The Two Procurement Concepts That Will Enable California to Make the Most of Taxpayer Dollars
This article emphasizes the importance of government procurement in California, constituting approximately 10% of the state's GDP. As tax revenues are expected to decline, the article underscores the need to enhance procurement practices through innovation and digital transformation, aiming to do more with limited resources while tackling intricate issues and benefiting the lives of millions of residents.
By Jay Nath and Kamran Saddique, Co-CEOs and Founders
Procurement matters. Here in California, government procurement at the state and local level represents roughly 10% of the state’s GDP.
The new fiscal year is expected to put enormous pressure on California State government to do more with less. California tax revenues in 2023-24 are expected to drop by $22.5B compared with 2022-23 largely due to our dependence on the tech sector which is experiencing economic headwinds.
One of the obvious places to save money is by improving how we handle procurement of both IT and non-IT goods and services. In 2021-22, the State of California awarded over $13B in contracts, with $2.5B invested in IT and $9B towards non-IT goods and services. In the face of declining tax revenues, it's tempting to say, "well, let's just put all discretionary procurement on hold until this storm passes.” The problem with this is that procurement takes so long that any 'hold' inevitably results in creating a backlog that will take the state years to work through, thereby affecting the state's ability to deliver fundamental services. Ouch!
The people behind the numbers
Procurement officers work behind the scenes on behalf of taxpayers to solve urgent problems while minimizing costs. One of our clients told us that the reason they chose a career in procurement was that just one single procurement affects so many people.
We see this every day in our work with California agencies and state entities including the Department of Motor Vehicles, Employment Development Department, Health and Human Services Agency, and CalRecycle. The actions of these government organizations directly impact the daily lives of tens of millions of California’s residents.
How to do more with less
To make the most of next year’s budget, California needs to focus on two things:
1. Procurement innovation, and
2. Digital transformation of the procurement function.
Over the last few years, there has been an enormous amount of money spent on solutions to make it easier for governments to purchase commodities at the lowest cost.
Now the industry needs to turn its attention to transforming how IT and non-IT goods and services are acquired. This type of purchasing is typically very complex and requires that procurement officials author lengthy documents – called solicitations – that can fill 400 pages or more. Subject matter experts (SMEs) are often needed to supplement the knowledge of procurement professionals. Some solicitations require contributions from 40-50 SMEs which leads to challenges in project management – to manage the flow of these contributions – as well as version control nightmares.
City Innovate’s solution fits into a bigger landscape of procurement innovation and digital transformation of the function.
Here are some of the trends we are seeing:
Trend #1 - Digital Transformation: The digitization of procurement processes has been a significant trend. Organizations are adopting document process automation platforms to augment the e-procurement platforms they already have in place. Most of these solutions run in the cloud and replace 40-year-old desktop applications with modern, cloud-based equivalents. Document process automation platforms focus on streamlining document production as well as the evaluation of bids as they come in from vendors and provide tools to reuse language from historical solicitations.
Trend #2 - Data Analytics and AI: Getting documents out of desktop applications and shared drives enables the use of data analytics and AI technologies to gain valuable insights from procurement data. Advanced analytics tools are used for spend analysis, demand forecasting, vendor performance evaluation, and risk management. AI-powered systems help automate routine procurement tasks, enhance decision-making, and identify cost-saving opportunities.
Trend #3 - Vendor Relationship Management: There is a growing focus on developing strategic and collaborative relationships with vendors. Vendor relationship management (VRM) technology makes it easy for procurement professionals to evaluate supplier performance using online tools, segment vendors based on their performance and other criteria, and better target supplier development and diversity programs. The goal is to foster long-term partnerships and improve supply chain resilience.
Trend #4 - Sustainable Procurement: Sustainability has become a key consideration in procurement practices. Organizations integrate environmental, social, and governance (ESG) criteria into supplier selection and evaluation processes. This includes assessing suppliers' environmental impact, labor practices, ethical sourcing, and promoting sustainable supply chain practices.
Trend #5 - Agile Procurement: Agile methodologies, derived from software development, are being applied to procurement processes. Agile procurement emphasizes flexibility, collaboration, and iterative approaches. It enables quicker decision-making, shorter procurement cycles, and adaptability to changing business needs.
Trend #6 - Challenge-Based Approach: In traditional procurement, governments identify a solution, request vendors to offer quotes, and then evaluate paper proposals. With a challenge-based approach, organizations identify a problem and let vendors propose solutions, which may be evaluated via proof of concept demonstrations. This shift in market research and procurement approach inspires creativity, attracts new vendors, and enables potential vendors to innovate new solutions, while showcasing their past performance and results. In California, this type of procurement is called a RFI2 - a request for innovation, as established by Governor Newsom by executive order within the administration’s first month in office, January 2019.
The State of California and its procurement officers have demonstrated their ability to solve challenges, innovate, and respond to the most pressing needs of their people. As they navigate the next year, their tax revenues and budgets are anticipated to drop by as much as $22.5B. To make the most of taxpayer dollars, procurement officials will need to focus on two things: 1) innovations in procurement, and 2) adoption of transformative technologies.
For more information - contact firstname.lastname@example.org