strategic value of procurement – part i they told us where to go!

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


• 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


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


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


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


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


Outside Consultants Cast Focus on Procurement

Savings Identified by Bain & Company at UNC-Chapel Hill (in Millions)


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


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


Repositioning Procurement

• Develop Strategic (not tactical) Partners on Campus:– HR/Benefits– Research– Academics– Students

• Buy Solutions

• Aware and alert to institutional risks


• 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


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


Integrate Sourcing and E-procurement

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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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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


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


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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• Consortiums/Cooperatives/GPOs– National– Regional– State– Other “interest group” oriented collaborations

• Collaborate with Suppliers

Leverage New Collaboration Models


• 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


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


• 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


Stay tuned for:Strategic Value of Procurement – Part II

Practical Approaches for Increasing Strategic Value

How Do We Get There?


Thank You

Questions?

strategic value of procurement – part i they told us where to go!

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