Strategic SourcingMethodologies, Tools, Processes
and Outcomes
E&I’s Strategic Sourcing Process
Fernando I. Prieto
&
Vince Patriarco
April 21, 2009
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What Will We Cover Today?
• Introduction
•Methodology
•Higher Education Sourcing Challenges
•E&I Sourcing Program – An In-Depth Look
Spend Analytics
Building Sourcing Teams
Strategy Development
Benchmarking
Contract Administration
•Questions
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Introduction
BUYER MENTALITY
•Procedural
•Spontaneous
•Immediate
•Narrow Viewed
•Need driven
•Depletes Assets
•Transactional
SUPPLY CHAIN MGMT MENTALITY
•Methodical
•Organized
•Time Sensitive
•Collaborative & Altruistic
•Data Driven
•Managed Assets
•Strategic
There are key differences between buying and strategically sourcing.
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All Strategic Sourcing Methodologies:All Strategic Sourcing Methodologies:
Strategic Sourcing Methodology
Understanding the importance of a methodology is essential.
• Most importantly a Strategic Tool***
• A written 6 to 8 step framework for sourcing initiatives
• Is a set of guidelines for skilled procurement professionals
• Becomes the high level project plan for the initiative
• Lists at a minimum the most important analyses required
• Enables organizations to achieve procurement led cost reduction savings
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E&I Strategic Sourcing Methodology
Our E&I strategic sourcing methodology continues to evolve and correspond with our unique cooperative purchasing contract business.
• Assemble member volunteers, committee
• Engage functional experts
• Ensure cross-location views
• Establish roles & team scope
• Organizational and stakeholder buy-in
• Establish desired outcomes
• Draft action plan to reach outcome
• Select target industry sector
• Select target suppliers
• Receive management approval & buy-in
• Communicate strategies to membership
Develop Strategy
• Leverage member relationships w/suppliers
• Conduct pre-sell supplier meetings
• Gauge supplier willingness
•Determine solicitation approach
• Communicate plans internally
• Update membership communications
Engage Suppliers
Build Sourcing Team
Assess Opportunity
MEMBERSHIP:
• Analyze member demand drivers
• Profile member spend & related costs
• Gauge membership interest and management buy-in
EXTERNAL:
• Evaluate Industry & supplier landscape
• Benchmark & assess competing contracts
Execute Solicitation
Pre-Solicitation:
• Comply with state bid requirements
• Determine evaluation criteria•
•Draft solicitation & release publicly
Post-Solicitation:
• Evaluate supplier solicitation responses
• Perform benchmark comparisons
• Negotiate & Finalize Award
Admin & SRM
MEMBERSHIP:
• Create & publish contract docs
• Collaborate with member services
SUPPLIERS:
• Establish supplier partner relationship
• Conduct monthly operational update meetings
• Hold quarterly supplier meetings
• Measure contract performance
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Audience Survey
Assessment Stages
Data Analysis
Developing Strategy
Supplier Screening
Sourcing Events
Negotiating
Contract Implementation & Administration
What areas of sourcing methodology do procurement folks in Higher Ed find most challenging?
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The E&I Sourcing Program – Let’s take a look
• Highlight key steps in the methodology
• Discuss key work done in the areas of
Approaches Utilized
Examples of Capabilities
Develop Strategy Engage SuppliersBuild Sourcing
TeamAssess Opportunity Execute Solicitation Admin & SRM
E&I relies heavily on collaborative and exhaustive approaches to formulate its overall sourcing program
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Spend Analytics
Assess Opportunity
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The spend cube approach is a more direct approach rather than the survey approach taken with the 2006 spend survey.
E&I Spend Cube Advantages Over Prior Survey Process
Key Approach Key Approach DifferencesDifferencesFactors 2006 Spend Study 2007 Spend Cube
Method - Online Survey - Actual Data Exchanged
Collection - Survey Software Driven - People & Database Driven
Spend requested - Top Supplier Spend - All Supplier Spend- Cost Center Spend
Other data - Acquistion Practices, Procurement Tools
- No Procurement Metrics
Results - Responder Driven Results
- Data Driven Results
Bias Potential Bias Less Potential for Bias
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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E&I Key Initiatives Spend Cube Background
The spend cube is the key methodology proposed for improving visibility of data available to the contracts team.
• Expected benefits include:
Insight to member spend data beyond surveys
Source information for potential new contract areas
Better way to benchmark information along with other data aggregation and procedures
Additional data points for better informed sourcing decision making
Data Aggregation
Spend & Trend Analysis
External Assessment
Spend Cube
Database
Spend Reports
User Surveys
Supply Mkt Analysis
Benchmark Analysis
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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The Spend Cube methodology drives the development of our overall member spend profiling activities.
Data SourcesData Sources
General General LedgerLedger
Accounts Accounts PayablePayable
Vendor Vendor CRM DataCRM Data
Paid Paid InvoicesInvoices
Comm
odity
Suppliers
Cost Center
3 Dimensions of Cube3 Dimensions of Cube
• Suppliers
From whom members are buying
• Cost Center
The departments driving the purchasing
• Commodity
The goods or services being purchased
OutputOutput
E&I Spend Cube What is a spend cube?
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Various information sources were tapped by member to submit the requested data.
E&I Spend CubeOur Sample Group of School Data
Main:Main:All payments provided. Did not include salary payments
Main: Contract or Non ContractMain: Contract or Non ContractSeparate spend provided for both contracted and non contracted suppliers
P-Card:P-Card:In some cases p-card spend was provided separate from main spend
Paid PO’s:Paid PO’s:Cases where most spend is largely controlled through purchase orders
Main: Over $25kMain: Over $25kAll spend excluding payees with payments totalling less than $25k
School 1 – Main: Non Contract
School 1 – Main: Contract
School 2 – Main
School 3 - Main
School 4 - Main
School 5 - Main
School 5 – P-Card
School 6 - Paid PO's
School 6 – P-Card
School 7 - Main: Over 25K
Consolidated Consolidated Data PartsData Parts
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Understanding the characteristics of the members participating is important.
E&I Spend CubeSample Population - Characteristics
InstitutionInstitution GeographyGeography
EnrollmentEnrollment
FTE Range Count Spend Dollars
% of Total
>20,000 5 $1,473,040,360 64%
10,001-20,000 1 680,302,161 30%
5,001-10,000 1 142,310,404 6%
<5,000 0 - 0%
All Ranges 7 $2,295,652,925 100%
Regions Represented Count Spend Dollars
% of Total
Mid Atlantic 2 $1,177,832,204 51%
Southeast 1 651,885,371 28%
Midwest 1 145,632,186 6%
New England 1 142,310,404 6%
Western 1 90,076,912 4%
Great Lakes 1 87,915,848 4%
South 0 - 0%
All Regions 7 $2,295,652,925 100%
Type Count Spend Dollars
% of Total
Private 3 $1,320,142,608 58%
Public 4 975,510,317 42%
All Types 7 $2,295,652,925 100%
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Assess Opportunity
E&I Spend CubeSpend Data Categorization Standards
Spend analysis builds from the amount of taxonomy available to us. Much of it we had to create
No PayeeCategory1 A/V & Electronics2 Advertising & Marketing3 Architect/Engineer4 Associations, Charities, & Societies5 Athletic Training Supplies6 Books & Subscriptions Services7 Computer & Networking8 Computer Software9 Construction
10 Entertainment11 Express Delivery & Post12 Financial Intermediaries13 Financial Services14 Food Services15 Furniture16 Government17 Individuals18 Insurance & Benefits
No PayeeCategory19 Maintenance & Facilities20 Medical Instruments & Equipment21 Medical Supplies22 Moving & Relocation23 Office Equipment & Related Supplies24 Office Supplies25 Other26 Other Services27 Other Univ & Colleges28 Pharmaceuticals29 Printing & Publishing30 Professional Services31 Scientific Instruments & Equipment32 Scientific Supplies & Services33 Telecom34 Temporary Services35 Travel36 Utilities & Energy
E&I Product GroupFinancial ServicesGeneral ProductsInterior ProductsServicesTechnology
Data CountConsolidated Data Rows 118,100
Cleansed Master Data Table 61,308
Cleansed Master Data TableNot
Categorized Categorized24,476 36,832
Main GroupUnique Consolidated Payees
4,500
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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The data provided by seven schools amounted to approximately $2.3 billion in spend payments.
E&I Spend CubeTotal Spend Data Collected
Spend Dollars Spend Dollars CollectedCollected
Participant % of AllParticipant % of All
Participants Spend Dollars
School 1 $680,302,161
School 2 651,885,371
School 3 497,530,044
School 4 145,632,186
School 5 142,310,404
School 6 90,076,912
School 7 87,915,848
Total Group $2,295,652,925
School 130%
School 64%
School 56%
School 322%
School 228%
School 46%
School 74%
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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The $2.3 billion was categorized and filtered to determine a total initial affectable spend of $1.6 billion.
E&I Spend Cube Decomposition of Spend Data
Affectability Payee Categories Spend Dollars
Not Affectable Other Univ & Colleges $202,972,139
Not Affectable Associations, Charities, & Societies
80,664,270
Not Affectable Government 69,201,990
Not Affectable Individuals 1,221,675
All Not Affectable $354,060,074
Affectability Payee Categories Affectable Spend
Affectable 31 Payee Categories $1,598,988,168
Categorized Spend Dollars % of Total
Categorized $1,953,048,241 85%
Not Categorized 342,604,683 15%
All Spend $2,295,652,925 100%
Categorized Affectability Spend Dollars % of Total
Categorized Affectable $1,598,988,168 82%
Categorized Not Affectable 354,060,074 18%
All Categorized $1,953,048,241 100%
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Spend gathered was organized at a high level first with 5 key contract product groupings.
E&I Spend CubeApplying The Data To Our Business
Interior Products2%
Financial Services 6%
Technology12%
Services29%
General Products 51%
Affectable Spend by Affectable Spend by E&I Product GroupE&I Product Group
% Breakdown% Breakdown
E&I Product Group
Affectable Spend
General Products $830,241,050
Services 463,619,445
Technology 187,628,788
Financial Services 92,968,346
Interior Products 24,530,539
All Product Groups $1,598,988,168
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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The percentage each school has in 5 key groupings varies only slightly.
E&I Spend Cube Further Understanding Spend Info
E&I Product Group School 1 School 2 School 3 School 4 School 5 School 6 School 7 TotalGeneral Products $337,211,367 $170,338,063 $169,553,088 $42,885,534 $43,027,443 $32,510,748 $34,714,807 $830,241,050Services 111,954,726 120,140,003 105,762,148 41,314,068 44,826,070 21,369,980 18,252,448 463,619,445Technology 59,522,580 45,302,968 44,896,426 17,916,978 8,786,338 5,751,089 5,452,410 187,628,788Financial Services 1,707,430 56,243,123 7,807,763 5,674,307 4,348,071 12,945,606 4,242,045 92,968,346Interior Products 4,323,892 6,751,346 4,581,396 2,502,251 2,161,321 533,408 3,676,927 24,530,539Total $514,719,995 $398,775,503 $332,600,820 $110,293,138 $103,149,244 $73,110,831 $66,338,636 $1,598,988,168
43%51%
39% 42% 44%52% 48%
22%
30%
32%
37%43%
29%
28% 32%
11%
13%16% 9%
8%8% 11%
14% 18%6%
7%
1% 2% 1% 2%
66%
12%5% 4%2%0.3%
2% 1% 6% 2%
0%
25%
50%
75%
100%
School 1 School 2 School 3 School 4 School 5 School 6 School 7 GroupAverage
Interior Products
Financial Services
Technology
Services
General Products
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Suppliers under Services fall further into 12 payee categories.
ServicesPayee Category
Affectable Spend Description of Payee's Core Business
1 Utilities & Energy $121,447,236 - Gas or Electric providers, producers, resellers. Municipal water departments.
2 Maintenance & Facilities 109,184,320 - Rent, janitorial, groundskeeping, security, plumbers, electricians,
3 Architect/Engineer 70,486,302 - Architects/Engineers professionals (not part of an integrated construction builder)
4 Insurance & Benefits 34,654,629- Health insurance, property insurance, workman's compensation. Work perks Health Clubs
5 Travel 32,273,545 - Air travel, automobile rentals, athlete transportation, hotels, taxis
6 Professional Services 31,082,583 - Consulting, legal, executive search and external accountants
7 Other Services 15,371,427 - Service that do not fit in any catgory
8 Printing & Publishing 14,890,625 - Production, publishing, distribution suppliers of any print material. External.
9 Express Delivery & Post 12,884,160 - Air, ground, and courier shipping services providers
10 Advertising & Marketing 10,635,659 - Non-print marketing and advertising providers (e.g. television, radio) , Promotional goods, Public Relations)
11 Temporary Services 6,554,620 - Temporary employee services in accounting, finance, etc.
12 Moving & Relocation 4,154,340 - Moving & storage, freight services
All Services $463,619,445
E&I Spend CubePayee Categories for Services
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Maintenance & Facilities can be further broken down into 20 subcategories.
E&I Spend CubeSubcategories are further created for analysis
Maintenance & FacilitiesSub Category
Vendor Count
Affectable Spend
% Of Total
Electrical 22 $15,311,345 14.0%
HVAC 9 12,027,539 11.0%
Specialty Service 27 10,110,549 9.3%
MRO & Facility Supplies 35 9,806,326 9.0%
Integrated Supply Service 2 8,979,836 8.2%
Security 13 7,852,578 7.2%
Roofing 8 6,805,724 6.2%
Elevator 8 6,337,797 5.8%
Landscaping 9 6,105,556 5.6%
Janitorial Cleaning 11 3,852,439 3.5%
Automotive 14 3,845,311 3.5%
Rent 7 3,520,361 3.2%
Waste Removal 5 2,653,351 2.4%
Painting 4 2,346,358 2.1%
Fire 3 1,404,868 1.3%
Temporary Structures 2 1,304,276 1.2%
Filtration / Treatment 5 1,173,416 1.1%
Hardscape 4 1,146,309 1.0%
Grounds Equipment 5 835,673 0.8%
Aircraft 5 563,950 0.5%
Other 22 3,200,758 2.9%Total Maintenance & Facilities 220 $109,184,320 100%
Assess Opportunity
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Building Sourcing Teams
Build Sourcing Team
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E&I Builds Sourcing TeamsImportance of Collaboration
William Cooper – University of Missouri
Lisa S. Deal – University of Florida
Mary Dukakis – The Berklee School of Music
Donald W. Green – Cal State – Fullerton
Ralph Maier – University of Pennsylvania
Jack Zencheck – Yeshiva University
Gina Arms – Colorado College
Tonia E. Lawson – Gulf Coast Community College
Kevin Maloney – University of Pittsburgh
Valerie Rhodes-Sorrelle – Grand Valley State University
Judith C. Smith – University of Michigan
Barry Swanson – University of Kansas
Build Sourcing Team
• Provide proactive leadership in the endorsement and utilization of contracts
• Helps cultivate relationships with suppliers, members, and member associations to identify new opportunities
• Advocates socially responsible and environmentally friendly purchasing initiatives
• Provides counsel and validation for sourcing opportunities
STRATEGIC SOURCING COMMITTEE
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E&I Builds Sourcing TeamsImportance of Collaboration
LIFE SCIENCES STRATEGY TEAM
Phil Abruzzi – University of Illinois
Kim Andrulonis – Johns Hopkins University
Paul Beyer – Johns Hopkins University
Jeanine Cahill – Washington University – St. Louis
Michael Durica – University of Pittsburgh
Lynn Hein – University of Minnesota
Tina Lowenthal – California Institute of Technology
Kevin Maloney – University of Pittsburgh
Anu Mathew – University of Illinois
Greg Mosley – Washington University, St. Louis
Candace Plog – University of Washington
David Staskin – University of Pennsylvania
Darryl Sweet – University of California, Office of the President
TECHNOLOGY STRATEGY TEAM
Amir Dabirian – Cal State Fullerton
Donald W. Green – Cal State Fullerton
Richard A. Haugerud – University of Nebraska , Lincoln
John Louis – University of Kansas
Tom Roberts – Cal State, Chancellors Office
Barry Swanson – University of Kansas
Richard Beynon – University of Pennsylvania
FACILITIES STRATEGY TEAM (NEW!)
Jack T. Baker – University of Maryland
Aurelia Brandenburg – Berea College
William Elvey – University of Texas, Dallas
Margaret Kinnaman – University of Maryland
Brad Larson – University of Oklahoma
E. Lander Medlin – APPA
William Propst – UCLA
James Stirling – University of Maryland
Paul Watson – University of Texas, Dallas
Build Sourcing Team
• Identify and develop current and future contracting opportunities in targeted commodity area
• Comprised of members with specific expertise in targeted commodity area
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Strategy Development
Develop Strategy
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E&I Strategy DevelopmentUsing GPO Evaluation Criteria
Is this area suited for a cooperative contract?
Could a contract here compete against our other contracts in this area?
Is the supply based consolidated or fractured?
Will this be more suited for regional or national efforts?
Is this an area school have currently HIGH, MEDIUM, or LOW contract coverage?
Our contract team considers some key questions and criteria as we evaluate each area.
Evaluation Evaluation QuestionsQuestions
Develop Strategy
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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E&I Strategy DevelopmentLeveraging Other Experts
We teamed up with functional experts, in facilities for example, to determine areas of opportunities.
Line Comparison: Spend vs Priority
$0
$3,000,000
$6,000,000
$9,000,000
$12,000,000
$15,000,000
$18,000,000
Electrical HVAC MRO Security Fire BldgAutomation
Facilities Area
Sp
end
Est
imat
es
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
AP
PA
Pri
ori
ty
SC Spend APPA Priority
Develop Strategy
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Benchmarking
Execute Solicitation
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E&I Solicitation Process Benchmarking
Understanding where you are, what you have and what it
means going forward is critical for decision making.
A key area we have added some methodology and procedure is
Measurement
Execute Solicitation
Measurement Analysis
• Baseline Development
• Projected Savings Estimate
• Actual Savings Achieved
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E&I Solicitation Process Benchmarking
Execute Solicitation
• KEY COMPONENTS OF BENCHMARKING
Keeping it simple
Comparing apples to apples
Maintaining usefulness over time
Ensuring confidentiality
Designing proper metrics
Understanding vendor relationships
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E&I Solicitation Process Benchmarking
Benchmarking contract pricing is essential to our process for creating these unique contracts
Execute Solicitation
• Supplier TypesExact Match - Same Supplier
Same Product – Same Product Different Suppliers
Like Product – Like Product Different Suppliers
• Pricing StructuresDiscount off List
Item Pricing
Create Market Basket
Combination of Discount off List and Item Pricing
Create Market Basket Calculate Discount off List
• Pricing Agreements to use in ComparisonState Contracts (Note some states use member agreements. I.E. – Wisconsin, Colorado, California etc.)
GPO’s
Member Agreements
Public Agreements (Education Discount)
GSA
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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E&I Solicitation Process Bid & Proposal Evaluation
Evaluation of responses is typically a methodical & collaborative process
Execute Solicitation
Evaluation ApproachesEvaluation Approaches
COST PER QUALITY POINT SYSTEM
Pre-Solicitation
• Evaluation criteria created before hand
• Possible point values assigned
Post-Solicitation
• Evaluate responses to criteria
• Follow ups & clarifications
• Look at pricing separate / revisit benchmarking
** Variations on this approach used also
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Contract Administration
Admin & SRM
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E&I Contract Admin & SRM Performance Measurement
Much like a school should measure contract savings, we also measure the utilization of our contracts
Admin & SRM
This is for the sole use of the intended audience and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. All supplier names, spend, pricing and contract information are strictly confidential.
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Questions and Answers
VINCE Patriarco:
Phone: 607-428-0543
E-Mail: [email protected]
FERNANDO Prieto:
Phone: 773-376-0988
E-Mail: [email protected]