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Tuesday, December 11, 2012
Smart, strategic purchasing yields savings
Initiative aims to drive down costs, boost efficiencies  

Jan 12, 2009  
By Katie Quaranta  

This is one in a series of stories on new university initiatives aimed at ensuring a quality academic experience for students by improving service, increasing efficiency or identifying new resources or savings. The initiatives were profiled at an Oct. 7 Vision OHIO Information Session.




Streamlining purchasing practices, collaborating with other universities and leveraging buying power are just a few of the strategic procurement initiatives that will help save Ohio University millions of dollars each year, according to university officials.

Strategic procurement, according to Chief Procurement Officer Frank Corris, is more than finding items at the best prices. It involves taking a more holistic, deliberate approach to the purchasing process, examining every step in the supply chain and ensuring that practices are as efficient as possible.

"You can see that it is a different way of looking at things,'' he said."It's much more analytical. Strategic procurement is using data to drive our decisions, not gut, not fear, not 'I think.'"

The initiative is one of six designed to support Vision OHIO, a five-year plan aimed at strengthening the core missions of the university. In addition to strategic procurement, the university is pursuing shared services, pay and classification planning, academic support unit program review, strategic enrollment management and sustainability planning.

Here are some examples of how early efforts have yielded big savings for the university.

Reverse auctions

The idea behind a reverse auction is a simple one: Interested vendors bid against each other to provide the university with needed goods or services. The vendor offering the best deal by the end of the auction wins the university's business, usually at a better price than would be possible using traditional methods.

"If you go to an auction…the price goes up. A reverse auction goes down," Corris said. "What it does is it shrinks the margin out of the market almost immediately."

The university held its first reverse auction in March for IT network equipment and cabling. The final price was 14 to 16 percent less, or $167,000, than expected based on previous purchases. A second reverse auction in November produced similar results: A projected bill of $225,000 for training related to the Student information System was trimmed by 19 percent, or $42,000.

More auctions are in the works, with savings predicted to mirror those percentages.

Strategic procurement of coal

Another recent win for strategic procurement and the university's facilities group falls under the category of cost avoidance. Ohio University requires a specific type of coal to fuel the campus heating plant, but the company that provides that coal was sold.  The new owners were not planning to continue manufacturing it.

In response, a cross-functional team researched the coal market and its pricing practices. Armed with this knowledge, the team convinced the new owners not only to continue providing the coal to Ohio University, but to do so at a cost that is 24 percent below market price.

The difference between what the university will pay and the market price for coal is nearly $750,000 per year, Corris said. 
During its negotiations, Ohio University tapped the expertise of Pioneer Coals Inc., a certified Minority Business Enterprise. Along with helping Ohio University secure better terms on its contract, the collaboration helped the university meet goals established by the state of Ohio for MBE commitments.

Concur

Working with shared services at the university, Corris' group is preparing to implement Concur, an online system that employees will use to make travel arrangements, submit travel expense reports and update purchasing card transactions.

Comparable to Expedia or Travelocity, Concur will streamline the booking and reporting processes for work-related travel. Receipts will be tracked online, decreasing the time to process and receive travel reimbursements to days from months.

Mark Hopton, director of shared services, said he was encouraged by the positive response a recent presentation received from a group of faculty, staff and students. 

"We went through the entire stakeholder demonstration to get people's feedback," he said. Nearly all of the responses were in favor of implementing the technology.

Corris said he anticipates that about 75 percent of all university travel transactions will go through the system, resulting in efficiency savings of nearly $300,000 annually. 

Concur's installation also will provide an opportunity to funnel more business back to Travel World, the university's travel agency. Located on the Southern campus, Travel World did close to $1 million in business last year, but only a small fraction of that came from Ohio University employees.

Automatically channeling all Concur-based business through Travel World would increase business significantly and help to funnel any commissions back through the university.

"By giving our business back to us, we will have enough money to fully fund the Concur implementation and its ongoing costs without the need of a single dollar of university funds," Corris said. "That's what I call a success story."

Avionics and the College of Business will pilot the program for 30 days starting at the end of February. Implementation for the entire university is expected in the spring. 

E-procurement

E-procurement systems function similarly to a Web site like Amazon.com in that they offer electronic catalogues, so that employees can order products at the best prices with the click of a mouse.

At Ohio University, the process will centralize vendor contracts, make it easier to order from preferred providers and keep track of bills and payments electronically. The system would reduce administrative time spent on purchasing and would free employees to focus on their jobs.

"A lot of people are doing purchasing functions here at the university, but that is not why they were hired," Corris said. "If we can take some of that burden off, then they can get to their primary job function."

While Corris said the system could be in place within the next 12 to 18 months, upfront installation costs might delay implementation if the current economic climate does not improve. However, a list of the university's preferred vendors already is available on the purchasing Web site.

Leveraging purchasing power

Although details need to be finalized, Corris expects the university will officially join the Rx Ohio Collaborative, a consortium formed to negotiate lower prices for prescription drugs, at the beginning of the next fiscal year.

Consortium members include the Ohio Public Employees Retirement System (OPERS), the State Teachers Retirement System (STRS), the School Employee Retirement System of Ohio (SERS) and Ohio State University.

As a self-insured institution, the university spent $7.8 million on prescription drugs last year. By leveraging the power of the consortium, the institution expects to shave at least $600,000 from that amount.

The members of the Inter-University Council are also working to develop new ways for universities to collaborate and leverage buying power across the state. As chair of the IUC purchasing group, both Assistant Director of Procurement Services Ralph Six and Corris have helped shape these endeavors. They are confident that we will net large savings while helping other state universities achieve state-mandated goals.

"We've pushed a lot of priority to the IUC because the governor and chancellor are saying work together, put your heads together, consolidate your volume," Corris said. "There are almost an unlimited number of projects for us to work on."

 

 

Related Links
Inter-University Council of Ohio (following this link will take you outside of Ohio University's Web site):  http://www.iuc-ohio.org/ 
  
  

Published: Jan 12, 2009 12:30 PM  

 
Strategic Procurement FAQ 

What is it?

Strategic procurement involves taking a more holistic, deliberate approach to the purchasing process by examining every step in the supply chain and making sure that university practices are as efficient as possible.

Why is it needed?

Efforts will increase flexibility, accountability, transparency and efficiency in purchasing. Strategic procurement also will help the university maximize financial resources during an unpredictable economy.

What are the advantages?

Planned strategic procurement initiatives will increase efficiency and savings across the university. These savings will play an important role in helping fund university priorities during difficult budgetary times. Chief Procurement Officer Frank Corris also said procurement partnerships with members of the Inter-University Council could net the university millions of dollars in savings and act as a step toward the ideal of collaboration that Gov. Ted Strickland and Chancellor of the Board of Regents Eric Fingerhut are working to achieve through the University System of Ohio.

What are the hurdles?

Current purchasing systems are paper-based and largely decentralized. Moving forward with these initiatives will necessitate a shift in the culture of Ohio University and formal training in advanced procurement methods and technologies.

What is the timeline?

Reverse auctions are already happening, with several more scheduled to occur throughout the next year. Avionics and the College of Business will pilot Concur for 30 days starting at the end of February. Implementation for the entire university is expected in the spring. Ohio University's membership in the Rx Ohio Collaborative is expected to take effect July 1, 2009. An e-procurement system could be in place as early as next fall. Other IUC strategic procurement initiatives are in the works and are on schedule to be rolled out in fiscal year 2010.

Where can I learn more?

Employees can direct questions and concerns about strategic procurement to Frank Corris at corris@ohio.edu. For more information on Concur, visit: www.ohio.edu/finance/pcard/concur.cfm

 

 


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