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Share Your Thoughts: Establishing an Average Discount Requirement

Hello everyone,

At the pre-solicitation meeting held May 15, we discussed our strategy to require vendors to apply an average discount to all non market basket items within the same category.  Vendors expressed concerns with this approach because supplier mark-ups vary from item to item. One alternate solution is to further segment each category into subsets that contain products with similar mark-ups. This approach could allow vendors to offer more comparable discounts.

We want to hear your thoughts on this idea and any other recommendations you may have on how to better establish discounts for non market basket items.



FSSI JanSan Team


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New York Inkjet
So with regards to the average discounts and to borrow an example from another member if Product A at GSA price of $100 and average discount is 15%. Will the new price for Product a be $85?And will that continue down the line for all the discount percent
FSSI JanSan Blogger
<p>In the draft RFQ the proposal was to apply the average discount of the Market Basket items to the non-Market Basket.&nbsp; We have posted an Interact blog asking for recommendations for pricing non-Market Basket items.</p><p>JanSan Team</p>
Good Afternoon All, I have been thinking about this question for a few days and would like to give you my thoughts on it. I know at the meeting on May 15 sevral vendors expressed concerns with the approach of applying an average discount to their non market basket items due to varying supplier mark-ups. I do not agree with their approach or thought process and the reason why is that most vendors (contractors) are currently procuring these products from one or more "big box Distributors" such as United Stationers, Lagasse Sweet, ORS Nasco, etc., etc. All of these "big box Distributors" purchase these types of products at the highest discount ranges and/or lowest costs since their purchases are all volume-driven. In other words,their buying power for JanSan products and MRO products is very likely equal to that of Grainger's, Home Depot, and/or some of the other larger big boxes. With this being said, most if not all contractors will be working on a cost-up when they price the Core-Item Attachments which actually means that there should be very little mark-up variance from item to item. Furthermore, most contractors will most likely work on a straight cost-up solution meaning that they will price the Core-Item Attachment items with one or perhaps two straight mark-ups. For example, they may price most items at a straight cost plus 10%. By doing this will take the hills and valleys out of the arguement of varying item to item mark-ups. I think that the Government will end up getting fewer cost reductions for the non market basket items simply because each additional sub-section will have varying discounts. Capp has a large BPA with the Air Force for their (AFTAPP) Air Force Tools and Parts Program Contract. Capp is 1 of 5 contractors to be awarded this BPA. The way that this was done is very similar to way that you originally proposed the FSSI's in the Draft RFQ form. There was a market basket of Core items which was the manditory quote and it composed of all of the Air Force's high-usage items. The other part of the quote was for all of the non-market basket items that were part of Capp's 51V MAS Contract. The non-market basket items were NOT linked to the core market basket items, however, instead, the Air Force asked for a straight percentage off of the current GSA price. This approach not only took out all of the hills and valleys but also simplified the discount/pricing process by making it easier and less confusing, without any additional product [pools and/or MAS Contracts. Therefore, the Air Force now has their cake and is enjoying it also because they have leveraged the Core items (market basket) with the best possible pricing based on heavy usage, AND, they have also been given a straight across-the-board discount percentage on the non-market basket items! It is a win-win situation. Lastly, I want to point out that I think that one of the reasons that some contractors would want category subsets and tiered discounts is because they may be able to make additional profits on some of these subsets by not extending the Government the LOWEST PRICES POSSIBLE. Thank you very much for entertaining my feedback.
FSSI JanSan Blogger
<p>Thank you for your comments. &nbsp;Your feedback is greatly appreciated.</p>
<p>Please help us better understand how the proposed RFQ and subsequent additional layers of discounts and product fragmentation address the stated FSSI goals below better than transparent pricing. (To be clear, transparent pricing is disclosure of all manufacturer volume and other incentives specific to the GSA contract that are necessary to passing the full benefit of the GSA volumes to GSA customers.) Connecting the dots with specifics would be appreciated since many of your stakeholders (e.g. customers/agencies, taxpayers, small and large vendors, auditors and workers/users of government facilities) have been clear, as was evidenced during the hearing, that the connections have not been made as to how your approach is the best option. The specific goals mentioned by FSSI include: &bull; Lowest TCO, which of course, includes more than just product price &bull; Support for industry best practices (including product selection and use through established cost-in-use programs) &bull; Support of socio-economic goals (i.e. small business) &bull; Provide an &ldquo;easy to use vehicle&rdquo; for federal agencies &bull; Remove cost drivers &ndash; presumably unnecessary cost drivers &bull; Reduce price (and cost) variability This has been a lingering question/issue from the beginning and concern was elevated as a result of the 5/15 meeting. I, for one, realize the intension is to create a template for other contracts, but, as I stated in the hearing, there are already many examples of the discount/market basket pricing, along with the service level requirements stated, that have resulted in, at best, mixed results. We all look forward to your response.</p>
FSSI JanSan Blogger
<p dir="ltr">Thank you for your comments. &nbsp;Your feedback is greatly appreciated.</p><p dir="ltr">As addressed in the Pre-Solicitation meeting when we speak of transparent pricing, we are looking to create a dynamic pricing environment where government buyers and sellers understand and can make good comparisons. &nbsp;&nbsp;</p><p>As we start on this solution, it is common for the exact same item could carry dozens or hundreds of part numbers. &nbsp;This makes pricing opaque, neither the federal buyer nor industry representative can easily compare items. &nbsp;&nbsp;</p><p>The first key to transparent pricing is to move to part number standardization. &nbsp;This will enable the federal buyer to perform a direct comparison and make a good decision. &nbsp;This will also give industry the chance to perform more meaningful market research, and better understand the competitive marketplace, and identify where the opportunity to pursue greater efficiencies, negotiate more robustly with suppliers, lower costs, or otherwise respond.</p><p>The comment does a good job in addressing some of the FSSI Jan/San goals. &nbsp;&nbsp;Ease of use is a core goal. &nbsp;&nbsp;Requirements ranging from availability through multiple channels, point of sale discounts, and full catalog availability speak to this goal. &nbsp;</p><p>Small business support is another key goal. &nbsp;Many elements in the RFQ are designed to ensure and promote small business opportunity, from the creation of the pools or subcategories, to the number of set-asides (which will increase from the number proposed in the draft RFQ), to GSA sponsored partnership day to bring together industry and AbilityOne.</p><p>The one-on-one listening sessions, use of this interact platform, and two broad industry days are designed both to create small business opportunity, and to ask question to ensure GSA is raising the right issues to act as smart buyers. &nbsp;&nbsp;If we are missing major opportunities to reduce cost, or become smarter buyers, please advise. &nbsp;It is not too late to raise savings opportunities.</p>
You’ve clearly side-stepped the meaning of “transparent pricing”. Public “majors”, such as Grainger, publicly state their gross margins (the difference between their net price paid and the price charged to customers, like DoD) and openly discuss how they are increasing that gap. Note the stated margins are significantly higher than those documented each year by ISSA members. If the volumes are made available to everyone, there would be competitive pricing for the delivery and contract administration functions distributors provide. Further, it would eliminate the standard practice for manufacturers, large and small, of having to pay distributors additional monies to “promote” specific products on their websites, catalogs and through salespeople. Can you prove that purchases are not impacted by these incentives? By handing over guaranteed volumes (vis-à-vis mandatory contracts), you are ensuring the majors continue to grow their power over the industry to get the best prices for themselves, hoping some will be shared with customers, like the DoD. As was evident in the Sen. McCaskill letter to the OMB Director dated 12/4/12, the GSA and major vendors failed to achieve the stated goal of maximizing volume buying through “refunds” of manufacturer to distributor rebates. This is your own department and is of public record. You’ve also dismissed the other comments at the 5/15 meeting where a gentleman stated that there ARE differences in products and their efficacy, including the labor needed to use the products. Results and outcomes are what should be the goal, not products. Finally, the idea of a market basket for evaluation and selection of a vendor is both antiquated and ineffective. Data on more than a few SKUs is available and can easily be analyzed by you and all of us. Just provide the data and see what creative solutions we come up with. Someone posted that 50-70% of volumes are represented by the market basket. Really? Can you make that data available to all to see? Our analysis of similar contracts showed about 1/3 of the SKUs had less than 3 purchases a year, many with zero purchases. Providing that data will help to clarify this point and the data is available – it’s on every delivery/dock receipt. I and others feel like there is a concerted effort to talk, and brag, about the crumbs/scraps that you are offering to the rest of the vendor community through this blog. You’re not looking at the R&D investment by this industry in new products and solutions/programs. You’re not looking at the administrative burden on bidders, winning vendors, customers/agencies and auditors with your complex discounts. You’re not considering how to open up the playing field for ALL bidders. You’ve asked for ideas but dismiss them. You haven’t offered tangible proof to support your decisions. You haven’t asked for proof of other ideas. You might say you are/have, but your actions/decisions clearly contradict this.
FSSI JanSan Blogger
<p>From the start of this process, GSA has set twin objectives of a fair competition and a transparent process, as we implement strategic sourcing.</p><p>The comment notes that a market basket is a dated concept and suggests that we merely pick a few SKUs to set pricing.&nbsp;&nbsp; We don&#39;t understand from this description how that would result in a fair process, how it would protect the government from overpaying on many items, nor how it would allow industry to compete on a fair basis.</p><p>In terms of the market basket, GSA identified the high spend items from GSA Advantage, DOD E-Mall, and through the GSA SmartPay Card.&nbsp; These items were consolidated into a master list, and then shared with the federal agencies making up the commodity team.&nbsp; These agencies deleted items the Government should buy in other ways, non-TAA compliant items, etc.&nbsp; They added a few lower spend but strategic key items, to the market basket.&nbsp; In total, the basket represents approximately 47% of 2011 federal spend, across this category.&nbsp;</p><p>Over time, the transactional data requirements will give us better and more robust data.&nbsp; Future updates of the market basket will be more detailed and&nbsp; precise, and over time will represent a higher and higher percentage of total federal spend.</p><p>JanSan Team</p>
<p>Hi Team,</p><p>The goal of this FSSI is to save money, right? So lets set it up to do just that. Give us the opportunity to get down and dirty with just the market basket items, which account for 50-70% of the business. If we need to take into consideration the average discount applied to the non-core items, we will be forced to be conservative with the basket items, so that we will not be hurt on those non-core items, which defeats this FSSI goal. I know it sounds too easy, but why not a blanket discount off of non-core items? This will certainly drive schedule holders to offer lowest price on basket items in order to be considered. I think the fear of the average discount aligning with non-core items will prevent the government from geting the lowest possible price..&nbsp;</p><p>Additionally, with regard to holding the price for one year, this will also limit best possible pricing. If we are not permitted any increases, we are forced to add in an estimated percentage that may or may not really occur. Why not allow for increases, and this way if there are none, you are getting best possible price from the onset?</p><p>Lastly, with regard to part number standardization, the descriptions are so vague, there is no doubt contractors will not be offering the best value to the government, but just the lowest priced item, which most times is not the best value. Is there any way a list of acceptable manufacture part numbers can be included?</p><p>Thank you for the opportunity to share my thoughts.</p><p>&nbsp;</p>
FSSI JanSan Blogger
<p>Thank you for your comments. &nbsp;Your feedback is greatly appreciated.</p>
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