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5/7/18
1
Fact-BasedNegotiationsPresentedby:LourdesCoss,MPA,CPPO
Learningobjective
Ê Learntoprepareforfact-basedcontractnegotiations
Ê Gainunderstandingoftheinformationcomponentsneededinfact-basednegotiations
Ê Developmodelstoquicklyevaluatecounteroffers
Fact-BasedNegotiationsOverview
Ê AProcessforDefiningObjectives&Requirements
Ê PrinciplesofCollaborationandLeverageBargaining
Ê KnowledgeÊ Understanding&QuantificationofExpectations
Ê Understandingoftheproduct/industry/market
Ê ModelÊ Identificationofcomponentsand“ShouldCost”
Ê DevelopmentofthreeapproachesMSS,LAS,andBATNA
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TheJengaEffect
Process
Ê HighLevelIdentification
Ê Research
Ê Analyses
Ê Modeling
Ê StrategyDevelopment
Ê Implementation
Savingsinitiativesprogresstodate
Source: Team analysis; SIELs
PRELIMINARY
Savings impact breakdown and progress through realization stages
$M1
Key developments
1 Showing top end of the range for all initiatives with ranged savings estimates
July 16, 2014 Updatedinitiatives:• SIELPart2for#2LEDStreetlightstobesubmitted• SIELPart2for#3FleetDisposaltobesubmitted
17.023.9 24.9 24.9 24.2 25.2 23.8
6.9
17.0
Today
30.1
2.42.4
1.5
Mid-April
29.3
2.4 1.0
0.7
Mid-March
27.1
1.4 1.0
0.5
Mid-Feb
25.9
1.0
Mid-Jan
25.9
1.0
Mid-Dec
25.92.0
Mid-Nov
23.9
Mid-Oct
17.0
Target : $50M
RS1 (SIEL1) RS2 RS3 (SIEL2) RS4 Implemented ▪ LED agreement with XXXXXXXX: Savings model has been updated with terms of the agreement, ready for SIEL Part 2 approval
▪ Fleet disposal sales as of June 30, 2014 totaled $2.2 million, for $1,030,968 in savings over baseline
▪ More initiatives needed to reach the Mayor’s $50M/yr target
RS5 Realized
SAMPLE
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7
SpendAnalysis:StrategicWavePlan
Wave 1 = $16M - $28M
Wave 2 = $4M - $7M
Wave 3 = $1M - $2M
A recommended wave plan was developed based on savings opportunity estimates, ease of implementation elements, and the typical number of categories included in a strategic sourcing Wave.
Ease of Implementation Factors
• Category Complexity• Entity Distribution• Market Conditions• Ordinance Regulations
Recommended Sourcing Waves
HighLow
Low
High
HUMANRESOURCES
HIGHWAY&ROAD
TECH & COMM
SizeofO
pportunity
EaseofImplementation
LOGISTICS&SHIPPING
FUEL
ROADSALT
PROFESSIONALSERVICES
FACILITIES
SYSTEMSOLUTIONS
OTHER
UTILITIES
TRAVEL&ENTERTAINMENT
GENERAL&ADMINISTRATIVE
SCIENCE&HEALTHCARE
MARKETING&PRINTFOOD&FOODSERVICES
VendorD
Vendor B
VendorC
Vendor A
Annual Savings
Vendor E
SpendAnalysis&CostSavingsOpportunitiesSAMPLE
Source:CityofHoustonspenddata;interviews;teamanalysis
47
8292
229
39
157
51
54
81
NonITprofessionalservices
Roadways,paving&drainage
84
Fleet&fuel Maintenanceservices&supplies
129 Electricity
General&buildingconstrx.&repair
Water&sewerconstrx.&maint.
Easetocapture(includingtiming)
Low Medium High
PreliminaryopportunityAssessment ($MM)
High
Medium
Low
Watersupply&treatment 31
Wastemgmt.&disposal
Facilities
Telecom
IT
Size of bubble = FY2013 spend $MM
1SIELswilladdressspecificopportunitieswithinactionablespendareasandmaynotaddresstheentirescopeofeachspendarea
Spendinallcategories:$1.1BN
Third-partyspendprioritizationmatrix
Identified Launched SIELP1Long-termtransformativecategory
PRELIMINARY
-Existingfleetoptimization-Fleetpurchaseoptimization
-Watertreatmentchemicalscontractrenegotiation
DescriptionofongoingSIELs1
FORDISCUSSION
-LEDstreetlightretrofit
Currentfocus
SAMPLE
Pre-SolicitationMarket,Industry,andProduct/ServiceResearch
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IndustryandMarketResearch
Ê IndustryÊ Definition–Numberoffirmsprovidingaparticulartypeof
goodsorservices
Ê Example:Construction,OfficeEquipment,Automobiles,Technology
Ê MarketÊ Definition–Thecustomersbeingserved
Ê Example:Government,Education,Non-Profit,Fortune1000,Healthcare,etc.
Product/ServiceResearch
Ê What’savailable?
Ê Howmanyfirmsplayinyourmarket?
Ê Whatarethefeaturesand/orspecifications?
Ê Suitabilityforyourneeds?
Ê AlignmentwithyourorganizationÊ Traditional–lesstoleranceforchangeÊ Strategic/Traditional–somealignment,buttraditionaltendenciesÊ InnovativeValueadd–seekingtoalignwithindustry
Ê PriceandQuality
Industry/Market/ProductResearch
Ê IndustryResearchÊ ListofcompaniesthatprovidethegoodsandservicesbeingsoughtÊ Whatportionofthemarketdotheyserve?
Ê MarketResearchÊ GovernmentMarketÊ OtherVerticalMarkets(public&privatesector)
Ê Productand/orServiceResearchÊ Features/SpecificationsÊ PriceÊ SupplyandDemandÊ AvailabilityandConditions
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IndustryResearch
Ê AreasofconsiderationÊ KeyPlayersÊ Historicalinformation
Ê IndustryGrowth
Ê SizeofIndustryÊ TrendsÊ MajororNotableChangesintheIndustry
MarketResearch&ProcurementMethodSelection
Ê Product/ServiceAvailability
Ê MarketSegmentation
Ê Supplyanddemand
Ê PricingStructure
Ê RegulatoryRequirements
ComponentsofIndustryAnalysis
Ê Reportsavailable
Ê Approachthecorrectindustry
Ê Supplyanddemandscenario
Ê Competitivescenario
Ê Recentdevelopments
Ê Industrydynamics
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MarketResearch
Ê AreasofConsiderationÊ Competitors(listoffirmscompetinginaspecificmarket)
Ê MarketShare
Ê Demographics,Psychographics&Geographic
Ê Behaviors&TrendsÊ Numberofagenciescompetingfortheservicesofthepoolof
firmsavailable
MarketResearch
Ê Establishrealisticminimumrequirements
Ê Identifypotentialsources
Ê Determineavailability
Ê Identifynewproducts,innovativeapproaches,andpotentialchallenges
AgencyProfile
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AgencyAssessment
Ê LevelofMaturityoftheOrganizationÊ TraditionalÊ StrategicÊ Value-Add,Innovative
Ê PaymentPolicyÊ AccountsPayableCycleÊ ApprovalProcess
Ê OtherAgenciesintheMarketÊ SupplyandDemand
ProcurementCategories,Methods,andMarketResearch
No Yes
Critical Strategic
Low
High
GoalQuickturnaroundwithminimaldisruptionofoperations
GoalMaximizevalue
GoalCompliantandefficientprocesswithlowerprice
GoalLowestTCOandcontrolleddemand
Commodity(Low-touch) Leverage
Valuecreatedbyaggregation
Item
com
plex
ity/criticality
~$650M ~$300M
~$50M ~$200M
RFP
Bid
MarketResearchprovideinsightintohowprocurementsshouldbestructured(i.e.paymentterm,valueadd,scope/specdevelopmentOrganizationalmaturityandstructurehasanimpactonhowgoodsandservicesareprocured
Categorymanagerrolesincategoriesrequiringmainly“Strategic”skills
RationaleCategorytitle Categoriesincluded SpendCategorymanager
TOTAL $390M7FTE
Quadrant
Utilities Electricity,NaturalGasandwater $165M1 ▪ Highspendbutfewvendorsandcontracts
▪ Strategic▪ Low-touch
Fleet Vehicles,parts,fuels $95M2 ▪ Complexandstrategic▪ RequiresProcurementreviewof
businesscases
▪ Strategic
IT/Telecom 3 Network:hardware,software,servicesPersonal:hardware,software,peripheralsTelecom:personalandnetworkhardwareandservicesITstaffing
$79M ▪ Verycomplexcategory▪ RequiresProcurementreviewof
strategiccapitalprojectsbusinesscases
▪ Strategic▪ Leverage▪ Critical
Airportgoodsandservices
1 Healthinsurance,propertyandcasualtyinsurance
$51M ▪ Complexcontracts▪ Strategic
InareaswithmorethanoneFTE,differentskillsetsmaybeusedtocreatejuniorandseniorroles.Forexample,inIT,onecategorymanagercouldbestronglyqualifiedforthe“Strategic”rolewhiletheothertwocouldmeettheleverageandcriticalroledescriptions
SAMPLE
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RiskAssessment
Ê AgencyRiskFactorÊ ClarityÊ RequirementsAlignmentwithIndustryPracticesÊ BudgetÊ Knowledge&ExperienceÊ TimingÊ CoordinationandDecision-Making
Ê ContractPerformanceÊ SupplierManagementÊ PastContractVolumeÊ MaverickSpend
Modeling
NegotiatedCategories
Ê Architectural&Engineering
Ê ConsultingServicesÊ ManagementConsultingÊ ITConsulting
Ê TechnologyandEquipmentÊ TelecommunicationsÊ OfficeEquipment
Ê EnergyManagementÊ NaturalGas
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PricingComponents
Ê ConsultingÊ LaborÊ Overhead+Burden
Ê ProfitÊ ReimbursableExpenses
Ê ComplexityandSizeofProject
Ê ITConsultingÊ ConsultingComponents
Ê SoftwareLicense
PricingComponents(cont.)
Ê TelecommunicationsÊ VolumeÊ EquipmentÊ Requirements/FeaturesÊ LengthofContractÊ BonusesandPromotionDiscounts
Ê Energy(NaturalGasorElectricity)Ê Tradedmarketprice+markup/discountÊ DeliveryÊ EnergyManagementFeeÊ TariffsÊ Volume
$M
Initiativeandsavingsownershipbyleaddepartment
Source: Team analysis; SIELs
PRELIMINARY
3.73
4.34
7.00
2.70
23.77
2.40
2.43
6.00
0.27
1.50
1.50
FMD
1.00
6.00
FIN
5.00
1.00
1.30
LGL
7.00
HITS
7.10
1.1
0.10
Total
30.1
OtherSWMHPDHCDGSDHAS1PWE
5.00July16,2014
Savings impact breakdown by lead department
Noinitiativescurrentlyledbythesedepartmentsunderthe
P2Pprocess
SCORECARD
RS5Realized
RS3(SIEL2)Approved
RS4Implemented
RS2Assessed
RS1(SIEL1)Identified
1 In progress
SAMPLE
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DevelopingtheModel
Ê PricingResearchÊ IndustryÊ GovernmentMarket
Ê AgencyPricingRiskandTolerances
Ê EstablishPricingStructureÊ Architectural&EngineeringServicesÊ ITConsultingServicesÊ ConsultingServicesÊ NaturalGas
PreparationforPriceNegotiations
Ê TeamÊ Procurement
Ê EnduserÊ Legal
Ê RolesÊ PriceLeadÊ Volume/Quantity/Quality/ValueAddTermsLead
Ê LegalTerms
Ê Pre-NegotiationMeetingandPreparation
NegotiationClassification
Ê TypicalScenariosÊ EngineeringContractÊ ConsultingContract
Ê ValueAddProcurementÊ AutoPartsManagementÊ ManagedOfficeSuppliesÊ ManagedPrint
Ê ComplexNegotiationsÊ TelecommunicationsÊ Energy
Ê ElectricityÊ NaturalGas
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Questions
ThankyouContactInformation
LourdesCoss,MPA,CPPO
(312)927-3490
www.lourdescoss.com