California Implements Strategic Sourcing: An Interview with Project Director Terese Butler

August 1, 2005 By Wayne Hanson

Terese Butler
For nearly 30 years, the state of California has recognized and attempted to remedy shortcomings in its procurement system. "It has long been recognized," states the Procurement Summary of last year's California Performance Review (CPR), "that the state's procurement process is complicated, costly, time consuming and unable to ensure that quality goods and services are obtained for state programs ... Today, the state's purchasing system remains fragmented, subject to delays and unable to deliver cost-effective purchases. The system needlessly taxes the time of users, suppliers and procurement professionals with laws, policies and procedures in such a patchwork fashion that they conflict in many areas." The summary goes on to say that the actual costs of the procurement process are unknown but likely to be above the national average, and that simply awarding a contract can take more than a year because of complex process approvals. As a result, the state does not obtain prompt-payment rebates, and in fact must pay millions of dollars in late fees.

"Since the 1970s," says the CPR, "the state of California has recognized the need to streamline and innovate the procurement process," citing studies and recommendations from 1978, 1993 and 2000. "In all cases," it said, "only limited improvement has occurred."

About a year ago, California contracted with a company to begin development of a procurement process known as strategic sourcing. Strategic sourcing -- according to the state's procurement Web site, is "a process designed to allow the State of California to purchase the best products and best services for the best value. Using this purchasing approach, the buyer (California) analyzes what it's buying, what the market conditions are and who can supply those goods or services. The buyer then uses that information -- plus innovative contracting techniques -- to find the best values available in the marketplace."

Terese Butler is project director of the California Strategic Sourcing Initiative, and she discussed the initiative with California Report editor Wayne Hanson.

California Report: What is strategic sourcing, in a general sense? What differentiates it from other methods of procurement?

Butler: I would say what differentiates it is the amount of data analysis that we embark upon in order to determine the most appropriate way to source a product or service. And, what I mean by that is a much more accurate and thorough look at the historical spend that the state has in a particular commodity or service, and any nuances associated with it, that will help us to craft the proposal or procurement in a manner that grants the state the best return on its dollars.

The fiscal crisis that the state has been under for the last several years was probably the biggest driver. The Department of General Services was studying it and getting ready to put a proposal on the street to bring in a partner to help with strategic sourcing at the same time that the governor's California Performance Review was going on and the two pretty much dovetailed.

CR: Do other states use strategic sourcing and what kind of results have they obtained?

Butler: It is relatively new to the public sector. The private sector has been doing it for quite a while. However, there are some states that have embarked upon it. Oregon, our neighbor up north, has embarked upon strategic sourcing, they've sourced several categories. Pennsylvania has actually been in the game longer than California, and has had some really good results.

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