Fundamentals of Telstra's Sourcing Process

Telstra Procurement or the IBM procurement group acting on Telstra's behalf takes a purchasing project to completion through a series of stages involving project team formation, analysis, determination of a sourcing strategy, vendor selection and execution of a Sourcing Agreement (contract). This staged process helps Telstra to improve the service and quality levels of the products and services purchased. It also enables Telstra to engage vendors who provide the best value for money.

Grouping of like products and/or services

A substantial part of Telstra's sourcing activity has been grouped together under Telstra wide contracts covering like products and/or services. In this way, Telstra can make full, but fair use of its purchasing power by contracting with fewer vendors, and in the process, reduce costs.

The use of RFI, RFQ, RFP and RFT

As part of the process of gathering market intelligence, Telstra may issue a Request for Information ("RFI"), requiring vendors to provide detailed responses to questions.

"Requests for Quotation" (RFQ) are used to obtain pricing for purchases, particularly for lower value purchases or where a small number of vendors are competing to supply.

"Requests for Proposal" (RFP) are used as an alternative to a conventional RFT and are used for major projects where the final solution is unknown and allows vendors to offer a wide range of options or alternatives.

"Requests for Tender" (RFT) are used for competitive tenders (invitation only or advertised) as part of a structured purchasing process.

Any of these options are likely to be managed via Telstra's online sourcing application, MERIDIAN and are collectively described as RFx.

The Telstra and IBM Procurement groups carry out detailed internal need analysis and external market analysis for most supply contracts. Information obtained through this process is then used in the compilation of any RFI, RFQ, RFP or RFT and also during negotiations with vendors.

The information contained in RFIs, RFQs, RFPs and RFTs is confidential. Telstra generally requires all tenderers to keep such information confidential and to use it strictly for the purpose of responding to the tender.

It is our practice to release RFTs to the market with an accompanying sample contract. It is Telstra's intention to have the successful tenderer sign this contract at the time that Telstra accepts a vendor's tender.

See "What Tendering Processes Does Telstra Use?" for a more detailed description of the 'invitation to tender' process.

Non-Compliant Tenders

Telstra expects its vendors to provide fully compliant tender offers (which includes an acceptance of Telstra's purchasing terms and conditions contained in the contact accompanying the tender).
Non-compliant tenders are not viewed favorably by Telstra and are not guaranteed of being considered. There are a number of factors that should be considered by vendors issuing non-compliant tenders.

Non-compliant tenders should:

• be offered along with a compliant tender
• include (and explain) detailed reasons for non-compliance
• offer additional benefits or reduced prices to Telstra which equate commercially to providing a compliant tender and account for any additional commercial risks Telstra is being asked to assume by the non-compliance.

Price requirements

Where a Telstra RFT requests a fixed price for the contract term, changes to the price will generally only be made where there are changes to the GST legislation, customs duty or foreign exchange rate relevant to the product or service being purchased or where there is a price review (in most cases no more than annually).

Telstra may also require vendors to submit to formal price reviews during the period of the contract to enable Telstra to take advantage of lower market prices or cost savings being achieved by the vendor. Such reviews are also conducted with fixed price contracts.

Price review by Telstra will often require the vendor to provide details on global market trends, manufacturing efficiencies and savings from continuous improvement.

Telstra will generally require a right to terminate the contract if revised prices cannot be negotiated.

Tender assessment criteria

Criteria of assessment are weighted depending upon their relative importance.

Assessment Criteria include:

• "best value for money" based on "whole of life" for products or "whole of contract" for services (rather than based on individual elements, stages or service items)
• innovation and contribution to Telstra's competitive position
• product quality and performance
• timeliness and availability of supply
• vendor performance and reliability
• local content.

Contractual obligations and needs

Telstra's internal risk management policies require the identification and minimisation of risk exposure to Telstra when buying. This requires purchasing to be assessed for its risk impact on Telstra's business. These risks are to be taken into account in Telstra's contracts with vendors.

Negotiation methods

Following the closure of a tender, formal rounds of negotiations may be conducted with selected tenderers as part of the competitive tendering process and are likely to be conducted using Telstra's MERIDIAN online sourcing application. In some negotiations, tenderers may be notified of their ranking against other tenderers. The outcome of these negotiations may then be stored in the MERIDIAN system for use when next negotiating with the same vendors.

Procurement's role is to provide a standardised and coordinated approach to sourcing, vendor management and distribution activities across Telstra. It aims to achieve delivery of material and/or services, when required and at a price and quality consistent with Telstra's business objectives.

To achieve this, Procurement has also formed a partnership with IBM for the end-to-end management of Telstra's supply chain services. As part of this arrangement IBM will now act on behalf of Telstra for the sourcing and vendor management of selected categories of Products and Services.

Within both the Telstra and IBM Procurement groups, Sourcing and Vendor Management specialists are responsible for negotiating Telstra's corporate procurement contracts. Any procurement contracts negotiated by IBM on behalf of Telstra are owned and executed by Telstra.

The Sourcing and Vendor Management roles include:

Strategic Sourcing

Strategic Sourcing involves managing sourcing projects for Telstra's major and/or critical purchases including both high risk and high volume ongoing purchases.

Vendor Management

Vendor Management involves ongoing monitoring and management of the contracts established by sourcing staff and Telstra's commercial relationship with its suppliers.

Other

The ordering of products and services under the Contracts established by the Telstra and IBM Procurement groups is initiated by Telstra Business Units but is actioned by IBM on Telstra's behalf using the MERIDIAN online procurement system. Any other purchasing by Telstra Business Units involves transactions using corporate/purchase cards.

As part of the arrangement between Telstra and IBM for a fully automated and integrated online supply chain solution the tool called MERIDIAN has been implemented that encompasses the end-to-end process from sourcing to payment.

Telstra uses an online tool, MERIDIAN to engage with its vendors for sourcing RFx's and purchasing.