With 10 campuses, five medical centers, three affiliated national laboratories and a statewide agriculture and national resources program, the University of California system can be, to say the least, a challenge for supply chain professionals. Its operating budget is a staggering $18 billion to serve 220,000 students and 180,000 faculty and staff.
And procurement will play a critical role as public, higher-education institutions must create an optimal learning environment with reduced funds, said Ted Johnson, Supply & Demand Chain Executive’s 2012 Practitioner Pro of the Year.
How reduced? Gov. Jerry Brown recently announced that the University of California, California State University and the state’s community college system will each lose an additional $100 million in funding. The pressure to reduce expenses and improve efficiencies is rising.
“While in the past administrators may have viewed procurement as more focused on enforcing policy rather than as a partner, that mindset has changed during the past few years,” Johnson said. “Department heads and key stakeholders are now looking at us to provide guidance on innovative ways to reduce costs. There’s also a greater realization that savings initiatives can help prevent budget cuts. More than ever, procurement is tasked with finding creative and strategic ways to reduce expenses, streamline operations, increase our buying and negotiating power and collaborate with other institutions.”
The challenging economic environment underscores the importance of embracing a more strategic approach to procurement and the streamlining of the supply chain. Johnson wanted to transform the role of UC San Diego’s procurement and contracts system. Instead of playing a transactional processing role—handling invoices and purchase orders—the department would provide significant negotiation and commodity expertise.
Automating low-value processing tasks would free up the department to work closely with staff and personnel to identify cost savings and provide strategic guidance on high-dollar and complex purchases. To help achieve these goals, UC San Diego implemented an eProcurement platform. Once the new purchasing platform was in place, Johnson and his team were able to gain greater visibility into spending. Previously, spend data was only visible at line-item detail to suppliers. The new purchasing system showed quick results. For instance, the amount of time to process orders was dramatically reduced, with 94 percent of all purchase order transactions finalized within one business day. Within a year of its campus-wide deployment, an average of 3,500 users accessed the marketplace to browse and view contracted suppliers and 1,900 users made their purchases, accounting for more than $53 million in spending.
Johnson believed one of the biggest challenges is implementing supply chain/ procurement initiatives in a decentralized setting. In addition, without the ability to mandate change, the task of receiving buy-in, even for programs that are approved by executive leadership, is extremely difficult. In such an atmosphere, Johnson suggested, that for strategic initiatives to succeed, they must be accompanied by proactive communication to all affected parties regarding the potential benefits of the program. In a corporate environment with a firm mandate from executive leadership, supply chain professionals have the leeway to focus on the “how” when implementing new initiatives. However, in a decentralized environment without a mandate, it’s important to focus on the “why” far in advance of the “how.” As a result, more time and effort must be dedicated to the change management portion of any project. Johnson’s philosophy is that the change management prospects of any project are equally important to the technical aspects. It’s critical that consideration is given to engaging constituents far in advance of executing change.
Why reinvent the wheel?
Based on UC San Diego’s success, Johnson envisioned a more comprehensive purchasing consortium. He worked closely with the University of California’s Office of the President (UCOP) and several other universities including UC Berkeley, UC Santa Cruz and UC Riverside to create the first higher education consortium of its kind. The consortium also shares a common purchasing platform, reducing the need for participants to duplicate their efforts on a wide range of administrative tasks, which were historically relegated to procurement.
With the purchasing consortium, UCOP now has a mechanism for making contracts, which reflect the buying power of multiple institutions, easily available and usable for users at the participating campuses. UCOP also now has greater visibility into spending that occurs through the contracts it puts in place from all participating institutions. Since the consortium went into effect, the amount of spending that goes through UCOP’s contracts increased dramatically. Suppliers now work with a single point of contact at UCOP, ensuring that all of the consortium’s participants have access to uniform information on their products and catalogs, reducing the amount of time and effort required of procurement personnel.
“It’s a good thing that in higher education we freely share best practices with other schools,” he said. “We’ve got 10 campuses. Why reinvent the wheel for each? We’re lucky to have visionary leadership. Their support is a key component in higher education. In private industry, they have more power to issue an edict. In this [environment] faculty and staff are not as likely to listen. The challenge is convincing academics and staff to go along. It’s unique: In the private industry system they have no choice; here, they do. It took a lot of effort convincing people this is what they needed to do.”
Johnson added that a big portion of this job’s responsibility is sales.
“I have a full-time marketing person on my staff whose main job is selling clients on the value proposition,” he explained. “I issue a heads-up six months before the change happens. One, it gives them a chance to comment; and two, we can use the time for training, for marketing materials and other things. It takes a lot of effort.”
Johnson’s extensive international experience in private industry has transferred well to the public education forum. After earning his Master’s Degree in International Management at the University of Tsukuba (Japan), he spent nine years in supply chain management with Hitachi, then joined Sony as Director of Global Integrated Supply Chain until joining UC San Diego five years ago.
“People often ask how I can be successful in a university environment,” said Johnson. “In consumer, I worked with engineers. Now it’s college professors, and they’re similar in personality.”