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2 Purchase Planning

2.1 General

2.1.1 The Importance of Purchase Planning

Effective purchase planning is essential to furthering the business and competitive interests of the Postal Service. As such, it requires the coordination and cooperation of a number of organizations and must address a number of topics. As stated in 2.1.2, early involvement among all of the stakeholders often proves critical to successful planning and successful purchasing. The extent of the planning will depend on the nature of the purchase and its effect on the business and competitive objectives of the Postal Service. The success of major purchases, which are those with the potential to impact these objectives, should be planned for by a purchase team that fully reflects the strategic importance of the purchase, and should involve the team's use of a wide range of supply chain business practices (such as strategic sourcing, demand analysis, prequalification, supplier selection strategy, and resource planning). The success of other purchases will not require the same level of investment, but will require some degree of planning. In all cases, the effectiveness of the purchase planning will directly affect the success of the purchase.

2.1.2 Preliminary Planning

Organizations normally plan their purchasing needs during the budget process. Because purchase planning should involve everyone with a stake in the outcome, coordination between internal postal business partners should begin as early as possible. Planning for high-dollar purchases should begin in the concept-development phase and consider best value in relation to business strategy and total cost of ownership. The goal of this preliminary planning is to define the Postal Service requirement to be purchased.

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2.1.3 Purchase Planning

2.1.3.a The Process. Purchase planning is the process of establishing objectives and tactics to obtain the best value in a specific purchase. It is done by a purchase team made up of the Postal Service business partners with an interest in the purchase, including the organization requesting the purchase, the purchasing organization, and other organizations needed to help determine best value. The contracting officer responsible for the purchase is the business leader of the purchase team, and it is his or her responsibility to ensure that the team concentrates on purchase planning as part of an overall business strategy. As business leader, the contracting officer should also ensure that the team takes advantage of the most effective supply chain management business practices for a given purchase. Customer satisfaction and business success should be the primary focus of purchase planning as they will ultimately define best value in a purchase.

2.1.3.b Responsibilities. Purchase team members have specific roles in purchase planning.

1. The organization requesting the purchase:

(a) Determines the supply or service required.

(b) Helps to identify potential suppliers.

(c) Ensures that funds are available and authorized.

(d) Provides a purchase description.

(e) Prepares a price or cost estimate.

(f) Defines the period of performance or delivery.

(g) Establishes any supplier reporting requirements.

(h) Assists in developing the supplier-selection strategy and the proposal-specific performance evaluation factors (see 2.1.7 and 2.1.9).

2. The purchasing organization:

(a) Through the contracting officer, serves as business leader of the purchase team.

(b) Gathers and analyzes relevant spend and demand data to identify opportunities for strategic sourcing and consolidated purchases.

(c) Provides advice and assistance.

(d) Identifies new or competitive sources, including small, minority, and woman-owned businesses (see also Handbook P-1, General Purchasing Concepts and Practices, section 2.3.5), and, when appropriate, ensures that enough suppliers are available to ensure adequate competition.

(e) Prequalifies suppliers and maintains source lists.

(f) Maintains and applies cost and pricing models to optimize total cost of ownership.

3. For many purchases, the materials organization may provide specific expertise, including:

(a) Transportation planning, including FOB origin/destination price evaluation.

(b) Identifying the total cost of ownership related to logistics activities (movement, storage, redistribution, and disposal).

(c) Providing alternatives and recommendations for the ordering and delivery of supplies and services.

(d) Develops a freight transportation plan which considers alternatives and recommendations.

4. The purchase team may include other members whose specialized support (for example, legal or technical) will ensure that business considerations outside the purchasing process are included (for example, maintenance or training).

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2.1.4 Market Research

2.1.4.a Importance. Market research is central to sound purchase planning. Market research helps determine:

1. What supplies or services are available.

2. What suppliers are available.

3. How to best state requirements.

4. Whether price or cost estimates are realistic.

5. Commodity or industry trends.

2.1.4.b Methods. Market research methods include:

1. Assessing whether commercial products and services meet (or are adaptable to) postal needs.

2. Surveying the state of technology, and the extent and success of commercial applications.

3. Holding industry briefings or presolicitation conferences to discuss postal needs and obtain recommendations.

4. Determining why potential suppliers did not respond to solicitations.

5. Attending conferences and researching commercially available products, industry trends, product availability, reliability, and prices.

6. Testing and evaluating commercially available products in a postal operating environment to collect reliable performance data, determine if modifications are necessary, and develop operational cost information.

7. Analyzing the purchase history of an item or service to determine the level of competition, prices, and performance results.

8. Publicizing new specifications and, when appropriate, issuing solicitations for information or planning purposes (see 4.2.2.d) far enough in advance to consider industry comments.

9. Publicizing through the Government Point of Entry (see 3.5.3) and other appropriate media, competitive purchasing or prequalification opportunities valued at more than $100,000, except:

(a) Purchase or prequalification opportunities for commercially available goods and services. If the purchase or prequalification opportunity is valued at more than $1 million, it must be publicized as discussed above;

(b) Purchase or prequalification opportunities for mail transportation and related services (see 4.4.4.d); and

(c) Certain noncompetitive contract awards.

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2.1.5 Individual Purchase Plans

2.1.5.a Responsibility. The contracting officer determines the extent of the planning and leads the planning effort. For complex purchases, the purchasing organization, guided by the purchase team, usually prepares the plan. Plans are developed when the purchasing organization becomes aware of a customer's requirement, or receives a purchase request, statement of work, or other information sufficient to begin the planning process.

2.1.5.b Elements. Normally, a purchase plan should include:

1. The purpose of the purchase.

2. A statement of work that may include specifications or a product description (see 2.3.1).

3. The history of purchasing similar supplies or services.

4. Special considerations such as compatibility with other equipment; cost, schedule, or performance constraints; or environmental issues.

5. The cost estimate and availability of funds.

6. The estimated total cost of ownership.

7. Delivery schedule, handling and packaging requirements, period of performance requirements including considerations for shipping FOB origin or destination (see 2.2.5).

8. Potential risks and any plans to reduce them, including contingency plans and alternatives, and bonds.

9. The type of contract (see 2.4).

10. Supplier prequalification plans (see 3.5.2) or other approaches to the purchase.

11. Any proposal-specific performance evaluation factors crucial to the success of the purchase, and their order of importance (see 2.1.9 and 2.1.10).

12. A supplier-selection strategy, if proposal-evaluation performance evaluation factors will be used (this strategy will become part of the individual plan; see 2.1.7).

13. Sources (see Chapter 3).

14. A written description of the purchase method to be used, specifically, whether the purchase will be competitive or noncompetitive. If the purchase will be made noncompetitively, the business case for this decision must be included in the plan (see 2.1.6).

15. Quality requirements, including warranties.

16. Supplier reporting requirements.

17. Requirements for supplier data and data rights, their estimated cost, and how they will be used (see Chapter 8).

18. The potential for alternate agreements on intellectual property (see Chapter 8).

19. Postal property or facilities that will be furnished to the supplier.

20. Possible conflicts of interest (see 1.6.8).

21. End of life management (i.e. manufacture buy-back, recycling, refurbishment, sale or disposal).

2.1.5.c Milestones. The purchase plan must include significant milestones critical to the success of the purchase, including publicizing the purchase, issuing the solicitation, receiving proposals, evaluation, discussions, and any reviews and approvals needed. Once the purchase team has set the milestones, if the contracting officer becomes aware that changes are necessary, he or she must inform the rest of the purchase team.

Note: See 1.4.1 for information regarding required approvals for certain purchase plans.

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2.1.6 Purchase Method

2.1.6.a General. The individual purchase plan must address the purchase method that will be used. The purchase method is the manner in which the purchase will be conducted, specifically, whether it will be competitive or noncompetitive. This decision should be reached by consensus, but if the team is unsuccessful in doing so, the contracting officer is responsible for determining the purchase method.

2.1.6.b Competitive Purchase Method. In most cases, competition is the most effective purchasing method because it brings market forces to bear and helps purchase teams compare the relative value of competing proposals and prices and thereby determine the best value.

2.1.6.c Noncompetitive Purchase Method

1. General. In some cases, the business and competitive objectives of the Postal Service may best be met through the noncompetitive purchase method. The decision to use this method must be weighed by the purchase team, and must be considered in light of the potential benefits of competition and other worthwhile business practices.

2. Business Scenarios. Whether the noncompetitive method is appropriate depends on the particular purchase. The following four business scenarios are representative of instances in which the noncompetitive method may prove the most effective:

(a) Compelling Business Interests. This scenario is used when the purchase team determines that a specific supplier or source can meet Postal Service needs quickly and efficiently and that the benefits of doing so outweigh those that may be realized through competition, as when the need is so urgent that the competitive method cannot add value.

(b) Industry Structure or Practice. This scenario is used when the industry producing or supplying the required goods or services is structured in a manner that renders competition ineffective (for example, when purchasing goods or services that are regulated, such as many utilities, or when purchasing from nonprofit or educational institutions that do not compete in the market place).

(c) Single Source. This scenario is used when only one supplier is capable of providing the required goods or services (for example, when only one supplier has proprietary knowledge, trade secrets, or other proprietary interests in a necessary technology or when a supplier, working in partnership with the Postal Service, has developed exceptional expertise which has and will continue to further the business and competitive objectives of the Postal Service).

(d) Superior Performance. This scenario is used when a supplier's superior performance, and its contributions to the Postal Service's business and competitive objectives, merit award of a particular purchase (for example, extending the term or expanding the scope of a contract when a supplier has performed at such a high level that the extension or expansion is well-deserved, or when a supplier's superior performance has made such performance beneficial to Postal Service operations).

3. Business Case. Purchase teams may decide to use the noncompetitive purchasing method when noncompetitive purchasing is deemed the most effective business practice for the given purchase. The rationale for the decision must be documented in a business case and included in the contract file. The extent and detail of the business case will depend on the particular purchase, its complexity, and its potential dollar value, but in all cases the following must be addressed:

(a) The business scenario justifying the decision, and why it is appropriate.

(b) The extent and result of market research performed to ensure that a noncompetitive purchase is the most effective business practice.

(c) If applicable, whether the purchase team believes that future purchases of the goods or services should be made noncompetitively, and why.

(d) Any other issues that should be considered in the interest of sound and effective purchasing (subcontracting plans, upcoming changes in market conditions, etc.).

4. Reviews and Approvals

(a) The VP, SM, has delegated noncompetitive review and approval authority for contracts up to and including $10 million, by letter of delegation, to the managers, Facilities, Mail Equipment, Services, Supplies, and Transportation Portfolios, and to the managers, Supply Management Operations, Supply Chain Management Strategies, and Supply Management Infrastructure, who may, consistent with those delegations, redelegate, by letter of delegation, some of that authority to subordinate managers and contracting officers.

(b) If the estimated value of the noncompetitive purchase is expected to exceed $10 million, the VP, SM, must give prior review and approval of either the purchase plan or proposed contract award.

5. Publicizing. See 3.5.3.

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2.1.7 Supplier-Selection Strategy

2.1.7.a General. To obtain the best value, the purchase team should develop a supplier-selection strategy. The strategy should form the general framework for establishing the aspects of value sought in the purchase and the performance evaluation factors to be used. Purchase teams should remember that supplier-specific factors (past performance and supplier capability, see 2.1.9.c) should always be evaluated even when price may serve as the most important factor (for example, when suppliers have been prequalified). The supplier selection should be reached through the consensus of the purchase team. If consensus cannot be reached, the contracting officer, as business leader of the purchase team, has final responsibility and authority for the selection decision.

2.1.7.b Developing Strategies

1. Before developing a supplier-selection strategy, see 3.3 to make sure the purchase does not require using mandatory sources.

2. The supplier-selection strategy is developed by the purchase team, under the general direction of the contracting officer or purchasing organization. The evaluation team (see 2.1.8) may assist, as well as any other advisors needed.

3. The supplier-selection strategy must list the performance evaluation factors, their relative significance, and the performance evaluation method and procedures that will be used for supplier selection. Factors must be tailored to the purchase, and address all areas that will be considered in determining best value. Because mandatory requirements in solicitations limit suppliers' flexibility to propose, and constrain best value determinations, purchase teams must assure themselves that solicitation requirements do not include unnecessary minimum standards, mandatory feature callouts or other inappropriate limitations on supplier selection. In addition, if the purchase team believes that offerors may propose more effective technical solutions than anticipated by the requirements, the solicitation should state that extra evaluation credit may be given for such solutions.

4. The strategy must also address how price will be compared with the performance evaluation factors to determine which supplier (or suppliers) offers the best value.

5. Unless suppliers have been or will be prequalified, or the noncompetitive purchase method will be used, purchase teams should remember that it is good business practice to develop strategies that invite new and emerging suppliers to compete for Postal Service purchases.

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2.1.8 Evaluation Teams

2.1.8.a General. When a supplier-selection strategy is needed, the purchase team must establish an evaluation team (which may include members of the purchase team). Its membership depends upon the scope and complexity of the purchase, and the complexity of the performance evaluation factors that will be evaluated. When necessary, people from outside the Postal Service may be named to the evaluation team or as advisors. Caution must be exercised when appointing people outside the Postal Service to evaluation teams in order to prevent conflicts of interest (see 1.6.8).

2.1.8.b Reports. The evaluation team must present its findings to the purchase team in a written report with narrative statements identifying the major strengths and weaknesses of the various proposals. The report will be used to help the purchase team conduct discussions with suppliers and to select the supplier or suppliers offering the best value to the Postal Service.

2.1.9 Performance Evaluation Factors

2.1.9.a General

1. Performance evaluation factors provide vital information to both the purchase team and the supplier: to the first by requiring the supplier to describe its approach to the purchase and its past record of performance in the specific area; to the second by informing suppliers what particular aspects of value are sought by the Postal Service in relation to the purchase. There are two types of performance evaluation factors: proposal-specific, which address aspects of a particular purchase; and supplier-specific, which address aspects central to the supplier being evaluated. The purchase team determines which performance evaluation factors will be used in any one particular purchase. For information regarding the role of price or cost see 2.1.10; information regarding performance evaluation is in 4.2.5.

2. Risk of successful performance should almost always be considered as a performance evaluation factor. It may be included as a separate factor, or as an element of other factors.

3. There may be overlaps between supplier-specific and proposal-specific factors. This usually happens when proposal-specific factors cover areas which are also considered in evaluating a supplier's capability, such as production capacity.

4. Suppliers should be evaluated for prequalification in the same manner as for any other purchase.

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2.1.9.b Proposal-Specific Factors

1. The appropriateness and proper weighting of proposal-specific factors are essential to effective performance evaluation. The proposal-specific factors should represent the elements of the purchase critical to its success and should be designed to achieve it. Using too many factors should be avoided, as it can unintentionally level evaluation scores (as when high scores for less significant factors offset low scores in more important factors).

2. Proposal-specific factors used in a purchase must be tailored to and consistent with the purchase. Examples of proposal-specific factors include:

(a) The supplier's understanding of the requirement.

(b) The supplier's management plan (including, where appropriate, its subcontractor plans).

(c) The qualifications and experience of the supplier's key personnel.

(d) The superiority of the supplier's technical approach.

(e) The supplier's offered delivery terms (see 2.2.5).

3. Subfactors may be established under any evaluation factor; for example, under "management plan," there could be subfactors for "organization" and "operational concepts."

2.1.9.c Supplier-Specific Factors

1. There are two supplier-specific factors: past performance and supplier capability. Unless price will serve as the deciding factor (see 2.1.10.e), they must be evaluated during the purchasing process regardless of the purchasing method being used.

2. Past Performance

(a) A company or individual that has performed well on previous contracts and has shown proven results in using supply-chain management business practices is likely to do the same on similar contracts in the future. Including past performance as an evaluation factor helps ensure quality suppliers.

(b) All past performance evaluations must include the following factors:

(1) Quality (a record of conformance to contract requirements and standards of good workmanship).

(2) Timeliness of performance (adherence to contract schedules, including the administrative aspects of performance).

(3) Business relations (a history of being reasonable and cooperative with customers; commitment to customer satisfaction; integrity and ethics).

(4) Cost control (a record of forecasting and containing costs on changes and cost-reimbursement contracts).

(c) When evaluating past performance, emphasis should be placed on similar contracts with the Postal Service. Overall performance for private and public sector customers should also be reviewed. If a newly established supplier cannot provide past performance information, the past performance of the supplier's key personnel on similar projects may be evaluated.

(d) The review of past performance should generally be limited to contracts completed within the last 3 years. However, longer periods may be reviewed when the purchase team deems they are appropriate.

3. Supplier Capability

(a) Supplier capability is evaluated in order to determine a supplier's ability to perform upon award of a contract. It should be used as a snapshot of the quality and reliability of that performance. The supplier must demonstrate its current capability. For joint ventures, each party must be deemed capable.

(b) Certain key areas must be considered when determining a supplier's capability. To be deemed capable, the supplier must:

(1) Have, or have the ability to obtain, resources (financial, technical, etc.) adequate to perform the work.

(2) Be able to meet the required or proposed delivery schedule, considering all existing commitments, including awards pending.

(3) Have a sound record of integrity and business ethics.

(4) Have a sound quality control program that complies with solicitation requirements.

(5) Have the necessary organization, experience, accounting and operational controls, technical skills, and production and property controls.

(6) Have, or have the ability to obtain, the necessary production, construction, and technical equipment and facilities.

(7) Be otherwise qualified and eligible to receive an award under applicable laws and regulations. That a supplier is suspended, debarred or otherwise declared ineligible (see 3.7.1.b), is a bar to award without regard to the weight assigned to capability as an evaluation factor.

(c) Certain business information must be obtained in order to determine that a supplier is capable. Sources of this information include:

(1) The Postal Service list of debarred and suspended suppliers, and GSA's consolidated list of suppliers debarred, suspended, or declared ineligible (see 3.7.1.b).

(2) Records and experience data, including the knowledge of other contracting officers, purchasing specialists, and audit personnel.

(3) The supplier's proposal information, business profile, financial data, information on production equipment, production data, questionnaire replies and personnel information.

(4) Subcontractors, customers, financial institutions, and government agencies who have done business with the supplier.

(5) Business and trade associations.

(d) If the required information and discussions (see 4.2.5.c) do not provide an adequate basis for determining capability, purchase teams may conduct a preaward survey, with the assistance of any needed specialists. The extent of the survey must be consistent with the dollar-value, complexity or sensitivity of the purchase, and may include any of the following:

(1) Data on hand or from other government or commercial sources.

(2) Examination of financial statements and records.

(3) On-site assessment of plant, facilities, work force, subcontractors, and other resources to be used in contract performance.

(e) Results of the preaward survey must be in writing and included with the capability determination, and the report included in the contract file. Information obtained for a determination of capability must not be disclosed outside of the Postal Service, unless disclosure is required by the Freedom of Information Act (see 1.6.5).

(f) Generally, suppliers are responsible for determining the capability of their subcontractors (but see 3.7.1.b regarding debarred, ineligible, or suspended firms), and may be required to provide evidence of a subcontractor's capability. Subcontractor capability considerations may affect whether the prime supplier is deemed capable. When necessary, subcontractor capability may be determined using the same criteria used to determine prime supplier capability.

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2.1.10 Performance Evaluation and Cost/Price Factors

2.1.10.a Decision Logic. Using sound decision logic helps ensure that the contract is awarded to the supplier offering the best value. In establishing this logic, the relative importance of the evaluation factors and their interrelationships in various combinations must be determined.

2.1.10.b Significance of Performance Evaluation Factors and Cost/Price Factors. Solicitations must indicate the relative significance of the identified performance evaluation factors and the relationship of those factors to the solicitation's cost/price factors. All evaluation factors must be clearly stated in enough detail to give suppliers a reasonable opportunity to understand the aspects of value important to the Postal Service.

2.1.10.c Scoring Systems for Performance Evaluation. Many forms of scoring systems are suitable for performance evaluation, from adjective ratings to numerical systems, and some are more suitable than others depending on the situation. However, the scoring system should be simple and practical.

2.1.10.d Relationship of Cost or Price Factors to Performance Evaluation Factors. Cost or price factors (including, when appropriate, cost-related factors such as life-cycle costs and the like) are treated separately from performance evaluation factors. The relationship of cost/price factors should be stated in general terms (for example, that cost/price will be considered to be more important, less important, or as important as the performance evaluation factors, or that cost/price will be the determining factor in choosing among all offers which meet the minimum acceptable performance evaluation factors), and no solicitation should establish a strict mechanical relationship between the cost/price factors and any other factors.

2.1.10.e Price as the Determining Factor. When there are known sources capable of meeting the postal requirements with products of sufficient quality, or when suppliers have been prequalified, price may be the determining factor. In these cases, however, past performance and supplier capability should be reexamined before awarding the contract.

2.1.10.f Determining Factors in Addition to Price. When performance evaluation factors other than price are used, the decision logic must compare price differences with the value of other differences to determine which proposal offers the best value. The relative significance of the price and non-price factors should correspond to their value to the Postal Service. For example, when factors must be established to ensure minimal technical acceptability, but technical superiority at additional cost would be of no benefit, the selection should be based on price from among the proposals evaluated as minimally acceptable.

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