1. CONNECTING THE NUMBERS Procurement Forum 2011 Presented by Keith Gagnon, MBA, CPPO, VCO Director of Procurement Virginia Community College System

2. MEASURE YOUR PERFORMANCE  Develop/deploy metrics  Use same metrics over time  Look for trends in the metrics  Identify Key Performance Indicators (KPI) important to your procurement unit

3. VOLUME AND DISTRIBUTION KPIs  Total procurement expenditure (total spend)  Spend per department  Spend per commodity  Total number of procurement transactions  Total number of vendors  Average spend per vendors  Average spend per transaction  Number of vendors accounting for 80% of spend

4. FINANCIAL KPIs

5. EFFICIENCY KPIs  Procurement Cycle Time  Time from initial request until PO/Contract issued  Delivery Time  Time from order to delivery  Buyer Productivity  Number of purchases per buyer per month  Spend volume per buyer per month (year, week)

6. EFFECTIVENESS KPIs  Protest Rate  % of protested transactions  Compliance Rate  % of compliant transactions (Procurement Regulations)  Through audit results

7. EFFECTIVENESS KPIs  Internal Customer Satisfaction  Surveys, etc.  Supplier Performance  Delivery (% on time)  Quality  Service  Through surveys

8. SOCIAL RESPONSIBILITY KPIs  SWaM Percentage  As percent of total spend  Green Procurement  Number of green products substituted for traditional

9. BACK TO SAVINGS  Let’s call it “cost avoidance”  Why???  “Savings” can be taken back and added into another budget area  Savings is “bookable”  I gave my son $25 to get himself a hat.  He came back from the store and said, “I got a great deal. The hat I wanted is regularly $40, and I got it on sale for $20. I saved you 20 bucks!”  I said “Good job, now give me back what you saved.”  He handed me $5?!?!  How do we calculate cost avoidance?

10. COST AVOIDANCE ACTIVITY Scenario: You award a contract through IFB for 1,000 widgets at a cost of $100 per widget ($100,000 total)  Budget for purchase was $135,000  Last year you paid $115,000 for 1,000 widgets  Average bid price was $110 per widget  eVA data shows $130 average price per widget for all eVA widget orders in past 12 months  You paid $125 per widget for a spot purchase of 10 widgets in between contracts How much have you saved? (You have 5 minutes)

11. BEFORE WE GET AN ANSWER… John BeckRex Grossman What would the score of the Redskins vs. Dolphins game have been if John Beck had played instead of Rex Grossman? We don’t know. We are comparing an event that did happen to an event that might have happened, but did not. One can only conjecture and support one’s argument with reason, statistics, trends, etc.

12. BACK TO OUR SCENARIO –WHAT IS THE ANSWER? 1,000 widgets at a cost of $100 per widget ($100,000 total)  Budget for purchase was $135,000  $35,000  What if budget calculation wasn’t a good one? Or, what if the budget was only $90,000?  Last year you paid $115,000 for 1,000 widgets  $15,000  What about inflation?  Average bid price was $110 per widget  $10,000  Would this method ever show negative?  eVA data shows $130 average price per widget for all eVA widget orders in past 12 months  $30,000  What if many of these orders were for small quantities?  You paid $125 per widget for a spot purchase of 10 widgets in between contracts  $25,000  Again, what about the different quantities?

13. SO WHAT’S THE ANSWER  Probably somewhere between $10,000 and $35,000  Suggestions use some method, maybe even more than one, to estimate cost avoidance  Express a range for calculated cost avoidance  Use high, low, mid  Support your argument with reason, statistics, trends, etc.

14. FAIR AND REASONABLE PRICE  How do I determine if a price is Fair and Reasonable?  Competitive procurement -presumed  Comparison to previous price paid  Comparison to price for similar goods/services  Market basket data  Timeliness  Cost analysis (component cost, cost elements)

15. QUESTIONS AND DISCUSSION  Keith Gagnon  Director of Procurement  804.819.4698  kgagnon@vccs.edu kgagnon@vccs.edu  http://www.linkedin.com/pub/keith-gagnon/1b/32b/b07 http://www.linkedin.com/pub/keith-gagnon/1b/32b/b07