The financial leadership at universities and colleges is increasingly seeking an innovative organizational model of procurement that can drive reduction in cost while maintaining high internal customer satisfaction.
The hybrid model of center-led procurement has caught the attention of chief financial officers (CFOs) at academic institutions. The for-profit sector many years ago learned that center-led procurement is often the most effective model to achieve savings in a environment of highly decentralized spend. This model seems tailor-made for higher education.
The center-led approach enables financial leaders in higher education to aggregate categories of spend across the institution through the use of strategic sourcing initiatives and centers of excellence. With this approach, the execution of procurement transactions can continue to remain embedded in the decentralized units (schools) within the university. This enables internal customers to retain a degree of autonomy on the tactical side of procurement.
At for-profit organizations, the pressure to increase profit and earnings per share often creates implicit reasons for reducing cost. Since this climate does not exist in higher education, internal stakeholders often approach procurement transformational change with the lingering question: Why are we doing this?
This doubt can be even stronger at universities or colleges with large endowments.
Center-led procurement can only flourish if there is a systematic cultural shift in the attitudes toward reducing cost and the payoffs that reducing cost can have for internal stakeholders.
The following four phases are required to successfully implement center-led procurement:
- Laying the Groundwork
- Building a Center-Led Procurement Organizational Infrastructure
- Building Bridges to Internal Customers
- Launching Strategic Sourcing Initiatives
Laying the Groundwork
Center-led procurement can take root only if there is significant buy-in on the part of the senior executive leadership.
The senior leadership also needs to establish financial targets for procurement savings and promote the mission zealously. An initiative without a quantifiable financial goal is likely to be perceived as an endless journey without any tangible benefits.
Also required is buy-in on the part of the financial and business operational leaders of the decentralized schools (for example, business, law, medical, and other schools). The operational leader of these schools might be a school CFO or chief business officer (CBO).
The business leaders at these schools are important ambassadors of change. Without their support, the mission is likely to be interpreted as another hollow initiative of central administration without any tangible benefits.
University researchers can often be a challenging group of internal customers, because there is often a perception that the external funding that they have secured is “their money.” A chief procurement officer (CPO) or director of procurement might sometimes defer initiatives with researchers until there is a demonstrated track record of success at the university.
Building a Center-Led Procurement Organizational Infrastructure
A tactical procurement team will frequently get bogged down in operational or transactional purchasing problems. If strategic sourcing is added to the tactical team’s responsibilities, it will often get sidelined. Therefore, if the existing purchasing team is primarily tactical, it is important to create a new branch solely dedicated to strategic sourcing.
Since aggregating spend by category is integral to the DNA of center-led procurement, it is vital for category managers to possess content knowledge in a specific category or cluster of categories of spend.
In some cases, it might be possible to retrain a tactical team member for a role on the strategic sourcing team for specific categories. In other cases, it might be necessary to recruit outside talent that is skillful in strategic sourcing. This is particularly the case if there is a knowledge gap for a particular category of spend.
If the CPO intends to initially commence aggregating a particular category of spend, then it might be logical to look for external talent in the particular category of spend.
There are cases whereby the CPO might tap into category knowledge or centers of excellence from internal stakeholders embedded within the school who are seasoned in purchasing a particular good or service.
The ideal long-term goal is build out a robust team of strategic sourcing category managers with deep knowledge in various categories.
Building Bridges to Internal Customers
Internal stakeholders frequently perceive procurement as simply a bureaucratic function without any value or benefit.
In the initial stages of procurement transformation, the procurement team needs to gradually build credibility and trust. The following fundamental messages need to be conveyed earlier on:
- The procurement organization’s primary goal is to improve customer service and customer satisfaction.
- Procurement is there to be a trusted adviser, not a policeman.
- The institution can do a better job of procuring goods and services collectively than the individual decentralized units or schools.
Some larger universities have created a marketing function within the procurement organization to communicate the new mission and listen to the needs of internal customers. It can be beneficial to elicit consent from stakeholders to communicate all of the ongoing activities of procurement through a quarterly bulletin. Such a bulletin can outline new strategic sourcing contracts that have been launched and as well as report the savings achieved.
If procurement leaders can develop this relationship as a trusted adviser to stakeholders, then the path of transformational change will be a lot smoother.
Launching Strategic Sourcing Initiatives
The proverb “slow and steady wins the race” applies to transformational change in higher education procurement.
If a procurement leader attempts to make an overly ambitious or overreaching strategic sourcing initiative, he or she is likely to achieve only marginal results.
At large universities with multiple campuses, selecting one of two campuses for pilot sourcing initiatives is often advantageous. It can frequently be easier to engage additional campuses after a record of early wins has been established with one or two of the campuses.
A strategic sourcing initiative needs to be developed in conjunction with a maximum number of stakeholders possible across the institution. Stakeholders are far more likely to use a contract if they have input on supplier selection.
Internal customers are frequently more concerned with vendor performance and reliability than price. If procurement leaders consider only price during vendor selection, they will be likely to end up with agreements that stakeholders chose not to use.
For internal customers, ease of use can be an important motivator in terms of using a blanket agreement. If an internal customer can search on a university’s eProcurement platform (in a way similar to searching on Amazon), he or she is more apt to order from the vendors with whom the university has strategic agreements.
The universities and colleges that have remained steadfast on the journey of implementing center-led procurement are starting to see payoffs in savings. There is, however, no shortcut to a gradual approach that incorporates senior leadership buy-in, stakeholder engagement and an infrastructure specifically created to leverage the benefits of center-led procurement.
Steven Lutzer is the president of Lutzer Global Inc., an executive search firm that specializes in procurement, strategic sourcing and supply chain management. Lutzer had a 20-plus year career in supply chain management and global sourcing before founding Lutzer Global. For more information, please visit www.lutzerglobal.com.