IT Purchasing at Penn:
Beyond the Basics
Business Services Division
Purchasing Services
www.purchasing.upenn.edu
Brent Friedman, Sourcing Manager
•
Organizational Overview
•
IT Purchasing at Penn: Facts & Figures
•
Overview of the sourcing process
– RFI vs. RFQ vs. RFP vs. Reverse Auction vs. Direct negotiation
– How we can help
•
SmartSource
®Demonstration
– Real-time Reverse Auction (around 12:40)
– RFI/P/Q functionality
•
Supplier Communications & Negotiation Strategies
Who We Are
• 1 of 19 departments that comprise Penn’s Business Services Division
• Procurement & e-Business professionals with category or systems management expertise
• Contract and transactional approval for ~$1.5B in annual University spending
– Over $100M per year spent with local & small businesses
– Recognized as a higher education leader in economic inclusion & supplier diversity
Penn Purchasing Mission
To maximize the value we deliver to Penn, and to be a valued partner at all levels of the University by providing:
• Best-in-Class Sourcing Methodology
• A Customer-Centric, Collaborative Approach to Procurement • Innovative Sourcing and Procurement Solutions
• Effective Communications with the Penn Community
The job of Purchasing is not to simply “save money”-
it is to maximize value, minimize risk, and to advocate for ethical,
www.finance.upenn.edu/vpfinance/fpm/ [ SECTION 2300 ]
Purchasing’s statutory authority is
granted by the Division of Finance.
Traditional Role “Purchasing”
Penn Purchasing Services:
Strategic Sourcing
Mostly Automated
Modern Role “Strategic Sourcing”
~$1,550,000,000 total third party expenditures (academic only)
$100,000,000 total spend with 512 known IT suppliers (hardware, software, services)
~250,000 Purchase Orders (PO) issued per year
29,000+ IT category PO’s issued
2,500 PO’s requiring Purchasing Services intervention or approval
500+ contracts reviewed and signed
50+ contracts requiring drafting or direct negotiation
28 unique IT client groups organizations supported
$100M…where does it go?
Facts:
• 8 suppliers make up 50% of total spend • 45 suppliers make up 80% of total spend • 512 known IT suppliers
RFx: “Request For…?”
RFI, RFQ, or RFP? Does it matter?
Each RFx type solicits different information from a supplier
“Rules of Engagement” vary, depending on the activity being conducted Request for Information (RFI):
• 1-way request for information
• No customer requirements are provided
• Helps to incite competition, and used to inform subsequent sourcing processes (i.e., RFP) • “Tell us about your company and product/service, how it’s sold, and who your competitors are.”
Request for Quote (RFQ):
• Simple quantity/price specification
• Can be a preliminary step to a reverse auction • “Give us a price for X units of Y product/service.”
Request for Proposal (RFP):
• Complex proposal required beyond simply quantity/price • Segmented requirements; weighted scorecards
Reverse Auctions: Like eBay, but in reverse
When market conditions and buyer requirements are right, a reverse auction can be used to negotiate additional cost savings from an initial quote or proposal. Quality trade-off is an invalid concern when conducted correctly.
Supplier Market Analysis (RFI)
Request for Proposals (RFP)
RFP Responses Received
Suppliers Selected for the Reverse Auction Recommended Suppliers 35 25 20 15 3
Strategic Sourcing Process: Example Potential Suppliers
Auctions are typically one step within a more rigorous
strategic sourcing process.
Successful Reverse Auction Categories
Generally speaking, categories with likely reverse auction success share these common characteristics:
• Compelling Spend
• Competitive Marketplace
• Credible Switching Threat
• Known Items, Volumes and Historical Spend
• Clear Category Definition
• Precise Requirements and Specifications
• Award business at the end of the process
• Don’t use reverse auctions as means to gather market information; only invite suppliers that have a chance to win business
• Deals must follow published rules and conditions • All supplier are ones you could do business with • Be consistent with supplier communications
• Award business and communicate results quickly • Be consistent in applying the process
• Set realistic price expectations
• Hold suppliers accountable for their bid
For auctions and other competitive processes to be
effective over time, discipline must be maintained.
How can Purchasing Services add value to my project?
Financial
• Request for Quote (RFQ) & Request for Proposal (RFP)
• Reverse Auctions
• Spend reporting and analysis
• Negotiation planning (financial)
Benchmarking
• Request for Information (RFI)
• Purchase price cost analysis
• Ivy+ / Comparable institutions / Philadelphia Area Collegiate Cooperative
• Corporate?
Risk Mitigation
• Financial solvency assessment
• Contracting / Statement of Work review
• Supplier performance reviews
• Negotiation planning (legal)
Supplier Conditioning & Communications
• Conduct & evaluate competitive bids electronically
Over $2M in Expense Savings in FY13…
• Managed Print Services program
• Desktop Management Evaluation team
• Renegotiated CDW-G contract w/PACC
• Enterprise event logging application
• Firewall appliance hardware acquisition
• Networking cable purchase redirect
• Dell MSA renewal
…and risks mitigated outside of cost containment.
• Canvas MSA negotiations with OGC
• New software-as-a-service (SaaS) contract standards w/OGC, OACP, and ISC/InfoSec
• Established framework for review of campus-wide SaaS contracts
• Office Depot / Office Max merger analysis
Supplier Communications
• Negotiations start the moment you first make contact with a sales representative.
• Every spoken word is irretrievable.
• “Luck favors the well-informed mind.”
Q: When do negotiations with a supplier start?
Remember:
Supplier sales representatives are usually trained experts in negotiations, fact finding, and selling tactics. In many enterprises, the selling and negotiation skillset of sales professionals greatly outweighs the opposing skillsets of the buyer.
Supplier Communications
• Need to be carefully managed
• Should be centralized during a competitive process
• Can make or break an attractive financial arrangement for Penn
• Confusion and silence: use this to your benefit
• When in doubt, say less: the party with the most information often has the most powerful negotiation position.
Remember:
The words you choose, and when you say them, can have a significant impact on your negotiation position… and how much you pay.
Negotiation: part science, part art
Back Door Selling
Fact Finding Limited Authority Broken Record Silence Rational Inquiry Self-Disclosure Counter Proposal Titles Non-verbals Aim High Time Out Deflecting Deadline Take It or Leave It Suprise
Good cop, bad cop
Cherry Picking Future Business
Whole List
Deadlock
Last Minute Snipe
Consider engaging Purchasing Services for these needs:
• Conduct a competitive bid process
• Transacting business with a new supplier – earlier is better
• Need guidance on the best approach
• Help with contracts, including Nondisclosure Agreements
• Identifying risks (financial, reputation, etc.) associated with a category
of spend or particular supplier
• Need market intelligence for a category of relative spend
• Considering the outsourcing of in-sourced services
When should I work with Purchasing?
Questions?
Business Services Division
Purchasing Services
www.purchasing.upenn.edu
Brent Friedman, Sourcing Manager
