Data analysis makes its way to the procurement function, as new technologies, partnerships, and priorities result in more strategic buys and more dollars to the bottom line.
By David Tobenkin
Four years ago, the University of Texas Health Science Center implemented Direct Connect, a component of its PeopleSoft e-procurement suite, which enables end users to visit vendors' Web sites and automatically generate a requisition for the items they place in their shopping carts. Once the relevant department approves the purchase, the requisition is immediately released to the vendor, simplifying what had been a somewhat time-consuming process.
"Every requisition used to go to purchasing," recalls Andrea Marks, vice president and chief financial officer of the San Antonio-based health science center. Now, the procurement office is no longer involved. The e-procurement system gives users instant access to about 10 preferred vendors with which the institution negotiated contracts. Although the program isn't mandatory, its ease of use has proven a hit with faculty and staff.
Implementing e-procurement and identifying preferred suppliers have resulted in better pricing, as well as time savings for procurement personnel, Marks says. The Health Science Center anticipated spending $25 million for materials and supplies in FY13, with a savings goal of $1 million. After the first two quarters, the center was already more than 50 percent of the way toward its savings goal.
In recent years, as the campus has grappled with tight budgets and the need to reduce costs, Marks has seen end users become more open to adopting new processes and technology that will save money. "The chair of each department watches his or her costs. They are more careful now," she says.
As beneficial as technology can be for the higher education procurement process, however, its implementation requires a strategic approach that goes beyond transactional tasks. "The big picture regarding technological change in procurement is more complicated than a given solution or technology," says Doreen Murner, chief executive of the National Association of Educational Procurement (NAEP), Baltimore. "It affects a broader composition of what will happen, especially as it relates to people.
"Whatever the solution is, the process that surrounds it remains, and [higher education professionals] will have to deal with change management, skill sets, education, training, and business process improvement," she continues. "Automating for the sake of technology, without reevaluating the underlying business process, may make for poor or weak outcomes."
That need to look at the broader implications of procurement technology adoption underlies seven recommendations identified by NAEP members during the association's second annual Innovators Forum held in 2013. Here's a look at the recommendations and how they are playing out on several campuses (for the full report on the forum, call NAEP at 443.543.5540).
Emphasize the Impact of Data, Analytics, and Reporting.
Information has the power to persuade-especially when it is collected, analyzed, and reported in ways that facilitate decision making.
"We've placed a great deal of emphasis on data analysis and reporting over the last several years," says Vaibhav Agarwal, director of procurement services at the University of Notre Dame, Notre Dame, Indiana. Several years ago, Notre Dame launched Advancing Our Vision, an initiative that requires detailed reports on spending and saving in several key areas. "It also provides reporting on how departments are utilizing contracts in place, including with preferred vendors, alternate preferred vendors, and noncontract vendors," adds Agarwal. "That has helped drive behavior to spend more with preferred vendors rather than with outside noncontract vendors."
Various procurement processes on campus feed into the university's enterprise resource planning (ERP) system; Agarwal's group uses SAP's BusinessObjects software to gather the data into one source. That enables them to examine spending through different payment channels and generate detailed Advancing Our Vision reports.
Communicate the Value Proposition of Technology.
The deployment of new technology may meet with resistance from key constituencies on campus, unless they understand how the technology may benefit the institution and see it championed by institutional leaders (see sidebar,"Dealing With Resistance Fighters").
William M. "Bill" Cooper, associate vice president and chief procurement officer at the University of California system, has held top procurement positions in the federal government at the General Services Administration, Revlon, and other higher education institutions, including Stanford University, the University of Missouri, and the California Institute of Technology (Caltech). "Driving change in higher education is by far the most challenging of any of those environments, largely because we operate without the benefit of a mandate," he believes.
In private industry, for example, "If you bring forth a contract that will lower the cost of goods and increase the profit margin, there is no meeting, no discussion—it gets implemented," says Cooper. "The same applies in the government arena, where regulation and procedure dictate the resulting mandate. But in higher education, the term 'mandate' is not even used because it is, in fact, contrary to the prevailing academic process, characterized by discussion, debate, and consensus.
"That means you must up your game by having the ability to clearly and convincingly state the value proposition you bring to different stakeholder groups you serve in a highly decentralized university environment," he continues. Although the endorsement of executive leadership remains critical to the rollout of any technology initiative, it alone isn't enough to guarantee that acceptance will filter down throughout all levels of the organization, Cooper says.
In addition, he advocates using targeted messaging when addressing different groups on campus. "You don't have a monolithic audience; a university is as diverse as can be. You can't put out a macro-level message and successfully reach each key audience," he says. When speaking with executive leadership, for example, Cooper typically talks about technology in terms of its return on investment—but that approach would probably fall flat with researchers, who are more interested in how the technology can remove obstacles and expand their work. And people involved with procurement typically want to know how to access the information gained through the technology.
At the same time, Cooper adds, don't forget about administrative personnel; they often have the power of longevity and the ear of faculty and researchers. "You can't communicate to them too much or too often," he notes. "If they are involved in the design, development, and deployment of the new technology, they then have a personal stake in it, it becomes their process, and thus, rather than later finding fault with every flaw, they will work collaboratively to make the deployment successful."
Make the Right Thing the Easy Thing to Do.
An e-procurement process will never deliver on all its promises if it proves too complicated, unwieldy, or confusing for users. Consumer-oriented technologies have simplified the online purchasing of commodities, products, and services, and institutional users expect the same customer-friendly experience on the job.
"The focal point of commercial activity of all sorts, both individually and in the enterprise, is moving increasingly to the consumer realm," says Richard Katz, president of Richard N. Katz & Associates, a higher education consulting firm based in Boulder, Colorado. "More and more of the historical role played by colleges and universities is migrating to the cloud or drifting away into consumer apps, devices, and services without a friendly guiding hand into the consumer economy." He points to Amazon, Google Play, and the Apple Store as prime examples of positive online experiences to which people have become accustomed. When colleges and universities adopt far more structured and elaborate processes, they cut against the grain of established consumer habits.
"Long term, the best practice for procurement IT is to meet our campus consumers where they are," Katz believes. "The real winning formula may come when the usability of Amazon teams up with the policy controls and value-added analytics of firms like SciQuest."
When the University of Colorado implemented both an electronic procurement process and a travel/expenses solution, "We tried to incorporate policies toward those systems that make it easier for the end user to do the right thing," says Sandy Hicks, assistant vice president and chief procurement officer for the university's Procurement Service Center. "Before those implementations, we had all this information on the Web site, but we didn't make it easy on the end user." Now, however, the e-procurement system is already programmed regarding where to send a procurement request; if, for example, a procurement request includes a federal funding source, the system triggers a certain workflow.
"The other efficiency of e-procurement is the whole concept of the shopper role. Users are able to shop through catalogs," Hicks adds. This feature has reduced purchasing problems, such as when users transposed numbers and inadvertently ordered incorrect items.
Recognize the New Skills Needed to Manage Procurement in a Dynamic 21st-Century Environment.
Frequently, the implementation of technology leads to a reduction in institutional staffing. The University of Colorado's Procurement Service Center, for example, used to have six full-time employees processing travel reimbursements; it now has fewer than two. Moving to online procurement systems, particularly for travel-related services, reduced the system's need for people to process paper forms (see sidebar, "Benefits by the Numbers").
The employees who remain, however, fill different roles than they have historically. Electronic procurement calls for a different skill set, one that emphasizes being innovative, visionary, and collaborative. Today's procurement teams must possess the ability to leverage new procurement tools and data to deliver value to the institution.
Hicks notes, "If I identify something we need done with the new technology, we train staff internally or find someone outside our department with that skill." When the Procurement Service Center implemented its new ERP system, it tapped a campus controller to join its team. "She was a well-respected campus leader and knew the culture. We knew she knew how to bring up a system and that we could teach her procurement," says Hicks.
The stream of new information generated by the new system also created the need for a business analyst to process all the data. Consultants, too, have their place, Hicks adds. She relied on one to assist the Procurement Service Center in implementing its new system while meeting a tight timetable.
Proactively Manage Change in a 24/7 Environment.
Electronic procurement also calls for knowledge of change management: Its practitioners must keep up with evolving technology and tackle new challenges even as they attend to the press of daily business. To help develop that skill—and avoid analysis paralysis—business officers should participate in external support networks that include consultants, commercial business partners, and their counterparts on other campuses who have successfully navigated change.
As Joanne Kossuth sees it, higher education often bogs down by overemphasizing the institution's need for knowledge rather than balancing it with the user's need for freedom. "Procurement and IT staff say, 'How can we put more controls in?' We tend to want to over-control things," says Kossuth, vice president for operations and chief information officer at Franklin W. Olin College of Engineering in Needham, Massachusetts.
"Instead," she continues, "we should think how we can take technologies that will be successful in different environments and encourage students, faculty, and staff to use them. We need to engage them in using technology in a way that is beneficial to the institution." That may translate into rethinking business processes from a customer perspective rather than an administrative one.
Kossuth's team took the customer-oriented approach by developing a middleware software tool that integrates data from end users using external programs and data storage into Olin's ERP system. The college introduced the middleware tool in 2011, refined it in 2012, and will likely need to refine it again as new versions of various products become available. "We try to put technology closer to the actual departmental end users in a way that would make their life easier," Kossuth says. "To do this, you have to discuss what data are important to the central system and when they should be imported. Then you map how [the data] fit into the system of record or central system."
Electronic procurement also calls for knowledge of change management: its practitoners must keep up with evolving technology and tackle new challenges even as they attend to the press of daily business.
For example, some people on Olin's campus prefer to use Salesforce, a contact system, or Volgistics, a volunteer management software program. Although much of the information collected via such applications doesn't necessarily help the institution make decisions, Kossuth notes, the institution still needs some information for reporting and other centralized functions."We give people the option to use consumer-based products when it makes sense, making sure they store data inthe right format," she explains. "When the data they collect are important toinstitutional decisions, we provide the end users with the ability to verify data and then move the data into the system of record; data integrity is a shared responsibility between IT and the various departments."
Expand the Role of Procurement With New Tools, Technologies, and Processes.
Higher education has long viewed pro-curement as a cost center rather than a revenue generator. Changing that perspective requires moving away from the "this is the way we've always done it" mentality and modifying or even transforming established processes.
Bill Cooper says he joined the University of California system largely because of P200—a procurement transformation program that aims to deliver $200 million in annual cost savings systemwide within a five-year period ending in 2015–16. Savings are intended to come from numerous sources, including improvements in the selection, implementation, and use of competitive contracts and innovative supply chain strategies for procured goods and services.
"We're treating this as you would a commercial investment," says Cooper, who says the system is ahead of schedule in achieving the targeted savings. "We expect a 920 percent return on the up-front financial investment the uni-versity has made in procurement."
In 2012, the UC system introduced a supplier registration and sourcing application, which allows the bidding process to be completed electronically. In 2013, it implemented spend analytics. "Whereas we previously found out our spend information from asking the vendor-which is like asking the fox about the henhouse-we now really know what we spend, vendor by vendor, by area," says Cooper. For example, he adds, "We can look across our 10 campuses and determine what we are spending in the science area even down to the item level.
"We will provide dynamic reporting so that each department at each campus knows what it spends in all categories, allowing financial managers the ability to better manage their budget," he continues, noting that the detailed data often "wakes them up a bit" at the department level. With the assistance of a project consultant, Cooper's office has thus far identified sourcing opportunities affecting nearly $3.2 billion of the systemwide spend, with the potential to generate $125 million to $254 million in new annual savings in six key areas. Pursuing those savings will be the next step in the P200 process, which will also include implementation of a systemwide electronic contract director solution to issue and hold new contracts.
Such efforts, particularly those involving spend analytics, can often drive procurement improvements, Cooper says. When he worked at Stanford, he recalls showing the residential dining department that it spent about $24 million annually and used 1,814 suppliers for food alone, which reduced its negotiating power. "They were astounded—you couldn't have told them that, before we had the spend data, and had them believe it," says Cooper. "When you bring in spend analytics data, you are speaking the language of the scientists in the department. It becomes hard to argue with data."
Leverage Technology to Enhance Supplier Relationships and Collaboration.
The use of different terminology and business practices sometimes complicates communication between higher education officials and suppliers. Supplier relationship management (SRM) solutions can help each party understand the other's objectives and create a common framework for evaluating supplier performance—which may include scorecards, surveys, and business reviews—and influencing product development.
According to Sandy Hicks, the University of Colorado considers its software suppliers as strategic partners and meets with them quarterly for business reviews. The companies report on how fully utilized their software is and may suggest implementing additional capabilities or upgrading. In turn, says Hicks, "We let them know how their software is being used, if there are additional things we would like to do, and how doing things differently might be better for us and other customers."
For instance, Hicks' office suggested that Concur, the supplier of Colorado's online travel tool, develop a different business model for higher education rather than thinking of colleges and universities in the same way as Fortune 500 companies. The company now has a higher education advisory board.
"In most businesses you can tell an employee, 'If you travel for us, here's the tool you must use.' But in higher education, you must bring users along," says Hicks. Citing another example of collaboration, she notes that employees of SciQuest spent a day on site with a purchasing agent and another day with a payables technician to study the software's ease of use, including the number of keyboard clicks needed for various tasks. After the site visit, SciQuest changed its screens to require fewer clicks. "Given that we do tens of thousands of invoices a month, that adds up to a big efficiency," Hicks says.
Soon the university will implement online supplier portals, through which suppliers can manage their own information in the institution's systems, adjust offerings, and examine order and payment data on invoices. "Our suppliers mostly do that by phone or forms now," says Hicks. She predicts the new system will result in "fewer resources wasted on our end answering questions from suppliers, such as, 'Has my check been cut yet?' over and over."
The University of Colorado encompasses four campuses, serves 58,000 students, and has an annual budget that tops $3 billion. For smaller institutions, e-procurement systems can be a difficult sell, notes Jack D. Zencheck, chief procurement officer at Yeshiva University in New York. Last year, he led his institution through implementation of an electronic procurement system. Including the cost of complete integration with Yeshiva's ERP system, the price tag was approximately $15 million; the university's entire operating budget is $600 million.
"If you are a really small school or a community college, it can be challenging to find the dollars to support this kind of initiative," Zencheck says, "but if you could find the money it would pay itself back very quickly." He reports the e-procurement system costs Yeshiva $400,000 to $500,000 per year, but it pays for itself through reductions in accounts payable and better contract compliance.
"I have fewer purchasing people than I used to because we have become more strategic and less tactical by driving order placement from 'buyers' to the end users and investing more in electronics and technology," Zencheck says. His vision—which would certainly resonate with NAEP members—is to make Yeshiva 100 percent automated.
DAVID TOBENKIN, Washington, D.C., covers higher education business issues for Business Officer.