed a material breach of contract and subjects the Contract to immediate termination at the County’s option. The Contractor shall ensure that its employees are qualified, capable and suitable to perform the requirements of this Con- tract and the County reserves the right to provide input to the Contractor in determining the suitability of any employee to con- tinue performing the work pursuant to this Contract. The Con- tractor shall provide all pertinent employee records regarding incidents/accidents, passenger complaints, etc., to King County as soon as possible upon request. The County recognizes that the strength of its transportation program is built upon the strength of its operators. Proposers are asked to consider how they will hire and retain an excellent workforce. Metro assigns points when evaluating RFPs to best analyze the proposed services. Typically, vehicle operator recruitment and retention comprise 18–20% of the total score. Table 10-5, 122 Criteria Points Percent of Total Training program 25 2.5% Plan to recruit, train staff and perform the work 50 5.0% Evaluation of proposed team and key persons 45 4.5% Proven ability to collaborate with contractor’s staff 20 2.0% Plan to transition staff who are currently employed with another operator so that service is not disrupted 75 7.5% Record keeping and retention plan 25 2.5% Customer service plan 75 7.5% Pricing 200 20.0% Other (specifics in contract) 515 51.5% Table 10-5. King County Metro proposal evaluation criteria and points.

adapted from a recent RFP, shows the evaluation criteria and points. Metro also includes a liquidated damage for runs that are dropped due to a lack of vehicles or operators. The relevant section reads as follows: The Contractor acknowledges that the provision of services pursuant to this Contract entails providing specialized, public transportation services, and that it is essential that safe, reliable, and efficient service is provided at all times. Liquidated damages may be assessed, at the option of the County, in the circum- stances detailed in the table set forth below. Reported Results Metro indicated that it is difficult to determine the impacts of these procurement strategies at this point because the con- tracts have just been awarded. A previous contract contained only minimum wage standards, which seemed to raise issues as several of the contract providers have had union repre- sented operators. In addition to increasing wage require- ments in the latest RFP, Metro removed the incentives related to run coverage that were included in past contracts. They indicated that the incentives in prior contracts related to run coverage didn’t seem to affect contractor behavior, so they replaced them this time around with liquidated damages. It was noted that vehicle operator turnover is a significant problem for King County. A commonly cited issue in retain- ing paratransit operators is that they often leave the industry for higher paying industrial jobs since they are required to also maintain commercial drivers’ licenses. Metro is considering eliminating the CDL requirement, but still requiring the train- ing to address the same content as in the CDL training. It was noted that operator retention has been better at Solid Ground. Metro indicated that this appeared to be partly due to the more extensive fringe benefits provided by this contractor. Metro managers noted that they have recently established a new bid model with flexible start times which can vary within 1–2 hours per day. Operators will receive notification the day prior to service as to when they will begin work the following day. More and more operators have been sent home before a shift’s end when late cancellations have allowed routes to be closed early and rides to be moved. 123 Item Requirement Liquidated Damage - Cost 1 Route dropped or reassigned due to unavailable vehicle or operator Perform all routes VSHs as assigned $1.5 times cost for replacement service per VSH

TRB’s Transit Cooperative Research Program (TCRP) Report 142: Vehicle Operator Recruitment, Retention, and Performance in ADA Complementary Paratransit Operations provides guidance for understanding the relationships that influence and enhance operator recruitment, retention, and performance in Americans with Disabilities Act (ADA) complementary paratransit services.

Appendixes to TCRP Report 142 were published electronically as TCRP Web-Only Document 50 : Survey Instrument, Productivity Charts, and Interview Protocol for Case Studies for TCRP Report 142.

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Better sourcing and procurement for cost savings: Case study

August 16, 2023 | operational excellence, related services.

Business Process Re-engineering

Supply Chain Management

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At a Glance

As a result of a 20-week project with Renoir, a client in steel manufacturing achieved the following:

• 15% increase in vendor visitations
• 15% increase in active scrap suppliers
• 19.1% increase in alternative grade tonnage
• 0.8% reduction in scrap cost

Our client is a leading steel manufacturing company headquartered in Southeast Asia. They operate production plants in 3 locations in the region and are a subsidiary of one of the world’s largest steelmakers.

As part of the company’s ongoing efforts to improve performance and profitability, the client engaged Renoir to jointly execute a Procurement Excellence Project which would focus on reducing input costs.

The Challenge

Renoir conducted a 2-week analysis of the client’s current situation. Sourcing practices, the management system employed, and spend categorisations were examined in detail. The findings included:

SCRAP SECTION

• Current scrap sourcing practices left many potential sources untapped.
• The use of alternative grades in processing was not maximised.
• A perceived lack of local availability led to increased import volumes.
• The client and Renoir agreed that a potential 0.5% to 1% reduction in scrap costs was possible.

NON-METALLIC SECTION

• Current practices in Non-Metallic Sourcing did not maximise leverage opportunities.
• The approach to procurement tended towards passive and was predominantly driven by the production facility demands.
• Spending was often decentralised and made on the spot as opposed to being based on contracts or price agreements.
• The client and Renoir agreed that a potential 3 to 5% reduction in Non-Metallic costs was achievable.

How OEE can help improve your manufacturing operations

Lean Philosophy: When less brings more value

What we did.

Structured over 20 weeks, this program was designed to make a significant impact on both spend areas in short space of time. In alignment with Renoir’s methodology, two Management Action Teams (MATs) were established comprising executives within the client’s teams, and were given the responsibility to review their practices, define and develop changes, and implement them. 

The MATs were chaired by the client’s Vice President of Procurement and reported fortnightly to a Steering Committee. Teams were supported by full-time Renoir Consultants and a Task Force, working together toward the objective of lowering the input costs.

Key Results

“We have seen the changes made to the way we work and to our team. The intention was to do better and we appreciate the knowledge from Renoir in sharing these ideas with us. Over the 20 weeks, Renoir blended in well with our team and worked together to achieve what they promised.”

– President and CEO

Upon completion of the engagement, there was a noticeable difference in the organisation. Departments worked in unison to achieve common goals and it was apparent that with the implemented new way of working, future procurement for both Sections is now carried out in a more structured methodological way. 

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Artificial Intelligence in Procurement: Case Studies from GEP

• AI-powered solutions can help businesses to automate tasks, improve efficiency, and gain new insights into their procurement strategies.
• AI is well positioned to help businesses to catch the pulse of their customers, understand their needs, resulting in better customer experience.
• With incremental leaps in technology, AI will continue to deepen its impact on procurement software solutions.

October 16, 2023 | Procurement Software

Artificial intelligence (AI) is rapidly transforming the procurement landscape. AI-powered procurement solutions can help businesses to improve their efficiency by automating tasks as well as help them gain deep insights into their operations.

As a leading provider of AI-powered procurement solutions, GEP's solutions are used by businesses of all sizes to improve their procurement performance. Here are a few artificial intelligence procurement case studies that discuss how AI-powered procurement solutions have helped businesses to achieve success.

Artificial Intelligence in Procurement Case Study #1

A global oil and gas company wanted to streamline, unify, and automate its procurement operations. Its existing system was fragmented, with a limited set of automation capabilities and multiple sources of data across systems and business units. Although the client had more than 20,000 B2B customers and its annual revenue was more than $14 billion, it had limited supplier interaction through systems and high sourcing cycle time. As a result, the client wanted to make the procurement system more consistent, efficient and automated.

GEP SMART™, the AI-driven procurement platform, made the client’s procurement a seamless, integrated function for the client, enabling a high level of automation. GEP’s solution also strengthened the client’s entire source-to-contract and procure-to-pay process, encouraged catalog-based buying, and eased the supplier onboarding process.

This case study is a must-read for procurement professionals looking to rid their operation of silos and transform it into a united, efficient function that drives value.

Read the case study here: Global Oil & Gas Company Transforms Procurement Operations With GEP SMART™

Artificial Intelligence in Procurement Case Study #2

A Global 500 heavy equipment manufacturer with more than 400 sites and multiple subsidiaries wanted to transform its entire sourcing processes. The client’s transformation objectives included streamlining procurement operations, improving spend visibility and forecast of material costs. The chose GEP as a partner to deploy the best-in-class source-to-pay (S2P) software in order to provide a boost to its spend, sourcing and category management functions. With the help of AI-powered GEP SOFTWARE™, the manufacturer was able to unify and replace its disparate legacy systems that were slowing down its global operations. GEP was able to streamline the workflow and capture all direct material sourcing process data in one unified system, making all demand visible in one place for the first time.

The software functions implemented by GEP included sourcing, spend, analytics and category strategy. The procurement software solution’s intuitive interface helped the client drive user adoption of sourcing/RFX and CLM tools — from under 20% to more than 80%. This helped the client gain much-needed visibility into spend, as well as real-time insights into suppliers, cost breakdowns and risk, enabling it to forecast material needs more accurately and improve sourcing efficiency, saving millions of dollars in costs.

Read the case study here: Global Heavy Equipment Manufacturer Saves $45M in Direct Material Sourcing With GEP SOFTWARE

Artificial Intelligence in Procurement Case Study #3

A leading global pharmaceutical company wanted to transform its research and early development (R&ED) infrastructure with a bespoke, data-driven and AI-enabled platform that would facilitate modern clinical trials.

The pharma giant needed new-age infrastructure that would enable it to keep up with rapidly changing requirements in clinical trials. The company partnered with GEP to achieve this goal. GEP adopted a multi-pronged approach to help the firm identify its needs and select a suitable cutting-edge platform that transformed the R&ED infrastructure.

This case study demonstrates how the strategic partnership enabled the company to speed up drug development, improve patient experience and enhance the operational efficiency of its clinical trials.

Read the case study here: How GEP Helped A Pharma Giant Transform R&ED Procurement Infrastructure and Reduce Drug Development Time

Advantages of Integrating Artificial Intelligence in Procurement

As AI continues to make incremental leaps, the impact on procurement will continue to deepen. Therefore, businesses that embrace AI will be well-positioned to succeed in the future. Some key benefits include:

Increased Competitiveness

By automating tasks, improving efficiency, and reducing costs, AI can help businesses to become more competitive in their markets.

Improved Customer Experience

Artificial intelligence with all its technological advancements is well positioned to help businesses to catch the pulse of their customers, understand their needs, resulting in better customer experience. From personalizing product recommendations to providing instant customer support to providing real-time resolutions, AI can provide quick and efficient support.

More Innovation

AI can help businesses to develop new products and services more quickly and efficiently. For example, enterprises can use AI to quickly analyze customer data and identify new product opportunities, and accordingly devise strategies and production methods.

AI is rapidly transforming the procurement landscape. AI-powered solutions can help businesses to automate tasks, improve efficiency, and gain new insights into their procurement strategies. Be it heavy engineering, oil and gas or the life sciences industry, artificial intelligence in procurement will have a deeper impact on sustainability practices of businesses – including reducing waste, improving energy efficiency, and identifying sustainable suppliers.

Tags: Artificial Intelligence in Procurement , AI in procurement

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