VAGP Spring Conference , March 2012
Presented by
Keith Gagnon, MBA, CPPO, VCO
Director of Procurement
Virginia Community College System
 Develop/deploy
metrics
 Use same metrics over time
 Look for trends in the metrics
 Identify Key Performance
Indicators (KPI) important to your
procurement unit
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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
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Savings (Cost Avoidance)
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Leveraged Spend Ratio
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Process cost per transaction
◦ How much you spent vs. how much you might have spent on a
purchase
◦ More to come on this one…
◦ Leverage spend ÷ total spend
◦ Leveraged spend = purchases made using term contracts, cooperative
contracts or other methods that achieve cost savings by economies of
scale, administrative efficiency, etc.
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𝑃𝑟𝑜𝑐𝑢𝑟𝑒𝑚𝑒𝑛𝑡 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑜𝑠𝑡𝑠
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑡𝑟𝑎𝑛𝑠𝑎𝑐𝑡𝑖𝑜𝑛
Procurement Return on Investment (ROI)
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𝑆𝑎𝑣𝑖𝑛𝑔𝑠 (𝑐𝑜𝑠𝑡 𝑎𝑣𝑜𝑖𝑑𝑎𝑛𝑐𝑒) − 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡
𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡
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Procurement Cycle Time
◦ Time from initial request until PO/Contract issued
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Delivery Time
◦ Time from order to delivery
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Buyer Productivity
◦ Number of purchases per buyer per month
◦ Spend volume per buyer per month (year, week)
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Protest Rate
◦ % of protested transactions
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Compliance Rate
◦ % of compliant transactions (Procurement
Regulations)
◦ Through audit results
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Internal Customer Satisfaction
◦ Surveys, etc.
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Supplier Performance
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Delivery (% on time)
Quality
Service
Through surveys
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SWaM Percentage
◦ As percent of total spend
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Green Procurement
◦ Number of green products substituted for
traditional products
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Economic Impact
◦ Total spend with local vendors
◦ Percent of spent with local vendors
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Let’s call it “cost avoidance”
Why???
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Scenario
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How do we calculate cost avoidance?
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◦ “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?!?!
Scenario: You award a contract through an 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)
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?
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Last year you paid $115,000 for 1,000 widgets
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Average bid price was $110 per widget
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eVA data shows $130 average price per widget for all eVA
widget orders in past 12 months
◦ $15,000
◦ What about inflation?
◦ $10,000
◦ Would this method ever show negative?
◦ $30,000
◦ What if many of these orders were for small quantities?
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You paid $125 per widget for a spot purchase of 10
widgets in between contracts
◦ $25,000
◦ Again, what about the different quantities?
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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.
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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)
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Keith Gagnon
Director of Procurement
Virginia Community College System
804.819.4698
kgagnon@vccs.edu
http://www.linkedin.com/pub/keith-gagnon/1b/32b/b07