eProcurement >> ONE STOP SHOPPING
ONE STOP SHOPPING
With budgets slimmer than ever, schools are turning to eProcurement systems
as a way to cut costs.
Move over MasterCard; for purchasing officials at the University
of Pennsylvania, the convenience of managing all campus purchases through
one fluid system has proven to be priceless. In 2003, fresh off the acquisition
of a new enterprise resource planning (ERP) system from Oracle, officials were
looking for a way to convert product orders made on the school’s Web-based
Penn Marketplace into the ERP system—without the reentry of data. In the
past, this process had presented problems: Incorrect product SKUs resulted in
erroneous orders, and typographical mistakes in delivery addresses left others
unfulfilled. After years of snafus, Penn wanted a comprehensive eProcurement
system that would collect order information automatically, and manage the purchasing
process electronically from requisition to ordering and payment.
Officials found their answer in a software solution from eProcurement vendor
Because the process generated purchase orders automatically and immediately
after users ordered from contract supplier catalogs online, Penn officials were
able to virtually eradicate errors during input, and reassign data entry personnel
to other, more pressing jobs. What’s more, because the system proved to
be so successful, the school expanded the initiative to direct two-thirds of
internal purchases through the Penn Marketplace portal, a move that inspired
all 107 participating suppliers to drop prices in favor of rights to that new
business. Finally, thanks to the lower product prices, Penn realized $2.3 million
in documented cost savings in the first 100 days following implementation, and
has experienced an undetermined amount of savings on top of that, since.
“It’s amazing to say, but eProcurement has changed everything about
the way we handle purchasing here at Pennsylvania,” says Vira Homick,
associate director of e-Business at the Ivy. “By channeling our spending
[through eProcurement] and streamlining the system, we’re getting better
discounts and saving money.”
The Next Big Thing
Penn isn’t the only school opting for a better way to manage purchases.
The recent 2004 eProcurement Benchmark Report from market research firm Aberdeen
Group (www.aberdeen.com) indicates that colleges and universities today use
eProcurement to manage more requisitions, spend categories, and suppliers than
ever before. As universities and colleges operate in the face of continued financial
strain, finding new ways to save money has become critical, and one of the most
overlooked areas of savings is the purchase of everyday goods. To achieve these
savings, more and more institutions are adopting eProcurement technology—systems
that put Internet shopping on the desktops of end users and automate the requisition-to-payment
process behind the scenes.
|DID YOU KNOW? |
|Each dollar brought under eProcurement can yield savings of 5% to 20% annually. Even a conservative 2% to 4% can mean big money to university systems—up to $5 or $10 million per year.|
These moves can pay huge dividends. Aberdeen reports that, on average, among
147 primarily North American companies participating in the 2004 benchmark study,
eProcurement systems helped them reduce off-contract or maverick spending by
64 percent annually (see box, “Saving through eProcurement”), and
that each new dollar brought under management can yield savings of between 5
percent to 20 percent per year. While these figures represent a broad swath
of both higher education and corporate customers, recent statistics from SciQuest
indicate that in higher ed specifically, even a conservative 2 to 4 percent
annual savings on everyday goods and services can mean big money to university
systems—up to $5 or $10 million per year.
Saving Through eProcurement
TAKE IT FROM THOSE who know: eProcurement efforts yield cost savings in a variety of areas. According to purchasing managers at diverse college and universities, some of these areas include:
Contract compliance. When users purchase goods or services on their own, they almost always purchase them at prices higher than those of prenegotiated contracts. Implementing eProcurement allows contract items to be readily accessible by end users and directs more purchases toward these cheaper deals.
Strategic Sourcing. In some cases, suppliers will ask for preferred positioning on an eProcurement site, and in exchange will offer even bigger savings or special value-added options. In addition, eProcurement can allow price comparisons where circumstances merit, so that end users can pick and choose based on data all in one place, and can achieve strategic sourcing at the desktop with minimal effort.
Process Improvements. Of course, the most tangible savings via eProcurement come as byproducts of automation: eliminating manual tasks, and reducing delays and errors in requisitioning, ordering and payment processes. Automating the process also frees purchasing and finance teams
On the surface, eProcurement technology is pretty easy to understand. It enables
an institution to leverage the Internet as a true communication tool with participating
suppliers and with each other. It’s all about centralizing control with
decentralized execution over purchasing—a perfect model for the higher
education setting. On the front end, end users such as department heads, administrative
assistants, and professors feel as if they have the freedom to choose the products
and prices that appeal to them most. On the back end, however, all of the options
have been subjected to a rigorous review process by the institution itself;
all of the items represent contracts that school officials have negotiated previously.
|DID YOU KNOW? |
|To help institutions with their “baby steps” toward total eProcurement, some providers are blending eProcurement with asset management, to help institutions manage software license expirations.|
The goal of eProcurement is to promote pre-negotiated contracts to achieve
the best possible prices for the organization: The more sales a school can notch
at these pre-negotiated rates, the bigger the savings. But the savings don’t
stop there: The best eProcurement systems sync up with ERP systems such as those
from PeopleSoft (www.peoplesoft.com), Datatel (www.datatel.com),
SAP (www.sap.com), and SunGard
SCT (www.sct.com) to automate every aspect
of the purchasing process—from requisitioning and ordering, to payment.
In this scenario, much like the solution at Penn, when an end user completes
an order in the eProcurement interface, the system automatically sends the information
to the ERP system, eliminating human middlemen completely. “Companies
achieving the best benefits from eProcurement are incorporating the technology
as part of a holistic supply management strategy,” notes Tim Minahan,
senior VP of Supply Research at Aberdeen, and author of the recent benchmarking
With this in mind, undoubtedly the biggest challenge to mastering the technology
is making sure that eProcurement amounts to a lot more than just an eCommerce
Web page. According to Minahan, many universities are issuing the purchase order
electronically, but issuing the invoice manually, outside of the system. Yet,
deploying a purchasing portal without covering end-to-end eProcurement processes
is just one of a variety of ways to enable end user shopping, and it d'es little
to ensure that prenegotiated contracts are utilized, and savings are actually
taking place. By leveraging the system for the complete cycle, however, companies
can expect a number of benefits, including improved cash flow, reduced overhead
costs, and better supplier relations, Minahan says.
There are other pitfalls, too. The Aberdeen report indicates that supplier
enablement (the process of suppliers making their online catalogs ready to interface
with eProcurement systems) continues to be a sore spot, especially for those
supplier companies that have yet to embrace catalog hubs or networks. To resolve
this issue, a handful of industry organizations such as the not-for-profit National
Association of Educational Buyers (NAEB; www.naeb.org)
and the Educational and Institutional Cooperative Services company (www.eandi.org)
have come into existence to present colleges and universities with online eProcurement
catalogs that have been created in conjunction with suppliers—catalogs
that are ready and waiting for integration with campus ERP (see box, “Another
Approach”). And to help institutions even more, suppliers themselves are
investing in technologies that straddle eProcurement and asset management: At
CDW-G (www.cdwg.com), for
instance, Chris Rother, VP of Education Sales, touts the company’s new
eProcurementenabled “license tracker” software, which helps academic
customers manage their software license expirations.
|DID YOU KNOW? |
|eProcurement is all about centralizing control with decentralized execution over purchasing—a perfect model for higher education.|
“It’s very intimidating for a university to look at eProcurement
as one big launch and be able to tackle everything at the same time,”
she says. “We’re seeing a lot of baby steps, and we’re just
trying to help schools get their arms around eProcurement as a whole.”
Regardless of the stumbling blocks, a number of schools have accomplished huge
savings through eProcurement. At Purdue University (IN), for
example, officials selected a system from Ariba (www.ariba.com)
in 2000, then later added software from ePlus (www.eplus.com)
to drive more spending through catalogs and realize greater savings offered
through negotiated contract pricing. The software consisted of Content+, a catalog
enablement tool, and Intellicat, a catalog search tool. Doug Sabel, director
of Procurement Operations, says that the Ariba software programs provide technology
that drives a Web-based catalog and interfaces with various financial systems
for immediate and automatic reporting.
|DID YOU KNOW? |
|A better understanding of spending patterns can help an institution negotiate more favorable pricing agreements with vendors: In one case, school officials negotiated an unprecedented 15% discount with a computer supplier.|
And at the University of Texas, officials in the Health Science
Center in Houston considered a variety of eProcurement content management tools
to interface with their PeopleSoft ERP system before entering into a partnership
with SciQuest. After years of little attention to how small-dollar purchases
were made throughout the institution, in 2003 the university opted for eProcurement
as a method of reducing both purchasing and administrative costs. Jerry Fuller,
assistant VP for Procurement, says the investment in SciQuest already has paid
huge dividends. The new system was able to support the implementation of catalogs
with 14 key suppliers within a 60-day time frame; today, nearly 60 percent of
all transactions with these suppliers are requested through the online catalog.
Fuller says the center has been able to leverage electronic invoicing for this
group of suppliers, saving nearly $15 per invoice over the conventional paperbased
system of the past. He also predicts that the center will achieve its target
adoption rate of 75 percent this year.
“The more people we get to use the eProcurement system to buy their beakers,enzymes,
and pipette tips, the bigger our savings will be,” Fuller says. “We’ve
already been able to negotiate more favorable pricing agreements based on our
understanding of spending patterns.”
Meanwhile, in 2002, at
Indiana University, officials rolled
out a brand-new system from SciQuest. The technology directly connected the
university’s online requisition system with its major strategic suppliers,
putting purchasing decisions in the hands of end users. Because the system contained
only those items under contracts the school had pre-negotiated, compliance with
the contracts skyrocketed, and savings increased accordingly. In one case, when
school officials negotiated an unprecedented 15 percent discount with a particular
computer supplier, end users were purchasing equipment at the new prices the
Then, of course, there’s the University of New Mexico,
which in 2002 rolled out yet another SciQuest eProcurement solution, as part
of an ERP implementation from SunGard SCT. Like Penn, UNM officials had had
enough of the problems caused by manually inputting paperbased purchase orders
into the ERP system. It wasn’t long before the school’s eProcurement
push became the cornerstone of an effort to improve customer service across
the board. Director of Purchasing Bruce Cherrin remembers that the new technology
paid huge dividends almost overnight, eliminating errors by transferring data
automatically, and by freeing up secretaries and staffers who input data, to
perform other tasks.
“We’ve come a long way since the days when requisitions went through
the paper approval process from one department to another,” says Cherrin,
who notes that the implementation of ERP combined with eProcurement and other
systems, cost about $10 million. “The way we have it now, everything is
integrated, which makes the whole process more efficient.”
With eProcurement in its infancy, other schools find themselves testing the
water. At the University of Washington, officials at the University
Stores division recently combined technology from ERP vendor JD Edwards (now
part of People- Soft/Oracle) and Ariba, to put together a portal containing
thousands of office and laboratory products. The effort, still in beta, also
offers a full set of account management tools that provides up-to-date information
about supplies ordered and overall expenditures. Another effort at the Massachusetts
Institute of Technology boasts similar synergies, pairing SciQuest
with ERP from SAP, and similar management features to yield supplier consolidation,
reduced transaction cost, and shorter order fulfillment cycles.
They’re still using training wheels at the University of St.
Thomas (MN), however. There, Melanie Weiss, director of Purchasing
Services, says the school has been “looking at” eProcurement technology
for years. Currently, the private Catholic college handles ordering and payment
online through ERP from SunGard SCT, but inputs requisitions manually into the
ERP system. Weiss says that though she’s looking for a dynamic eProcurement
system that can handle orders in real time, she still fears that such a system
will cost too much for her tiny budget and that changing the buying behavior
of end users could take months. Still, she acknowledges, something must be done.
“Maverick buying runs rampant” at St. Thomas, she admits, and she
has received a mandate to cut costs. Weiss may be pondering the best course
of action, but one thing is certain, she concedes: eProcurement is the way.
“I want to use the same software [as the larger institutions], but because
we’re a small school, our volume and transactions aren’t as high
as bigger schools,” she says. “As a small school, will the cost
justify my savings? I don’t know. But do I believe in eProcurement as
something that can make the purchasing process better and more efficient? You
better believe it.”
At E&I, cooperative purchasing power rules
Selecting eProcurement software is one thing; populating the software with products to purchase is something else altogether. That’s where Educational & Institutional Cooperative Services (www.eandi.org) comes in.
Known as E&I, the organization is a not-for-profit buying cooperative established by members of the National Association of Educational Buyers (NAEB; www.naeb.org) to provide goods and services at the best possible value to members. The Hauppauge, NY-based organization is owned by a membership of more than 1,500 higher education entities throughout the US. According to Amyn Thawyer, director of eBusiness, NAEB strives to leverage collective bargaining power for the best prices on goods that colleges and universities use most.
“At a time when schools are faced with enormous budgetary pressure, we exist to help ease some of the burden a little,” he explains. “The right eProcurement solution, coupled with the best prices, can go a long way to helping campuses control costs and get a handle on what’s being spent, and by whom.”
E&I offers the free electronic catalog, E&I Exchange. It boasts rock-bottom prices on furniture, computers and electronics, and maintenance and office products. E&I obtains the reduced prices (usually through a competitive RFP process) by aggregating the purchasing power of its members. In return, suppliers reach a broad range of potential customers in the higher education field.With suppliers such as Steelcase (www.steelcase.com), Office Max (www.officemax.com), VWR International (www.vwrsp.com), GovConnection (www.govconnection. com) and Hewlett Packard (www.hp.com) in the fold, the prices are some of the lowest on the market today.
The E&I Exchange solution was built on software created by eProcurement vendor SciQuest (www.sciquest.com). Co-op members can register for and access the E&I Exchange content through E&I’s Web site. Customers also can opt to populate their own SciQuest procurement systems with catalog content from E&I Exchange.
“Purchasing through E&I is reliable and dependable,” says Erin Sweeney, purchasing agent at North Carolina State University, which used the service to buy $1 million worth of products from Cisco last year alone, and saved upwards of 5 percent off retail prices in the process. “It can help prevent a lot of headaches.”
Membership in E&I Cooperative Services is available for a onetime $5 fee to members of NAEB (which costs anywhere from $350 to $800 per year to join, depending on the size of the institution).