Recognizing Our Benefit - Benefit Methodologies and Definitions

Recognizing Our Benefit

VISION	To be acknowledged by University of California executive and campus leadership, faculty, staff and students as a high performing strategic partner that is essential to the financial health of the University.
MISSION	To expand opportunities for teaching, research and public service by delivering savings and efficient procurement services across the University of California.
IMPORTANCE OF UC BENEFIT	Total UC Benefit is important because it allows us to highlight and communicate the work we do every day as procurement professionals in a consistent, accurate, and verifiable way.

A benefit generated by procurement actions can be described as any of these five Benefit Types:

Benefit Type	Definition
Cost Reduction	Achieved when the new total cost is lower than the baseline cost for goods and services
Cost Avoidance	Achieved when the proposed additional or incremental cost is minimized or eliminated.
Incentive	Achieved when a payment is received based on a purchase.
Revenue	Achieved when income is received based on external sales, e.g. goods, services, or brand licensing.
Efficiency	Achieved when a new or enhanced technology and/or process(es) results in increased productivity.

There are seven unique Baseline Types.

Benefit Type	Baseline Type	Definition
Cost Reduction Listed in order of preference	Previously Contracted	Use when the cost is specified in a pre-existing agreement.
	Historical Costs	Use when UC has record of a purchase but the cost is not specified in an active agreement.
	Imputed Historical Costs	Use when pre-existing agreements and spend data are not available, but can be established by: initial supplier quote average of all responsive non-awarded RFP bids budget, index or other benchmark.
Cost Avoidance	Cost Inclusive of Increase	Established by, listed in order of preference; the supplier’s request for a price increase a documented trend in market price increase such as CPI or PPI other contributing factors to an increased cost
Incentive	Incentive	Use total applicable spend over the incentive payment period
Revenue	Revenue	If UC sells the good or services externally, use $0
Efficiency	Efficiency	Use the net cost of activity before applicable change(s).

 

A single Benefit can have multiple Activities.

	Definition	Common Use
Activity	An entry containing specific details about a Benefit	Adding additional achievements to previously entered Benefits Precise details for sourcing events

 

Activity Types

Each Activity Type contains information about the type of Benefit.

Activity Types	Definition
Transactional	A Benefit: known, not estimated, at agreement signing achieved from a one-time purchase of goods and/or services
Sourcing	A Benefit: generated from a multi-year agreement establishes a framework for recurring transactions achieves benefit(s) throughout the life of the agreement
Missed	A Benefit that could have been generated but was missed due to circumstances outside the control of Procurement

 

Reporting Types

Each Activity type has two reporting options. An Activity can have either or both reporting types. 

Reporting Type	Definition	Common Use
Actualized	A Benefit with a defined quantity and absolute/firmly known value	Usually a transactional or a professional services/fixed-fee engagement. See Renegotiating an existing contract (One-off Large Volume Purchases)
Projected	A Benefit that has an estimated value based on past behavior and known future conditions, usually resulting from sourcing event	Usually a sourcing event. See Extending an Agreement (Computer Hardware Purchase)
Both	A Benefit with both a firmly known value for the current fiscal year and estimated value for future years	Usually a sourcing event. See Co-branded Credit Card Agreement

Below are examples of activities that may generate benefit.

The list is not intended to be comprehensive.

TYPE	ACTIVITY	EXAMPLE	BENEFIT TYPE
Purchase Price Reduction	Reducing the cost of goods or services from previous pricing through professional actions such as negotiations, bidding, etc.	The hourly cost for marketing services is reduced through negotiations from the previously agreed-to rate.	Cost Reduction
Specification Changes	Initiating a change to specifications for goods or services, resulting in cost reduction.	The thickness specifications for trash can liners exceeded actual needs and a new specification was developed for future purchases resulting in a cost reduction to the campus.	Cost Reduction
Contract Compliance	Redirecting spend and/or implementing processes to achieve maximum benefit from established strategic contracts.	Requisition submitted with the requested source being McMaster-Carr, which does not have a contract with UC. Purchase is redirected to Grainger, which is under contract at a lower price.	Cost Reduction
SLA / Maintenance Contract Changes	Initiating a specification change to a Service Level Agreement (SLA) or maintenance contract that reduces costs and maintains required service levels.	Reducing a 24 hour x 7 day hardware maintenance contract to 9 hour x 5 day, when round-the clock support is not necessary.	Cost Reduction
Demand Management	Managing demand through alternate solutions to achieve lower overall costs.	A purchase of several projectors reduces the demand for printer materials, supplies, and maintenance.	Cost Reduction
Cost of Quality	Improving the quality of a specification to reduce overall costs.	Requiring higher standards in bolt specifica- tions reduces the number of bolts per order that must be rejected due to defects.	Cost Reduction
Market Adjustment	Negotiating price caps or price changes tied to specific indices.	Negotiated with software supplier to replace annual 10% price increases with increases tied to changes in CPI or 3%, whichever is less.	Cost Avoidance
Purchasing Process Improvement	A purchasing process is implemented or revised resulting in lower costs.	An eProcurement system is implemented so that end users can place orders electronically.	Cost Reduction
Operational Process Improvement	Redirection of FTE time due to a change in operations.	An agreement is established for Grainger to manage UC inventory at no additional cost, freeing up procurement resources to focus on other value-add procurement activities.	Cost Reduction
Revenue Generation	Generating value through the sale of surplus or obsolete goods to an internal UC customer, in lieu of a new purchase from a 3rd party supplier.	Procurement/materials management arranges the sale of a surplus microscope to another campus department, avoiding a purchase from an outside supplier.	Cost Avoidance
Revenue Generation	Generating value through the sale of surplus or obsolete goods to an external customer	Procurement/materials management arranges the sale of obsolete furniture to a public customer, generating revenue.	Revenue
Prompt Payment Discount	Negotiation of price discount for prompt payment terms.	Buyer obtains agreement with supplier to pay with pcard on a large order, resulting in a rebate.	Cost Reduction
Signing Bonus	Negotiating an incentive for signing a contract	UCM negotiates a contract with Adidas that includes an upfront signing bonus	Incentive

For additional information, please speak with your UC Benefit Approver.