Purchasing InitiativeShipping Team REPORT Agenda Purchasing Initiative Guiding

Purchasing Initiative/Shipping Team REPORT

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 Sci. Quest Overview 2

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 3

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. Fed. Ex did not present a viable solution. 4

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 5

Work Plan Complete In progress Project preparation Gather data and fact base Activities • Collect detailed data and ideas • Analyze current pro-cesses and contracts • Finalize scope • Brainstorm on cost reduction and process improvement ideas • Analyze data Phase 1 Phase 2 Create preliminary strategy • Interview users (requirements and improvement ideas) • Assess savings and impact • Interview others** on improvement ideas • Scan supply market *Request for proposal **Other schools, groups, management, etc. Phase 3… Develop RFPs* • Conduct supplier interviews/workshops • Meet with Harvard on possibility of joint RFP • Decision made to proceed together • Create/send RFPs in cooperation with Harvard Evaluate and negotiate • Assess supplier RFP response • View presentation and demos for each supplier • Evaluate each supplier • Develop recommendation Implementation planning • Develop implementation plan and form teams • Communicate internally/incorporate ideas • Develop tools to track savings and monitor adoption • Steering • Create plan to Committee approval modify/adapt as • Negotiate feedback is • Sign contracts received after implementation 6

Express Mail - Supplier Profile Market summary • Three key, comparable players: Fed. Ex, 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 • $28 Bill rev • Purchased Airborne Spring 04 • D&B Financial stress class: moderate • MIT preferred vendor since 1989 • Most recent contract from 1999 -2004 • Very strong in the international market • Flat rate pricing • Very competitive pricing • $25 Bill rev D&B Financial stress class: moderate/low • Secondary supplier on campus • 95 separate accounts on campus • Strong quality image • Zone pricing • Not as competitive in price/fees • $33 Bill rev D&B Financial stress class: moderate/high • Has refused to deliver express shipments to office/lab until this process. • Historically not a flexible organization • MHEC* contract vendor 7 Fed. Ex UPS * Massachusetts Higher Education Consortium

Express - Buying Process Issues Process DHL Fed. Ex Users/decision makers • Anyone can potentially order, no centralization within dept or groups • Anyone can potentially order • 95 different accounts on campus Ordering • Order/schedule online or phone, drop off in bldg. 11, or reg. scheduled pickup between 8 am- 7: 30 pm • Provide cost object at pickup on the air bill (shipments are sent with invalid/no cost object) • Call to place order or reg. scheduled pickup between 8 am-7: 30 pm • Use blanket PO for each account (95) • Use credit card Admin/ processing • 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 • 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 Vendor contact • Users order from vendor • Account manager assigned by DHL available to assist DLCs • MIT procurement manages the contract centrally • Users order from vendor • No contracts (depts subject to various fees and potentially varying prices) 8

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 9

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 Haz. Mat shipping Prior Business relationship with MIT 10

Fed. Ex • • • 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 11

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. 12

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 13

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 14

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 15

Sample Pricing Express document to NY: DHL Fed. Ex UPS Mid Morning $5. 61 $4. 61 $3. 98 $5. 07 NA $5. 47 $4. 92 NA $4. 93 $3. 74 $4. 87 $4. 44 Afternoon 10: 30 am 12: 00 pm 3: 00 pm $7. 69 $6. 69 $5. 97 $ 7. 37 NA $ 7. 09 $ 7. 13 NA $ 6. 26 Second Day 10: 30 am $4. 83 $ 4. 99 $ 4. 58 16 Afternoon 10: 30 am 12: 00 pm 3: 00 pm Second Day Express document to Cal. Mid Morning

Sample Pricing Two pound package to: DHL Fedex UPS Washington DC 10: 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 17

International Package (10 lbs. ) Service DHL Fed. Ex Belgium, France, Germany, Ireland, Italy, Luxembourg, Netherlands, U. K. $126, 451. 11 $ 134, 547. 39 Zone F Japan $ 31, 721. 08 $ 34, 285. 88 $46, 514. 48 Zone H 1 Australia, South Korea, Malaysia, New Zealand, Philippines, Thailand $ 67, 810. 68 $ 66, 855. 60 $62, 307. 60 $225, 982. 87 $ 235, 688. 87 Zone C Assumes 10 pound package Based on MIT’s international Shipping volume FY 04 UPS $120, 201. 35 $229, 023. 43 18

Fedex and UPS Technical Solution FEDEX UPS • Creates Electronic Air Bills • No current process to validate cost objects • System designed for central mail room, not for unsophisticated shippers. • Creates Electronic air bill • Validates cost objects • Designed to be used by unsophisticated shippers • Not tested on Macs or Netscape. 19

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 20

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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) 23

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: 30 am and 3: 00 pm (8% to 10%) – DHL and UPS offer much higher percentage price difference (20% to 30%) 24

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: 00 pm) $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 25

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 26

Express - User Quotes Would you switch suppliers if your current vendor was not selected? “I would change, but would have to know practical reasons” “I would switch but my boss may not be willing” “I’m not loyal” “MIT users don’t embrace change” “I will use whatever service MIT makes easy for me to use” Other comments: “I didn’t know DHL was onsite… or had resources” “I didn’t know Fed. Ex rates were so much higher” “Only if we keep same level of customer service as now” “I thought people (procurement/mail services) are too busy balancing books to help with shipping issues” 27

Implementation Plan • Implementation team will be established • Communications/Marketing • Partnership Management 28

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. 29

Next Steps • International mail • Same day couriers services • Next phase of Initiative 30

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 31

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 32

Preliminary Next Phase of Initiative • • Office Equipment Scientific Supplies Fleet Furniture 33

Agenda: Print Initiative • • Update on the Print Initiative Printer evaluation progress Work plan Next steps 34

Print Evaluation Progress Goal To improve the way MIT buyers purchase print services Target offset and digital printing (i. e. , brochures, newsletters, reports, posters, stationery) Opportunity MIT purchases $3. 9 million in print from 240 printers Establish a core set of 12 -15 qualified printers that will meet the needs of the MIT community Increasing the volume to fewer printers enables MIT to negotiate pricing Educate MIT community in hiring the right printer for their publication Vendor evaluations The team evaluated the 240 printers currently in use at MIT Reduced the number to 19 finalists Currently conducting interviews and plant tours of final candidates Final recommendations to the Steering Committee in May Print partner criteria Highest level of service, quality and competitive pricing Focus 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 35

Print Initiative Work Plan ACTIVITY 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 Printerviews Surveys: Survey of design partners MIT community survey Presentations: Steering committee & community 36

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 37

MIT Procurement’s New E-Commerce Portal (coming to a computer near you in fy 06) Powered by 38

Sci. Quest • Software company offering a suite of hosted solutions to meet e. Procurement needs • Act as a Catalog aggregator specializing in Scientific type supplies • Leading e. Procurement provider for Higher Ed, life sciences, industry research organizations • Yale, Cal. Tech, Notre Dame, U. of Michigan, Indiana, Arizona, U. Penn, Penn State 39

New E-Commerce Portal • Focus groups conducted in September 2003 and August 2004 • MIT signed with Sci. Quest 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 40

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 41

Portal Model (based on ECAT Model) MIT maintains a single connection with Sci. Quest for shopping content and order delivery for dozens of suppliers Requisition User's Desktop SAP Authorizations SAPWeb Requisition Approvals Purchase Order A/P Payment MIT Vendor MIT Marketplace powered by Sci. Quest Providing access to dozens of MIT suppliers Punch-out Catalog Sci. Quest Order Manager Vendor 1 Order Vendor 2 Order System Vendor N System Order System Shipment Vendor 1 A/R Vendor System 2 A/R Vendor System. N A/R System Vendor 1 A/R Vendor 2 A/R Funds Receipt Vendor N A/R Funds Receipt 42

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 43

Potential Suppliers • • • Sigma Aldrich Invitrogen Perkin Elmer Qiagen GE Bio. Sciences (formally Amersham) Bio-Rad Laboratories Integrated DNA Strem Chemical USA Scientific Thorlabs • • • Newark In. One Digi Key Cambridge Valve Dry Ice Stratagene Rainin Cambridge Isotope Labs Beckman Coulter Potential for furniture vendor 44

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 45

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 -10 K in hard dollar payment process savings • Potential transactional savings – > 6, 500 Purchase Orders – >12, 000 Invoices – > 7, 000 P-Card – > 11, 000 Checks 46

Welcome Community Input Any questions, thoughts or ideas on this subject can be sent to thoole@mit. edu 47