89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
STRATEGIC VALUE OF PROCUREMENT – Part I
They Told Us Where To Go!
Presented by: NAEP 2009-2010 Strategic Visioning CommitteeNancy Brooks, MPA Iowa State UniversityJim Hine, MBA, CPIM Univ. of California-San FranciscoRob Kelly, CPSM, C.P.M., CPIM University of Notre DameNoah Rosenberg, Practice Mgr., Education Advisory Board
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
• Challenges in Higher Education
– Current economic conditions
– Fundamental shifts in environment
– Where procurement is positioned now
• Expectations of procurement
• Possible strategies to meet those expectations
Overview
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Current Economic Conditions
Current economic conditions combining to create extreme challenges:•State underfunding of many public institutions•Endowment losses crimping budgets at many private schools•Federal research dollars threatened by ballooning federal deficits•Drop in median income levels increases need for student aid•Giving to colleges and universities, first to go, last to return
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Fundamental shifts in environment further exacerbate the situation:•Brick & mortar competing with online delivery•More emphasis on global involvement•Possible increased state control of H.E. procurement•Public scrutiny on tuition increases and endowment spending rates•Managing corporate relationships now an institutional effort with multiple constituents•Institutions are forced to keep up with technology demands (and costs) of their students
Fundamental Shifts
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Speculating on the Next Decade
Immediate Response to Downturn A Temporary Reprieve
5.2% Revenue Growth1
4.0% Cost Growth1
Hiring Freezes
Salary Freezes and Employee Layoff
Travel Restrictions
Capital Project Delays
Federal
State
Tuition
Research
Endowment
4.0% Cost Growth1 Closing the Gap
A Shrinking Core•Reducing faculty lines•Narrowing research footprint•Consolidating programs
A More Productive Periphery•Hardwiring spend discipline•Modernizing support services•Tapping new revenue sources
Time
2009 2010
Current Budget Austerity Unlikely to be a Temporary Phenomenon
1. CAGR 1994-1995 through FY 2004-2005
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Procurement Mission: First Line of Defense for the Core
Disciplining Outside Spend
Consolidating IT
Optimizing Facilities
Reducing Admin Labor
Core
Faculty AdvisoryGroups on New
Technologies Collaborative Buying Consortia
Standard Desktop Image
Common Terms for
Space
Single E-mail Platform
On-Contact Purchasing Incentives
Volume Discounts from Top Suppliers
Server Form Consolidation
Utilization and Cost
Baselining
Central Strategic Sourcing Teams
Health Benefits Audits
Central IT Help Desk
Space Utilization Chargebacks
Outlier Unit Profiling
E-Procurement Integration
Enterprise Architecture
Planning
Energy Chargebacks
ERP Code SharingSpend
Mapping
Benchmark Against Private Sector
Pricing
Outlier Unit Profiling
Energy Reduction Consulting
Process Standardization
Expanding Control Spans
Process Automation
Shared Services
Business Service Centers
FacultyResearch Footprint
Curriculum
University Playbook for Managing Through the Recovery
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Outside Consultants Cast Focus on Procurement
Savings Identified by Bain & Company at UNC-Chapel Hill (in Millions)
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
To meet these challenges senior administrators expects Procurement to dramatically drive down costs by:•Increasing the amount of spend under management•Reducing procurement processing time and costs•Deploying new procurement technology•Maintaining regulatory compliance•Enhancing customer service levels•Generating year-over-year efficiency gains
Expectations of Procurement
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Procurement can meet these objectives by:• Repositioning Procurement as a strategic partner with
leadership• Reinventing supplier relationships• Leveraging technology more• Creating true cross-country collaboration models• Providing value in non-traditional areas and ways• Understanding your potential and plan accordingly
Possible Strategies
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Repositioning Procurement
• Develop Strategic (not tactical) Partners on Campus:– HR/Benefits– Research– Academics– Students
• Buy Solutions
• Aware and alert to institutional risks
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
• Your position:– How strategic are you to the supplier?– How strategic is the supplier to you?
• Build Trust– Takes time– Fairness
• Collaborate to find solutions
Reinvent Supplier Relationships
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Need to Drive up the Evolutionary Path
Level of Sophistication
Paper Purchase Order
Punch-Out Catalog
ERP Procurement Module
Contract Consolidation
Electronic Invoicing and Payments
Dashboards and Performance Metrics
Standardization and Functionally Equivalent Mandates
P-Cards
Consortia Contracts
Category Managers
E-Procurement
Price Benchmarking
Involvement in Non-commodity Spend
Automating Processes and Consolidating
Contracts
Maximizing Data Analysis and Strategic Sourcing
Data Analyst
Time
Consolidated Shared Services Centers
Procurement Investment Timeline
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Integrate Sourcing and E-procurement
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89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Leverage E-sourcing, e-RFX, Reverse Auction
Overview: Systems designed to help automate, standardize, enhance and streamline sourcing processes:
• Market expanded with FreeMarkets reverse auction phenomena of late 90’s• Interactive/distributed data/requirements collection, linked to spend analysis tools• Standardized/modular RFP templates, with weighting/scoring criteria to support
price/quality point type awards (total value), straight price based, or flexible bidding • Optimization logic enables split awards, “what if” analyses, etc• Can be integrated into contract management and procurements systems • Multiple delivery models: managed, on-demand per event, hosted, ASP, owned Benefits• Achieved savings of 25-30%, up to 50%, advanced techniques another 12%• 40-60% reduction in sourcing cycle time • 50% reduction in resource requirements/costs (admin, analysis, evaluation, etc.)• Build in non-price based criteria (e.g., small/diverse/local business)• Enables expanded supplier discovery: locating potential bidders• Increase in defensibility of awards, archival ability etc.• Ability to source non traditional categories such as HR Benefits, service contracts
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89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
UC Strategic sourcing example
Savings
NON-IT Number of Percent
COMMODITIES Contracts Target (Weighted)
Animal Care 4 1.17%
Bottled Water 1 18.00%
Carpets & Flooring 2 10.43%
Dorm Furniture 2 5.98%
Fitness 6 30.00%
Gases 2 36.27%
HazWaste 2 12.51%
Janitorial 5 11.11%
MRO (Electrical & Lighting) 1 8.00%
MRO (Tools & Hardware) 3 9.00%
Office Equipment (Color Copiers) 2 23.94%
Office Equipment (Digital Copiers) 3 34.23%
Office Equipment (Printers/Faxes) 2 13.29%
Office Furniture 1 5.00%
Office Supplies 1 16.00%
On-Line Tuition, Billing & Payment 2 5.00%
Organic Food 1 12.50%
Scientific Supplies - General 1 5.00%
Scientific Supplies - Specialty 3 2.48%
Small Package Transportation 2 21.97%
Temporary Staffing 6 7.61%
Uniforms 2 16.69%
Wood Case Office Furniture 5 6.56%
TOTAL NON-IT COMMODITIES 64 11.9%
Savings
IT Number of Percent
COMMODITIES Contracts Target (Weighted)
E-Procurement Systems 1 3.00%
Indirect Software (ISV) 7 23.81%
Indirect Software (SHI) 1 3.45%IT Professional Services 8 7.96%
IT TEMP Labor 10 15.00%
Network Hardware & Maintenance 1 10.00%
Non-ERP & Systems Software (& maintenance) 14 20.65%
PC's & low end servers w/Apple 2 11.72%
Peripheral Distributors 1 6.06%
Servers & Associated Storage 3 8.96%
Video/Web/Audio Conferencing 1 14.30%
Wireless Products & Services 1 3.75%
TOTAL IT COMMODITIES 50 13.8%
Savings
TRAVEL Number of Percent
COMMODITIES Contracts Target (Weighted)
Airlines 1 2.37%
Booking Agencies 2 72.85%
Car Rental 2 15.39%
Hotel Rooms 3 16.07%
TOTAL TRAVEL COMMODITIES 8 16.2%
TOTAL ALL COMMODITIES 122 12.8%
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89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
• Consortiums/Cooperatives/GPOs– National– Regional– State– Other “interest group” oriented collaborations
• Collaborate with Suppliers
Leverage New Collaboration Models
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
• Pursue opportunities in supply agreements to further institutional goals beyond savings and revenue– Internships– Research– Strategic Initiatives– Sustainability
• Leverage the skills and strengths of the procurement organization beyond supply management– Negotiation– Facilitation– Relationship Management– Project Management
Expand into Non Traditional Areas
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Understand Your Potential & Plan Accordingly
• Staff the procurement organization to address the institution’s environment, needs and trajectory– Technology– Remote campuses and locations– Internationalization
• Prepare for the generational tide which has already started “going out” in 2009 – Succession planning– Staff development– Knowledge transfer
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
• Become a strategic partner with campus (not a process)• Create beneficial/strategic supplier relationships• Minimize administrative burden thru technology• Implement best practices• Provide value in non-traditional ways – expand your
utility/value
Where They Told Us To Go
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Stay tuned for:Strategic Value of Procurement – Part II
Practical Approaches for Increasing Strategic Value
How Do We Get There?
89th Annual Meeting & ExpositionMarch 21 – 24, 2010Denver, Colorado
Thank You
Questions?
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