Higgins Cooperative Procurement

COOPERATIVE PROCUREMENT: 

Paul R. Higgins Procurement Manager DGS/DPS COOPERATIVE PROCUREMENT

The Rising Procurement Tide (1)New Inputs: 

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

The Rising Procurement Tide (2)New Expectations: 

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

AUTHORITY: 

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.)

WHAT IS “CP”??: 

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

Opportunistic Pro-Active: 

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

Review of LPP® Process: 

Question: What is LPP®? 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:

Slide8: 

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

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Step 1: Understanding the Opportunity OBJECTIVE: Select highest potential categories to address through detailed spend profiling effort

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Key Steps A. Determine Addressable Baseline NOTE: “PXQ” = Price x Quantity Understanding the Opportunity A B C D Process For Understanding the Opportunity B. Benchmark Pricing to Assess Opportunity C. Evaluate Existing Procurement Process, Policies and Specifications D. Opportunity Assessment and Category Selection

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

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

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

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

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

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

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Comparison of Information Sources Understanding the Opportunity A B C D

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Key Contributors to Addressable Baseline Changes 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% 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 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 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 Contributor Example Baselines are subject to change based on the following considerations. Changes in Future Spending Contractual Restrictions Lack of Substitute Products/Services Volume and/or CPI Index Changes Understanding the Opportunity A B C D

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

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

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

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

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Understanding the Opportunity A B C D Opportunity Assessment Workshop and Category Selection

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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 Oak Category Filter Tier 3: “Medium Impact/ Less Complexity” Tier 4: “Low Impact/ High Complexity” Smaller spending High fragmentation/decentralization of spend Longer timeframe for collecting data Less competition in supplier base Large spending Available and complete data Known and competitive supplier base Centralization/concentration of Commonwealth spend Standardized specifications Experience in category Tier 1: “Quick Hits/ Big Impact” Smaller spending High fragmentation of spend Difficulty in collecting data High fragmentation of coverage by suppliers Large spending Data takes longer to compile and validate More fragmentation in category spend across the Commonwealth High complexity in current VA – supplier relationships Tier 2: “Big Impact/ High Complexity” Sourcing Complexity / Time Required High Low Savings Opportunity Low High Understanding the Opportunity A B C D

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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 Savings Potential (Y Axis) Speed to Achieve Savings (X Axis) Understanding the Opportunity A B C D

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

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

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

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Internal RFI Questionnaire Sample Market Making A B C D

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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

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

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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!

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