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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
COOPERATIVE PROCUREMENT

Paul R. Higgins

Procurement Manager

DGS/DPS

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
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
review of lpp process
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®?

slide8

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

slide9

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

slide10

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

slide11

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

slide12

Understanding the Opportunity

A

B

C

D

Source 1: CARS, eVA Data and Other Internal Systems

CARS, eVA, and Other Internal Systems

slide13

Understanding the Opportunity

A

B

C

D

Source 2: Internal Request for Information (RFI) and Interviews

Internal Request for Information (RFI) and Interviews

slide14

Understanding the Opportunity

A

B

C

D

Internal RFI and Interview Analysis Questions

slide15

Understanding the Opportunity

A

B

C

D

Source 3: External Supplier Request for Information (RFI)

External Supplier Request for Information (RFI)

slide16

Understanding the Opportunity

A

B

C

D

Source 4: Existing Contracts

Existing Contracts

slide17

Understanding the Opportunity

A

B

C

D

Comparison of Information Sources

slide18

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

slide19

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

slide20

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

slide21

Understanding the Opportunity

A

B

C

D

Benchmarking Comparison

$300 or 20%

Savings

$400 or 27%

Savings

slide22

Understanding the Opportunity

A

B

C

D

Evaluate Existing Procurement Process, Policies and Specifications

Are internal processes aligned with price efficiency?

slide23

Validate Baseline

Calculate Savings

Prioritize Categories

Understanding the Opportunity

A

B

C

D

Opportunity Assessment Workshop and Category Selection

slide24

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

slide25

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)

slide26

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

slide27

Step 2: Market Making

OBJECTIVE: Define target supplier universe and identify potential savings levers

Potential Research Resources To Identify Supplier Qualifications

slide28

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

slide29

Market Making

A

B

C

D

Internal RFI Questionnaire Sample

slide30

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

slide31

Market Making

A

B

C

D

Hoovers.com is also a good resource for industry and supplier information.

Competitor Information Link

Supplier Profile

slide32

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!

slide33

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