Overview of DIR Sourcing Initiatives

Cindy ReedDeputy Executive Director

Operations and Statewide Technology SourcingTexas Department of Information Resources

NATIONAL ASSOCIATION OF PURCHASING MANAGEMENT

September 16, 2008

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Who is DIR? DIR is the state agency responsible for

• Effective planning, implementation and management of a statewide technology infrastructure that supports agency business operations

• Pooling the purchasing power of government and leveraging it to drive down costs and add value to ICT purchases for state government entities

• Adopting statewide technology rules and standards that contribute to effective enterprise management of ICT

• Promoting security and privacy of state data and networks

Key operations• TexasOnline, the official State of Texas website

• Data Center Services

• Telecommunications and IP Network

• Security

• ICT Cooperative Contracts Program

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448 Cooperative Contracts• 290 Total Resellers

• 140 HUB Prime Vendors

• 121 HUB Resellers

38% Growth in Last 2 Years (FY05-07)

Over $1 Billion Projectedfor FY08

Customer Base• Market Segmentation Analysis

45% Education

29% State Agencies

26% Local Government

ICT Cooperative Contracts – Statistics

ICT Cooperative Contract Sales

$719$805

$993

$571

$0$100$200$300$400$500

$600$700$800$900

$1,000

Millions

FY05 FY06 FY07 FY08YTD

Sep 07 – Feb 08

Sep 07 – Feb 08

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Where are DIR’s Customers Located?

REGIONAL DISTRIBUTION OF FY08 YTD SALES

$248

$133

$105

$34$15 $13 $12 $11

$0

$100

$200

$300

$400

Millions

3 2 1 4 5 7 8 6

Reg. 5

$15 M

Reg. 2

$133 MReg. 8

$12 MReg. 7

$13 M

Reg. 6

$11 M

Reg. 1

$105 MReg. 3

$248 M

Reg. 4

$34 M

*Telecommunications Go DIRect

sales of $36 M were distributed to regions

via prorated percentage of sales.

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ICT Cooperative Contracts – Cost Savings/Avoidance

DIR CUSTOMERS/TAXPAYERS

Savings calculated as difference between DIR price and price available in other states and from other cooperative contracting programs

Additional value (soft costs) not included in calculation• Time/salary savings

associated with streamlined procurement process

• Additional services or benefits such as “free training”

• Improved performance standards and accountability requirements

ICT Cooperative ContractCost Savings/Avoidance

$70.2$82.0

$114.8

$60.9

$0$10$20$30$40$50$60$70$80$90

$100$110$120

Millions

FY05 FY06 FY07 FY08YTD

Sep 07 – Feb 08

Sep 07 – Feb 08

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Strategic Sourcing Strategies: Knowledge-Driven Supply Chain

Skills, knowledge, and organizational structure

Move from traditional transactional purchasing to strategic supply chain management

Comprehensive, integrated supply chain services

PEOPLE

Contracting andProcurement Services manages all phases of contract lifecycle

●

Supply Chain Management provides business intelligence/analytics, bench-marking, etc., used to identify and prioritize contracting opportunities, develop new contracts, and implement new sourcing strategies

●

Revenue and Sales Reporting (RASR) analytical platform

DIRect Compare

TECHNOLOGY

Online interactive tool enables customers to easily review and compare contract pricing

●

New, metric-drivenbusiness processes

● Spend analysis

● Demand/opportunity analysis

● Improved performance standards and accountability requirements

● Specifications based on market intelligence

● Category management

● Streamlined administrative requirements

● Benchmarking

● Channel management

BUSINESS PROCESSES

Industry-standard data warehouse and business intelligence portal collects data, generates information to support sourcing decisions

●

●

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Business Model: ICT Cooperative Contracting Program

NEGOTIATIONS (RFO Process) Leverage state’s buying power Benchmark pricing with competitive regional and national cooperative

buying options, federal government, and other states

MULTIPLE AWARDS Provides flexibility to meet unique business needs of statewide

customer

“NOT-TO-EXCEED/QUANTITY OF ONE” PRICING Customers allowed and encouraged to negotiate additional discounts

for volume purchases

Go DIRect PURCHASING, ONLINE DIR STORE Customers deal directly with vendors for ordering, delivery, payment

DIR ADMINISTRATIVE FEE INCLUDED IN NEGOTIATED PRICING Capped at two percent (2%). FY07 average: .81% Vendor invoices customers (included in contract price), remits to DIR

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RASR Analytical Platform

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Supply Chain Life Cycle

RFO DEVELOPMENT RESEARCH

• With DIR customers, other states and federal government, Gartner, Forrester, Infotech

SOURCING STRATEGY

• Prequalification of vendors for IT project contracts in specific technical areas

• Limited to 10 categories and projects of $10 M or less

BUSINESS CASE

Value to state = cost savings + more effective contracting vehicle

RFO ISSUANCE

• Webcast of pre-bid conference

Deliverables-Based Information Technology Services Contract (DBITS)

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Sourcing Strategies Augmenting RFOs

• IT Staffing Services

• Software

• Networking Equipment

• Surveillance Cameras

DBITS• Prequalification of vendors in specific technical areas

Regional-Based Contracts• Break/Fix (equipment repair)

• Cabling

Managed Services• Contract with multiple qualified service vendors, to drive innovation,

capacity and marketplace competition allowing customers to improve service levels, reduce operating costs and extend capabilities while remaining focused on their core missions

May 2008 Operations Graybook

Supply Chain SupportSupply Chain Support

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Sales Actual vs. Projection2008 YTD Data

• Monthly sales projection = Most recent 2008 Annual Sales Plan from Finance distributed to each month based on seasonality percentages in 2007

• Sales has been performing at 5% above projection year to date

• If sales meet the projection in Q4, 2008 sales will reach $1001.9 M

$0

$100

$200

$300

$400

$500

$600

$700

$800

200709 200710 200711 200712 200801 200802 200803 200804 200805 200806 200807 200808 YTD

($ In

Mill

ion

s)

Actual

Projection

200709 200710 200711 200712 200801 200802 200803 200804 200805 200806 200807 200808 YTD 2008

Actual $80.1 $107.4 $70.9 $68.4 $74.5 $60.3 $75.5 $94.9 $86.1 $718.0

Projection $107.4 $82.3 $66.0 $81.9 $61.3 $55.9 $77.2 $75.9 $78.6 $90.1 $88.8 $105.0 $686.4

Actual/Projection Delta -$27.3 $25.1 $4.9 -$13.5 $13.2 $4.3 -$1.7 $19.0 $7.5 $31.6

Acutal/Projection Delta % -25% 30% 7% -17% 22% 8% -2% 25% 10% 5%

Plan 1 Provided in Aug 2007 $107.4 $82.3 $66.0 $81.9 $61.3 $55.9 $77.2 $75.9 $82.4 $94.5 $93.1 $110.0$987.8

Plan 2 Provided in May 2008(200709-200805 Sales are actuals) $80.1 $107.4 $70.9 $68.4 $74.5 $60.2 $75.5 $94.6 $78.6 $90.1 $88.8 $105.0 $993.9

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Sales, Cost Avoidance and Administrative Fee YTD (Sep – May) Comparison

2007 2007 YTD 2008 YTD 2008 YTD vs. 2007 YTDSales (In $M) $927.9 $646.8 $718.0 11.0%Cost Avoidance (In $M) $116.2 $81.7 $82.0 0.3%Admin Fee (In $M) $8.0 $5.6 $6.5 15.2%CA% 12.5% 12.6% 11.4% -9.7%Admin Fee % 0.86% 0.87% 0.91% 3.8%

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1000

2007 2007 YTD (Sep - May) 2008 YTD (Sep - May)

(In

$ M

illi

on

s)

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

Sales Cost Avoidance Admin Fee CA% Admin Fee %

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Sales Seasonality By ChannelHigher Ed

$0

$10

$20

$30

$40

$50

$60

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

2006

2007

2008

K-12

$0

$10

$20

$30

$40

$50

$60

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

2006

2007

2008

Local Government

$0

$10

$20

$30

$40

$50

$60

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

2006

2007

2008

State Agencies

$0

$10

$20

$30

$40

$50

$60

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

2006

2007

2008

(In $ Millions)

Observations:

- 2008 YTD sales from all channels are performing better than 2007- Jun-Sep is the peak season, accounting for 40% of annual sales in 2007

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Sales By Product Type13 Months Rolling Data

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

2007

05

2007

06

2007

07

2007

08

2007

09

2007

10

2007

11

2007

12

2008

01

2008

02

2008

03

2008

04

2008

05

(In

$ M

illi

on

s)

SOFTWARE

SERVICES

P RINTERS AND SCANNERS

NETWORK

HARDWARE

COMP UTERS

OTHERS

Product Type 200705 200706 200707 200708 200709 200710 200711 200712 200801 200802 200803 200804 200805SOFTWARE 13% 11% 10% 17% 14% 13% 16% 34% 11% 13% 11% 8% 14%SERVICES 10% 9% 11% 9% 9% 8% 11% 10% 13% 14% 11% 10% 11%PRINTERS AND SCANNERS 4% 3% 3% 3% 5% 3% 4% 4% 5% 6% 4% 4% 3%NETWORK 15% 14% 17% 15% 18% 18% 19% 13% 16% 17% 17% 19% 24%HARDWARE 2% 3% 2% 1% 7% 6% 8% 5% 8% 8% 12% 12% 13%COMPUTERS 47% 55% 52% 50% 43% 48% 38% 31% 44% 40% 43% 44% 32%OTHERS 9% 5% 5% 5% 4% 4% 3% 4% 4% 3% 2% 3% 2%

Grand Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

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Contracts with Major Sales Changes

Contract Vendor Name 2007 YTD 2008 YTD DeltaDIR-VPC-03-018 Oracle Corporation 26,978,449$ 12,798,456$ (14,179,994)$ DIR-SDD-236 Calence, Llc 35,369,480$ 28,850,976$ (6,518,503)$ DIR-SDD-220 Gateway Companies, Inc. 13,486,245$ 7,412,442$ (6,073,803)$ DIR-SDD-190 International Business Machines Corporation 6,513,466$ 1,404,179$ (5,109,286)$ DIR-VPC-03-010 Storagetek/Sun Microsystems, Inc. 3,422,813$ (3,422,813)$ DIR-VPC-03-029 At&T Datacomm 3,199,467$ (3,199,467)$ DIR-VPC-03-001 Xerox Corporation 2,163,796$ (2,163,796)$ DIR-TC-02-008 Business Access, Llc. 2,069,910$ 37,186$ (2,032,724)$ DIR-VPC-03-027 Lakehills Consulting, L.P. 1,971,462$ (1,971,462)$ DIR-VPC-02-028 Vintage It Services 2,000,461$ 121,531$ (1,878,931)$ Contract Vendor Name 2007 YTD 2008 YTD DeltaDIR-SDD-232 At&T Datacomm 5,046,338$ 8,241,681$ 3,195,343$ DIR-SDD-584 Microstrategy Services Corporation 3,197,712$ 3,197,712$ DIR-SDD-191 Apple Computer, Inc. 9,723,112$ 13,698,617$ 3,975,505$ DIR-SDD-515 Xerox Corporation 4,373,969$ 4,373,969$ DIR-SDD-503 Sun Microsystems, Inc. 1,012,299$ 6,987,529$ 5,975,229$ DIR-SDD-192 Dell Marketing Lp 237,479,474$ 244,222,933$ 6,743,459$ DIR-SDD-239 Inx, Inc. 14,165,433$ 20,923,348$ 6,757,915$ DIR-SDD-564 Anixter, Inc. 8,262,362$ 8,262,362$ DIR-SDD-531 Panasonic Computer Solutions Company 9,969,208$ 9,969,208$ DIR-SDD-223 Hewlett-Packard Company 78,001,970$ 90,669,240$ 12,667,270$

(1) DIR-VPC-03-018: Large purchases by customers such as LCRA, HHSC, and City of Austin were not repeated in 2008

(2) DIR-SDD-236: Large network purchase by Brownsville ISD in 2007 was not repeated in 2008

(3) DIR-SDD-220: Customers switched to other vendors such as Dell and HP

(4) DIR-VPC-03-010: Contract expired and was replaced by DIR-SDD-503

(5) DIR-VPC-03-029: Contract expired and was replaced by DIR-SDD-232

(6) DIR-VPC-03-001: Contract expired and was replaced by DIR-SDD-506 and DIR-SDD-515

(7) DIR-VPC-03-027: Contract expired and the vendor failed to respond to the new RFO.

(8) DIR-VPC-02-028: Vintage’s biggest customer, Texas Comptroller, did not renew the seat management services

(1)(2)

(3)

(4)

(6)(5)

(7)(8)

YTD (Sep – May) Comparison

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Dashboards: Monthly Sales by Channel

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Dashboards: Daily Sales and Administrative Fees

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Contract Management Information System: Active

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Contract Management Information System: Detail

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Contract Management Information System: Reports

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Online Contract Gateway: The DIR Store

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Online Contract Comparison: DIRect Compare

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Future Contracting Opportunities

CURRENT CONTRACTING INITIATIVES

Posted on DIR’s Web site (www.dir.state.tx.us/store/cci) to improve communications between DIR vendors and customers

Lists initiatives by procurement stage• Planning

• RFO Postings – links directly to the posting on theElectronic State Business Daily (ESBD)

• Evaluation

• Negotiation

• Recent Awards

Each initiative has a brief description, expected phase completion date, and contact information

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Major Procurements in Process: TexasOnline

TexasOnline Reprocurement Vision

The TexasOnline procurement will establish the next generation e-government infrastructure that implements the components required to support the TexasOnline vision. The TexasOnline vision leverages the state’s cooperative contracting program and the state’s existing investment in both computing and communications infrastructure.

TEXASONLINE VISION STATEMENTTexasOnline will provide a single point of access to government information and services that is private, secure, convenient, efficient, service-oriented, and accessible.

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TexasOnline Re-Procurement Milestones, Estimated

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Major Procurements in Process: TEX-AN

CURRENT TEX-AN TELECOMMUNICATIONS CONTRACT EXPIRES AUGUST 31, 2009.

RE-PROCUREMENT WILL TAKE PLACE FALL 2008 THROUGH SUMMER 2009.

GOALS AND OBJECTIVES

Simplify service acquisition

Simplify service establishment and support

Enhance value from sharing

Establish solutions driven marketplace

Enhance vendor partner/supplier performance