Ten Steps Cost Reduction Outline With ATS

®

Experts in Profit Maximization & Business Growth Services

©Above the Standard Procurement Group®, Inc.

KEYWORDS Abstract: Below is a high level process of the procurement cost reduction processes we have used successfully for more than 30 years for organizations from small to large (keep in mind that we have always reduced costs in more than 98% of the clients we have engaged, with an average savings of more than 28%).


Available online at www.atsprocurementgroup.com

10 Steps to Reducing What You Pay on Goods & Services

Core Value to YouAbove the Standard Procurement Group®, Inc. (Above the Standard) would like the opportunity to serve Your Organization like we have done for many other best in practice organizations. Above the Standard can help you in many ways. Our procurement cost reduction core competencies are:

� No Risk to You. � No Cost Assessment to You. � Very little time required by your staff. � Above the Standard conducts most of the work. � Quality and best value is part of the cost reduc-

tion. � Above the Standard provides results without staff

overhead to you. � Above the Standard works alongside you and

your staff as a long-term partner. � Above the Standard does not go through your

invoices (in 99% o the cases). � Above the Standard is a robust, fully scalable,

global procurement and finance firm that can meet your many needs in this space.

� Your information and anything Above the Stan-dard does with you is safe as we sign a mutual NDA that covers one another throughout each project.

� Our process creates some of the most document-ed and compliant driven procurements.

� Above the Standard is not paid by your organiza-tion unless the cost is reduced (pertains to each good/service).

The ten steps outlined in this overview document provide you a high level overview of what to expect in the Above the Standard process. With our proprie-tary and long-term success driven methodologies, we know we can bring you results as a long-term partner.

Email: [email protected]

2 www.ATSProcurementGroup.com.


Step 1 – Gather informationAbove the Standard gathers information about all budget areas of goods and services identified in your organization. We prioritize these spend areas from largest to smallest expenses, potential areas for greatest savings, what are Your important needs, as well as any other areas we outline together.

Step 2 – Complete Analysis of the Budget AreasWe then complete an analysis and work with your team (Finance, IT, Administration, Operations, Human Resources, Executive Management, and any other department / team / person involved in the process) to ensure that there is agreement, unity, and buy in for what is most important in cost reduction, need, goals, strategy, and processes. In other words, we categorize each area from first, second, and so forth for each area.

Step 3 – Best Value DeterminationAfter You and Above the Standard has determined the areas to bid, based on spend, priority, the team’s input, the organizations needs, and strategy, it is very important that the procurement department have an outline of what “Best Value” for each item means to the organization.

Each organization, within each industry, will define best value differently. Some example areas for you to consider outlining, creating, and implementing are:

� Negotiate improved pricing; � Product and service quality; � Delivery times; � Return authorization process; � Invoicing; � Payment terms; � Green compliance; � Federal Government policy and procedures (FAR

/ DFAR); � Sarbanes Oxley (SOX); � Quarterly analysis; � Reporting; � Online ordering; � National / Regional vendor; � 24-Hour delivery; � Vendor audit; � Etc.

Step 4 – Team CommunicationWe will then communicate with those involved in each project one project at a time as it relates to what is important to You and Your Organization (best value – this part is very important in the entire process).

The information gathered during this process will lay the foundation for the Request for Proposal (RFP) / Scope of Work (SOW) letter bidding process. An RFP SOW letter is the basis of what each vendor will use for proposal submission. This document is the most important part of the RFP process because this will provide an outline to those vendors involved you’re your needs. The clearer this document, the better the proposals we will receive.

Step 5 – Create RFP SOW Letter Above the Standard will create a detailed RFP SOW letter for the selected good(s) and/or service(s), based upon our no cost assessment, your needs and input, and agreed upon procurement cost reduction projects. This will then be finalized by you to ensure all areas of importance for best value are outlined. Once all parties agree that their area is clear and understandable, a final document will be created for submission to the vendor’s Your Organization utilizes in these areas, along with our vendors in the specific goods and/or services selected.

Step 6 – Send Information to VendorsWith the RFP SOW letter and your other documents in the RFP package, Above the Standard will initiate the bid process. The vendors we select will be from those whom you currently utilize for the goods and/or services, as well as new vendors selected by ATS, those from your e-procurement system, and other vendors who have solicited you in the past (these will be provided to Above the Standard from your finance department). The number of vendors we solicit (submit the bid to) could be from few to many. For example, we had one client purchasing office supplies from more than seventy companies across the U.S.

One of the documents that we will include in the bid process is the “Master List”. This is a list of items that have been purchased over a given period of time from each vendor. Each current vendor you utilize will be

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Do not use or reproduce without written permission from Ted Landgraf/Above the Standard Procurement Group®, Inc.

Ten Steps to Cost Reduction

instructed by Above the Standard to fill out this tem-plate MS Excel spreadsheet and email this back to us (see example layout below). From this, we will create the master list of all the vendors, the items purchased over a period of time, the cost, etc. This spreadsheet will be sent out with the RFP SOW letter (without any pricing) to each proposed vendor to send back to us with their proposal (this will include their proposed pricing as well).

These individual lines items, when totaled, will aggre-gate to a total cost and provide a basis for award.

Example: One of our clients was purchasing more than 6,000 different office supplies. Above the Stan-dard conducted all the work and not only reduced their office supplies cost by 52%, centralized more than 70 suppliers into one, increased quality, but also controlled what was purchased.

Example Master ListYour Item # Manufacturer /

SKU #Item Descrip-tion

Brand Name (3M, Staples, Etc.)

UofM 12 Month Total Qty (Amount of these items ordered in the last 12 months)

Current Price for each item per UofM

Current Price for each piece in the UofM (Ex: 12 pencils per box - UofM divided by 12 to 5th decimal $ 0.00005

Total Dollar Spend for each item 12 months (Column F times G)

A 1 Pencil 1 120 $1.00 $ 0.08333 $ 120.00

B 2 Glue 1 11 2.33 $ - $ -

C 3 Pen 1 103 1.13 $ - $ -

D 4 Stapler 1 7 7.99 $ - $ -

E 5 Desk 1 15 149.99 $ - $ -

F 6 Lamp 1 23 23.99 $ - $ -

G 7 Paper 10 153 45.99 $ - $ -

H 8 Toner 4 237 44.99 $ - $ -

I 9 Paper Clips 8 155 11.00 $ - $ -

Total $ 0.08333 $ 120.00



Step 7 – Bid/Proposal Receipt and Evaluation We will receive the bids/proposals and rate and rank them according to the criteria outlined in the RFP SOW letter, Your Organization Best Value, cost, and anything else that you have placed in the process. We may go through one, two, three, or more negotiations of your finalists. In other words, we might include twelve vendors in the bid process and only have seven proposals come back to us. The general rule of thumb is to have three finalists for us to review for a final winner for best value/best price.

Step 8 – Winning Vendor Selected You will select the vendor from the finalist, and Above the Standard will notify the winner, as well as those who did not win. You will then sign a contract with the awarded vendor, and your company’s new lower pricing for the selected goods and/or services will be effective for the term of the contract agreed to be-tween you and the selected vendor.

Step 9 – Contract Signed and ImplementedThe new contract is implemented with the winning vendor providing the outlined expectations of the RFP SOW letter is met with the proposal that has been submitted by the winning vendor.

The old pricing versus the new pricing is outlined in

the RFP with the selected winning bidder is outlined for cost savings, along with the contract signed. An example of one of our clients (listed below) shows the bottom line result of more than 1,000 office supply items.

Keep in mind that their goals were not just price, but efficiency, fewer invoices, additional in-company con-trol over purchases, online authorization for all pur-chases, 24-hour delivery, training, reporting, green, etc. Also, the more than 1,000 items are not listed below, because this would take up many pages.

Previous Vendor versus New Winning Vendor Example

Explanation of the table for old pricing versus new pricing as outlined from page eight through page ten:

The columns on the left side (A-G) show the original item this company purchased over a 12 month period of time from multiple vendors. The columns on the right (H-K) show the winning vendor from the pro-curement cost reduction process. Column L shows the percentage savings for each item. The end result shows: The annual spend for office supplies for these items was $338,233 (total is at the end of column G). After the procurement cost reduction process, the winning vendor annual contract was $184,725 (total is at the end of column K). The client is now saving $153,508 annualized savings on these office supply items (total is at the end of column K), a 45% overall reduction (total is at the end of column L).

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Previous Price New Contract Price

Your Item # (A)

Mfg / SKU # (B)

Item Description (C) Brand Name (3M, Staples, Etc.) (D)

12 Mo. Total Qty (Amt order last 12 Mo.) (E)

Cur-rent Price each item / UofM (F)

Total Dollar Spend for 12 Mo. (Col-umn F times G) (G)

12 Mo. Total Qty (Amt dered in last 12 Mo.) (H)

Your Item # (I)

Pro-posed Pric-ing for this RFP (J)

Total Dollar Spend for 12 Mo. (Column F times G) (K)

Per-cent (L)

AFLFT100BX FT100BX TISSUE,FACIAL,8”X8” Afflink 180 $ 0.95 $ 171.00 180 603985 $0.43 $ 77.40 55%

GBC3200716 3200716 POUCH,LAM,LTR SZ,5ML,CL GBC 2 $ 59.49 $ 118.98 2 392217 $21.91 $ 43.82 63%

HUMBINDER-CLIPL

BINDERCLIPL CLIP, BINDER, LARGE, 1” CAP Hummel’s Office Products

24 $ 2.49 $ 59.76 24 831610 $1.16 $ 27.84 53%

LOP15502 15502 PEN,BALLPT,ECON,MED,RD,12/PK Legacy Office Products

60 $ 0.99 $ 59.40 60 466963 $0.55 $ 33.00 44%

LOP15800 15800 PENCILS,#2 WOOD CASE,12PK Legacy Office Products

36 $ 0.75 $ 27.00 36 476919 $0.35 $ 12.60 53%

PAP12132 12132 PENCIL,#2,AMERICAN Papermate 324 $ 0.69 $ 223.56 324 476919 $0.35 $ 113.40 49%

SAN1738519 1738519 MARKER,SHARPIE,GRIP O/S,BK Sanford 1 $ 15.49 $ 15.49 1 756014 $10.00 $ 10.00 35%

AAGR1700 R1700 BASE,CALENDAR,F/E717-50 At A Glance 4 $ 4.94 $ 19.76 4 651554 $2.24 $ 8.96 55%

ABFTC1182 TC1182 BOOK,RECEIPT,MONEY/RENT Adams Business Forms

3 $ 8.19 $ 24.57 3 306647 $3.46 $ 10.38 58%

ACM10702 10702 RULER,HARDWOOD,12” Acme 144 $ 0.39 $ 56.16 144 477829 $0.11 $ 15.84 72%

AVE03301 03301 BINDER,3RG,ECON,1”,BLK Avery 252 $ 1.28 $ 322.56 252 321653 $0.80 $ 201.60 38%

AVE07888 07888 MARKER,PERM,CHISELTP,REG,BK Avery 12 $ 0.99 $ 11.88 12 592402 $0.41 $ 4.92 59%

BLKBE10600004 BE10600004 PROTECTOR,SURGE,6 OUTLET Belkin 12 $ 13.49 $ 161.88 12 806264 $6.88 $ 82.56 49%

BRTLC41BK LC41BK LC41BK: BLACK INK CARTRIDGE FO Brother 4 $ 23.49 $ 93.96 4 569014 $15.74 $ 62.96 33%

BRTTZS231 TZS231 TAPE,INDUST,1/2” Brother 2 $ 19.34 $ 38.68 2 477238 $9.45 $ 18.90 51%

CLBMRP6211 MRP6211 CRTDG,INK,P BOWES,621-1,FL3 Color Laboratories, LLC 3 $ 69.99 $ 209.97 3 CLBM-

RP6211 $51.00 $ 153.00 27%

HEWC5011D C5011D CARTRIDGE,INK,HP,14,BK Hewlett Packard 14 $ 23.47 $ 328.58 14 474822 $20.32 $ 284.48 13%

HEWC5011DN C5011DN INK,HP,OFFICEJET 7110 Hewlett Packard 1 $ 23.47 $ 23.47 1 474822 $20.32 $ 20.32 13%

HEWC6578DN C6578DN CRTDG,INKJET,TRICOLOR,STD Hewlett Packard 8 $ 33.97 $ 271.76 8 392486 $30.90 $ 247.20 9%

HEWC7115A C7115A HP 15A PRINTER TONER CAR-TRIDGE Hewlett Packard 2 $ 63.25 $ 126.50 2 452823 $53.83 $ 107.66 15%

HEWC8727AN C8727AN CARTRIDGE,PRINT,IJ,HP27,BLACK Hewlett Packard 10 $ 19.24 $ 192.40 10 491205 $16.40 $ 164.00 15%

HEWC8730WN C8730WN CARTRIDGE,INK,HP 02XL,CYN Hewlett Packard 2 $ 18.50 $ 37.00 2 814068 $12.60 $ 25.20 32%

HEWC8731WN C8731WN CARTRIDGE,INK,HP 02XL,MA Hewlett Packard 2 $ 16.59 $ 33.18 2 814069 $12.60 $ 25.20 24%

HEWC8732WN C8732WN CARTRIDGE,INK,HP 02XL,YW Hewlett Packard 2 $ 18.50 $ 37.00 2 814067 $12.60 $ 25.20 32%

HEWC9352AN C9352AN HP 22 TRICOLOR US INKJET PRINT Hewlett Packard 6 $ 19.35 $ 116.10 6 603401 $15.89 $ 95.34 18%

HEWC9361WN C9361WN CRTDG,INK,HP 93,TRI-COLOR Hewlett Packard 4 $ 23.22 $ 92.88 4 606326 $19.07 $ 76.28 18%

HEWC9364WN C9364WN HP 98 BLACK INKJET CARTRIDGE U Hewlett Packard 30 $ 23.99 $ 719.70 30 617545 $19.32 $ 579.60 19%

HEWC9500FN C9500FN HP 02 2-PACK BLACK INK CART Hewlett Packard 2 $ 40.63 $ 81.26 2 610738 $30.45 $ 60.90 25%

HEWCB435A CB435A CARTRIDGE,PRINTER,HPLSRJT Hewlett Packard 5 $ 67.63 $ 338.15 5 712993 $53.53 $ 267.65 21%

HEWCC653AN CC653AN CRTDG,INKJT,BLK,901 Hewlett Packard 12 $ 15.81 $ 189.72 12 731585 $12.38 $ 148.56 22%

HUMTAPEDIS-PENSER

TAPEDIS-PENSER DISPENSER, TAPE, 1” CORE, BLK Hummel’s Office

Products 20 $ 2.85 $ 57.00 20 130674 $0.80 $ 16.00 72%

LEO74500 74500 ERASER,BOARD,WHITEBOARD Charles Leonard 60 $ 1.00 $ 60.00 60 601738 $0.60 $ 36.00 40%

LOP13217 13217 BOARD,CORK,48X36,WOOD,45106 Legacy Office Products 9 $ 65.99 $ 593.91 9 518639 $20.77 $ 186.93 69%

LOP13450 13450 CLIPBOARD,9X12-1/2”,BN,01155 Legacy Office Products 48 $ 0.97 $ 46.56 48 522003 $0.60 $ 28.80 38%

LOP13451 13451 CLIPBOARD,9X15-1/2”,BN,01160 Legacy Office Products 12 $ 1.39 $ 16.68 12 121715 $1.14 $ 13.68 18%



LOP14201 14201 PUNCH,3-HOLE,ADJ,BK,00210 Legacy Office Products 5 $ 4.99 $ 24.95 5 799809 $2.15 $ 10.75 57%

LOP14205 14205 PUNCH,2-HOLE,HVY/DTY,BK,00200 Legacy Office Products 12 $ 4.99 $ 59.88 12 799825 $2.00 $ 24.00 60%

LOP16005 16005 TAPE,INVISIBLE,3/4X36YD,2 Legacy Office Products 216 $ 0.64 $ 138.24 216 495221 $0.40 $ 86.40 38%

LOP21220 21220 BOOK,STENO,GREGG,GN,60SH, Legacy Office Products 24 $ 0.89 $ 21.36 24 163485 $0.56 $ 13.44 37%

LOP52010 52010 CRTDG,LASER,LJ1100,C4092A Legacy Office Products 3 $ 47.91 $ 143.73 3 791204 $29.97 $ 89.91 37%

LOP52021 52021 CRTDG,LASER,C7115A Legacy Office Products 3 $ 53.85 $ 161.55 3 791407 $33.03 $ 99.09 39%

HUM33YW 33YW PAD,NOTE,POST-IT,3X3,YW Hummel’s Office Products 192 $ 0.27 $ 51.84 192 486955 $0.14 $ 26.88 48%

HUM35YW 35YW PAD,NOTE,POST-IT,3X5,YW Hummel’s Office Products 180 $ 0.48 $ 86.40 180 105825 $0.23 $ 41.40 52%

ALL00700 00700 R/BANDS,BIG,7”X1/8” Alliance 30 $ 1.39 $ 41.70 30 516054 $0.60 $ 18.00 57%

EPSS041649 S041649 PAPER,LETTER,50 SHEETS Epson 3 $ 22.89 $ 68.67 3 489117 $13.04 $ 39.12 43%

GBC3202000 3202000 POUCH,LAM,BUS CD GBC 16 $ 6.92 $ 110.80 16 793745 $0.20 $ 3.20 97%

GBC3747143 3747143 POUCH,ECONOMY LTR SZ 3 MIL GBC 1 $ 74.49 $ 74.49 1 383188 $42.34 $ 42.34 43%

HEWC9322FN C9322FN CRTDG,INK,HP 27 2 PK,BK Hewlett Packard 3 $ 38.99 $ 116.97 3 570648 $30.44 $ 91.32 22%

HEWCC604FN CC604FN CARTRIDGE,CMBPK,HP02,RETAIL Hewlett Packard 4 $ 49.02 $ 196.06 4 674759 $41.44 $ 165.76 15%

LOP10803 10803 CARD,INDEX,3X5,RLD,WE,100/PK,1 Legacy Office Products 310 $ 1.10 $ 339.90 310 233601 $0.22 $ 68.20 80%

MAX648200 648200 CDR,700MB,80”-100 SPNDL Maxell 2 $ 31.99 $ 63.98 2 561032 $13.70 $ 27.40 57%

MMM859 859 TAPE,MOUNTING,SQ,RMVBL,CL 3M 10 $ 4.49 $ 44.90 10 848044 $1.65 $ 16.50 63%

PAC103590 103590 PAPER,CONST 9X12 50PK,RD Pacon 10 $ 1.88 $ 18.80 10 826160 $1.49 $ 14.90 21%

PACP7209 P7209 PAPER,CNST,9X12,50PK,VT Pacon 10 $ 2.15 $ 21.50 10 601691 $1.49 $ 14.90 31%

DUCB45012 B45012 TAPE,DUCT,1.88”X45YD Duck 12 $ 10.69 $ 128.28 12 $7.35 $ 88.20 31%

18H24E 18H24E HANGING POCKET,LTR,3-1/2” EXP see item desc column 2 $37.49 $ 74.98 2 478978 $19.49 $ 38.98 48%

Q5942A Q5942A HP PRINT CTG FOR LJ4250/4350 see item desc column 1 $151.21 $ 151.21 1 577292 $129.61 $ 129.61 14%

UNV11204 11204 PAPER,XERO/DUP,20#,LTR,PK(MP2201PK) UNV 4 $ 4.99 $ 19.96 4 490935 $3.49 $ 13.96 30%

UNV11208 11208 PAPER,XEROX/LASR20#LTR,IY UNV 6 $ 4.99 $ 29.94 6 490950 $3.49 $ 20.94 30%

AVE11906 11906 INDEX,PLST 2 PKT 5TB,AST AVE 2 $ 3.95 $ 7.90 2 476882 $2.30 $ 4.60 42%

Total Dollar Amount Reduced for all items (previous pricing versus new contract pricing, was $ 153,508 per year (a 45% cost reduction)

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Step 10 – Implementation and Next Projects Implementation happens on the specified date with the selected vendor chosen by you and Your Organiza-tion, which includes those team members identified in your organization, and the team members selected with the winning vendor.

The same process will take place with each area we have identified by you and Your Organization. De-pending on organization need, resources, and chang-es, the plan for bidding, projects, and procurement may change with new areas and/or certain projects deleted. Keep in mind that as we conduct each area of procurement cost reduction, opportunities will open up for efficiency, soft cost avoidance, productiv-ity maximization, and other areas that relate to bot-tom line and business growth.

SummaryMany companies conduct what we call cost reduction where they sign an agreement for a specified percent-age off of business pricing or a percentage above their cost, but they really do not know what pricing, sav-ings, and best value they are REALLY getting. Why? There is nothing to gauge previous pricing versus new pricing for all items. In other words, a lot of bids are conducted with 30 to 50 of the most utilized core items, whereas many companies purchase hundreds to thousands of items in the office supply spend area alone.

Cost Reduction versus Procurement Cost ReductionThe difference between both cost reduction and the RFP procurement cost reduction process is different. Procurement cost reduction has greater benefits in all areas. See the table below.



Cost Reduction Outcome Procurement Cost Reduction Outcome20% off of business pricing. How do you know what you are

paying for the future pricing?• Create Master List of all items purchased over a specified period of time.• Create the pricing and benchmark.• Request for Proposal (RFP)/Bid and include all items, services, and related areas.• New winning bidder is engaged with Master List of items included in the contract.• Procurement Cost Reduction / RFP conducted once per year, or on a scheduled basis

as determined by your organization.• Conduct Procurement Cost Reduction through RFP process.

Catalog pricing. Do you have an analyst review each item as you buy it?

• Some of the Results of Procurement Cost Reduction:• Spend more time up front to create bid.• Will only have to bid this area once every year or two.• Save’s time, money, improves efficiency, and streamlines processes.• Procurement or staff person does not have to go to bid on this every week (at most

once every year).• Lowest price.• Can include in contract that items outside of all that has been purchased in the past

be included at the same cost reduction (cost percentage above their wholesale cost) in the future.

• Can customize bid to be able to order online, integrate with your procurement system, control what is purchased, see trends, know what you need in inventory, plan, forecast, etc.

• Less time overall.• More efficient.• More benefits.• Improved time management.• Bid out at a minimum of once every 6 months to one year, two year, or more.• One to two vendors are chosen meaning less PO’s, Invoices, and paperwork.

Request for Quote (RFQ) specific to items during that month

Example: Office Supplies RFQ sent out to 3 vendors for of-fice supplies in the amount of $10,000).

This is very labor intensive and does not provide total spend and buying amount to vendor.

Buy from multiple vendors, meaning more Purchase Order’s, Invoices, and Shipping / Receiv-ing Documents (not cost effective from both cost and labor).

The RFQ does not take into ac-count that the companies spend is $200,000 per yea. The RFQ for $10,000 that month was sent out and the company will only get pricing based on $10,000, not $200,000.

• Summary Benefits of Procurement Outsourcing & Cost Reduction:• Reduced costs and increase quality;• Centralized procurement;• Provide needed goods and/or services;• New market development;• Just-In-Time Inventory (JIT);• Increased supply chain efficiency;• Best value and remain competitive;• Government compliance;• Supplier performance improvement;• Support day-to-day buying activity;• Policy/Procedure creation, implementation, validation;• Transaction automation and processing;• Focus to core competencies;• Strong end-user to provider relationship developed;• Lower procurement related labor costs;• Overall procurement performance improved;• Greater control, reporting, and vendor compliance;• Organization and internal cost performance;• Data for benchmark analysis, goals, and results;• Procurement personnel training;• Hedges future increase of raw materials; and• Procurement department creation and implementation.

Your Bottom LineThere are many other things we could highlight about why Procurement Outsourcing and the Procurement Cost Reduction RFP process as compared to cost reduction is better on all points.

They far outweigh just cost reduction, because it is not only about price, but time, labor, vendor relation-ships, compliance, returns, customer service, staff knowing how to order, control over what is ordered for cost control, invoicing and purchase order efficiency, compliance, measurable performances, vendor management, relationship development, efficiency not only in the purchasing department but also within departments (pur-chasing effects everyone!), budgeting, cost reduction, the goals and needs of your organization, and so many other areas.

Email: [email protected]

Ten Steps Cost Reduction Outline With ATS

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