Cooperative Purchasing— An Effective Sourcing Strategy Gary D. Link, C.P.M. E&I Cooperative Purchasing Ralph Maier University 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 1 st 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 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 1 st 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 higher education 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!