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Call to Action: Discounts by Order Size for Office Supplies

As discussed at "OS3 Listen To Industry Day", one of the major cost-drivers is freight.  As such, significant cost-efficiencies are realized as order size (in dollars) increases.  It was suggested that a discount structure based on individual task order size (as opposed to cumulative sales volume tiers) may provide a more equitable and effective approach to maximizing Government savings by encouraging efficient buying behavior. As a purely illustrative example:
Sample Task Order Size  Discount % at Order Tier
$500-$1,499 x%
$1,500-$2,999 y%
$3,000-$9,999 z%
$10,000-$24,999 a%
$25,000+ b%
 
At what thresholds can additional savings be expected on office supply items (i.e. what should the tiers be set at)? 
 
Should the discount %'s be standardized for each tier (meaning all suppliers are required to offer a predetermined discount % at each tier)? Or should the % discount be left up to the supplier and evaluated as a "buy-down" adjustment to the market basket bid?
 
We want to hear your thoughts!
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fssios3blogger
<p>Thank you for sharing your comments. They are helpful and we will take them into consideration.</p>
Janet Myhre
<p><span id="cke_bm_29S" style="display: none;">&nbsp;</span><span id="cke_bm_30S" style="display: none;">&nbsp;</span><span id="cke_bm_31S" style="display: none;">&nbsp;</span><span id="cke_bm_32S" style="display: none;">&nbsp;</span>This is a great discussion - and long overdue.&nbsp;&nbsp; Premise:&nbsp; throughout the Strategic Sourcing Intiative, GSA has claimed the reason for going to a strategic sourcing model was to take advantage of the size and scope of the Federal Government.&nbsp;&nbsp; To further their claim for contract bundling and limited market competition they also claim that by contracting with a &quot;few&quot; for a commercailly available off the shelf (COTS) commondity category they are embraching an &quot;economy of scale&quot; economic model.&nbsp; First - this is inaccurate, especially within a commodity - COTS environment.&nbsp;&nbsp;&nbsp;&nbsp;<span id="cke_bm_60S" style="display: none;">&nbsp;</span><span id="cke_bm_61S" style="display: none;">&nbsp;</span><span id="cke_bm_62S" style="display: none;">&nbsp;</span>&nbsp;&nbsp;1)&nbsp; The federal government is not purchasing and or committing to purcahse items in bulk at a specific time, thus being able to influence economy of scale negotiations.&nbsp;&nbsp; They are not guaranteeing any specific widget and cannot impact the supply chain from raw material purchase, forecasted manufacturing demands to final product ordering and&nbsp;delivery.&nbsp;&nbsp; They are not influencing the manufacturing production cost at all, they are simple buying lots of different COTS products over a period of time an delivery to reflect an aggregate volume in the market place.&nbsp;&nbsp; 2)&nbsp;Since there is no &quot;guarentee&quot; in the GSA MAS schedule or the FSSI office supply contract&nbsp;with purchasing patterns, product selection and standarized delivery method one of the only ways to continue to improve cost factors within the channel is to create&nbsp;efficient ordering and delivery.&nbsp;&nbsp; That is the crux of trying to drive prices down at a &quot;per unit&quot; basis.&nbsp;&nbsp; Industry partner&#39;s manufacturers, wholesalers and end contract holders cannot legitimately forecast the demand.&nbsp;&nbsp;&nbsp; 3) Since the invent of ecommerce catalogs and order platforms (GSA Advantage and DoD Emall) the&nbsp;Federal government has literally allowed substantial cost&nbsp;and ordering inefficiencies to become standard operating practices.&nbsp;&nbsp; A mindset of &quot;getting the lowest price&quot; on an individual item versus embracing a best value for the complete &quot;order&quot; buying practice has actually increased the cost of doing business for the Federal government.&nbsp;&nbsp; 4) Moving to a fair and equitable volume discount per task order is a way the government can start&nbsp;influencing and moving back to a best value model which will reduce tremendous cost in the supply chain.&nbsp;&nbsp; At a minimum it wil reduce 5% cost affliated with low dollar orders in fulfillment, shipping cost (it cost the same to ship one itme as it does to ship 12) and will reward vendors that provide the overall best solution to the federal buyer.&nbsp;&nbsp; Accurate order processing, reduced order receiving, reduced documents and increase paperwork efficiency, not only for the individual GPC card holder but also for adminstrators.&nbsp; 5)&nbsp; Savings will be real time - the Federal buyer will be rewarded immediately for consolidation and order efficiencies.&nbsp;&nbsp;&nbsp;&nbsp; The volume discount per task order should be weighted heavily on the micro purchase threshold level - since a majority of order will be in this range.&nbsp;&nbsp;&nbsp; I will end with the following observation - movinig to a realistic task order volume discount can be accomplished within the current GSA Schedule negotiation and does not need a separate IDIQ contract (FSSI-OS3).&nbsp;&nbsp; The reality is that an IDIQ contract will limit competition, limit market pricing pressures and shuts out great companies and organizations from servicing the Federal buyer.&nbsp;&nbsp; A long-term IDIQ only looks at prices at a specific point in time for award, where as the GSA MAS Schedule allows for real time pricing and compeittion and will continue to allow access by a variety of organizations to the Federal Market....</p>
fssios3blogger
<p>Thanks for your comments. We heard similar concerns about category discounts at our <em>OS3 Listen to industry Day.</em> Whereas no final decision has been made, we will consider your comments as well as the ones from Industry Day in finalizing our OS3 acquisition strategy.</p>
1supplyx
<div>The following discussion/question is in regards to category discounts. &nbsp;</div><div>&nbsp;</div><div>To actually achieve the low cost of goods, GSA probably needs to consider what is more important to them, either low costs on the market basket or category discounts. &nbsp;Including both in the RFQ makes it extremely difficult for GSA to receive the lowest cost of goods. &nbsp;For example, if I have to give a category discount, then I have to raise my bid pricing within the market basket. &nbsp;If the category discount is not required then I can offer much lower pricing. &nbsp;In the supply industry, contractors survive by selling their entire catalog with a fair profit margin mix, meaning some products have little to no margin, while other have higher margins to cover the losses on others. &nbsp;In total, the profit margin mix allows us to survive in the supply industry. &nbsp;All that said, dealers will have a hard time offering both low pricing within the market basket and category discounts. &nbsp;Again, I raise this issue because requiring a category discount in the RFQ seems to goes against the goal of achieving the lowest cost of goods. &nbsp;</div><div>&nbsp;</div><div>Is GSA still leaning toward including the category discount?</div><div>&nbsp;</div><div>Thank you.</div>
Louie Drossel
<p>I don&#39;t think you can have this discussion with out first analyzing the cost to ship each item and the profit margin associated with that item. Some items don&#39;t offer nearly the same level of cost savings as order size increases. In which case these should be excluded from standardized discounts.</p><p>In any case, the discount percentages should be left to the supplier to determine if and how they apply.</p><p>-Louie Drossel</p>
Welcome to the Federal Strategic Sourcing Initiative – Office Supplies Third Generation (FSSI OS3) community.  The intent of this collaborative forum... More
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