You are assisting the Procurement Manager, Annie, with a sourcing initiative for the Office Supplies category. She has asked if you can research and quantify the estimated savings under 2-3 different options in order to formulate the overall recommendation to take to the Advisory Committee made up of senior leadership sponsors.
Annie informs you that, currently, the spend in this category is approximately $4 million per year, and it has been rising approximately 2-3% per year over the last 6 years. There is one preferred vendor, Paperclip, awarded a contract with UBC 5 years ago. However, the vast majority of internal stakeholders (~75%) are not purchasing from this vendor, and prefer to purchase from other vendors that they have strong working relationships with. It is estimated that the spend with other vendors, is likely inflated due to 5-10% higher prices from lack of negotiated pricing / terms in a contract. The current contract with Paperclip states that there is a renewal bonus of $50,000 for the first 1-year renewal term, and $75,000 for the second 1-year renewal term.
The internal stakeholders that are purchasing from the preferred vendor do often have complaints, and have identified that the lead times of the vendor are poor and often involve having to ship products across campus and “borrow” supplies from other departments. Internal Campus Mail charges $100 for every shipment and this has happened at least 100 times over the last year. There is a financial rebate that the Finance Department receives every year based on how much UBC spends with Paperclip (1% for the first $750,000, 1.5% for the next $750,000, and 2% for anything above $1.5 million); stakeholders do not see a direct benefit from this model.
Annie is looking at several options to support the needs of internal stakeholders, including:
1. Status quo
2. Awarding a contract to a new vendor with stronger performance targets and financial incentives to perform. Negotiation would determine how much better the financial incentives will be.
3. Awarding contracts to multiple vendors that meet more of the stakeholders’ needs; we know this will likely impact the rebate value, which may drop by as much as 50% or more. However, there is the potential to negotiate price discounts if spend is over $2 million.
Create a PowerPoint deck (made up of no more than 6 slides) to present your findings, addressing the following questions for Annie:
• What would be the estimated cost/benefit under each option?
• What is your recommendation?
• What are some of the assumptions we had to make, which will require further validation?
• What additional activities should we perform in order to finalize our recommendation?
• What are some of the additional qualitative benefits/considerations for each option?
• What did you find easiest/most challenging about the exercise?