Spending Smart

• By Mary Grush
• 11/01/09

eProcurement systems can consolidate buying across campuses, stimulate local economic development, and promote green purchasing options-- all of which carry enormous financial benefits to institutions.

NO DOUBT ABOUT IT: eProcurement technology has turned cumbersome paper-based processes into highly connected online systems. The most basic parameters of eProcurement range from shopping for or sourcing goods, to creating purchase requisitions and getting them approved, to placing orders with suppliers, to receiving invoices-- all electronically.

But leaders of procurement departments will tell you that eProcurement can and should be more than just automation of the purchasing process. It can be a powerful strategic tool for furthering an institution's financial and civic goals, as evidenced by the many significant ways the technologies are being implemented by campuses across the country. For example:

• Higher education institutions have incorporated eProcurement systems to coordinate departmental purchases to leverage their buying power with suppliers and forge better vendor relationships.
• College consortia have pushed the envelope even further by aggregating spend using an eProcurement solution.
• Institutions and suppliers are realizing the mutual benefits of "buying local" by supporting local vendors and economic inclusion through eProcurement processes.
• Individual institutions and consortia are using eProcurement to promote green purchasing-- potentially a big win for both the planet and the budget.

Here's a look at how various higher ed institutions are using eProcurement to achieve economies of scale across campuses, support local enterprise, and encourage sustainable purchasing practices.

The Power of Consortia

The University of California, made up of 10 campuses and five medical centers, is one of the largest, most diverse university systems in the country. The university has a long history of pursuing contracts via a systemwide strategic sourcing program that identifies products and services common among the UC campuses and then leverages purchasing agreements with appropriate vendors. But many procurement officers, including UC-San Diego's Director of Procurement Ted Johnson and Chief Procurement Officer Linda Collins, observed that the contracts were not being effectively utilized. There was no reliable mechanism to inform various campus users about supplier agreements that could save the university millions. So beginning in 2007, UCSD drove an eProcurement consortium initiative for the entire UC system to identify and implement an infrastructure that could be managed centrally by the University of California Office of the President (UCOP).

"Penn tries to leverage its position as a large institution to foster economic development in the local/regional area." -- Marie Witt, U Penn

The consortium formed officially in fall 2009, is managed by UCOP, and is operating initially with four campuses-- UC-San Diego, UC-Santa Cruz, UC-Berkeley, and UC-Riverside. The campuses have standardized on a SciQuest eProcurement solution that gives them the ability to modify catalog and price files to meet the unique needs of their users, while offloading to UCOP the larger procurement challenges. "These campuses understood the large amount of resources they were giving to catalog management and price file management," Collins explains. Now, the consortium will centrally manage the process at UCOP and will be able to push out better information on supplier contracts. "The result is not only a reduction of repetitive functions, but it allows the University of California to speak with a common voice in the execution of the contracts," adds Johnson. Suppliers, too, enjoy the advantages of consolidating their efforts and are able to pass significant savings on to consortium members as a result.

The SciQuest software also offers a dashboard view of spending that gives UCOP real-time data on consortium members, a terrific improvement over waiting for separate reports to come in from various campuses. This system provides UCOP with a direct view into the spend of member institutions to identify trends and manage vendor contracts more effectively, especially as more of the UC campuses join the consortium.

Putting the Strategy Into Procurement

The University of Missouri also created a purchasing consortium among its four campuses and one hospital. Years ago, the university brought the campuses together in a centralized procurement function with the idea of aggregating their spend volumes in major commodity areas. But even after years of aggregation they found that, while they did realize some savings, they were only achieving about 30 percent contract compliance.

Bill Cooper, associate vice president of management services and chief procurement officer at the University of Missouri, decided that eProcurement was the "missing link" in the institution's consortial strategy. He explains that "there had always been conversations that claimed we had a strategic procurement operation. Well, in fact, strategic contracting is all that we had really done. And until you get information about those contracts in such a format that your users can actually access it, and it has an impact on your contract compliance, you haven't reached strategic procurement."

"We look at whether a product is certified by a green certifying entity, and who the entity that certified it is-- because some are better than others." -- John Riley, Arizona State

In 2007, the consortium introduced a unified eProcurement solution, integrating a SciQuest managed services environment front end, which UM dubbed "Show-Me Shop," with UM's Oracle PeopleSoft Enterprise back end. Since then, the consortium has increased its contract compliance to 46 percent and has realized $11 million in savings.

Cooper comments, "What makes procurement a strategic activity is its ability to act as a revenue generating center, to pull money out of the supply chain-- so the costs of material goods and services can be reallocated to the core missions of the institution." The key, says Cooper, is tying sourcing together with the ordering. "ERP systems don't [normally] provide that-- they are portals for getting your purchasing data into your general ledger," he explains. "But eProcurement adds in the sourcing, the 'shopping' aspect, and it does it in such a way that makes it simple for the multitude of users that we have."

A good example of how eProcurement works to generate revenue in the supply chain can be seen in the way UM brought its purchasing card, or P-Card, system under control. During the five-plus years when UM was working with strategic contracting but had no eProcurement system, its purchasing card program became extremely popular with campus administrators. The intent of the cards was to address unanticipated low-dollar-volume purchases-- to give more flexibility to the departments on occasional lower-cost purchases. That's not all that happened however, says Cooper. "The reality is that those cards got to be used for everything because they were so easy-- the path of least resistance. Of course, there were some ills to that, especially the lack of spend visibility. And they facilitated more maverick spending." Now that UM has an eProcurement system, the university doesn't allow use of the P-Cards with any supplier that is a contract vendor in Show- Me Shop, ensuring that the spend is tracked through the eProcurement system and can be leveraged for contract negotiation. "That takes [the cost of those P-Card transactions] out of the supply chain and by doing so allows those vendors to share some of the savings with us in the form of further discounted products," Cooper notes.

Cooper is now working on expanding UM's consortium to include other institutions in the state. "Approaches such as this are the way of the future, because we are all challenged with reduced endowments and reduced state funding," he comments. "We've just got to be more entrepreneurial in the way we provide administrative support. And procurement, I think, has the opportunity to do things that most other departments can't. We can really escalate our strategic value to our institutions because we have the wherewithal to be revenue centers instead of just cost centers."

Spend Locally, Think Green

eProcurement can touch the overall strategic goals and mission of the institution in ways that go beyond cost-savings imperatives. Two excellent examples are regional eProcurement consortia that support local suppliers, and green ePurchasing.

When a consortium extends membership to smaller colleges and universities in its state or region, it gives those institutions access to cost-effective volume pricing that the smaller institutions could not otherwise reach, which produces a "trickling out" effect on the regional economy. eProcurement strategies can even further benefit the region's economic development by focusing the consortial spend on local vendors, including smaller or minority suppliers, which opens up new possibilities for competition in the marketplace.

At the University of Pennsylvania, one of the largest dollar-volume purchasers in the city of Philadelphia, regional economic development is an institutional priority and a commitment the university supports, in part, through its eProcurement activities. Marie Witt, Penn's vice president of business services, explains, "Penn really tries to leverage its position as a large institution to help foster economic development in the local/regional area and support smaller [local enterprises] through consortia relative to economic inclusion efforts." Through the Philadelphia Area Collegiate Cooperative (PACC), Penn partners with smaller schools in the area that do not purchase at the level Penn does. PACC also brings in smaller suppliers in the region that may not yet have the technological capabilities or throughput to work with a very large institution like Penn. These small suppliers work first with the consortium's smaller schools, while PACC helps them ramp up to meet the demands of much larger customers. Penn also partners with the Pennsylvania Minority Business Enterprise Center in Philadelphia, which plays a key role in getting fledgling businesses up to speed with the technology competencies they'll need to do work in what locals refer to as the "Penn Marketplace."

Ralph Maier, chief procurement officer at Penn, explains, "The challenge we have is not finding suppliers who are interested in doing business, but finding suppliers who have the eBusiness capabilities to match our eProcurement environment and the skills and capabilities to interact with us electronically."

Maier says that the eProcurement consortia empower a diverse supplier base that reflects the local community and allows local businesses to prosper and develop new clients. He adds, "From a technology perspective, that has been one of the major benefits of our eProcurement application. We now can get smaller suppliers on a level playing field with larger competitors through the eProcurement application. If we are able to take a small, local supplier and help it to build the capability to develop electronic catalog content, that enhances its ability to grow business here at Penn, and grow it quickly in a very cost-effective manner."

Environment and sustainability priorities at Arizona State University have sharply focused John Riley's attention on the green opportunities inherent in eProcurement. Riley, who is ASU's executive director of purchasing and business services and president of the National Association of Educational Procurement, points out that "some 650 universities have signed the American College & University Presidents' Climate Commitment and expect to be, at some point in the future, carbon neutral"-- which compels him to continually look for ways to deepen his campus's green procurement practices.

eProcurement tools that can identify dollar costs and guide smart spending in financial terms are well established, but purchasing tools to determine green value are still evolving. Some green purchasing factors are more obvious than others and are already standard decision making considerations in procurement-- things like the impact of transportation, types of packaging, and reusability of packaging. But when you drill down further into the environmental aspects of purchasing, it's not yet clear how to characterize, track, and fully leverage meaningful green procurement. "That's the interesting challenge," says Riley, looking to the future.

In the meantime, Riley currently uses all available green eProcurement strategies. He explains: "What we always look for is whether a product is certified by a green certifying entity, and who the entity that certified it is-- because some are better than others." In addition, eProcurement systems can prominently feature green products among all the other items under contract, so that more campus buyers will be likely to select them.

eProcurement applications also can make it easier for users to order in sizes or quantities that are appropriate for their needs, both to cut waste and in some circumstances, as with certain dangerous laboratory chemicals, to reduce the amount of risk. "We're always looking at minimizing the waste stream, especially for hazardous materials," comments Riley. eProcurement applications have already automated information-rich "smart" purchasing decisions by presenting users with a structured range of choices that can be acted upon without direct involvement of procurement department staff. The next step may be factoring more sophisticated analysis and intelligence into the managed sourcing systems, including leveraging eConsortia and better assessing the environmental impact of purchases. The most striking uses of eProcurement applications are yet to come.

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