Michigan Taps Private Sector to Help Reform Procurement System

Running a procurement system can be costly, but Michigan expects its new reforms will make the process less cumbersome and cheaper.

by / September 16, 2014

Michigan spends approximately $55 million a year on procurement, yet the state historically has had very little oversight over how and where that money is spent, according to Department of Technology, Management and Budget (DTMB) Chief Procurement Officer Jeff Brownlee. But that may soon change. The state is tapping private-sector insight to reform its procurement processes with the goal of reducing costs, streamlining contracts and better leveraging its buying power.

“We have 22 different departments and agencies within the state that are doing some kind of buying, but no formal reporting lines exist between those 22 buying units and DTMB – the central unit that’s responsible for state purchasing under the law,” said Brownlee. “All the decisions were being made outside DTMB and we had very little authority over any of it. It was kind of a recipe for disaster.”
 
To address these challenges, Michigan looked to the private sector. In October 2013, it engaged Tony Brown, former chief procurement officer of Ford Motor Co., to help. Brown worked with DTMB for six months to assess the organization from an enterprise perspective.
 
“With Tony’s help we assessed our processes and also looked at them from a best practices perspective,” said Brownlee. “That helped establish the baseline for where we were and established the long-term goals of where we wanted to be.”
 
In April 2014, DTMB presented its findings to Gov. Rick Snyder, who approved the agency's reform efforts. DTMB then hired another former Ford executive, Jeff Wellman, to implement the study and help the state put together a procurement reform action plan.
 
Wellman and Brownlee are now co-piloting an effort to examine various procurement categories and ways to launch reform.
 
“We started by implementing category management – a fundamental change in the way we buy things,” Brownlee said. “We are moving from transitional buying to category buying and looking at how you make the model consistent across all your buying entities. It’s a paradigm shift in our thinking.”
 
The state began by looking at a few specific buying categories, such as cellphones. 
 
“In fiscal year 2012, we spent $7 million on cellphones across the enterprise,” said Brownlee. “That was split between three providers. Then, we looked at whether or not that makes sense. Why do we have three providers in the first place? We found we didn’t have an answer to that question – it was just the way things evolved over time.”
 
DTMB then assembled a team to try to answer those questions and to come up with an optimized model that will hopefully allow the state to streamline service providers and reduce costs.
 
Next, DTMB examined the state’s fuel card programs. The state uses two different fuel card programs that have vastly different rebate structures. Another team is now looking into those two programs to determine the best model going forward. 
 
In 2015, the state plans to examine four additional buying categories. By the end of fiscal 2015, it hopes to expand that to approximately 10 categories. 
 
“The goal is a 5 percent savings within each category we attack,” Brownlee said. “We may find we are not able to save money everywhere, but if we can reduce the number of providers we use, there are soft costs to be gained. Ultimately the goal is to reduce the number of contracts we have in place and to better leverage the state’s buying power.”
Justine Brown Contributing Writer