Purchasing Initiative/Shipping Team

REPORT

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Agenda• Purchasing Initiative Guiding Principles• Express Shipping/Team Activities• Work Plan• Evaluation Criteria• Review of each Supplier• Recommendation• Implementation Plan• Next Steps• Printing Team Update• SciQuest Overview

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Guiding Principles of the Purchasing Initiative

• Improve or maintain service and quality • Maintain total cost of acquisition perspective• Strive for overall value to the MIT community as

a whole• Involve the community• Develop/maintain relations with suppliers

4

Express Shipping/Team Activities

• Conducted six focus groups• Held preliminary meetings with Vendors• Decided to issue joint RFP with Harvard• Reviewed and rated RFP responses • Conducted three Follow up meetings with vendors

(UPS and DHL jointly with Harvard, Fedex separately).

• Requested in depth demonstration of UPS and DHL Technology Solutions. FedEx did not present a viable solution.

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Harvard Status

• Back end problem with Fedex• Main goal to develop a Technical solution• Not happy with Fedex presentation • Sub Team overall in favor of DHL• Change management a big challenge• Currently communicating with end users• Hopes to make a recommendation to upper

management within the next few weeks

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Work PlanProject preparation Phase 1 Phase 2 Phase 3…

Gather data and fact base

Create preliminary strategy

Develop RFPs*

Evaluate and negotiate

Implementa-tion planning

•Conduct supplier interviews/work-shops•Meet with Harvard on possibility of joint RFP•Decision made to proceed together•Create/send RFPs in cooperation with Harvard

•Develop implementation plan and form teams•Communicate internally/incorpor-ate ideas•Develop tools to track savings and monitor adoption•Create plan to modify/adapt as feedback is received after implementation

•Assess supplier RFP response•View presentation and demos for each supplier•Evaluate each supplier•Develop recommendation

Activities

*Request for proposal**Other schools, groups, management, etc.

Complete

In progress

•Interview users (requirements and improvement ideas) •Assess savings and impact•Interview others** on improvement ideas•Scan supply market

•Collect detailed data and ideas•Analyze current pro-cesses and contracts•Finalize scope•Brainstorm on cost reduction and process improvement ideas•Analyze data

•Steering Committee approval•Negotiate•Sign contracts

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Express Mail - Supplier Profile

Market summary

•Three key, comparable players: FedEx, UPS, and DHL•All three have comparable logistics and distribution systems - reliability similar•Companies differentiate themselves by customer service, technology, pricing, and marketing

Supplier Financials MIT history Comments

DHL

FedEx

UPS

•$28 Bill rev•Purchased Airborne Spring 04•D&B Financial stressclass: moderate

•$25 Bill revD&B Financial stressclass: moderate/low

•$33 Bill revD&B Financial stressclass: moderate/high

•MIT preferred vendor since 1989•Most recent contract from 1999-2004

•Secondary supplier on campus•95 separate accounts on campus

•Has refused to deliver express shipments to office/lab until this process.

•Very strong in the interna-tional market•Flat rate pricing•Very competitive pricing

•Strong quality image•Zone pricing•Not as competitive in price/fees

•Historically not a flexible organization•MHEC* contract vendor

* Massachusetts Higher Education Consortium

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•Anyone can potentially order, no centralization within dept or groups

•Order/schedule online or phone, drop off in bldg. 11, or reg. scheduled pickup between 8am- 7:30pm•Provide cost object at pickup on the air bill (shipments are sent with invalid/no cost object)

•MIT central receive 1 weekly electronic invoice for all of MIT•Cuts 1 check for all MIT shipments•Time spent on cost object resolution for central and DLCs

•Users order from vendor•Account manager assigned by DHL available to assist DLCs•MIT procurement manages the contract centrally

Express - Buying Process Process DHL

Users/decision makers

Ordering

Admin/ processing

Vendor contact

FedEx

Issues

•Anyone can potentially order•95 different accounts on campus

•Call to place order or reg. scheduled pickup between 8am-7:30pm•Use blanket PO for each account (95)•Use credit card

•Dept. receives invoice for each shipment which must be reconciled, signed and given PO (labor intensive)•MIT central cuts many checks for all the accounts

•Users order from vendor•No contracts (depts subject to various fees and potentially varying prices)

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Evaluation Criteria/RFP• Single Strategic Partnership• Cost Reduction Plan/Pricing• Performance Management• Logistics• Order and Payment Processing• Customer Service and Sales Support• Marketing Capabilities• Delivery• Value Added Services• Environmental Responsibility• Business Profile, References and Partnership Experience

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Evaluation Criteria/Presentation

• General Quality and Completeness of the Presentation• Customer Services and Support• Expertise and Professionalism of Service Team• Pricing/Cost Savings• Cost recovery and processing for Late delivery• Technology Capabilities• Invoice processing efficiency• Desktop delivery• International Shipping Resources• Innovation and future solutions• HazMat shipping• Prior Business relationship with MIT

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FedEx

• Competitive price• Rates available to Lincoln Lab• Brand recognition• Did not bid jointly after agreeing to in preliminary

meeting• Did not provide pricing for an on-site facility• Did not quote flat rate pricing• Was not open to a true partnership• Evaluation score RFP 3.1• Evaluation score Presentation 2.9

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UPS

• Competitive Prices• Rates Available to Lincoln Lab• Worked “out of the box” to understand our

business/technology requirements• Environmentally conscientious- hybrid vehicles

proposed at MIT account• Special dedicated Customer Service team• Perception of many users that they are only

ground shipping company.

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UPS cont

• Relatively new to the international market• Negative press in Computerworld regarding

problems with package-flow software suite• Presentation exhibited an indifferent approach

(both MIT and Harvard teams agreed)• Evaluation score RFP 4.5• Evaluation score Presentation 3.3

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DHL• Competitive pricing• Rates available to Lincoln Lab• Excellent Technical Solution• Proactive Notification on late deliveries (in beta

testing, should be available in 2006) • Special customer service program• Current MIT preferred vendor• Recognized leader in International shipping• Offer two types of alternative fueled vehicles into

operations, although not at MIT yet• Completion of Airborne acquisition brings them

on par with UPS and Fedex domestically

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DHL cont

• Perception that they are not as good as Fedex• Current back of the house issue• More focused customer service needed• Brand loyalty to Fedex• Evaluation score RFP 3.3• Evaluation score Presentation 4.1

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Express document to NY:

Mid Morning 10:30am12:00pm

Afternoon 3:00pm

Second Day

Express document to Cal.

Mid Morning 10:30am12:00pm

Afternoon 3:00pm

Second Day 10:30am

DHL FedEx UPS

$5.61 $5.07 $4.92$4.61 NA NA$3.98 $5.47 $4.93

$3.74 $4.87 $4.44

$7.69 $ 7.37 $ 7.13$6.69 NA NA$5.97 $ 7.09 $ 6.26

$4.83 $ 4.99 $ 4.58

Sample Pricing

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Sample Pricing

Two pound package to: DHL Fedex UPS

Washington DC10:30 am $6.79 $10.63 $8.19

England: $19.18 $27.80 $20.54

Ten pound package to:

Washington $14.63 $18.27 $22.54

England $33.63 $37.89 $32.55

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Assumes 10 pound packageBased on MIT’s internationalShipping volume FY04

International - Package(10 lbs.) Service DHL FedEx UPS

Zone C

Belgium, France, Germany, Ireland, Italy, Luxembourg, Netherlands, U.K. $126,451.11 $ 134,547.39 $120,201.35

Zone F Japan $ 31,721.08 $ 34,285.88 $46,514.48

Zone H1

Australia, South Korea, Malaysia, New Zealand, Philippines, Thailand $ 67,810.68 $ 66,855.60 $62,307.60

$225,982.87 $ 235,688.87 $229,023.43

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Fedex and UPS Technical Solution

FEDEX

• Creates Electronic Air Bills

• No current process to validate cost objects

• System designed for central mail room, not for unsophisticated shippers.

UPS

• Creates Electronic air bill

• Validates cost objects• Designed to be used

by unsophisticated shippers

• Not tested on Macs or Netscape.

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DHL’s Tech Solution• Will be available to all potential shippers at MIT• Will inform shipper of shipping and pricing options • Will require a valid cost object before air bill can be

created. Allowing more flexibility for drop off points on campus.

• MIT will send a feed daily to DHL containing all valid cost objects

• Users will not go through authorizations, however the quality of the information gathered by the system will allow management by exception

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22

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Team Recommendation

• DHL, Subject to contract negotiations• Zone pricing• On-site location• Implement technical solution, emphasize

demand management feature.• Require all air bills created on system /no paper

air bills allowed• Increase of Drop boxes on campus• Retain on site location (Build 11)

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Demand Management

• Real savings in giving end users the information they need before they book a shipment to make a good business decision.

• Fedex strategy appears not to encourage demand management. – Very small percentage price difference

between 10:30am and 3:00 pm (8% to 10%)– DHL and UPS offer much higher percentage

price difference (20% to 30%)

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Potential Savings/Demand Management

• Move 90% of Fedex business (20% difference in price) $60,000 per year.

• Move 30% of next day overnight (10:30 am) to next day afternoon (3:00pm) $36,000.

• Move 20% of next day to second day $36,000• Back end savings in Departments and Central.

– Calendar Year 2003• 3837 Fedex invoices processed • 2686 Checks cut to Fedex

– Calendar Year 2004• 3800 Fedex invoices processed• 2133 Checks cut to Fedex

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Potential savings (cont.)

• Eliminate 90% of Fedex paper transitions– 6907 invoices over two years x $2.44 =

$16,845– 4337 checks over two years x .55 = $2,385

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Express - User Quotes

“I will use whatever service MIT makes easy

for me to use”

“I would change, but would have to know practical reasons”

“MIT users don’t embrace change”

“I’m not loyal”

“Only if we keep same level of customer service

as now”

Would you switch suppliers if your current vendor was not selected?

Other comments:“I didn’t know FedEx rates

were so much higher”

“I didn’t know DHL was onsite… or had resources”

“I thought people (procurement/mail

services) are too busy balancing books to help

with shipping issues”

“I would switch but my boss may not be willing”

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Implementation Plan

• Implementation team will be established

• Communications/Marketing

• Partnership Management

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Ongoing Management Process

• Partnership manager to be appointed

• Works with vendor to roll out the program

• Conducts quarterly meetings

• Monitors usage and non-utilization

• Ensures accurate pricing and savings

• Procurement contact for all shipping needs of the institute, express, International, local, same day courier.

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Next Steps

• International mail

• Same day couriers services

• Next phase of Initiative

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International-Current Status

• Conducted meeting with the top users of international mail, Sloan (3 groups), MIT Press, Tech Review, Mail Services

• Each group has different business requirements• Sophisticated users making vendor decisions

based on their business requirements• Discussed possibility of joint RFP • Conducted preliminary meetings with vendors• Conclusion, not enough benefits/potential

savings to proceed at this time

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Courier Services

What we currently do:• Difficult to obtain MIT’s total spend. At least 10 different companies used over the last

few years• Many departments use taxi companies paying via petty cash/vouchers, credit cards

What to do going forward:• Each focus group had members who used this type of service and many were

interested in a MIT-wide recommended supplier • Quick win – MIT to recommend MASCO consortium vendor Skycom (minority owned

local company recently awarded the MASCO contract)• Savings: Potentially 50% savings (for taxi co. users) to 5% (for courier users)• Other improvements/benefits:

– Centralized solution for all Institute departments, reduce time on vouchers, reimbursements, etc.

– Competitive and standardized pricing– Comprehensive reporting to gain a better understanding of spend in this area

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Preliminary Next Phase of Initiative

• Office Equipment

• Scientific Supplies

• Fleet

• Furniture

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Agenda: Print Initiative• Update on the Print Initiative• Printer evaluation progress• Work plan• Next steps

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GoalTo improve the way MIT buyers purchase print servicesTarget offset and digital printing (i.e., brochures, newsletters, reports, posters, stationery)

OpportunityMIT purchases $3.9 million in print from 240 printersEstablish a core set of 12-15 qualified printers that will meet the needs of the MIT communityIncreasing the volume to fewer printers enables MIT to negotiate pricingEducate MIT community in hiring the right printer for their publication

Vendor evaluationsThe team evaluated the 240 printers currently in use at MIT Reduced the number to 19 finalistsCurrently conducting interviews and plant tours of final candidatesFinal recommendations to the Steering Committee in May

Print partner criteriaHighest level of service, quality and competitive pricingFocus on innovative solutions, use of technology

Benefits•Steering purchases to a core set of preferred printers enables price negotiations (potential to establish price grids, discount programs, etc.) •Printers properly matched to the job provide the best price•Reduce MIT staff time in locating appropriate printers•Vendors familiar with the MIT environment will reduce process time for MIT and vendors•Printers become an extension of the PSB: a resource for training and education

Print Evaluation Progress

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Print Initiative Work PlanACTIVITY OCT NOV DEC JAN FEB MAR APR MAY JUN

Request for Information (RFI)

Request for Solutions (RFS)

Evaluate data

Plant tours and interviews (RFP):

Plant tours

Printer interviews

Surveys:

Survey of design partners

MIT community survey

Presentations:

Steering committee & community

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Next Steps

• Complete printer evaluation process in April• Present recommendations to Steering Committee in May• Share recommendations and gather feedback

– Information Group– Focus group workshop participants– Academic Counsel– AOFO/ACCII/AIM

• In the summer, negotiate partnerships

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MIT Procurement’s

New

E-Commerce Portal(coming to a computer near you in fy06)

Powered by

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SciQuest

• Software company offering a suite of hosted solutions to meet eProcurement needs

• Act as a Catalog aggregator specializing in Scientific type supplies

• Leading eProcurement provider for Higher Ed, life sciences, industry research organizations

• Yale, Cal. Tech, Notre Dame, U. of Michigan, Indiana, Arizona, U. Penn, Penn State

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New E-Commerce Portal

• Focus groups conducted in September 2003 and August 2004

• MIT signed with SciQuest September 2004• Will provide access to dozens of top MIT

suppliers – currently excludes some large suppliers that interact mainly

with Facilities due to internal accounting issues

• Expected go live scheduled for June

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Portal Advantages

• Front-end solution allowing web-based purchasing automation with select vendors

• Based on current ECAT Model• One-stop shopping for MIT community• Potential to search across multiple supplier catalogs

(Hosted catalogs)• Ability to do chemical structure search• Ability to create personal & company favorites• Order error reduction• Potential to expand easily

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Portal Model (based on ECAT Model)

MIT maintains a single connection with SciQuest for shopping content and order delivery for dozens of suppliers

MIT

Vendor

Vendor N A/RSystem

Vendor N A/RFunds Receipt

Vendor NOrder

System

Shipment

Vendor 2 A/RSystem

Vendor 2 A/RFunds Receipt

Vendor 2 OrderSystem

Shipment

SAPRequisition

Authorizations

Approvals

Purchase Order A/P Payment

SAPWebRequisition

Vendor 1 A/RSystem

Vendor 1 A/RFunds Receipt

Vendor 1 OrderSystem

Shipment

User'sDesktop

SciQuest

Order ManagerMIT Marketplace powered

by SciQuest

Providing access to dozens of MIT suppliers

Punch-out Catalog

Punch-out Catalog

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Targeted supplier criteria

• Value to the research and academic community

• Number of purchase order and invoice transactions

• Capability/willingness to participate• Favorable total cost of acquisition

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Potential Suppliers

• Sigma Aldrich• Invitrogen• Perkin Elmer• Qiagen• GE BioSciences (formally

Amersham)• Bio-Rad Laboratories• Integrated DNA• Strem Chemical• USA Scientific• Thorlabs

• Newark InOne• Digi Key• Cambridge Valve• Dry Ice• Stratagene• Rainin• Cambridge Isotope Labs• Beckman Coulter• Potential for furniture

vendor

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Open Issues

• What vendors do we bring into the portal• “Hosted” or “Punch-out” catalogs

– Pros & Cons to both

• How do we use the “Science” Catalog• How do we handle sensitive/restricted items

(equipment, radioactives, needles & syringes)

• How will we handle the back-end invoicing

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Potential Savings

• Negotiated price concessions from first group of seven suppliers. – Potential to save researchers > $250,000 based on last year’s

numbers– Savings could be even larger if supplies pick-up increased

market share

• $5-10K in hard dollar payment process savings• Potential transactional savings

– > 6,500 Purchase Orders– >12,000 Invoices – > 7,000 P-Card

– > 11,000 Checks

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Welcome Community Input

Any questions, thoughts or ideas on this subject can be sent to

thoole@mit.edu