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Strategic Purchasing

Mitch Daniels: Heartland Reformer

The Launch of OneIndiana

Becoming the National Leader Procuring Goods and Services

For several decades, public innovators have wrestled with privatization and using competition to bring better quality and value into government operations. Many efforts stand or fall on the abilities and commitment of individual public managers here and there, but system-wide outsourcing often proves difficult to achieve.

While Indiana, like other states, was no stranger to the virtues of privatization owing to the efforts of forward-thinking mayors and municipal leaders, the state government was nowhere close to using competition to improve its services when Daniels took office.

In the early days of his administration, Daniels launched OneIndiana, a strategic purchasing initiative aimed at introducing a competitive marketplace for government services across all aspects of state government. While competitive outsourcing is common sense in private enterprise, it requires significant effort in state governments that have grown used to considering bureaucratic inefficiency as “normal.” By launching OneIndiana in 2005, Daniels brought an entirely new way of doing business to state government. It has now become the new normal.

OneIndiana quickly brought Indiana out of the dark ages and on par with other states that had been experimenting with bulk purchasing. Through its additional innovations, it now serves as a model that other states have studied.

Taking Inventory 

Prior to OneIndiana, procurement of materials and supplies for the state consisted of the Indiana Department of Administration (IDOA) processing paper as agencies submitted their supply needs.  There was no cohesion, no strategic focus, and no thought on how to get the best product, price, or service.  Every agency acted separately in its purchasing practices.

Daniels’ team conducted an early spend analysis to determine what the state was spending taxpayers’ dollars on, including everything from computers to hearing aides to ink pens. The Department of Government Efficiency and Financial Planning (GEFP) and IDOA worked with an outside consulting firm to aggregate this information in order to truly understand what was being bought, at what price, and from whom.  In the end, the itemization totaled $4 billion in outside goods and services, with massive amounts of duplication.  The study also showed the agencies were doing little to get the best prices as well.

With the analysis in hand, Daniels’ team worked with agency heads to identify forty-one different categories of goods and services that were routinely purchased across the government.  IDOA subsequently pursued vendors for each category and entered into higher-volume purchasing agreements.  Along with better service at lower prices, the new model of purchasing had the added benefit of better customer service, as the state dealt with single vendors for specific products rather than dozens of uncoordinated vendors.

One goal of OneIndiana was to establish a culture of efficient buying that would last into the future. To do so, the administration held training with procurement officials from the state’s various different agencies, instilling common industry purchasing standards across the state. IDOA became a standard bearer and not merely an administrative bureaucracy that managed paper flow and random product orders.

Purchasing Smarter

Beyond the value of economies of scale and common standards, Daniels wanted to enable the state to be smarter in how it bought goods and services. Looking for the lowest price among multiple bids wasn’t always a guarantee of the best service. Previously, the state stipulated the process by which agencies select bids, a process that favored the lowest price but that did not allow state employees the discretion needed to negotiate the terms of the contracts. Daniels’ team worked with the legislature to enact a new law directing IDOA to serve as the chief negotiator for the state on all purchases. Freeing up IDOA to negotiate deals has saved the state tens of millions of dollars and raises the bar on the leadership the Governor appoints to run the agency.

A Step Further Than Any Other State

To realize the full value of negotiated goods and services, Daniels took one last step in reforming Indiana’s procurement process.  He wanted to ensure IDOA measured and validated the savings gained in each area over time. Other states that had streamlined their procurement practices often did so as a quick budget fix but ultimately failed to sustain savings over time. Daniels wanted to ensure procurement process was sustainable and became the long-term manner in which Indiana did business.

Thus IDOA installed a practice by which the state’s contracts with each vendor are subject to regular review to ensure pricing remains consistent and services are delivered as negotiated. The level of performance measurement in procurement that one finds in Indiana today is to date unknown in other states – although they have begun to study it because its sustainability has an obvious appeal.

The Results

Overall, the goal of the program was to spend taxpayers’ dollars wisely and approach buying supplies like any private sector company would. After seven years, $90 million has been validated in savings to date, and $200 million is expected in long-term savings.  Among the validated savings include $5.5 million saved taxpayer dollars in computer equipment, $4.3 million in office supplies, and $1.5 million in communication equipment.

The success can be found in every corner of government. Even unsexy things like road salt are purchased in new ways. Previously, counties, cities, and towns all bought road salt separately at around $150 a ton.  After bringing 230 entities together through the OneIndiana program, the volume garnered a price of $60 a ton, and those entities saved $8 million overall in the first year. Schools now buy basic supplies as groups, and rebates generated through bulk buying have been returned schools and towns for other uses. The state is not only saving money then, but is also sharing in the savings.

Creating OneIndiana cost the state $5 million, and in seven years it has generated $90 million in savings. It’s a rare day when government spending can legitimately be called an investment, but in this case, it fits.