Pumping up procurement: online procurement systems can simplify ordering, reduce paperwork and save time and money. But choosing the right solution for your school involves more than a point and click
Ray Moran is a happy these days. The University of Nevada Reno’s director of purchasing is ha the early phases of using the school’s new electronic purchasing marketplace. He expects to achieve savings of 15 percent to 20 percent by completing at least half of UNR’s purchasing transactions under $2,000 online. Since those transactions amount to about $13 million annually, that’s a potential savings of more than $2 million a year. No wonder he’s smiling.
“It’s estimated that rogue purchasing–buying from non-contracted vendors–costs an institution approximately 15 to 20 percent extra,” Moran says. “Giving endusers a simple, foolproof way to use the contracted sources should all but fill that loophole. With the information that an e-purchasing system can provide–about commodities purchased, from whom, and at what price–a purchasing department can go out and find better pricing and terms to the tune of at least 10 to 20 percent.”
Colleges and universities tend to fall into two camps when it comes to e-procurement. There are schools such as UNR and Arizona State University that are on the “bleeding edge” and have already made a commitment to using a third-party vendor.
In September, ASU began rolling out Buysense, an online procurement system that made 11 strategic vendor catalogs offering more than 600 items available to faculty and administrators with the point and click of a mouse.
Then there are those schools who are playing it safe, watching the others and waiting for the bugs to be worked out of the system.
Most campuses fall into the latter category. While 60 percent of senior college officers rate harnessing the power of e-business as a top priority, only 2 percent of university procurement transactions actually take place electronically, according to Highermarkets, a provider of e-commerce solutions for higher education.
Given the potential time and cost-saving benefits of e-procurement, why would anyone continue to buy items the old-fashioned way? Why continue filling out forms, rushing them to the purchasing department for authorization, and manually entering the data into the university’s information system when the process can be automated?
“I think many people are intimidated by it,” says Paul Martin, director of procurement and financial services at Rensselaer Polytechnic institute. The school turned to e-procurement in January to reduce the overall cost of purchasing so administrators could grow research dollars.
“People can get caught up by the fancy software and the buzzword `e-commerce,'” he says. “But they have to understand what their needs are and make sure the solution they develop–whether it’s in-house, an ASP or some type of a licensed program–is something that is being driven to meet their needs, not just something to have.”
The Road Less Traveled
The University of Delaware is one school that doesn’t exactly fit into either camp. But it serves as a good role model for administrators who may be intimidated by e-procurement. UD decided to test the online purchasing waters by developing a solution in-house.
“It’s not a complete solution but it’s meant to bridge the gap while we look at what we will do about full-blown ecommerce,” says Tory Windley, director of purchasing.
Implemented in 1999, UD Mart offers employees online shopping for pre-approved items for their departments up to $5,000. Using a university-issued procurement bank credit card, buyers browse through online catalogs for items such as office supplies or equipment and laboratory items.
They also may use a personal shopper for items that are frequently ordered. Orders go directly to external and internal vendors. When an order is submitted, the employee receives an order confirmation number via e-mail. Integration with the school’s financial system is achieved through the procurement card.
The school earned a Management Achievement award from NACUBO this summer for the UD Mart purchasing program. “As it turns out we have more benefits than we had anticipated,” says Windley.
All 3,000 items on UD Mart are contracted. “‘In the past buyers might not have gone to a contract vendor, and even if they did, they might not get contract pricing,” Windley says. “We are ensuring contract pricing.”
She says people will buy where you tell them to if you have a compelling best case scenario, but it’s hard to communicate sometimes.
“If you change a contract supplier there is a lag where people stay with the old contract,” sine says. “Here, that doesn’t happen.”
When purchasing toner cartridges, for example, Windley says people usually ordered from the vendor that had the office supplier contract.. But after a year, the purchasing department replaced that vendor with three other contracted suppliers that sold toner cartridges at a significantly lower cost.
“We don’t have documented dollars but certainly by driving transactions to contract we are saving dollars,” she says. “On average, we’re saving 20 percent more on cartridges than we were before.”
Row It Works
E-procurement systems decentralize the purchasing process, even more so than procurement cards which were introduced a few years ago, so faculty and administrators can buy goods directly. A good e-procurement solution improves processing efficiencies, including making request for proposal distribution easier, creating better sourcing opportunities and enhancing customer service. In addition, ASPs are particularly attractive because they integrate with a school’s financial system, essentially providing a front-end to the school’s ERP system, linking accounting and payments in real-time, to provide a streamlined process.
An institution can realize both hard dollar savings related to contracts, as well as soft dollar savings related to the purchase order process, says Dorrian Porter, vice president of corporate development at HigherMarkets.
“It allows the procurement department to channel the spending of their faculty and administration towards contracts that have been negotiated with advantageous pricing to the university,” he says. “Without that common e-procurement platform to be used by campus-wide users, they’re really at their leisure to go wherever they want to buy the goods and aren’t really channeled into a negotiated contract situation.”
Currently, Rensselaer orders online only with HigherMarkets and the select vendors that have partnered with them. If users choose to order from a vendor not on the list, then they still need to produce the paper requisition and send it to purchasing. The goal, after integrating their ERP System, is to have all orders, both catalog and non-catalog, flow through HigherMarkets and be placed electronically with the vendor.
“As far as savings, we have some pretty healthy targets, but most of the savings will come from increased contractual buying” Rensselaer’s Martin says.
Administrators estimate that $35 million of Rensselaer’s spending is addressable through e-procurement. Of that, at least 50 percent, or $17.5 million, typically has been off contract. With e-procurement, the institute expects to save 5 percent against this $17.5 million, due to improved contract use and increased purchasing volume on existing contracts, leading to the ability to negotiate better contract pricing. Over four years, the potential hard dollar savings is more than $1.2 million.
Rensselaer is working on reducing its purchasing cycle time from several days to a few hours. This results in a more efficient use of money as well as human resources. Through these improved efficiencies, the average cost per purchase order at the school has been reduced from $140 to $35. In addition, with online procurement, employees are no longer inundated with paper and have more time to build sources and negotiate contracts.
“Particularly with the office supplies contract, we know statistically that it is saving one person’s work per week” says UD’s Windley.
Another advantage of an e-procurement system is more robust financial data with access and analytical capabilities.
UD Mart processes more than $250,000 worth of transactions quarterly and Windley intends to add enhancements to the program. Although she’s consider using an outside vendor, Windley says the current e-commerce solutions are “much bigger than this and a whole lot more than we want to do.”
The UD Mart in-house solution also avoids the possibility that commercial vendors might not be in business, Windley says. “I have friends at other schools that signed up with Commonfind, and you just wonder.”
Windley is referring to how Commonfind, a budding e-procurement company founded by Commonfund, was forced to fold this year. The company’s demise was caused partly by its reliance on an e-procurement software provider that filed for bankruptcy in May.
Financial pressures and the lack of other software providers who could meet Commonfind’s criteria resulted in the company closing its doors for good.
“E-commerce companies maintain your content,” Windley explains. “I have enough trouble managing my contracts. Putting a third party between them and me worries me. I’m not willing to be on the bleeding edge of having all that sifted out. Some of the bigger schools are making those business commitments now. I’m willing to wait and see how that looks.”
Considering an E-Procurement Solution
Cost and functionality are high on the list of criteria when schools consider the players in e-procurement–ASPs like Highermarkets, AquireX and PurchasePro, ecommerce software providers such as Ariba, and ERP vendors such as Oracle and Peoplesoft.
Some are quite expensive and require a commitment from the school before a pilot program is launched, says Rensselaer’s Martin. “They work with vendors and put them all in one place, but then you still need someone in-house to build Web linkage to that, and figure out how to merge with your ERP system.”
Martin says HigherMarkets provided a complete solution, noting the company’s willingness to do a pilot without much investment up front.
“We were at least able to get our feet wet and see whether this was going to make sense,” Martin says. “That was the conservative side of Rensselaer. The more we got into it and the more they let us help them develop the product to be something that would do all the purchasing, the more excited we got about it.”
UNR’s Moran says that two years ago he was inundated with stories of how e-purchasing would reinvent his profession. “Primarily because of the high costs, it was unlikely that a university of our size would be able to participate in this new technology” he says. “However, PurchasePro provided me an opportunity to participate in their new endeavor at a cost I could afford.”
Getting the software up and running took several months, he says, as PurchasePro made some significant updates to its operating systems. But once the current Web version was installed, the implementation went smoothly.
The only drawback, Moran says, has been a lack of supplier adaptation.
“The vendors that have the capabilities want us to go directly to their Web sites and do our buying,” Moran says. “This works for them, but it does not give the school any information for our use, and it prevents our users from comparative shopping between vendors.
“The one exception, I should mention, was Dell Computers. Some months ago, they came to me and said they would work with PurchasePro to link our site with their site. This they did, and it has worked wonderfully.”
Another consideration in choosing an e-procurement solution is whether it is focused on helping schools find diversity suppliers, such as small, locally owned companies, or businesses owned and operated by minorities, women or veterans.
This is something being practiced by PurchasePro and HigherMarkets.
“We take very seriously the enablement of smaller, local vendors that universities use, and which is a critical part of university procurement,” HigherMarkets’ Porter says. “Community businesses around a university depend on it for their survival. And the university benefits from having a strong vibrant community around them because it helps attract students.”
The Future is Almost Here
The new excitement in e-procurement is the “reverse auction.” In a reverse auction, the purchaser sets all the characteristics of the item he is looking for–for example, 1,000 Brand Y computers, with 60 GB hard drives and Pentium 4 chips. The only thing left to determine is who can deliver it the quickest and for the best price. Companies then bid against each other to get a school’s business.
It is early for schools to be thinking about reverse auctions when the focus is still on implementation right now. But administrators see the potential of reverse auctions, just as they see the potential of e-procurement.
“The future is almost here,” Moran says. “There are many schools around the country that are investing the resources to get e-purchasing systems up and running. But there are also systems that are available at affordable costs that can provide the necessary functionality to medium and small schools.
“And the vendors are starting to realize that this is the way of the future. Finally, I would point out that the primary beneficiaries of e-purchasing are the end-users, they are the people who will be able to fulfill their needs faster and easier.”
ASPs, ERP suppliers and e-commerce software vendors can supply colleges with the e-procurement system it needs. Here’s a list of companies:
Commerce One, www.commerceone.com
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