SITUATION QUESTION: As Kathy Cheung, what recommendation would you make regarding the contract for recycling and waste transfer services, and why? SOLUTION AND RECOMMENDATION QUESTIONS: Q 1. Are you prepared to recommend that Universal Waste Management and Recycling be awarded the contract rather than Murray Brothers Disposal? Q2. Do you agree with the weighting system in the bid evaluation system? is there anything you would have done differently? Q3. Would you negotiate with Universal Waste Management and Recycling to revise their price and rebate payments? Q 4. If Universal Waste Management and Recycling is the best supplier in three of the four areas, why is it that they did not have the best score? Q 5. Do you think that a weighted point evaluation system is the best method to select suppliers? (see Excel and/or Numbers Spreadsheets) What types of purchases are appropriate to use this system? Which types are not well suited? Q6. Would you renew the contract for one, three, or five years? On Tuesday, October 7, Kathy Cheung, senior buyer at Northeastern Hospital in Newton, Massachusetts, was examining three supplier proposals for recycling and waste transfer services. Hospital policy required supplier contract reviews every five years, and Kathy needed to prepare a recommendation thatwould be considered at the sourcing team meeting the following day. NORTHEASTERN HOSPITAL Northeastern Hospital (Northeastern) was one of largest acute-care teaching hospitals in Massachusetts, dedicated to excellence in patient care, teaching, and research. Physicians, residents, and staff numbered nearly 15,000 , and the hospital provided care for more than one million patient visits each year. Newton was located in the Boston metropolitan area, which had a population of approximately 4.5 million people. Northeastern was committed to environmental stewardship and to reducing the hospital's dependence on nonrenewable energy and waste sources through five key environmental programs: energy conservation, waste management, sustainable transportation, procurement, and an awareness and education campaign. The hospital's waste and recycling program included a collection of glass, newspaper, fine paper, cardboard, mixed plastic, aluminum, and organic materials. In the previous year, Northeastern collected and recycled approximately 200 tons of co-mingled products, 240 tons of paper products, 290 tons of cardboard, and 230 tons of organic waste. Purchasing played a critical role in Northeastern's recycling and waste management initiative. It was responsible for managing the infrastructure and suppliers involved with recycling activities. THE RECYCLING CONTRACT Northeastern had a policy of limiting contracts with suppliers to a maximum of five years, and most Chapter 12 Supplier Selection 377 contracts were awarded for one, three, or five years. When contracts expired, purchasing would issue requests for quotations (RFQs) or requests for proposals (RFPs) to identify opportunities for improved quality, service, and lower total costs. The RFP and RFQ process was typi- THE MURRAY BROTHERS DISPOSAL LTD. PROPOSAL MBD was the current supplier for recycling and waste transfer services at Northeastern, originally awarded the quotations (RFQs) or requests for proposals (RFPs) to identify opportunities for improved quality, service, and lower total costs. The RFP and RFQ process was typically managed by a sourcing team that involved purchasing and representatives from key stakeholder groups who would be impacted by the sourcing decision. Along with Kathy, Sam Griffiths, supervisor of grants, and Riccardo Cosentino, facility manager, sat on the sourcing team for the recycling and waste management RFP. The expectation was that the recycling and waste transfer services contract would be awarded for five years. As part of the process to create and review RFPs, the team was required to create a rating system that included set criteria and a point system, which would be used to evaluate each proposal. To develop the rating system for the recycling RFP, the team evaluated the current situation and identified key components of the contract. The committee considered past contractual issues to ensure that previous problems or missing components were addressed. The point system was also expected to reflect the overall strategic direction of the hospital. Northeastern set several high-level criteria, including best value-based pricing, service, and specification, and a site visit evaluation. The purpose of the site visit was to see the location, staffing, equipment, and capacity of each potential supplier. Points were allocated to specific items within each section and then each section was weighted based on importance. Once the criteria were established, the committee created the RFP, which outlined the scope of work, bidder instructions, terms and conditions of the contract, service and pricing specifications, and clarification of what Northeastern was looking for from proposals overall. Exhibit 1 provides details for selected sections of Northeastern's recycling and waste transfer services RFP. The RFP was posted on Northeastern's purchasing department website on September 3. Two weeks later, Kathy hosted a day for potential suppliers to visit the hospital and examine its operations, and proposals were due on September 26. Proposals were submitted by Murray Brothers Ltd. (MBD), Newton Waste MBD was the current supplier for recycling and waste transfer services at Northeastern, originally awarded the contract five years prior. The company was a regional firm with a good reputation. It handled waste and recycling contracts for several of the municipalities in the area. Although MBD offered the best recycling rebate (see Exhibit 1), their price was 25 percent higher than what NWMS offered. Kathy expected that the recycling rebate offered by MBD would offset the price differential with NWMS. The MBD proposal was not very detailed, offering to extend the contract for the current services provided, without any changes. Kathy did not consider MBD to be particularly innovative, but she had not received any major complaints about their services during the past five years. The site visit revealed that MBD was undergoing a construction project that would consolidate all of their facilities into a single location, including a new building. MBD seemed to have the staff, equipment, capacity, and capability to handle the Northeasiern contract. However, there was minimal evidence of formal systems and processes in areas such as equipment maintenance, material handling, and training. THE NEWTON WASTE MANAGEMENT SERVICES INC. PROPOSAL NWMS was a new company, founded by two local businesspeople two years prior. NWMS offered the lowest price, and all other proposals were measured against its price. The proposal provided minimal information, with many sections omitted. In some cases, Kathy was unable to determine if NWMS agreed to the terms and conditions set out in the RFP. Financial statements were also missing. When the sourcing team arrived for the site visit at NWMS, they were surprised that the processing operations were not busy and there were only about is people working in the operation, plus a small office staff. NWMS had very little processing and material handling details for selected sections of Northeastern's recycling and waste transfer services RFP. The RFP was posted on Northeastern's purchasing department website on September 3. Two weeks later, Kathy hosted a day for potential suppliers to visit the hospital and examine its operations, and proposals were due on September 26. Proposals were submitted by Murray Brothers Ltd. (MBD), Newton Waste Management Services Inc. (NWMS), and Universal Waste Management and Recycling (UWM). Once the RFP responses came in, the committee evaluated each based on their RFP response, financial data, and reference checks. Supplier site visits were conducted on October 2 and 3. conditions set out in the RFP. Financial statements were also missing. When the sourcing team arrived for the site visit at NWMS, they were surprised that the processing operations were not busy and there were only about 15 people working in the operation, plus a small office staff. NWMS had very little processing and material handling equipment at the site, and Kathy was concerned about the supplier's ability to handle the capacity generated by Northeastern. The general manager at NWMS, who conducted the tour, indicated that his organization had plans to invest in additional equipment if it was successful in securing the contract from Northeastern. 378 Purchosing and Supply Monogement EXHIBIT 1 Selected Sections of RFP 2.1. Proponents are invited to submit proposals for recycling and waste transfer services as required by the grounds department. The spend for the most recent year at Northeastern Hospital is estimated to be greater than $200,000. The annual spend figures are furnished for Proponents to assess the total anifual base value of the contract. Northeastern Hospital cannot guarantee the purchase volumes/values indicated in this RFP. 2.2 Northeastern Hospital's recycling and waste transfer program Includes: (a) Paper: paper products: boxboard (i.e, cereal, detergent, cracker, and tissue boxes); cardboard (i.e, clean plzza boxes, packing boxes); catalogs, magazines, newspaper, phone books, paper egg cartons, and miscellaneous paper products such as flyers, envelopes, and writing paper. (b) Co-mingled: rigid food, beverage, and liquid containers, milk and juice cartons, drink boxes, aluminum and steel containers, empty paint cans, aluminum foil and pie plates, glass bottles and jars, and plastic bottles and tubs. 2.3 The successful Proponent shall be required to provide the necessary equipment to handle the recycling program: a compactor for paper, 30 yard bins or other suitable transfer systems, and cardboard gaylords containers on a trailer. drink boxes, aluminum and steel containers, empty paint cans, aluminum foil and pie plates, glass bottles and jars, and plastic bottles and tubs. 2.3 The successful Proponent shall be required to provide the necessary equipment to handle the recycling program: a compactor for paper, 30 yard bins or other suitable transfer systems, and cardboard gaylords containers on a trailer. 2.4 Northeastern Hospital is looking for the successful Proponent to suggest/or identify alternative methods that would provide greater efficiencies and/or cost savings initiatives that would benefit Northeastern Hospital. 4.6 The lowest-cost Proposal or any other Proposal may not necessarily be accepted. 6.1 Northeastern Hospital is interested in participating with the successful Proponent in any initiatives that are mutually beneficial and can give Northeastern Hospital strategic or economic advantages in the areas of administration, health, research, or teaching. Bidders should provide any evidence of previous "partnering" arrangements where they have collaborated on mutually beneficial initiatives with clients providing them with strategic or economic value beyond the narrow scope of the supply arrangement. 8.1 Northeastern Hospital is looking for a rebate program, payable on a monthly basis, which will be applicable when the value of the goods recycled represents a positive return. Credits will be based on fair market value of the recycled goods minus processing fees and handling costs incurred. Proponents must identify in their proposals the method to be used to: (a) calculate fair market value: (b) establish the date of the fair market value; and (c) calculate processing fees and handling costs incurred by the proponent. THE UNIVERSAL WASTE MANAGEMENT AND RECYCLING PROPOSAL UWM was a Fortune 500 company that was one of the largest environmental solutions providers in North America. The proposal from UWM was the most expensive of the three, at 50 percent higher than the cost of the MBD proposal. Furthermore, the rebate proposed by UWM set commodity prices so low that any rebate payments wotld be negligible. The proposal also placed additional charges for use of the compactor and trailer. In all other areas, however, UWM seemed exceptional. It provided excellent references, with evidence of a track record of excellent service to its customers. All sections of the RFP were thoroughly completed, including a section on the company's strategic initiatives and environmental solutions capabilities. UWM also suggested additional programs that it recommended Northeastern consider as part of a comprehensive sustainability program. EXHIBIT 2 Evaluation of RFPs for Recycling and Waste Transfer Services The site visit further impressed the sourcing team. It was evident that UWM had the capacity to handle her evaluation, MBD came out on top, slightly ahead of UWM. However, after the site visits, Kathy was much The site visit further impressed the sourcing team. It was evident that UWM had the capacity to handle additional work from Northeastern, the staff was knowledgeable, and the equipment was in excellent condition, supported by on-site maintenance. Overall, the operation was very professional. EVALUATION OF THE PROPOSALS Kathy evaluated each supplier proposal using the predetermined rating system (see Exhibit 2). According to her evaluation, MBD came out on top, slightly ahead of UWM. However, after the site visits, Kathy was much more impressed by UWM and felt that this supplier was a better fit with Northeastern. Although UWM's cost was higher, it excelled in the other three areas in the evaluation system. She remained concehted, however, that ignoring the results of the rating system violated Northeastern's established purchasing practices and wondered what recommendation she should make at the sourcing team meeting schedule for the afternoon of October 8. \begin{tabular}{|c|c|c|c|c|c|c|c|} \hline 1 & ITEM & CRITERLA & \begin{tabular}{l} TOTAL \\ POSSIBLE \\ SCORE \end{tabular} & WEIGHT & NWMS & UWM & MBD \\ \hline 2 & 1 & Best Value incl. Price & 75 & 50.0% & 52 & 33 & 50 \\ \hline 3 & 2 & Rebate & & & & & \\ \hline 4 & 3 & Stability of Supplier & & & & & \\ \hline 5 & 4 & Weighted Supplier Score & & in: & 34.67% & 22.00% & 33.33% \\ \hline & 4 & Service and Specification & 45 & 30.0% & 12 & 42 & 40 \\ \hline & 5 & Guarantee & & & & & \\ \hline & 6 & References & & & & & \\ \hline & 7 & Weighted Supplier Score & & & 8.00% & 28.00% & 26.67% \\ \hline & 7 & Other incl. Compliance & 20 & 10.0% & 2 & 20 & 16 \\ \hline & 8 & Weightod Supplier Score & & & 1.00% & 10.00% & 8.00% \\ \hline & 8 & Site Visit & 25 & 10.0% & 5 & 25 & 19 \\ \hline & 9 & Weighted Supplier Score & & & 2.00% & 10.00% & 7.60% \\ \hline & TOTAL & & 165 & 100.0% & 45.67% & 70.00% & 75.60% \\ \hline \end{tabular}