State turns buyers into strategists

The state of Georgia is rethinking how it buys things.

For decades, the state relied on people called order-takers to handle purchases. When a purchase request arrived from a state agency, the order-taker posted it for the public to read. Soon, proposals would arrive, and after opening all bids in public, the order-takers chose the bid with the lowest price.

They considered few details surrounding the initial purchase request.

“They didn’t read it, they didn’t look at it, they didn’t analyze it,” said Brad Douglas, commissioner for Georgia’s Department of Administrative Services, which is leading the change in thinking. “That price had no bearing on what the price could have been or should have been.”

Georgia’s buying process lacked strategy and information. The result was a procurement system from the Dark Ages. It left officials with no insight on who was buying what or from whom. But a revolution has been happening in the Peach State’s procurement programs over the past three years. Officials are pushing order-takers to be strategists when buying, rather than simply awarding based on price alone.

“Purchasing has always been the place that people went to when an organization didn’t know what else to do with them,” Douglas said. But during recent economic declines, officials noticed that smart acquisition adds to the bottom line. “That’s when I think you saw purchasing as a profession change its colors.”

In 2003, when Republican Gov. Sonny Perdue took office, he urged agency officials to think differently about how they operated. He wanted them to run their organizations like businesses — to know where their money goes and find ways to save it.

In an interview with CIO Magazine in 2007, Perdue said the primary business principle he wanted to bring to Georgia was fact-based decision-making.

“Heretofore, I think our state had been run on a lot of emotional, political, ‘who’s-in-power’ decisions rather than on data,” he told the magazine. “I don’t consider myself particularly gifted from an intuitive standpoint. Therefore, I have to rely on data and facts to make decisions.”

The data
Douglas and the Administrative Services Department are hunting for any available spending data and are bringing about new ways to grab it.

In 2005, when Douglas arrived at the department, he found state employees
didn’t keep records of their suppliers and contracts, so his department couldn’t review what was happening in the more than 120 agencies and 35 public state universities that spend the state’s money. The last audit was done in 1991, he said.

“My best source of spending data today is by asking a supplier, ‘What did you sell to the state of Georgia?’ ” Douglas said. “That’s not a good position to be in.”

Officials continue to restructure the procurement system to capture information on purchasing for better buying decisions, such as through strategic sourcing. Strategic sourcing allows organizations to save money by buying large quantities of goods or services from a single vendor. Sometimes multiple organizations will pool their requirements to negotiate the best volume discounts the vendor will offer.

In developing that strategy, the department created a knowledge center, which will handle the procurement analyses. The vision for Georgia’s procurement overhaul is to aggregate spending across its agencies and organizations that typically operate independently. Agencies use different types of software to gather data. There are at least 34 different instances of PeopleSoft, Douglas said. In July, Georgia signed a contract with SciQuest, an e-procurement management company, to bind together the agencies’ incom patible software programs.

SciQuest intends to give the state a buying system that will become the hub and spoke for the state’s procurement system, said Stephen Wiehe, president and chief executive officer at SciQuest.

SciQuest’s software will give the state an online shopping center that integrates the various PeopleSoft instances, he said. Officials expect to gain insight into how the state spends money while eliminating paper-based processes and driving spending to pre-negotiated contracts.

The law
One other barrier stood in the way of Georgia’s procurement reformers: The state’s procurement law. It obstructed good buying practices, not always for any clear reason. For example, agencies weren’t allowed to negotiate with vendors on the contracts. Douglas said officials knew each round of negotiations saves an average of 4 percent to 5 percent from the initial proposed price. 

“It was stunning to me,” he said.

The time
The law now allows agencies to negotiate.  That was one of several changes that resulted from reform legislation in 2005.

Not long after taking their positions, Douglas and Tim Gibney, assistant commissioner at the State Purchasing Division of the Administrative Services Department, started talking to legislators about the procurement system and the need for reforms.

They found that the season was ripe for change. While Perdue pushed new thinking on agencies, state officials explained the procurement problems for the legislators in the Georgia General Assembly. In 2005, the assembly easily passed legislation granting more flexibility to state agencies.

State Rep. Allen Freeman, a Republican who sponsored the legislation that ultimately changed procurement policies, wasn’t surprised by the rigid rules that oversaw purchasing.

“I’ve seen it from every side,” Freeman said. In the early 1990s, he managed a state park in southwest Georgia with an archeological museum on Indian burial mounds. “I had to use the contract book, just like everyone else,” he said. That book told state employees which vendors they could buy from and what price they had to pay.

The 2005 law gave the Administrative Services Department a lot of authority to improve acquisition. It allowed the department to canvass all sources of supplies and to have general supervision of all storerooms and stores operated by the state.

Douglas said the essential ingredients for making the transformation are top-down belief in the changes, resources and money to do the job, and legislative reforms to do what is necessary to bring about the transformation.

Officials set up pre-negotiated contracts for purchasers and are now collecting more data, but Gibney said the work isn’t easy. The state has a $34 billion annual budget, and its agencies and universities are unaccustomed to culture shifts such as this. “But we’ve been given the tools to go at it,” he said.

The people
In the knowledge center, there are advocates for the agencies’ buyers, as both consultants and listeners, who bring back complaints and suggestions to the knowledge center to improve overall operations. The center is training those buyers to think differently and see their individual purchases as part of a whole buying system.

“We felt not only did we need to have strong buying and contracts in place, we also wanted to improve the quality of work being performed and to train and educate folks,” Gibney said. Their work in procurement and understanding the profession overall is critical to an agencies’ success.

“My major goal — as Rodney Dangerfield said — has been to get some respect for the profession,” Gibney said.