By Tom Robinson

The denial, anger and panic emanating from the nation’s financial meltdown has ebbed. Before, during and after campus business officers have cut pretty much every expense they can. Now it’s time for colleges to get back to core mission, albeit in a new economic reality.

Stanford economist Paul Romer suggested that a crisis is a terrible thing to waste. It forces us to do the things that we should have been doing all along. Now there’s no choice but to get smarter about acquiring and deploying the resources necessary to teach students, conduct research and maintain the institutional infrastructure.

More than half of a university expense budget is salaries and benefits. While there may be some fluff in the payroll, faculty size is directly related to the number of students being taught. The quarter of the budget spent for goods and materials is the largest budget piece that can be leveraged.

Decentralized spending for those goods and services is a campus plague. Departments hoard their budgets and control to their own detriment. P-cards, even when used at preferred retailers, provide a false sense of frugality. Indeed, the well-intentioned secretary who spends an hour online searching for a deal on ball-point pens is part of the problem, not the solution.

 

Manage spend, rather than cut cost
One of the most promising cures for budget ills is the procurement function.

Not the old kind. The new kind. That’s procurement guided by strategic rather than tactical thinking. That’s procurement supported from the highest echelons and facilitated by technological advances.
The old system may have been an inefficient manual juggernaut of multipart forms with a lengthy approval process, often devoid of effective negotiations with suppliers. The old accounting system crudely tracked dollars spent by department and by vendor.

The new procurement system is paperless. It’s almost instantaneous. It gets people what they need, when they need it—and at the best price. The new system uses data mining to pinpoint commodities, not just dollars. It aggregates purchases for maximum discounts. It manages inventories with just-in-time deliveries. It pays electronically. It frees up buyers to become category specialists rather than paper pushers.

You don’t need an MBA to understand buying power. Consolidating purchases within the organization usually reaps benefits. Combining the power of 1,500 member organizations in a buying cooperative leverages buying power greatly.

 

Purchasing on steroids
Putting a pricing contract in place is only part of the equation. Careful management of volumes and timing are essential to optimize savings. Only in the last few years has the technology been available to accomplish this effectively. SciQuest, one of the technology leaders in this area, facilitates a business model with features like:
• Automated purchase orders, paperless approval, inventory control, vendor payments
• Sourcing that provides vendor catalogs in an easy to use Amazon-like search and shopping cart. 
• Assurance that preferred vendors are used, minimum quantities are met, optimal delivery methods are used
• Careful management of discounts and rebates, which produce much of the savings.

Since 95 percent of the savings is in discounts and rebates, SciQuest’s Eric Zoetmulder says the other five percent is in labor reduction. The hidden value, however, is not in saving labor but using it more effectively. Procurement personnel can become category experts and manage contract terms and expirations.

The University of Pennsylvania set out to save $89 million over 10 years with strategic procurement. In 36 months the university has realized $50 million using purchasing agreements, other collaborations and the SciQuest system.

Can smaller schools benefit? Yes, in a number of ways. Technology vendors Datatel, Jenzabar, and SunGard, offer proven purchasing modules. SciQuest also offers a simpler, cheaper off-the-shelf “Express” product.

Smaller schools can partner with others to form a buying collaborative or piggy-back on a big institution’s contract. Betty Roberts is the vice president for finance and administration at the mid-sized University of Central Missouri. “Just because we are smaller doesn’t matter,” she says. “I demand from vendors like Dell the same price they give to any other school.” Why accept a 30 percent discount, when you can get 40 percent?

Contrary behavior, the weak link
A perfect system is no good if people don’t use it. Creating exceptions, ordering small quantities or ordering when there is already product in the storeroom are practices that can stymie savings. Smart procurement managers please even the most cantankerous research directors by giving them access to vendor catalogs, simplifying ordering and getting products delivered quickly.

Nonetheless, Ralph Maier, Penn’s chief procurement officer, feels that support from the top is essential. He is supported because the procurement function is now aligned directly with institutional objectives and president Amy Gutmann buys in. Says Ms. Roberts, “You can’t force it. People will resist. When they sense something is in it for me, then they buy in."

Mike Sibert, the procurement director at Central Missouri, has found a compelling motivation for faculty and staff worried about their jobs: “I say to them ‘what if we can save two percent of the budget without laying anyone off?’”

 

Shared services and collaborations
Sharing services among departments within an institution is a good way to avoid redundant tech and administrative positions. Procurement staff may not need to be on staff at every campus in a state system, or in a consortium.  The South Dakota Board of Regents has centralized four experienced buyers and six support staffers to serve the entire system.

CampusEAI is a consortium of 14 institutions, among whom are Case Western Reserve University, University of Montana, Rochester Institute of Technology, University of Nevada, Las Vegas, and Oklahoma State University. CampusEAI is tasked with helping members reduce the time, cost and effort associated with enterprise IT implementations.

There are hundreds of other consortia organized by academic specialties, geography or other characteristics that can be leveraged to produce savings in areas other than procurement. The consulting division of the American Association of Collegiate Registrars and Admissions Officers (AACRAO) offers a white paper on Shared Enrollment Services that suggests even competing schools might extend resources in a symbiotic cooperation.

Kenneth Levison, Vice President for Administration at SUNY Geneseo, shared how SUNY avoided $263 million in software license fees and another $58 million in software maintenance fees over 19 years.

In the mid-1980s, 13 SUNY campuses bought SunGard SCT Banner at a significant discount and set up a common center to manage the function. By 1991, there was a part time director and staff of four, with a $ 200,000 budget. Today, the center manages 41 SUNY campuses, 17 private colleges with 27 full-time employees and an operating budget of $2.4 million. They achieved a 60 percent discount on license fees and a maintenance cost of $2.17 million versus a $7.65 million list price.

SUNY is also beginning to share resources among 40 libraries, including the New York Public Library, New York State Library and Syracuse University, and major savings are expected.

Purposeful collaboration with business goals is now essential across every campus. And it will outlive the current economic crisis. It’s a 21st century reality. 

  NAME

ENTER THE CODE