Cooperative Purchasing—An Effective Sourcing

Strategy

Gary D. Link, C.P.M.E&I Cooperative Purchasing

Ralph MaierUniversity of Pennsylvania

2

Cooperative Purchasing:An Effective Sourcing Strategy

Cooperate: verb

1. To act or work with another or others: act together

2. To associate with another or others for mutual benefit

Collaborate: verb

To work together, especially in a joint intellectual effort

Cooperative: adjective

Marked by a willingness and ability to work with others

Cooperative: noun

An enterprise or organization owned by and operated for the benefit of those using its services

3

Group Purchasing Organizations (GPOs)Definition and Historical Perspective

“ Two or more independent organizations that join together, either formally or informally, or through an independent third party, for the purpose of combining their individual requirements for purchased materials, services, and capital goods to leverage more value-added pricing, service, and technology from their external suppliers than can be obtained if each organization purchased goods and services alone”

- Center for Advanced Purchasing Studies

•Group Buying traces to the 1800’s just after the Civil War, with groups such as farmers, hospitals, schools, food service, and franchises.

•Today, GPOs exist across all sectors of business, industry, government, and education in the United States

4

GPO Challenges

Agreement on standards/specifications

Member commitment

Public law or policy (internal and external)

Brand preferences

Maverick Buying

Shopping/leveraging GPO contracts

5

Collaboration at Penn

Collaborative buying complements Penn specific contracting and cost containment activities

Key component of our annual Strategic Sourcing & Cost Containment Plan

Formal collaborative initiatives include:• Partnership w/University of Pennsylvania Health System• Philadelphia Area Collegiate Cooperative (PACC)• E&I Competitively Awarded Contracts• E&I/SciQuest Science Catalog Contracting Initiative

Collaboration metrics:• 2000 was 1st year for tracking spend with collaborative contract suppliers• $39,000 in spend with collaborative contract suppliers in 2000• $7.5M in spend with collaborative contract suppliers in 2004• 2005 spend goal is $12M• 2007 spend goal will be $25M

6

University Health System

Limited success due to different purchasing strategies and sourcing priorities

Significant cost saving realized from successful collaborative events with the Health System Materials Management organization

Sole source copier contract awarded to IKON in 2004• Combined 1st year cost savings of $3M

Sole source office products contract with Staples prior to Penn re-bidding the contract w/PACC• Combined 1st years cost savings of $2.3M

7

PACC and E&I

Partnership agreement initiated in August 2004 E&I partnership enables PACC members to increase capacity for

competitive bidding events without additional commitment of resources

E&I will recruit additional buying commitments from other local institutions for specific commodity events and handle all RFP activities

PACC retains decision making authority

Gas cylinder contract awarded May 2005

Additional commodities currently in development

8

E&I/SciQuest Partnership

Aggregation of science catalog non-contract supplier spend for possible collaborative contracting & cost savings

35 of 122 Penn Marketplace suppliers are SciQuest science catalog suppliers

Approximately 3M of the $100M spent with Penn Marketplace suppliers in 2004

Anticipated cost savings of $300,000 for minimal effort and resources

9

Delivering Lower Costs for Higher Ed

E&I delivers lower life-cycle costs (not just lower prices) for highereducation in three key ways:

We lower the up-front purchase price of goods and services by

aggregating the buying power of over 1,500 member institutions

We optimize the procurement process by leveraging the knowledge

and experience of our member community

Create contracts that meet applicable procurement standards, reducing need to duplicate efforts among individual institutions

Establish best practices and efficient methods to reduce total cost

We provide additional financial incentives for members, including

return of net income based on individual member purchases

10

Competitive Solicitation Process

Relationships•Deep working relationships with Procurement Professionals•Utilization of cross-functional experts, i.e. Facilities, IT, Business Officers in

RFP Teams•Focused relationships with specialized communities of interest, i.e. PACC,

AIRI, NACUBO

Process• Identify Business Partners •Conduct solicitation benchmarking•Develop, issue and manage RFP

State compliant for many public institutions, eliminating the need for an institution-issued RFP

Reviewed and validated by the National Institute of Governmental Purchasing (NIGP)

• Analyze proposal submissions • Develop Best of Breed Contracts

11

Member Roles & Responsibilities

Collaborate on products/services for solicitation

Commit volume and provide data for spend analysis

Review specifications and RFP document prior to release

Participate in evaluation process and make award recommendations

Key Issue: Member participation and utilization

12

Key Benefits to Members

Direct Cost Reduction via Enhanced Solicitation Process •Spend Analysis• “Best Practice” Evaluation Matrices, i.e. Benchmarking•Standardization of Products/Services•Reduce Duplication of Process•Contract Negotiation and Management•Consensus with Members to Commit to Project•Significant Savings on Products and Services

Indirect Cost Reduction• Improved Efficiencies and Increase Productivity•Reallocation of Internal Resources•Value Added Services• Improved Quality and Service• Joint Learning, Opportunities for Networking, and Information Sharing•Potential for Reduced Inventory Costs, Shorter Lead Time for

Deliveries, and Increased Availability

13

Key Benefits to Members

Local focus and support•Regional Contracting representative•Focus on Regional-Based Products and Services•Small, group-focused RFP teams

ISM Continuing Education Credits for participation in RFP teams•Opportunity for localized Supplier Diversity

Ongoing strategic benefits•Contract management and administration•Comprehensive marketing support and member communication plan•Synergy with NAEB

Incentive and Rebate Programs

14

Conclusion

Cooperative Purchasing

Works!