PROCUREMENT SAVINGS PROCUREMENT SAVINGS STRATEGIESSTRATEGIES

Reverse Auctions: A Reverse Auctions: A Success Story at the City of Success Story at the City of

Los AngelesLos Angeles

Kenneth F. Desowitz, C.P.M.

Director of Supply ServicesCity of Los Angeles

kenneth.desowitz@lacity.org

(213) 928-9557

LA City OverviewLA City Overview

•Centralized Procurement of Commodities and Maintenance Services for transactions over $1000

•Supply Services Division is responsible for Procurement, Inventory Management and Salvage Functions (148 staff currently)

•Procurement Staff Organized into 5 Commodity Groups (4 Procurement Supervisors and 14 Procurement Analysts)

•Fleet Group•Construction & Maintenance Group•General Operations & IT Group•Industrial Group•Public Safety Group

LA City OverviewLA City Overview

•Over $451 million in purchases last fiscal year

•480 annual requirements contracts

•70,000 contract po’s ($347 million)

•2,100 one-time po’s ($96 million)

•18,000 blanket po’s under $1000 ($8 million)

Procurement Savings/Avoidance Form    PROCUREMENT ANALYST:      CONTRACT/P.O. NO.:         SUPPLIER:      SAVINGS/AVOIDANCE METHOD USED:Value Analysis (i.e. annual fee vs. time & materials maintenance)New source discovered (new supplier discovered other than suggested supplier or from the supplier database list)Market research (i.e. competitive bidding vs. contract renewal; pricing index or other agency’s pricing vs. current contract pricing)Negotiated reduction in price and/or payment termsAnnual contract created for item previously purchased as a one-timeChange in design or specificationSubstitution (i.e. rebuilt vs. new; lease vs. buy)State, County or other cooperative purchasing contracts utilized (i.e. piggybacking)Reverse Auction (projected savings based on old price/established baseline)

SAVINGS/AVOIDANCE COMPUTATION:ANNUAL CONTRACT:   Old Price - New Price = Savings  

Savings x Projected Annual Usage = Annual SavingsONE-TIME PURCHASE ORDER:  Req. Pre-Encumbrance - P.O. Encumbrance = Savings

EXPLANATION OF PROCUREMENT ANALYST ACTIVITY:     

Reverse Auctions

•What is a “Reverse Auction”?-It is an online/web-based tool where suppliers bid

against each other in real-time by placing multiple lowering bids to achieve a virtual first place at the end of a defined time period.

•What type of bidding process is used?-A two step competitive bid process is used to

implement the solicitation strategy. -During the first step bidders must comply with the specifications and administrative compliance

requirements.-During the second step, bidders that passed the

first step participate in the pricing phase of the bid process.

•Self administered or managed by a 3rd party?-3rd party is most effective at maintaining the

“sealed bid” environment and dealing with problems as they occur during the pricing phase.

-Bidders remain anonymous to the City and only their “rank” is revealed to the other participating suppliers during the pricing phase.

-Peralta Garcia Government Innovations offers a supplier funded pricing model eliminating the cost of software procurement.

Reverse Auctions

•Does the bidding process take longer than the traditional method?-By doing RA’s as a two-step process an additional week is added to the processing time.-During that additional time the suppliers are trained on how

to use the software platform and lot time frames, extension periods and bid decrements are established.

-The actual pricing phase has lasted from 40 minutes to two days for the most complex RA.

-During the pricing phase the number of bids received has ranged from approximately 100 to over 1500.

•What commodities/services are best suited for RA’s?-They are only limited by an absence of competition!

-Sole source procurements-When only one bidder passes phase one-When too many key suppliers refuse to participate

in RA format.

City of LA Successes

•Nodes and Gateway Equipment manufactured by Roam-There were 5 bidders for an annual contract bid with 3 line items. -Based on the pricing benchmark from the previous contract which was a cooperative, the use of the RA resulted in a price reduction of $160,000 annually.

•Traffic Signal LED’s -There were 4 bidders for a one-time purchase.-Based on the benchmarked pricing, the City realized a one-

time savings of $1,078,528.•Paper, Rolls and Cut (For Publishing Services Division)

-There were 3 bidders and the RA resulted in a price reduction of $300,000 annually.•Vacuum Cleaners and Maintenance

-There were 3 bidders and the RA resulted in a price reduction of $70,000 annually.•Nitrile Gloves (Cooperative Language Included)

-There were 2 bidders and the RA resulted in a price reduction of $46,000 annually.

City of LA Successes

•Trash Receptacles-There were 4 bidders and the RA resulted in a price reduction of $45,000 annually.

•Carbon Media and Change-out -There were 4 bidders and the RA resulted in a price

reduction of $1.2 million annually.•Water Treatment Chemicals (Ferrous and Ferric Chloride)

-There were 3 bidders and the RA resulted in a price reduction of $395,000 annually.•Water Treatment Chemicals (Sodium Hypochlorite and Sodium Hydroxide)

-There were 4 bidders and the RA resulted in a price reduction of $385,000 annually.•Tractor Truck (Quantity of 16)

-There were 2 bidders and the RA resulted no savings compared to the Fleet Services estimated budget for this equipment.

City of LA Successes

•Office Products (Supplies, Copy Paper, Reman Toner & OEM Toner)

-There were 9 bidders that participated.-Bid was separated into 10 different lots with high use items

(over $3000) bid as fixed price and non-high use items bid as a discount from City of LA custom catalog.

-Bid with an estimated volume of approximately $8 million represented annual usage for City of LA, including the DWP, Airport and Port of LA.

-Over 1500 bids received in two days of bidding.-Resulted in 4 separate contract awards to:

-Office Supplies: Office Depot, Contract #59415-Copy Paper: Liberty Paper, Contract # 59420-Toner, Reman: PTI, Contract #59422-Toner, OEM: Rasix Computer, Contract #59421

-RA resulted in cost reduction of over $1.4 million annually. -All 4 Contracts have piggyback language-Electronic Marketplace established to make it easier for public

agencies to utilize the cooperative contracts.

City of LA Successes

•As a result of working with Peralta-Garcia Government Innovations and executing 11 RA’s over the last 2 years the City of LA has reduced pricing by over $5 million.

•This equates to an approximately 17% reduction based on the estimated expenditures.

•Future RA’s include Polybags, Sporting Goods, Liquid Natural Gas and Police Vehicles

Questions?