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COOPERATIVE PROCUREMENT

COOPERATIVE PROCUREMENT. Paul R. Higgins Procurement Manager DGS/DPS . The Rising Procurement Tide (1) New Inputs. Internet Connectivity Information Transparency Competitive Markets Enabling Technology. The Rising Procurement Tide (2) New Expectations.

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COOPERATIVE PROCUREMENT

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  1. COOPERATIVE PROCUREMENT Paul R. Higgins Procurement Manager DGS/DPS

  2. The Rising Procurement Tide(1)New Inputs • Internet Connectivity • Information Transparency • Competitive Markets • Enabling Technology

  3. The Rising Procurement Tide (2)New Expectations • Higher Realized Savings • Improved Responsiveness • Better Supplier Relationships • More Efficient Processes • Faster – Better Decisions

  4. AUTHORITY The Code of Virginia §2.2-4304 authorizes public bodies to utilize cooperative procurement to satisfy requirements for the purchase of goods and services. (See APSPM 3.7 for implementation guidelines.)

  5. WHAT IS “CP”?? • Collaboration of Business Interests Plus (+) • Aggregation of Spend Across Multiple Agencies Plus (+) • Leveraged Purchasing Power Equals (=) Cooperative Procurement

  6. Low Hanging Fruit Individual Success Agency Silos One Hit Wonder Stand Alone Putting Down Roots Group Success Multi-Agency Permanent Solution Integrated Approach OpportunisticPro-Active

  7. Review of LPP®Process Answer: A structured approach to achieving the lowest price at the right quality and service levels via proper application of 6 primary external and internal savings levers: Question: What is LPP®?

  8. LPP® Process Understanding the Opportunity Market Making Structuring the Competitive Process Conducting Initial Data Analysis Follow-On Offers, Negotiations and Supplier Selection Implementation, Monitoring and Tracking 1. 2. 3. 4. 5. 6. Key Activities Deliverables

  9. Step 1: Understanding the Opportunity OBJECTIVE: Select highest potential categories to address through detailed spend profiling effort Determine Addressable Baseline Benchmark Pricing to Assess Opportunity Evaluate Existing Procurement Process, Policies And Specifications Opportunity Assessment Workshop and Category Selection

  10. Understanding the Opportunity A B C D Process For Understanding the Opportunity Key Steps A. DetermineAddressableBaseline B. BenchmarkPricing to Assess Opportunity C. Evaluate Existing Procurement Process, Policies and Specifications D. OpportunityAssessment andCategory Selection NOTE: “PXQ” = Price x Quantity

  11. Validate the Addressable Baseline Understanding the Opportunity A B C D Determine Addressable Baseline Information Sources For Baseline Validation Internal Request for Information (RFI) and Interviews CARS, eVA, and Other Internal Systems External Supplier Request for Information (RFI) Existing Contracts

  12. Understanding the Opportunity A B C D Source 1: CARS, eVA Data and Other Internal Systems CARS, eVA, and Other Internal Systems

  13. Understanding the Opportunity A B C D Source 2: Internal Request for Information (RFI) and Interviews Internal Request for Information (RFI) and Interviews

  14. Understanding the Opportunity A B C D Internal RFI and Interview Analysis Questions

  15. Understanding the Opportunity A B C D Source 3: External Supplier Request for Information (RFI) External Supplier Request for Information (RFI)

  16. Understanding the Opportunity A B C D Source 4: Existing Contracts Existing Contracts

  17. Understanding the Opportunity A B C D Comparison of Information Sources

  18. Understanding the Opportunity A B C D Baselines are subject to change based on the following considerations. Key Contributors to Addressable Baseline Changes Contributor Example • DOC accounts for 30% of the total spend in canned food purchases, but just subcontracted a food services vendor and will no longer purchase canned food; Must reduce addressable total baseline by 30% Changes in Future Spending • VITA’s new contract with Hardware supplier X expires in 2005 with an onerous termination penalty that will delay the process and incur significant legal fees; Must consider eliminating VITA spend from baseline Contractual Restrictions • JMU’s commercial print needs include very specific embossing that only one local supplier can provide; Since, no other vendor can provide the product, must reduce category total baseline by JMU’s spend Lack of Substitute Products/Services • DGS negotiated a contract with pricing based on the CPI index in 2002; To project 2003 baseline spends, must adjust the projection to account for CPI changes Volume and/or CPI Index Changes

  19. Comparing and rectifying the results of the four process steps will lead you to a validated and reliable addressable baseline. 1 2 Internal Request for Information (RFI) and Interviews Internal System Data Collection Existing Contracts External Supplier Request for Information (RFI) 3 4

  20. Understanding the Opportunity A B C D Benchmark Pricing to Assess Opportunity Benchmarking current pricing, specifications, and terms provides insight into potential savings opportunities for the Commonwealth. Information Sources For Benchmarking

  21. Understanding the Opportunity A B C D Benchmarking Comparison $300 or 20% Savings $400 or 27% Savings

  22. Understanding the Opportunity A B C D Evaluate Existing Procurement Process, Policies and Specifications Are internal processes aligned with price efficiency?

  23. Validate Baseline Calculate Savings Prioritize Categories Understanding the Opportunity A B C D Opportunity Assessment Workshop and Category Selection

  24. Understanding the Opportunity A B C D Prioritize Spend Categories for LPP® Using your detailed spend data, evaluate each potential category to determine the savings potential and timing for LPP®. Selection Criteria Categorization Matrix Silver OakCategory Filter Tier 2: “Big Impact/High Complexity” Tier 1: “Quick Hits/Big Impact” High • Large spending • Data takes longer to compile and validate • More fragmentation in category spend across the Commonwealth • High complexity in current VA – supplier relationships • Large spending • Available and complete data • Known and competitive supplier base • Centralization/concentration of Commonwealth spend • Standardized specifications • Experience in category Savings Opportunity Tier 4: “Low Impact/High Complexity” Tier 3: “Medium Impact/Less Complexity” • Smaller spending • High fragmentation of spend • Difficulty in collecting data • High fragmentation of coverage by suppliers • Smaller spending • High fragmentation/decentralization of spend • Longer timeframe for collecting data • Less competition in supplier base Low High Low SourcingComplexity / Time Required

  25. Understanding the Opportunity A B C D Sample Category Evaluation Below is an example of an evaluation template used during an opportunity assessment. The criteria and scoring range can be varied, but this is representative of the key criteria used to assess a category’s sourcing attractiveness. Aggressive data collection and analysis drives category scoring. Illustrated Example: Category A SavingsPotential (Y Axis) Speedto AchieveSavings(X Axis)

  26. Baseline Spend Detail Spend By Supplier FY’03 $ Millions Total Spend = $1.7 MM $0.31 $0.26 $0.87 $0.14 $0.08 $0.08

  27. Step 2: Market Making OBJECTIVE: Define target supplier universe and identify potential savings levers Potential Research Resources To Identify Supplier Qualifications

  28. Market Making A B C D Interview Process All interviews require thoughtful preparation, execution, and follow-up. 5. Write Interview Notes 1. Plan the Interview 4. Conduct the Interview 2. SetUp the Interview 3. Write the Interview Script

  29. Market Making A B C D Internal RFI Questionnaire Sample

  30. Market Making A B C D For supplier-specific information, you can also use the yahoo finance website. There is an option to review competitor information, which will lead you to additional information on other suppliers in the market. Competitor Information Link

  31. Market Making A B C D Hoovers.com is also a good resource for industry and supplier information. Competitor Information Link Supplier Profile

  32. Market Making A B C D The online search may yield familiar results. In this case, we are provided with 135,000 search results. Peruse the top 25 links for any useful information. 135,000 search results!

  33. LPP® Process Understanding the Opportunity Market Making Structuring the Competitive Process Conducting Initial Data Analysis Follow-On Offers, Negotiations and Supplier Selection Implementation, Monitoring and Tracking 1. 2. 3. 4. 5. 6. Key Activities Deliverables

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