COOPERATIVE PROCUREMENT

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COOPERATIVE PROCUREMENT
Paul R. Higgins Procurement Manager DGS/DPS
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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

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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.)

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WHAT IS CP??

• Collaboration of Business Interests
• Plus ()
• Aggregation of Spend Across Multiple Agencies
  
• Plus ()
• Leveraged Purchasing Power
• Equals ()
• Cooperative Procurement

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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

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Review of LPP Process

• Question What is LPP?

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
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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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Step 1 Understanding the Opportunity
OBJECTIVE Select highest potential categories
to address through detailed spend profiling effort
Determine Addressable Baseline
Evaluate Existing Procurement Process,
Policies And Specifications
Benchmark Pricing to Assess Opportunity
Opportunity Assessment Workshop and Category
Selection
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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
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Understanding the Opportunity
A
B
C
D
Determine Addressable Baseline
Information Sources For Baseline Validation
CARS, eVA, and Other Internal Systems
Internal Request for Information (RFI) and
Interviews
External Supplier Request for Information (RFI)
Existing Contracts
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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)
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Understanding the Opportunity
A
B
C
D
Source 4 Existing Contracts
Existing Contracts
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Understanding the Opportunity
A
B
C
D
Comparison of Information Sources
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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

• VITAs 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

• JMUs 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 JMUs 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
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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
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Understanding the Opportunity
A
B
C
D
Benchmark Pricing to Assess Opportunity Benchmarki
ng current pricing, specifications, and terms
provides insight into potential savings
opportunities for the Commonwealth.
Information Sources For Benchmarking
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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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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 1 Quick Hits/Big Impact
Tier 2 Big Impact/High Complexity
High

• Large spending
• Available and complete data
• Known and competitive supplier base
• Centralization/concentration of Commonwealth
  spend
• Standardized specifications
• Experience in category

• Large spending
• Data takes longer to compile and validate
• More fragmentation in category spend across the
  Commonwealth
• High complexity in current VA supplier
  relationships

Savings Opportunity
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

• Smaller spending
• High fragmentation of spend
• Difficulty in collecting data
• High fragmentation of coverage by suppliers

Low
High
Low
SourcingComplexity / Time Required
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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 categorys sourcing
attractiveness. Aggressive data collection and
analysis drives category scoring.
Illustrated Example Category A
SavingsPotential (Y Axis)
Speedto AchieveSavings(X Axis)
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Baseline Spend Detail
Spend By Supplier FY03 Millions
Total Spend 1.7 MM
0.31
0.26
0.87
0.14
0.08
0.08
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Step 2 Market Making
OBJECTIVE Define target supplier universe and
identify potential savings levers
Potential Research Resources To Identify Supplier
Qualifications
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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
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Market Making
A
B
C
D
Internal RFI Questionnaire Sample
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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.
Competitor Information Link
Supplier Profile
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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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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