Category Management and Strategic Sourcing Update Number 3

Phase 2 of this engagement has concluded as planned on May 31, 2022. This report provides a progress update on three components of this engagement: 1) Strategic Sourcing Opportunities; 2) Operationalization of Category Management including updates of all relevant process and procedure documents as well as the training delivery to all Category Management and Strategic Sourcing staff 3) Recruitment as set forth at the onset of Phase 2 to provide the General Government and Licensing Committee. . During the second phase of Category Management and Strategic Sourcing, the City has achieved confirmed financial benefits of $81.53 Million against an aspirational target of $110 Million through the application of a strategic approach to high value and highly complex procurements. Further opportunities, where Ernst & Young was involved, are in progress with estimated financial benefits of $1.47 Million and are expected to be completed by June 30, 2022. The total annual financial benefits as a result of this second phase is estimated at $83 Million, or 75 percent of the $110 Million target. Several additional opportunities have been identified through this project, planned to be executed after May 31, 2022. The estimated benefits are lower than the original aspirational target of $110 Million due to the following reasons: - Changes and reprioritization within Divisional plans and adjustments due to focus on response and recovery efforts associated with COVID-19. - Divisional resource constraints involved in strategic sourcing projects as well as resource challenges in Purchasing and Materials Management Division. - Timing of opportunity identification did not permit a strategic sourcing approach as it would take some time to conduct activities required within this process and the time to market was critical. - Insufficient time to execute a strategic sourcing approach due to urgent service delivery priorities. However earlier engagement with the Category Management and Strategic Sourcing unit by Divisions will assist in addressing this challenge. Beginning in 2021 and continuing to date the Category Management and Strategic Sourcing team has been working on several strategic procurements with the Divisions which include: the Gardiner Expressway Rehabilitation, Integrated Pumping Station, ModernTO and Concept 2 Keys programs that may not have defined benefits at the moment, however are financially significant investments, large in scope, complex and high risk programs. These programs are strategic City initiatives that have an impact on the residents, businesses and visitors to the City of Toronto and require a more disciplined approach to the procurement through the Category Management and Strategic Sourcing unit. The City has identified an additional pipeline of strategic procurement opportunities which the Category Management and Strategic Sourcing unit is, in the discovery phase, exploring and validating with the City's Divisions that have the potential to yield $46.59 Million in additional financial benefits for the City, bringing the total benefit to $129.59 Million. This requires further collaboration and partnership between Purchasing and Materials Management Division and the Divisions responsible for the delivery of their programs. It is envisaged that through the continued application of the category management governance model, appropriate supports will be generated on key strategies to achieve the City's long-term capability uplift and procurement transformation goals. Overall, within the last two years of the introduction of Category Management and Strategic Sourcing, engagement across the organization within the top five (5) spend categories has increased. Divisions are actively identifying large, high risk and highly complex projects and are requesting the procurement to be conducted strategically through Category Management and Strategic Sourcing. This has led to an increasingly positive relationship between Purchasing and Materials Management Division and Divisions, which will contribute to future positive outcomes and increased benefits associated with strategic sourcing through Category Management and Strategic Sourcing. In addition, Category Management and Strategic Sourcing has completed key deliverables to operationalize category management, including improvement of governance and design of a contract management and supplier relationship management process. These deliverables will help the City to establish a standard approach to managing suppliers and contracts. The Category Management and Strategic Sourcing team has continued to build the expertise and skill set within the team and is now able to successfully operate independently of Ernst & Young. The team continues to grow with recruitment efforts underway, and has developed the required knowledge, skills and processes to sustain the Category Management and Strategic Sourcing unit independently and further external support will not be required.