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Cost Containment
New Four Year $50 Million Cost Containment Initiative
In June 2006, Purchasing Services launched a new cost containment initiative
to further leverage the institution's buying power and achieve
$50 million in documented cost containment over a four year period ending
on June 30, 2010. In order to further challenge the purchasing
organization, a cost containment stretch goal was established to achieve annual
documented cost containment as a percentage of annual managed spend equal to the
annual Consumer Price Index (CPI).
At the University of Pennsylvania, the work of Purchasing Services and the
resolve of our senior leadership to place procurement and
supply management on the leading edge of Penn's cost containment
efforts enable us to leverage our buying power and impact the institution's bottom
line. University departments can reap the benefits of our cost containment
initiatives and maximize the value of each dollar of their operating budget by
utilizing
cost containment opportunities
offered by our procurement related departments.
|
Documented Cost Containment by Fiscal Year |
Reported Results |
| Four Year Goal: |
$50,000,000 |
| Results Achieved to Date: |
$59,876,730 |
| - FY2010 Cost Containment (YTD) |
$11,227,512 |
| - FY2009 Cost Containment |
$19,437,486 |
| - FY2008 Cost Containment |
$17,339,860 |
| - FY2007 Cost Containment |
$11,871,872 |
How Do We Determine Legitimate Cost Savings
Purchasing Services identifies and tracks legitimate cost savings through
supply chain business strategies aimed at achieving
"least total cost pricing" that takes into account not only price,
but factors such as quality, service, delivery and all other aspects relevant for
assessing the total value of the products and services required in support of the
education and research mission of the institution. Purchasing Services will not
allow the pursuit of cost savings be the sole determining factor in the selection
of a product, supplier, or work method to meet the University's need. Therefore,
it is essential that Purchasing Services meet those needs consistently with the
best quality of products and services.
When reporting a new cost savings, Purchasing Services utilizes private
industry acknowledged cost savings criteria to ensure that all reported savings
are identifiable, measurable, and a direct result of the involvement of a
purchasing representative in a transaction, project, or contract negotiations.
New contract and project cost savings; cost avoidance, recurring savings, and
revenue generation contribute to the organization's mission to produce significant
Return-on-Investment (ROI) in support of the goals of the
Office of the Executive Vice President.
Reported cost savings are the result of a planned or deliberate action taken by
a Purchasing Services staff member. A purchase cost savings or avoidance occurs when
a lower than previously paid cost results in the purchase of the same, or comparable
product or service.
This may be accomplished by a number of means including but not limited to:
- Reduce the purchase or ownership cost of the desired product or service
- Avoid a higher cost that would have otherwise occurred
- Improve the total value of a purchased product or service
- Strategic preferred contract supplier relationships
- Competitive bidding of annual requirements and spot purchases
- Spot buy transaction negotiation or addition bid solicitation
- Equivalent product substitution or standardization while meeting customer
requirements
- Favorable contract terms and conditions
- Reduction or elimination of a new cost that would have otherwise occurred
Exclusions
Process or "soft dollar" savings are not reported
in the Cost Containment Program. For multi-year supplier contracts,
cost savings are only reported for the first year of the
multi-year contract. The second year becomes the new cost baseline which may be
renegotiated at a later time due to growth in the business relationship with Penn
or other related opportunities. An unsolicited price reduction,
caused by factors such as market conditions, does not qualify as a cost
savings for which Purchasing Services can take credit. Cost savings and
avoidance opportunities exist not only in what Purchasing Services does, but also
in how we do it. Creditability of the reported cost savings
is a critical success factor for the program.
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