2018 Issue Briefing: Supply Chain Transformation Program
This Note is part of a series of Notes on key City issues to update City Council at the start of its 2018 – 2022 term.
The City’s procurement process is a time consuming, manual, paper-based process which does not consistently leverage innovative procurement processes and market and spend data. Changes to the way the City plans and manages procurement actions, as well as process improvements and automation, will result in a more strategic approach to procurement, as well as significant cost savings.
To oversee supply chain transformation, the Treasurer and Purchasing and Materials Management Division (PMMD) with the guidance of the Chief Transformation Officer and other City staff have developed the Supply Chain Transformation Program to oversee the entire transformation of the procurement process and the accounts payable function.
In 2013, City Council, as part of the Shared Services Study conducted in 2012, directed staff to undertake further due diligence on the implementation of strategic sourcing in the procurement process.
City staff undertook due diligence through a program review of PMMD. As part of that process, the City retained Ernst & Young (EY) in 2015, who concluded that implementing category management and strategic sourcing has the potential to generate significant annual recurring savings, estimated to be approximately $30 million by 2021.
Category Management is a data-driven process of developing business plans to manage spend categories (goods and services grouped into categories, such as fuel, software, HVAC services etc.) resulting in strategic efforts to produce improved business results. Category management strategies may produce improved business results, including volume optimization, specification improvement, the total cost of ownership evaluation, alternative services delivery and supplier relationship management. Strategic Sourcing is one of the outcomes of Category Management and formalizes the way information is gathered and used so that the City can leverage its consolidated purchasing power to find the best possible values in the marketplace.
Further, in 2016, City staff recommended to City Council to enter into an agreement with SAP Canada to implement SAP Ariba, a cloud-based Software-as-a-Service. SAP Ariba is an end-to-end integrated solution for purchasing, materials management and account payable functions that would modernize the City’s procurement and accounts payable processes. The implementation of SAP Ariba is a key tool that will enable a successful implementation of category management and strategic sourcing.
The goals and benefits of the Supply Chain Transformation are summarized in the following table:
|Goals of Supply Chain Transformation||When we will see the benefits|
|Value for Money||
Actions or Plans
The Supply Chain Transformation Program is structured according to the supply chain value chain and consists of the following three business pillars (projects):
1. Category Management, Strategic Sourcing and Organizational Business Transformation
Modernize the way the City procures goods and services through Category Management and streamlined procurement processes supported by SAP Ariba.
Category Management will be a collaborative, process-driven approach that leverages strategic market and internal data sources and integrates with the City’s procurement planning process. SAP Ariba will enable the City to:
- Remove the cumbersome and expensive paper processes.
- Increase transparency and accountability in the procurement processes.
- Provide better tools to track Supplier performance on contracts.
2. Transactional Procurement / Procure to Pay (P2P)
To modernize the City’s transactional purchasing, receiving and invoice payment processes the City will first focus on simplifying repetitive, low risk, and high volume transactions, and subsequently focus on more advanced capabilities, such as guiding all purchasing needs through one portal.
The transactional Ariba technology modules are key enablers for the City procurement process maturity that will act as an enabler to:
- Ensure compliance to contract pricing and terms and thus realize the savings from strategic sourcing work.
- Simplify the ordering process allowing PMMD and purchasing staff to focus on value-adding activities such as managing contracts and suppliers.
- Automate invoicing work to reduce clerical efforts, strengthen controls, take advantage of early payment discounts and improve reporting.
3. Warehouse Management Refresh
- Consolidate City warehouses and optimize operations to improve cost efficiency and responsiveness to internal customers.
- Physical consolidation of PMMD managed warehouses and other City managed warehouses, where feasible.
- Optimize operations through SAP Warehouse Management Module and Barcoding.
|July 2018||City Council approves a budget reallocation between the funded PCI Compliance capital project and the Supply Chain Transformation capital project to ensure that the Supply Chain Transformation project is completed in 2019.|
Executive Committee requested the City Manager to report back as appropriate on individual strategies contained within the Long-Term Financial Plan – The City of Toronto’s Roadmap to Financial Sustainability.
|October 2016||The Treasurer reported to Government Management Committee on the Purchasing and Materials Management Review: Strategy for Category Management and Strategic Sourcing.|
|June 2016||The Treasurer and the Chief Information Officer recommend to City Council to enter into a 5-year contract with SAP Canada for the use of SAP Ariba.|
|June 2013||City Council direct the City Manager to conduct further due diligence and report back on the sharing procurement of common goods and services amongst the City and Agencies and implementing strategic sourcing.|