STORES WAREHOUSE COST/BENEFIT ANALYSIS. I. What is the financial impact of the Stores Warehouse on schools?

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1 I. What is the financial impact of the Stores Warehouse on schools? Schools receive better pricing from the Stores Warehouse through its bulk purchasing power than they would from private companies.! If the District contracted with outside vendors to provide items currently stocked in the Stores Warehouse, these contract prices would not be lower than Warehouse pricing. For example, if a contract was established with Office Depot for stationery items, the pricing would be very similar to the pricing Office Depot offers other public entities through their Federal General Services Administration (GSA) pricing program. Comparing the prices of the 30 top selling items (i.e., bond paper, pencils, glue, etc.) in the Stores Warehouse to Office Depot through their GSA pricing program reveals that schools and offices would pay 31.25% more on a unit price basis than they would currently ordering from the Warehouse (Deloitte Consulting has validated this comparison.). If the 31.25% difference was added to the total Warehouse sales for FY , school and offices would have spent $16,222,300 more that fiscal year.! Comparing the prices of the same 30 items between Stores Warehouse or buying directly from Office Depot s retail catalog, shows that schools and offices would pay 163% more on a unit price basis. If this difference were added to the total Warehouse sales for FY , schools and offices would have spent $84,615,518 more that fiscal year.! It is anticipated that a new warehouse facility would reduce costs to schools even more. 1

2 II. What is the service impact of the Stores Warehouse on schools? Eliminating the Stores Warehouse would impact schools and offices significantly:! An increase in truck and non-district personnel traffic on school campuses will occur because of the need to buy from different vendors with different delivery schedules.! Schools and offices would no longer have one stop shopping convenience when buying several different commodity group items using one transaction (i.e., Stock Requisition).! The Stores Warehouse provides an efficient and cost effective mechanism to stock and distribute items that support a variety of District programs, functions and initiatives (e.g., customized Special Education forms, attendance records, etc.). Without the Stores Warehouse, standardization of products, volume discounts and immediate availability will be compromised.! Stores items are bid with specifications developed by subject matter experts, including advice from Maintenance and Operations staff, Division of Special Education representatives, and school representatives from the Business Services Division s Principals and School Administrators Ad-hoc Committees. Quality control issues will be compromised and schools and offices will be required to spend more time researching and comparing items.! Chemical products such as school arts and craft supplies, solvents, and cleaners will not receive the review, oversight and approval that it 2

3 does now from the Office of the Environmental Health and Safety. Additionally, products may be purchased that do not provide the required electrical approval, such as UL listing.! Desktop delivery currently provided by Truck Operations would add additional cost if required by an outside vendor. III. Other than financially, what would be the impact of eliminating the Stores Warehouse?! The number of School Purchase Orders (SPOs) and Non-Stock Requisitions would more than triple. In FY , the Stores Warehouse processed 58,187 stock requisition transactions representing over $50 million in sales. In order to purchase the same items without the Warehouse, it is quite probable that schools and offices would have to order from an average of five different vendors and the amount of SPO and non-stock transactions would more than triple. Stock Accounting, Purchasing and Accounts Payable would have to significantly increase their staffs just to maintain current service levels.! Vendor payment issues will be compounded through the increase of SPO and non-stock transactions.! Increased staff time would also be required of schools and offices to source products, input transactions into IFS, receive products and handle payables.! Eliminating the Warehouse will result in longer requisition processing time, lead time for delivery, and the loss of certain checks and 3

4 balances. These checks and balances need to be applied to ensure accountability and compliance with competitive bid laws. IV. What is the current cost to the District/General Fund for operating the Stores Warehouse?! Aside from the inventory investment, the Stores Warehouse operation is cost-neutral to the District. In FY , the total operating costs (i.e., salaries, benefits, lease payments, utilities, etc.) for the Stores Warehouse operation, including related trucking services, was $8,132,106. These costs were recovered via a markup added to the products sold.! The operating cost markup compares very well with private industry. Currently, the operating cost markup is calculated at 21.5%. Using the same calculation for other private industry operations, those operating cost markups range from 19.4% to 32.4%. V. How would a consolidated Stores Warehouse be financed? The Warehouse would be financed through Certificates of Participation (COP).! Based on a projected $30 million consolidated facility, the lease/purchase annual payment is estimated to be $2 million.! Should a consolidated facility be built on the old Business Services Center site, the annual payment would be considerably less since the District already owns the property. It is estimated that the building 4

5 would cost in the range of $10 - $15 million to construct, resulting in an annual payment of $ $1.3 million.! In anticipation of moving to a new facility in another location, staff has developed a business case that results in cost savings to meet this annual obligation. The termination of existing facility leases/rentals alone will save approximately $1 million. The remaining obligation will be covered by salary savings resulting from the consolidation of operations, and implementing improved technologies and warehouse management strategies. Procurement staff has already initiated implementation of many of these operational strategies.! Process/technology improvements such as warehouse/traffic managements systems, as described in the May 2000, Deloitte/Tompkins study, could possibly save up to an additional $4 million. VI. How long would it take to recover the cost of a new General Services Center? To redevelop the existing old BSC, the annual payment would be $0.8 - $1.3 million over twenty-five years. For the lease of land and building structure, the annual payment would be approximately $2 million over twenty years. 5

6 Transaction Volume/Personnel Requirements The Stores Warehouse operation contains at least five major commodity groups (not including food) that allow schools and offices the ability to order under one stock requisition. If the Warehouse was eliminated, and assuming schools and offices would have to order Stores items from an average of five different vendors, the amount of SPO and non-stock transactions would more than triple. Stock Accounting, Purchasing and Accounts Payable would have to more than triple their staffs to maintain current service levels. The table below demonstrates the effect on transaction volume and personnel requirements. Stock Requisition School Purchase Non-Stock Requisitions Number of Stock Number of Purchasing Number of Accounts Total Personnel s Processed Orders Processed Processed Accounting Personnel Personnel Payable Personnel With 58, ,525 26, Warehouse* Without Warehouse 0 333,364 88, * Based on FY data. 6