Higher education institutions spend about 25 percent of their budgets—or collectively a total of $150 billion annually—on goods and services, according to an estimate by the National Association of Educational Procurement, Columbia, Md. “Procurement is usually the second-largest addressable bucket of money that business officers can leverage,” explains NAEP President Nichol Luoma. “The first is the labor force.”
Responsible for a huge spend, every procurement officer has an obligation to actively advance his or her institution’s overall mission, values, and goals, says Luoma, who is also the associate vice president of university business services, chief sustainability operations officer, and chief procurement officer, Arizona State University, Tempe. “We need to develop a strategic [procurement] plan that covers people, processes, and technology, and ways to optimize these three levers to support the institution’s mission and goals,” she says.
For this reason, Luoma believes that procurement officers should report directly to the CFO or—at the very least—have regular and direct contact with the CFO. “We’re all looking for ways to improve the student experience and increase accessibility, while most likely dealing with declining resources, such as public funding,” she says. “We have to look at our procurement office as a strategic partner that can help advance our mission and goals.”
Size Shouldn’t Matter
Mary A. Dukakis, associate vice president, administration and strategic sourcing, Southern New Hampshire University, Manchester, agrees that the role of procurement has progressed from tactical to strategic.
“SNHU is extremely mission- and goal-driven,” she says. “Our university is really all about student success. We measure our success by the success of our learners. We support that by understanding the mission, making sure that we’re nimble enough to respond to a new partnership or product, and looking at how the university can reduce its costs.”
The institution’s size is irrelevant to the critical role of procurement, Dukakis says. “Sometimes small schools don’t place much importance on procurement—but they should,” she says. “Whether your institution is small or large, it shouldn’t matter. The reality is that at smaller schools you end up with smaller teams who wear more hats, sometimes handling procurement as well as auxiliary services or business services.”
At SNHU, the nine-person procurement team is divided into three areas:
1. Strategic sourcing handles RFPs and data analytics. “The sourcing process determines the best way to buy our goods and services,” she says. “What are we getting? How much are we going to pay?”
For example, when the institution decided to negotiate new exclusive soda pouring rights, replacing an agreement that had been in place for years, strategic sourcing researched what was important to the campus community. “We also reached out to area public institutions for copies of agreements, so that we could develop a detailed analysis and come up with a benchmark and a negotiation strategy,” Dukakis says. “The result was that we ended up with a 482 percent improvement. Some of the money will be placed back into an initiative that directly impacts a new program for students on campus.”
2. Contracts ensures that SNHU has good agreements with appropriate business terms and risk management policies in place. “We add value in terms of the business services, which can be anything from how often we pay, our escalators, and whether we pay for goods and services before they arrive.”
To mitigate risk, team members ensure that contracts allow flexibility for future growth, as well as possible declines. “We don’t want to sign agreements that are so restrictive that they tie our hands.”
3. Procurement operations manages universitywide contracts, the purchase order process, and the procurement system.
“We changed the procurement process five years ago when I joined SNHU,” Dukakis explains. “The CFO recognized that the university was experiencing rapid growth and making significant purchases without guidance from business-to-business experts. Our CFO believes that a strong procurement team can add a lot of value to the process.”
When people sometimes say, “But I can get that light bulb cheaper,” Dukakis explains that the purchase price is only one factor her team considers. “We look at the total cost of acquisition. We make sure that we get the right light bulb; that we get it just in time so that we don’t have to stack and store it; that we get it here quickly and efficiently so that our electricians are not spending time on the order process, but can be out in the field doing their work; that we can quickly and effectively pay for it; and that the contract terms and conditions allow flexibility in case volume grows, and we want additional discounts.”
At SNHU, which has a $750 million budget, purchases that cost more than $50,000 require involvement by procurement staff. The department is currently gathering data on purchases in order to find that “sweet spot” where team members can say, “If you handle these things on your own with our guidance, you will probably be fine. It’s the big-ticket items or the high-risk contracts where we want to make sure procurement is at the table. We’re trying to define when it makes sense for us to get involved.”
The biggest challenge is usually getting departments to seek assistance, says Dukakis. “I have worked on four campuses. At one campus, we had a department that did not want to work with procurement. We finally got brought into one project, and the director said, ‘I didn’t understand that this would be a collaborative process, and I would still have a say in the decision making. I thought you were going to come in and tell us what to do.’”
Dukakis believes that this is a common misperception. “We listen to your needs and find out what you’re trying to accomplish,” she says. “Only then we can figure out together how to best help you get to your end result.”
Benefits of Benchmarking
Florida State University (FSU), Tallahassee, recently added benchmarking as a mandatory step in procurement, says Rosey Murton, chief procurement officer. “We need to be able to tell our constituents—faculty, students, and taxpayers—that we are getting a good deal. How do you do that if you don’t benchmark?”
She believes that one beneficial characteristic of higher education institutions versus private industry is the willingness of campus leaders to share information with each other. “It all goes back to data, which is key to the future of how we negotiate and what we negotiate,” Murton says. “Most vendors will negotiate with you if they truly value a partnership, but you have to say to the vendor, ‘We think you can do better.’ If the vendor says that it can’t do better than that, then you can respond with data that shows that the vendor can actually do better.”
FSU follows state law and university regulations for procurement. In Florida, departments are free to buy what they want if the purchase costs less than $10,000. A purchase of more than $10,000 requires three quotes, while a purchase of more than $75,000 needs a formal procurement process that includes an RFP. “On the purchase order approval side, we review the quotes, but departments can get their own quotes for products and services that cost from $10,000 to $75,000, or we can help get the quotes,” Murton says.
For purchases that cost less than $10,000, the procurement department reviews the purchase order to make sure that the university has everything it needs. “Where we provide the real value is with negotiations above $75,000,” she says. “Instead of an RFP process, we have an invitation-to-negotiate process in Florida. It’s similar to an RFP, but we can negotiate with the successful finalist. That’s where we capture value.”
The procurement department recently saved 18 percent—or $133,968—on a confocal microscope purchase that was originally quoted at $712,450. “We sent the specs over to our contracted vendors, and they came back with $642,344,” Murton says. “We then reached out directly to a vendor to negotiate, and the company was willing to extend the savings. Combined, we were able to get the final amount down to $578,482.”
One key to the FSU procurement department’s successes is the support provided by the CFO. “If you don’t have that support, it’s harder to be successful,” Murton says, “because people think they can go off and do whatever they want and you’re left cleaning up. I have a CFO who likes to negotiate. His involvement signals to the vendors that we are serious and that we want a top-level partnership.”
Like many campuses, FSU has added category managers for IT and facilities who have become trusted consultants. The managers reach out to various departments to offer their services and inquire about the departments’ strategic plans and the products and services they need in the next year. Murton predicts that institutions will hire category managers for another specialized portfolio—construction—in the future.
“Across the board—whether public or private—collaboration is key,” Murton says. “In order to be successful, you have to have a plan, a vision, a strong leader, and the support of senior management.”
“You can’t just implement technology and forget to build relationships with both suppliers and customers,” says Sandy Hicks, associate vice president and chief procurement officer, University of Colorado, Denver. “Building and maintaining relationships is critical to keeping procurement running like a well-oiled machine because people like doing business with people they know.”
That’s one reason why the procurement department has sponsored a supplier showcase each September for the past 13 years. “We bring in about 50 suppliers so that staff from various departments, including procurement, can meet them,” Hicks explains. “Last year, we also offered TSA Precheck to those who came to the showcase, and we had more than 500 people sign up.”
In addition to servicing four campuses, the 50-person procurement department also produces an annual year-in-review video that explains procurement’s contribution to the institution. “The video delivers a consistent message of what we have accomplished in the past year by working with other departments,” Hicks says. “If you work in a department and have a $25,000 order, you’re not really thinking, ‘I’m part of a billion-dollar machine.’ The video describes the whole magnitude of what’s happening.”
For example, the current video points out that the procurement department, using prenegotiated contracts, saved the institution $5 million in the last fiscal year. “We also save money by trying to affect people’s behavior,” Hicks says. “Last year, we saved about $500,000 by encouraging people to book their airline tickets 20-plus days out.”
In 2011, the institution, which has 67,000 students and a $4.5 billion budget, implemented an e-procurement system called CU Marketplace that includes as many as 45 catalogs. If a purchase is less than $10,000, departments can browse the catalogs and place an order, automatically getting the university pricing. If the invoice matches the purchase order, the acquisition is paid through the system.
“A procurement professional gets involved when a purchase is more than $10,000,” Hicks says. “If it’s a good, we will prepare for a solicitation if we don’t already have a preapproved contract. If it’s a service, we conduct a solicitation above $50,000. We manage more than a billion dollars a year in spend.”
Hicks explains that the department relies on SaaS (software as a service) systems for managing procurement. Every year, it conducts customer satisfaction surveys on the CU Marketplace and the travel and expense system. “We’re in a continuous improvement cycle, and we want to know if staff are satisfied with the changes we have made,” Hicks says. “I’m a firm believer—especially with SaaS systems that are continually being improved—if you’re not looking at your processes to determine how you can implement improvements, you’re not optimizing your software investment.”
MARGO VANOVER PORTER, Locust Grove, Va., covers higher education business issues for Business Officer.