Reverse Auctioning at the University of Pennsylvania SUNY Purchasing Association Fall Conference October 9, 2003

Presentation Agenda About Purchasing at Penn About Purchasing at Penn Business Opportunity Business Opportunity Motivation for Change Motivation for Change What is Reverse Auction? What is Reverse Auction? How Does It Work? How Does It Work? What are the Challenges? What are the Challenges? What are the Benefits & Drawbacks? What are the Benefits & Drawbacks? Penn Events Penn Events About Procuri Incorporated About Procuri Incorporated

About Purchasing at Penn Distributed point-of-demand purchasing environment Distributed point-of-demand purchasing environment Over 1,900 Oracle Financials users – Purchasing (iProcurement), Payables & GL Over 1,900 Oracle Financials users – Purchasing (iProcurement), Payables & GL Delegated approval authority for transactions <$5,000 Delegated approval authority for transactions <$5,000 EDI, Document Imaging & Reverse Auction technologies used to compliment eProcurement system EDI, Document Imaging & Reverse Auction technologies used to compliment eProcurement system Annual purchase volume of $700 Million Annual purchase volume of $700 Million Consistent & on-going senior management support for strategic purchasing, cost containment, supplier diversity & eProcurement initiatives Consistent & on-going senior management support for strategic purchasing, cost containment, supplier diversity & eProcurement initiatives

Business Opportunity Business Opportunity Purchasing has always used traditional competitive bidding initiatives for annual volume requirements Purchasing has always used traditional competitive bidding initiatives for annual volume requirements Solicitation of bids for one-time capital equipment purchases was usually conducted in Schools & Centers Solicitation of bids for one-time capital equipment purchases was usually conducted in Schools & Centers Post-bid negotiations always resulted in additional savings Post-bid negotiations always resulted in additional savings Realization was that there had to be a better way to leverage Penn’s buying power Realization was that there had to be a better way to leverage Penn’s buying power Market assessment was conducted to identify an alternative to traditional competitive bidding Market assessment was conducted to identify an alternative to traditional competitive bidding

Motivation for Change Senior management support for implementation of emerging technologies Senior management support for implementation of emerging technologies Success of formal cost containment program increased pressure for new savings opportunities Success of formal cost containment program increased pressure for new savings opportunities Pressure to maximize potential of existing supplier relationships Pressure to maximize potential of existing supplier relationships Emerging technologies that increase performance and efficiencies Emerging technologies that increase performance and efficiencies Staff compensation based on performance and accomplishments Staff compensation based on performance and accomplishments

What is Reverse Auction? Secure online competitive bidding tool to leverage spend Secure online competitive bidding tool to leverage spend Opposite of auctions such as eBay, low price wins Opposite of auctions such as eBay, low price wins Does not impact or change current business requirements (pre-bid meetings, specifications, quality analysis prior to contract award) Does not impact or change current business requirements (pre-bid meetings, specifications, quality analysis prior to contract award) Buyer creates bid specifications, identifies authorized bidders, event and award dates Buyer creates bid specifications, identifies authorized bidders, event and award dates All event activates are recorded and reports are available to buying organization for audit purposes All event activates are recorded and reports are available to buying organization for audit purposes

How Does It Work? Buyer identifies requirement, develops RFP, selects invited bidders, and schedules online event Buyer identifies requirement, develops RFP, selects invited bidders, and schedules online event RFP/RFQ documents distributed electronically to invited bidders RFP/RFQ documents distributed electronically to invited bidders Invited suppliers are trained by business partner to use the Reverse Auction tool (Procuri Inc. for Penn) Invited suppliers are trained by business partner to use the Reverse Auction tool (Procuri Inc. for Penn) Event duration and extensions are based on commodity (usually 20 minutes with 3 minute extensions for Penn) Event duration and extensions are based on commodity (usually 20 minutes with 3 minute extensions for Penn) Buyer and suppliers can communicate via during event Buyer and suppliers can communicate via during event Award can be made at the end of event or after review of bids Award can be made at the end of event or after review of bids

What are the Challenges? Acceptance of new procurement tool by purchasing staff and other Penn ordering units Acceptance of new procurement tool by purchasing staff and other Penn ordering units Reluctance by some suppliers to participate in an initiative that may dramatically reduce their GPM Reluctance by some suppliers to participate in an initiative that may dramatically reduce their GPM Payment for service, decision on buyer or supplier payment options Payment for service, decision on buyer or supplier payment options Ability to distribute the technology to the campus community for spot buys Ability to distribute the technology to the campus community for spot buys

What are the Benefits? Easy to use web-based tool to streamline the competitive bidding process Easy to use web-based tool to streamline the competitive bidding process Reduces time and effort related to RFP/RFQ creation and distribution Reduces time and effort related to RFP/RFQ creation and distribution Speeds up competitive bidding & contract award process Speeds up competitive bidding & contract award process Promotes fierce competition for Penn’s business Promotes fierce competition for Penn’s business Average events savings is 12% Average events savings is 12% Great use of technology Great use of technology

What are the Drawbacks? Requires careful selection of targeted commodities as the technology is not useful for all purchase requirements Requires careful selection of targeted commodities as the technology is not useful for all purchase requirements Some suppliers may elect not to participate in a Reverse Auction event Some suppliers may elect not to participate in a Reverse Auction event May impact supplier relationships if not used appropriately May impact supplier relationships if not used appropriately Dramatically reduces supplier profit margins Dramatically reduces supplier profit margins

Penn Events Collaborative buying event for HVAC Filters Collaborative buying event for HVAC Filters Collaborative buying event for office supplies Collaborative buying event for office supplies Event for cost-per-copy copier contract in development Event for cost-per-copy copier contract in development Event for copier paper in development Event for copier paper in development Process for bidding vehicle requirements in development Process for bidding vehicle requirements in development Process for leveraging content position in the Penn Marketplace in development Process for leveraging content position in the Penn Marketplace in development Discussion with Penn Facilities for possible use for new construction projects (steel, concrete, drywall, etc…) Discussion with Penn Facilities for possible use for new construction projects (steel, concrete, drywall, etc…)

About Procuri Incorporated

Conclusion Please visit the Penn Purchasing Services Reverse Auction web site for additional information