By Eric Zoetmulder
While few industries have managed to weather the global financial crisis unscathed, for higher education, an industry that exerts great influence on society, the impact of the downturn has been particularly acute. Once considered immune from recessionary trends, more recently tuition increases, budget shortfalls, a decline in endowments and rising costs on everything from labor to supplies threaten to make a higher education inaccessible for many.
With 48 states facing budget shortfalls, cuts are rampant and deep, especially for public universities. In short, the economic downturn represents a perfect storm of unprecedented scope for the nation's nearly 4,000 colleges and universities.
From this crisis, one business function has emerged from relative obscurity to become one of the most powerful weapons in the battle to contain costs. Procurement, long taken for granted as a paper-pushing exercise, is now a priority for higher education's leaders.
At the forefront of this transformation is a cadre of supply chain professionals, including many who learned their skills in the for-profit world where strategic sourcing techniques are refined and expected. Together, they are leading an effort to rapidly change how the nation's colleges and universities manage spending and approach purchasing.
Driving Bottom Line Results
With an organizational structure similar to government agencies, where independently operating departments utilize shared budgets, institutions of higher learning are ideally suited to benefit from the strategic sourcing techniques today's procurement technologies make possible. Spending on goods and services, the portion of the operating budget that procurement directly addresses, is proportionally high — at most schools eclipsed only by payroll in its impact on the bottom line.
Historically, institutions had little visibility over purchases or ability to funnel spending to preferred contracts, let alone enforce compliance. In contrast, schools on the leading edge of today's procurement transformation typically see the cost of supplies decrease by 20 percent or more. And unlike other cost containment efforts, these savings merely reflect the ability to get the same supplies for less money.
"For many institutions, the application of strategic sourcing techniques represents the greatest opportunity to generate savings," notes Ralph Maier, chief procurement officer at the University of Pennsylvania. "A 20 percent reduction in the cost of supplies and a 20 percent reduction in payroll both exert the same type of impact on the bottom line, but one clearly is preferable to the other."
Implementing a strategic, entrepreneurial approach to procurement in higher education, Maier and the Purchasing Services department at Penn recently completed a four-year effort to generate $50 million in documented savings through the application of strategic sourcing techniques — aptly named the Cost Containment Project.
Maier's team reached the goal nearly a year ahead of schedule. The effort brought the total savings that Purchasing Services secured over the past decade to nearly $90 million — something Maier credits to strong support from the university's senior leadership.
"Right now, you have a relatively small number of schools that have adopted the automation required to use some of the more strategic sourcing techniques that are available in the marketplace," adds Maier. "At the same time, the economic downturn has demonstrated the absolute necessity of stretching the value of every dollar, prompting more and more senior leaders to support not only the acquisition of the required procurement technologies, but more importantly their backing of the sourcing techniques these technologies make possible. Schools are definitely becoming more interested in figuring out how to automate the procurement process."
Maier is not alone. Other advocates of a strategic approach to purchasing are likewise inundated with requests for information as procurement reform becomes an industry priority. Bill Cooper, associate vice president and chief procurement officer at the University of Missouri, and a recipient of the National Association of Educational Procurement's (NAEP) "2009 Excellence in Procurement Award," also attributes the growing focus on procurement to the economic crisis.
"A few years ago, no one in higher education discussed procurement outside of the purchasing department," says Cooper. "Now senior leadership is actively discussing procurement's impact on the bottom line and ability to mitigate budget cuts in other areas while making faculty and staffs' lives easier."
Cooper notes that the adoption of a new approach to purchasing is something that campus leaders increasingly view as a priority in part due to changing cultural norms and greater familiarity with e-commerce.
"It's no longer an issue to ask staff members to shop online in a system that makes the purchasing process transparent, enables procurement to gain visibility over spending and makes it easy to funnel business to preferred suppliers," he says. "Leaders want savings, procurement departments want the information needed to negotiate with suppliers and control spending, and users want convenience. No one wants to fill out paper purchase orders when they can buy things with the click of mouse. The technology gap that relegated procurement to bureaucratic status at most schools has closed."
A Role and Landscape Redefined
Procurement's rise as a priority is likewise impacting the profession. The role of collegiate procurement professionals is evolving quickly to keep pace.
"Administrative skills were once valued greatly, but as more schools move to modernize their supply chains, there is greater demand for professional negotiation and sourcing expertise," says John Riley, president of the NAEP and director of procurement and business services at Arizona State University. "Procurement professionals are also increasingly showing that they have an important role to play in much larger strategic initiatives and are gaining a seat at the executive table as a result."
Riley points to several emerging trends as proof not only of procurement's newfound priority status, but also its changing role. These include a concerted effort among smaller schools to extend the reach of existing budgets, increased use of consortia and support for sustainability goals.
Others support his contention.
In a 30-year career that includes executive officer roles with large institutions such as Penn State and the University of Missouri, Dr. Betty Roberts has gained an appreciation for procurement's ability to generate savings. Now the vice president of administration and finance at the University of Central Missouri, she sees a golden opportunity for smaller institutions to achieve more with the same resources through a new approach to purchasing.
Roberts notes: "Smaller schools have always had to accept that they don't garner the clout of their larger counterparts and, with small procurement staffs, were doing well just to stay on top of their paperwork, let alone conduct any strategic sourcing activities. In the past couple of years, procurement technologies have become much more accessible through on-demand, Web-based solutions. As a result, smaller institutions can automate processing tasks, focus on creating opportunities to save money and pool their resources."
Roberts is among the growing number of business officers determined to put the technology infrastructure in place required to enable smaller institutions to aggregate their buying power through consortia. Utilizing the same technology, she plans to consolidate purchasing power with the University of Missouri.
At SciQuest, a provider of on-demand procurement automation technologies considered the standard in higher education, we are seeing a significant acceleration in the deployment of group procurement solutions. In these efforts, schools consolidate their purchasing operations through the use of a common e-procurement technology platform that enables them to gain visibility over, and manage, purchases simultaneously for multiple institutions. The benefit of this approach is multifaceted.
Smaller schools can join forces to dramatically increase their purchasing power — funneling their combined spending to preferred suppliers in return for better contract terms and conditions, an approach that also benefits larger institutions. Intent on further strengthening their buying clout, they can likewise maintain independence and precise control over spending.
Building a group purchasing solution also enables procurement organizations to share capabilities and strategic sourcing expertise. A procurement leader at one school with deep expertise on a specific commodity can apply that knowledge on behalf of every institution in the group.
Combined with the use of contracts negotiated by E&I Cooperative Purchasing and other buying cooperatives, it's no surprise that institutions increasingly see value in partnering and purchasing together. Procurement leaders are emerging not only as the ambassadors capable of bringing schools together in these endeavors, but also as the drivers of intelligent spending initiatives that directly support core institutional goals.
For example, spending can be directed to suppliers who offer "Earth-friendly" goods and services, or to local suppliers in communities that fundamentally shape the campus environment. In this way, procurement becomes the one business function capable of transforming noble ideals and social responsibility goals into real fiscal policies.
For Riley, these developments point to a greater role, as well as more change, for higher education's procurement professionals in the years to come.
"For a long time, most procurement professionals in higher education had little in common with their supply chain colleagues in the business world," he says. "Now our nation's campuses are the scene of some of the most spirited and innovative approaches to supply management and strategic sourcing. The business case for these transformative efforts is ironclad, leaders increasingly consider them priorities and the majority of institutions still need to change. As a procurement professional, there's no more exciting place to be." ¦
About the Author: Eric Zoetmulder is director of product marketing for higher education and the public sector at SciQuest, Inc.
By Eric Zoetmulder