The Art of Buying New Savings
- By Julie Sturgeon
- March 1st, 2009
Colleges and universities have a secret weapon against today’s economic climate. The problem is, this solution remains a secret to too many administrators.
That’s because a number of competing priorities kept procurement as a back-office function — until now. “Many of our institutions are large businesses that suddenly have to remember that,” said Vince Patriarco, executive director of strategic sourcing and business development for E&I Cooperative. “We put a lot of emphasis on the back door of purchasing, the policing end of procurement. If you really want to tap into the strong elements of saving money on campus, you have to change that mindset and give procurement a voice.”
Many campuses have a long way to go. According to Eric Zoetmulder, director of product marketing at procurement software developer SciQuest, less than five percent of universities in the United States have deployed an integrated, modern procurement technology. He’s seen better adoption rates at the larger schools than their mid-sized and smaller counterparts, but it boils down to a lot of low-hanging savings left to pick. Still, the education niche is making progress — today he doesn’t field questions on what e-procurement is, but rather how to adopt it.
“The CFO that looks into e-procurement solutions lately is tremendously focused on the return on investment,” says Dan Traub, lead solution engineer at SciQuest. “And the ROI on a procurement project is very attractive because we’re dealing with hard dollars, not just efficiencies. Our technology goes hand-in-hand with budget cuts.”
After adding everything from selecting suppliers to automating the process and recovering costs on the invoice side, integrated e-procurement efforts find savings of anywhere between five to 20 cents of every dollar. It adds up to significant dollars on the goods and services a university buys, which ranks as the second largest category of spend behind salary.
The first part of the secret lies in integration as opposed to an internal process for each department, Traub noted. That means reaching out to suppliers as well to plug them into the system, so that everyone is on the same page in terms of where transactions stand, the pricing, and exactly which product fall under the contract. Even more important to department heads, an e-procurement system should give immediate feedback on whether they have enough money in their budgets to cover that purchase order they just raised.
Don’t sweat the politics behind this sudden financial censorship — the economy will be the bad guy. “Traditionally the departments decided what should be spent and on what, and the procurement group had a supporting role in making that transaction happen,” said Zoetmulder. “What we’re seeing now is a significant shift, where the freedom to justify what is going for a department probably will be scrutinized.” A tool that organizes contracts for better spending but still allows departments autonomy to shop for the right goods makes sense from all angles.
Certainly the University of Missouri had strategic contracts negotiated for the best prices with big volume buys for years, but the problem Bill Cooper ran into when he was hired as associate vice president and chief procurement officer was an inability to deliver those contracts to the broader user base. Only about 30 percent of purchases actually complied with the contracts.
“That’s an awful lot of bleeding,” he said.
After just one year of an e-procurement solution, the compliance rate rose by 10 percent, a gain Cooper sees as a win, considering they spent 10 months of those 12 still rolling out the system to all users on campus. He expects that number to increase exponentially until it reaches between 80 and 90 percent.
Kathy Kelley, the associate vice president for procurement and contract services at East Tennessee State talked about the savings she’s found from efficiencies. For example, integrated e-procurement reduced her manpower from 4.5 persons to 2.5 persons directly handling the Buccaneers’ purchasing process, and cut the routing time from an average of 9.3 days to 3.7 per requisition. She credits the fact that e-procurement can be as simple as clicking a button.
Count Patriarco among e-procurement’s fans, thanks to the tremendous amounts of information it produces. “The most powerful component in the world is that information. If you know where you’re going, how you’re going, then this is how you are more effective for your campus. It allows you to do things better,” he noted.
It opens the door for co-ops like E&I to more fully deliver on their savings platforms as well. Patriarco’s group partners with facility folks, technology gurus, life sciences specialists, and a host of players in between to hammer out the deals that sweeten these e-procurement efforts.
“This is a three-legged stool,” he assured. “Old-style procurement was to just beat down the supply base. Today, campuses are transitioning to saying, “How can we put better things in place? How can we assist in matching suppliers with opportunities and getting deeper within organizations? That’s what our members are seeing.”
Steps to Success
E-procurement systems are online now, so universities can take advantage of their strengths without investing in hardware, software, or IT maintenance. The first real step for administrators is gathering metrics: what is the spend, how many suppliers are on board, how many will participate in an e-procurement process. “Determine your goals as well,” said Traub. “You have to take the time to really negotiate your supplier contracts and look at the mix of what you offer the university, so your solution becomes the place everyone knows by default: I want to buy something, I go here.”
And getting that message out may be the most important step of all, users say. You must market it before people know to use it. Many universities hold a series training sessions; a handful of larger institutions have gone so far as to create commercials to play to their internal audiences. Cooper spread the word by forming an advisory board comprising different user groups. “Because most people throw around the term ‘e-procurement’ loosely and don’t understand what it means or what it can do, we explained it to these people, who became our champions back on their campuses,” he said.
“Universities have a mandate to make changes right now,” Zoetmulder pointed out. “It’s a window in history that is very advantageous to a procurement profession looking to tighten down on some of the habits that have caused problems in the past.”