PRICING ANALYSIS STUDY

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1 THE UNIVERSITY OF CALIFORNIA SAN DIEGO PRICING ANALYSIS STUDY FOCUS ON EFFICIENCY, San Diego s Integrated Procure-to-Pay Solutions organization conducted a pricing analysis study against the university s most frequently purchased agreement items to determine where the negotiated contracts offer the best pricing for the campus and where efficiencies can be gained. Historically those in procurement at the University of California, San Diego had not compared agreement supplier pricing or performance at the individual SKU level with pricing available via the internet (i.e. Amazon, NewEgg, Staples, etc.). The perceived best value available from these online retailers has perpetuated a campus misperception that they can procure goods and services at lower prices than the agreements negotiated by procurement. This can lead to rogue spend, reduce agreement efficiencies, and de-value what procurement can provide to the campus. Prior to this study, procurement s response to the best pricing argument was anecdotal. Lacking online comparative research, a theoretical explanation of total cost of ownership was all that could be provided. To assess the performance of our top agreement items and to demystify client perceptions, the Integrated Procure-to-Pay Solutions (IPPS) Analytics team set out to perform a Pricing Analysis Study against the most frequently purchased agreement items. Through a UC San Diego program that provides opportunities for high school students in the local area, the Analytics team was able to bring on a summer high school intern to assist with the extensive online research required. This provided the intern with valuable work and analytics exposure while allowing the analysts to more efficiently use their time by focusing on the resulting data and analysis. Through this project, the team met with subject matter experts to understand the commodities they manage. They researched pricing for the agreement items purchased most frequently over the previous year, against pricing available from leading online competitors. The top commodity areas reviewed were life sciences (lab and chemicals), office supplies, IT, and maintenance, repair, and operations (MRO). Following this pricing research the data was analyzed and presented through Tableau, a data visualization software. The results of the study have confirmed that if UC San Diego s top agreement items were purchased from the most competitive priced alternative source, there would have been a loss of $3.6MM over the 12 month period evaluated. As an example, when the agreement price was lowest, the average percentage savings against the lowest price competitor was 16%. We can now demonstrate quantifiable proof of the cost savings and efficiencies gained through campus utilization of the agreements negotiated through procurement MILESTONES JUNE - AUGUST 2015 High school student intern enlisted for eight s Project kickoff, subject matter experts (SME) introduced and commodity background discussed Spend data for all commodities compiled Data gathered for lab supply and chemical comparison sets Data gathered for IT comparison set Data gathered for OEE (office supplies, express package and environmental services), and MRO (maintenance, repair, and operations) comparison sets Initial analysis and data vetting Result validation with SMEs Situational adjustments and data cleansing Final analysis and visualizations 8 Findings presented to commodity managers, professional buyers, and leadership 1

2 QUANTIFICATION AND RESULTS Through this analysis, it was confirmed that agreement supplier pricing for the most frequently purchased items are competitive, and are more often lower than what is available from other online retailers. The top 50 items by quantity sold and the top 50 items by PO occurrence were analyzed; a total of 405 items were compared (some items occurred in both sets). Cost avoided by purchasing top items from agreement suppliers instead of lowest priced alternatives available via Amazon.com: $2.7MM. Cost avoided by purchasing top items from agreement suppliers instead of purchasing lowest priced alternatives from all online suppliers: $3.6MM. Average of 16% avoided cost when agreement price was the lowest priced option. PROJECT TEAM PROJECT LEAD Tim Wheeler senior business data analyst Josh Karpen business data analyst HIGH SCHOOL SUMMER INTERN Varun Koganti Cost Avoided LAB MRO CHEM OEE IT $358,202 $1,151,482 $939,440 $886,695 $0 $500,000 $1,000,000 PROJECT CHAMPION Ted Johnson associate controller, chief procurement officer $256,837 SPONSOR Gayle Ta assistant director OPPORTUNITIES AND SOLUTIONS Although the perception amongst campus around consistently high pricing can now be demystified, there are opportunities for UC San Diego commodity managers to use the findings from this analysis to negotiate more competitive agreement pricing. The analytics team will next focus on an in-depth commodity-specific inquiry into the areas recognized through this analysis where competitive pricing opportunities were identified. QUALITY, COST, AND DELIVERY Performing analyses based on actual client behavior allows analysts to provide objective guidance to commodity managers to make more focused, data-informed decisions. Actionable data focused on areas or commodities that will reap the highest return on investment, and will result in a more efficient organization. Armed with analytics and metrics, quality agreements can be drafted that provide greater value and benefit. STAKEHOLDER Todd Adams deputy director strategic procurement SUBJECT MATTER EXPERT Kalyn Miller life science commodity manager Ayesha Lieke office supplies commodity manager Brian Hurley IT commodity manager Adrian Ferreira MRO commodity manager IMPACT AND BENEFIT Objectively demonstrating the effectiveness of the negotiated agreements to campus clients will assist in reducing rogue, off-contract spend. This will increase campus engagement with IPPS as a resource partner and increase agreement utilization, which will in turn provide value and cost savings across departments. An analysis of actual purchasing behaviors more effectively demonstrates agreement value and assists in pinpointing areas for improvement. 2

3 LESSONS LEARNED 1 Mindfully approach this type of analysis objectively at the beginning. Conduct a raw price comparison. Reserve subjective discussion of value-add and other variables until after the initial analysis. 2 While some items may have a lower initial price point, there are other variables to consider in the resulting data, including total cost of ownership and value (i.e. warranty, vendor patronage, support). 3 Some agreement items are only available from a sole source. Comparing like items should be a variable to consider for a more in-depth analysis. 3

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