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Auction Program Reverse Auction Program Design & Prioritization Workshop Department of Government Services Bureau of Procurement December 9, 2014 Reverse Auction Program Design & Prioritization workshop Agenda Topics Start Time Objectives 10:00 Project approach & status 10:05 BOP current state 10:10 Leading practices 10:30 Recommendations: Governance Initiatives 11:00 Recommendations: Category Roadmap 11:40 Wrap-up 12:25 2 Reverse Auction Program Design & Prioritization workshop Objectives ■ Share key findings from BOP’s current procedures and processes related to reverse auctions (RA) ■ Share leading practices and recommendations to implement a successful RA program Workshop ■ Gain further direction and insight from senior management to tailor recommendations to Objectives BOP’s environment: ■ Confirming multi-year strategy roadmap ■ Refining reverse auction category candidates analysis 3 Reverse Auction Program Design & Prioritization workshop Project approach & status Phases Activities Identify stakeholders Mobilize Gather BOP data Finalize project cadence 1 week Data Capture Conduct spend analysis & contract review Interview BOP commodity manager & specialist & Analysis Assess the Commonwealth's T&C’s against industries leading practices 2 weeks Conduct workshops to validate findings Design Identify areas of opportunity & risk in the RA Identify gap analysis between BOP & leading practice procedures 3 weeks Identify commodity candidates for RA Technology Establish technology requirements Assess existing technology capabilities Review Conduct GAP assessment for SAP SRM 7.02 1 week Conduct design & prioritization workshop Implement Provide leading practice for RA Planning Recommend multi-Year Strategy for RA 1 week Recommend RA implementation plan 4 Reverse Auction Program Design & Prioritization workshop: Current State Spend analysis overview The BOP managed $1.9B in contract spend in CY2013, but none of this spend leveraged reverse auctions . Initial spend analyzed Out-of-Scope: amounted $2.3B $2.3B • Exclude Per • Surplus $1.9B Contract database BOP’s Request • WC Claims Contract spend in scope . Out-of-Scope items were Total (1) • Master • Active Contracts managed by BOP removed after discussing Agreement Total (2) with Mike and Commodity Manager’s . *Surplus* was removed from the scope because it is misclassified spend Initial Total (1): $2,259M Exclude Per BOP's Request $115M Master Agreement $50M Surplus $3M WC Claim $67M Expired Contracts $129M Total (2): $1,896M 5 Reverse Auction Program Design & Prioritization workshop: Current State Spend Analysis by sub-category (top 86%) breakdown 86% of BOP spend is represented in the top 26 sub-categories, 5 of which are IT (33%) Hardware & Services $182.5M Validated by Software & Services Category Sub-Category $179.5M Comm Mgr Professional IT Staffing $175.0M Coal Knerr Work & Dump Trucks $84.6M Energy Print $84.1M Fuels Knerr Hardware $80.6M Construction Reinoehl Roadway Materials $78.4M Equipment Pharmaceutical $57.8M Mail Reinoehl Commercial - Furniture $51.2M Tree Trimming & Stump Cutting Svc. Kleeman Facilities Medical - Staffing $48.2M Materials - Other Myslewicz Truck, Tractors & Trailers $46.5M Financial Credit Card Services Gaul Fuels $44.6M Professional Services $30.1M Food Non-Perishable Gaul Construction $26.0M Furniture Commercial - Furniture Reinoehl Police & Specialty $23.6M Hardware & Services Teprovich IT Service $20.5M Non-Perishable $18.4M Software & Services Teprovich Mail $13.8M IT Professional IT Staffing Teprovich Mail Processing $13.5M Hardware Teprovich Tires $13.0M IT Service Tree Trimming & Stump… $12.0M Teprovich Materials - Other $11.9M Pharmaceutical Gaul Medical Media Planning Services $10.7M Staffing Gaul Lab Supplies $10.5M Professional Services Gaul Coal $10.0M NSA Vegetables &… $7.2M Operation Print Reinoehl Credit Card Services $7.2M Mail Processing Services Kleeman $.0M $50.0M $100.0M $150.0M $200.0M Road Roadway Materials Myslewicz Maintenance . $1.9B total spend in 149 sub-categories Work & Dump Trucks Reinoehl Truck, Tractors, and Trailers Reinoehl . $1.6B (86%) of total spend analyzed in the top 26 sub-categories Vehicles . Credit Card services spend reflects only fee(1) Police & Specialty Reinoehl Tires Reinoehl . Contracts where estimated spend is different than contract value Marketing Media Planning Services Kleeman were adjusted through the interview process Supplies Lab Supplies Knerr Note: (1) Consider analyzing underlying credit card spend to determine if there are additional spend leverage opportunities 6 Reverse Auction Program Design & Prioritization workshop: Current State Contract review . C ontract review focus on 2015 to 2017 by quarters . 2,183 contracts are going to expire in 2015, 2016 & 2017 which accounts for $1.9B in spend . Before 2015, 336 contracts expired, accounting for $150M in spend . After 2017, 176 contracts will expire, accounting for $54M in spend . We received the original data dump from Janice on 10/27, and we applied updates based on interview feedback we received from Mike & the commodity managers during the week of 11/10 461 385 Contract Spend $/Year in $Millions # of Vendor's 306 # of Service Goods $574M 264 $436M 223 199 $222M 90 94 $136M $158M 60 67 $122M 60 52 $85M $86M $57M $17M $32M 26 28 20 21 7 13 $16M 6 6 12 7 138 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2016 2017 Contract Expiration By Quarter: 7 Reverse Auction Program Design & Prioritization workshop: Current State SWOT analysis Strengths Weaknesses . High spend within sourcing categories . No established reverse auction policies or procedures . Strong supplier database . Lack of reverse auction skills or required training . Good relationship with suppliers . Lack of technical experience managing SAP SRM . SAP SRM reverse auction cockpit already in place reverse auction cockpit . No incentive to conduct reverse auction Opportunities Threats . Recognize DGS as a strategic and value generating . No commitment by high level stakeholders agency . No commitment across agencies . Optimize negotiation cycle time . Politically sensitive suppliers (relationships, voting . Provide transparency in the sourcing process blocks, economic impact, etc.) . Increase spend managed under BOP . In some cases, a reverse auction can harm the . Achieve savings supplier relationship . Optimize supplier database 8 Reverse Auction Program Design & Prioritization workshop: Current State Leading practice dimensions Dimensions Description ■ Effectiveness and completeness of the documented or implied reverse auction strategy that supports Strategy & Change the organizational procurement strategy as well as the mechanisms for delivering change through the Management procurement function in the methods and processes used to purchase goods and services ■ Appropriate spend policies and guidelines for the appropriate use of reverse auctions, associated Strategy Governance & approvals, terms and conditions and risk management processes exist to efficiently and effectively Controls operate reverse auctions as part of a broader set of category strategies ■ The organizational design includes specific roles and responsibilities, workflows, metrics and Structure incentives to drive appropriate adoption of reverse auctions ■ Personnel are trained in the appropriate use, applicability and adoption of reverse auction tools and People Organization capabilities Category ■ The procedures and activities of the reverse auction program will identify opportunities, develop Management Cycle strategies, and plan categories through the evaluation of market supply and demand drivers ■ Appropriate processes to conduct reverse auctions, aligned with the category management cycle, Operational Processes including communication, event management, award completion and management of product and Processes service delivery based upon the terms, conditions and pricing of the award Systems & ■ Appropriate IT application to support the operational process and category management cycle Technology focused on efficient reverse auction event management ■ P resence of clean and organized spend data that has the ability to provide visibility and track results Enablers Master Data & BI-PI for the reverse auction program 9 Reverse Auction Program Design & Prioritization workshop: Current State Qualitative interviews and workshop Dimensions Quotes "I remember a reverse auction "Squeezing the margin "if I tell my vendors Reverse "Agency Strategy & Change done many years ago for Salt, could cause our bigger Auction - they aren't going support Management I don't think it went well" suppliers to drop out" to want to participate" is crucial" "multiple agencies "it is very difficult "T&C's are Strategy Governance & requesting different ways to satisfy all the sometimes hard for Controls to procure same item" vendors” suppliers to agree to" "PennDOT is the main "Each agency has different specs "PC's was one we really Structure driver on this, they would for their purchases which would considered for reverse auction have to be convinced" make it difficult for reverse auction" because they have the specs" “Good training will be key for “My category has a million items, I People suppliers and staff for can't see it being a good category Organization reverse auction to work” for reverse auction” "A lot of vendor participation “Getting usage, volume "I would like to find Category is regionalized. They only commitments and prices from more suppliers for Management Cycle want to cover their area" Agencies (for fuel)
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