1. NASPO Reverse Auctions in Florida April 5, 2004 State Purchasing

2. 2 Reverse Auctions in Florida April 5, 2004 Agenda Welcome / Overview Recent Developments in Florida MyFloridaMarketPlace Experience Common Benefits and Risks Using Reverse Auctions Wisely Contact and Further Information

3. 3 Reverse Auctions in Florida Florida’s Use of Reverse Auctions Has Resulted in Award-Winning Initiatives….

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5. 5 e-Procurement Benefits (Minahan & Degnan, 2001) Indirect Procurement (non-production goods & services – office supplies, printing, advertising and casual labor) Direct Procurement/ Supply Chain (organization & management of raw materials, parts & assemblies) Sourcing (identification, evaluation, negotiation of products and supplies for both the indirect and direct supply chain) Price reductionVisibility of customer demand Unit cost reduction Improved contract compliance Visibility of supply chain capacity Enhanced decision making Shortened cycle timesAccuracy of production capacity Improved market intelligence Reduced admin costsReduced inventory/op costs Enhanced inventory mgtShortened proc cycle times

6. 6 Major Types of Reverse Auctions TypeDescription Effect on Time Visible Price Price is know by the all the participants but the identity of the other bidders is unknown Time constrained (minutes- hours) Ranked Bidder Price is not shown to the bidders. Instead they are only aware of where they are in order relation to the “winner” Time constrained (minutes- hours) Reverse Auction Overview There are several different varieties of auctions, with a key differentiator being the way in which information is revealed around price between the bidders. Reverse Auction Bid Price Time In reverse auctions, prices decrease over time.

7. 7 Reverse Auctions in Florida April 5, 2004 Agenda Welcome / Overview Recent Developments in Florida MyFloridaMarketPlace Experience Common Benefits and Risks Using Reverse Auctions Wisely Contact and Further Information

8. 8 Recent Developments in Florida In 2000, Florida enacted a legislative package –Advancing electronic commerce (Uniform Electronic Transaction Act) –Creating State Technology Office –Authorizing “on-line procurement” (reverse auctions)

9. 9 Florida’s Early Experience Pilot Program with FreeMarkets in 2001 Four Reverse Auctions –Paper –Lamps –Lighting Fixtures –Computers

10. 10 Reverse Auctions in Florida April 5, 2004 Agenda Welcome / Overview Recent Developments in Florida MyFloridaMarketPlace Experience Common Benefits and Risks Using Reverse Auctions Wisely Contact and Further Information

11. 11 MyFloridaMarketPlace Project Started October 2002 Accenture implementing Ariba tools Two reverse auctions to date –Office Consumables (July 2003) –Paper (March 2004)

12. 12 Phase 1 Pre- Qualification* Posted Phase 1 ITB instructions on VBS Used Intent to Participate form Contained various critical and information only questions, potential market basket items, geographical capability Q&A for 95 questions (VBS posting of answers) Phase 2 Reverse Auction (2 Stages) 17 vendors pre-qualified from Phase 1 Conducted within MyFloridaMarketPlace Sourcing Tool Provided Phase 2 ITB instructions, SLAs, general conditions, forms Offline bidder pricing tool provided to bidders Preview period of 2 weeks to allow bidders to download documents and price items 35 questions were submitted via the Q&A board Official answers posted on Sourcing tool as addendum Optional bidder training sessions and mock reverse auction events provided to help vendors learn how to use Sourcing tool After close of Reverse Auction event, second stage within Sourcing required bidders to upload final detailed item pricing to support final bid price entered in the live auction MyFloridaMarketPlace Office Consumables Sourcing

13. 13 Note: Bidders names excluded until award finalized. Source: MyFloridaMarketPlace Sourcing Tool. MyFloridaMarketPlace Office Consumables – Reverse Auction Results Eleven vendors entered a combined 232 bids over the 132 minutes duration of the Office Supplies & Toner Cartridges event.

14. 14 MyFloridaMarketPlace Office Consumables – Reverse Auction Results For the Paper and Non-Printed Envelopes event, 106 bids were entered by 9 vendors over 74 minutes time period.

15. 15 Summary Lot A – Office Supplies & Toner Cartridges Lot B – Paper & Non-Printed Envelopes Spend Base Line (3-Year Value)$51.5MM$8.7MM # of Vendors Invited / Participated15 / 11 (73%)16 / 9 (56%) Initial vs. Extended Duration0:45hr / 2:12hr0:45hr / 1:14hr # of Bids232106 Spreadsheet Training34 People Practice / Mock Auction Training28 People Potential 3-Year Savings $$16.8MM $1.5MM Potential 3-Year Savings %33% 17% Note: MM = Million MyFloridaMarketPlace Office Consumables – Reverse Auction Results

16. 16 Reverse Auctions in Florida April 5, 2004 Agenda Welcome / Overview Recent Developments in Florida MyFloridaMarketPlace Experience Common Benefits and Risks Using Reverse Auctions Wisely Contact and Further Information

17. 17 Reverse Auctions Win-Win Benefits (Ga. Pacific) Speed Unification Wider Playing Field Continuous Improvements

18. 18 Reverse Auctions Possible Risks (Ga. Pacific) Transparency may weaken supplier’s response or buyer’s ability to negotiate Technology drives rather than enables Non-price uncertainties Deviation from strategy Technical meltdown

19. 19 Reverse Auctions in Florida April 5, 2004 Agenda Welcome / Overview Recent Developments in Florida MyFloridaMarketPlace Experience Common Benefits and Risks Using Reverse Auctions Wisely Contact and Further Information

20. 20 Using Reverse Auctions Wisely (M. Sawhney, 6/03) Think beyond price Use where appropriate Understand hidden costs Follow the Golden Rule

21. 21 Using Reverse Auctions Wisely Think Beyond Price Price is only one element of best value Quality, reliability, value-added services Better tools promise to move toward multi- attribute auctions

22. 22 Using Reverse Auctions Wisely Use Where Appropriate Buyer indifference toward sellers Sufficient number of quality sellers (3-10) Sufficient volume

23. 23 Using Reverse Auctions Wisely Hidden Costs When to measure (when auction closes vs. at the end of the transaction) Apparent savings can evaporate quickly (indirect costs [e.g., switching], errors in supplier data, post-auction negotiation, changes in specs or quantities) “Loss leader” bidders trying to make up

24. 24 Using Reverse Auctions Wisely Follow the Golden Rule Preserve important supplier relationships Avoid fostering desire to retaliate No advantage to putting suppliers out of business

25. 25 Reverse Auctions in Florida April 5, 2004 Agenda Welcome / Overview Recent Developments in Florida MyFloridaMarketPlace Experience Common Benefits and Risks Using Reverse Auctions Wisely Contact and Further Information

26. 26 Contact and Further Information Fred Springer Director, State Purchasing Florida Dept. of Management Services Fred.Springer@MyFlorida.com (850) 487-1898 Vendor training guides available at http://marketplace.myflorida.com http://marketplace.myflorida.com VendorHelp@myfloridamarketplace.com