Exercise Analysis Presentation Scenario You Are Assisting

Exercise Analysis Presentationscenario You Are Assisting The P

You are assisting the Procurement Manager, Annie, with a sourcing initiative for the Office Supplies category. She has asked for research and quantification of estimated savings under 2-3 different options to formulate an overall recommendation to the senior leadership Advisory Committee. The current annual spend in this category is approximately $4 million, increasing about 2-3% annually over the last six years. There is a preferred vendor, Paperclip, with a contract awarded five years ago, but approximately 75% of internal stakeholders purchase from other vendors due to stronger relationships and issues with Paperclip’s service. The spend with non-preferred vendors is likely inflated by 5-10% due to lack of negotiated prices or terms.

The existing contract with Paperclip includes renewal bonuses of $50,000 for the first renewal year and $75,000 for the second. Some internal stakeholders complain about poor lead times and excessive shipping costs, including campus mail charges of $100 per shipment, which occurred at least 100 times in the past year. The Finance Department receives a rebate based on the total spend with Paperclip (1% on the first $750,000, 1.5% on the next $750,000, and 2% above $1.5 million), but stakeholders do not see direct benefits from this rebate model.

Options under review include: 1. Maintaining the status quo; 2. Awarding a new contract to a vendor with better performance incentives; 3. Distributing contracts across multiple vendors, which might reduce the rebate but could lead to negotiated price discounts if spend exceeds $2 million.

Paper For Above instruction

This presentation aims to analyze the potential costs and benefits of each sourcing option for the Office Supplies procurement at UBC, providing recommendations based on quantitative and qualitative factors. The analysis includes estimating the current and future costs, potential savings, and trade-offs associated with each alternative, as well as assumptions that must be validated through further data collection.

Introduction

The procurement of office supplies at UBC presents a complex scenario balancing cost considerations, stakeholder preferences, supplier performance, and contractual obligations. With a current spend of approximately $4 million annually, the strategic decision to optimize sourcing could lead to significant savings and operational improvements. This analysis explores three options: maintaining the current contract, awarding a new one with improved incentives, or dividing procurement across multiple vendors, assessing their potential impacts and informing a recommendation.

Analysis of Current State

The existing spend of $4 million faces an annual growth rate of about 2-3%. The preferred vendor, Paperclip, holds a contract with renewal bonuses acting as one-time costs. However, a significant portion of purchases are made through alternative vendors, often at inflated prices due to lack of negotiated terms. The current rebate arrangement, which provides incremental rebates based on total spending, does not deliver immediate financial benefits to stakeholders.

Operational issues include subpar delivery lead times and high shipping costs, such as campus mail charges of $100 per shipment, with about 100 shipments annually. The inefficiencies in procurement and supply chain management underpin the need for a strategic sourcing review.

Option 1: Status Quo

Maintaining existing agreements entails ongoing costs, including renewal bonuses and potentially higher procurement prices due to lack of competitive pressure. The current rebate model provides no immediate financial benefit to stakeholders, and logistical inefficiencies continue to incur costs.

Estimated costs include:

• Renewal bonuses over two years: $50,000 + $75,000 = $125,000
• Operational costs: Shipping charges ($100 × 100 shipments = $10,000)
• Inflated prices due to lack of negotiated terms, estimated at 7.5% (average of 5-10%) of $3 million spend (75% of total spend): approximately $225,000 annually.

Option 2: Contract with a New Vendor

Implementing a new contract with a vendor offering performance incentives involves initial negotiation costs and potential savings from improved supplier performance, lead times, and operational efficiencies.

Assuming negotiation reduces procurement costs by 10%, savings could be significant:

• Cost reduction: 10% of $3 million (non-preferred vendors): $300,000 annually.
• Implementation costs: estimated at $25,000 for transition, negotiation, and onboarding.
• Potential rebate increase or performance bonuses could add further savings.

Additional benefits include improved lead times, reducing operational delays, and lowering campus mail costs by decreasing shipments.

Option 3: Multiple Vendor Contracts

Dividing spend across multiple vendors could reduce total spend through negotiated discounts (up to 10%) and mitigate risks related to reliance on a single provider. However, the rebate might decrease by up to 50% or more due to distributed procurement.

Estimated savings include:

• Cost savings from negotiated discounts: 10% of combined spend, saving approximately $400,000 annually.
• Rebate reduction: potential loss of $30,000-$50,000 per year.
• Operational benefits include increased flexibility and stakeholder engagement.

Comparison & Recommendations

Based on the above analysis, Option 2 offers the best balance of cost savings, operational improvements, and stakeholder satisfaction, especially considering improved delivery times and reduced internal logistics costs. While the initial transition costs are notable, the annual savings from reduced inflated costs and operational efficiencies outweigh these expenses.

Option 3 may offer further savings through negotiated discounts but risks reducing rebate benefits and complicating procurement processes. The status quo continues to incur costs with minimal benefits.

Assumptions & Validation

• Cost reductions are based on estimated negotiation outcomes; actual savings require supplier negotiations.
• Operational savings from improved lead times and shipping costs are projected but need validation from pilot implementations.
• Rebate impacts from diversification depend on vendor agreements; precise calculations require negotiation insights.
• Inflated prices and internal stakeholder preferences influence procurement costs and require further internal stakeholder engagement.

Additional Activities

• Conduct competitive bidding among potential vendors to validate savings estimates.
• Collect detailed data on current procurement costs, shipping expenses, and stakeholder preferences.
• Engage stakeholders to refine performance metrics and incentive structures.
• Model potential rebate impacts across different vendor configurations.
• Pilot test selected options to assess operational efficiencies prior to full implementation.

Qualitative Benefits & Considerations

Implementing a new vendor with performance incentives can lead to higher stakeholder satisfaction by addressing quality and delivery concerns. Dividing spend across multiple vendors may foster competitive pricing and flexibility. Maintaining the status quo avoids disruption but risks ongoing inefficiencies and costs.

Engaging stakeholders early ensures buy-in and improves procurement outcomes. Emphasizing supplier relationship management can further enhance performance and cost savings.

Challenges & Ease

The most challenging aspect was estimating potential savings amid uncertainties regarding supplier negotiations and stakeholder buy-in. The ease lay in leveraging existing data sets and contractual information to inform initial estimates.

Conclusion

Overall, transitioning to a new vendor with performance incentives presents a compelling case for cost savings and operational improvements. Validating assumptions through further data collection and pilot testing will strengthen the final recommendation. Effective stakeholder engagement and strategic negotiations are critical to maximizing benefits and ensuring sustainable procurement practices at UBC.

References

• Cousins, P. D., Lamming, R., Lawson, B., & Squire, B. (2008). Strategic supply management: Orders, alliances, and networks. Pearson Education.
• Harland, C., Zheng, J., Johnsen, T., & Lamming, R. (1999). An operational model for managing supplier relationships. European Journal of Purchasing & Supply Management, 5(2-3), 177-193.
• Krause, D. R., Handfield, R. B., & Scerrato, A. (2000). Developing a strategic approach to supplier segmentation. Journal of Supply Chain Management, 36(1), 5-15.
• Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning.
• Vitasek, K. (2017). The Vested outsourcing model: Creating collaborative business relationships. CSCMP Edge, 2017(3), 20-25.
• Lysons, K., & Farrington, B. (2012). Purchasing and supply chain management. Pearson Education.
• Baily, P., Farmer, D., Crocker, B., Jessop, D., & Jones, D. (2014). Procurement principles and management. Pearson Education.
• Handfield, R. B., & Craighead, C. W. (2018). The procurement value proposition: The role of purchasing in supply chain management. Journal of Supply Chain Management, 54(2), 3-14.
• Snape, E., & Carter, C. (2009). The strategic importance of procurement in managing supply chains. International Journal of Procurement Management, 2(3), 247-263.
• Wuttke, D. A., Blome, C., Henke, M., & Kähle, N. (2013). Managing supplier innovation in the context of supply chain integration. Journal of Business Logistics, 34(4), 242-253.