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Pathways to Procurement

E-procurement gives universities far more control over their purchasing power.
University Business, Oct 2008

If your institution is not among those that have realized the considerable benefits an e-procurement solution offers, we have one question: Why not?

E-procurement saves time, money, labor, and paper, while increasing the service delivered to constituents.

In addition to the leaders in the field, like SciQuest and E&I Cooperative Purchasing, smaller companies like Perfect Commerce and the open-source Coupa are also vying for a piece of the procurement pie. All these products offer similar basic feature sets, such as web-based ordering from a group of preferred vendors, order tracking, and the ability to integrate with existing enterprise systems. They typically offer the ability to “punch out” from the basic preferred vendor list to transparently connect to an outside vendor’s catalog, such as Dell or Staples. Some have additional options that may appeal to your institution, such as real time financial updates, and the ability to customize and brand the e-procurement solution with school-specific features.

When we asked procurement specialists at a number of institutions why they chose the path to procurement, some common themes emerged.

The most obvious advantage to e-procurement has to be in the savings realized in the length of time from placing an order to receiving the goods.

Procurement officers tell of the not too distant past when procurement was a time- and labor-intensive process and things were done with paper.

Tim Schmidt, manager of the University of California-Santa Barbara Marine Science Institute, recalls the time it used to take to process an order for the research institute.

“Our procurement process was based on paper or e-mail. If someone wanted to order something, they’d fill out a paper requisition, or they would e-mail us the particulars,” he says. “When we received it, we would verify that there were funds on the research project that they wanted to spend for that item, and that the person who made the request was authorized to do so. Then we would turn that into a purchase order, and put it into our financial systems. That’s just the ordering. Receiving was a whole other process.”

The e-procurement solution chosen by Marine Science Institute enables users to abandon paper requisitions and place orders for supplies electronically. Users can order supplies directly from a vendor's web page, monitor the progress of their orders via the web, and receive notification when orders are received.

That’s not to say the procurement department wasn’t doing its job before that, only that there was a better, more efficient way to handle orders.

“We would turn orders around quickly, but it still took days,” Schmidt says. “One of the problems with the paper-based system was when we had to occasionally make a follow up call, you couldn’t find the paperwork because you didn’t know whose desk it was on. We had a number of people working in purchasing. You wouldn’t know whether the order had been filed, or whether it was sitting in a pile on someone’s desk. That has resulted in my staff saving a great deal of time. Now they can locate a request or purchase order a lot quicker than trying to figure out where that piece of paper might be.”

Tom Kaloupek, director of materials management at Virginia Tech, says the old procurement process involved “passing around great volumes of paper within the university.”

“We were very paper-based,” Kaloupek says. “We had pieces of paper flowing around the campus to buy things both big and small. But, the process was slow, especially when you were ordering an item of equipment that had to go through approvals and had to be looked at in a couple different offices.”

Kaloupek says that although the paper-based ordering was very forgiving “because you could erase mistakes,” it was cumbersome and time consuming.

“A key interest of ours was to mechanize the process and adopt an electronic system that could capture the data at the front end and provide other benefits, such as a strengthened approval process, and more rapid delivery to the supplier.”

Although Virginia Tech uses an administrative finance system, none of this paper-based procurement activity found its way into the finance system until the very end.

“Someone could go out and buy something that they needed, but it wasn’t until the bill was actually received and keyed into the system that those local budgets got updated, Kaloupek says. “It really could throw budget projections off. People wound up keeping a separate set of books just to track these costs.”

The school’s e-procurement solution leveraged the SunGard Higher Education Banner system so the two products could communicate with one another in real time. When a user initiates a transaction, the order is sent to the enterprise system which checks funding, sees whether additional approvals are required, and, ultimately, verifies that the vendor receives the order and that the transaction has been completed.

At the University of Michigan, Director of Procurement Services Judy Smith, says e-procurement, coupled with electronic fund transfers, produce an extremely accurate picture of university funds.

“Our e-procurement solution is integrated to our Peoplesoft enterprise system,” Smith says. “We shop online, and then the order is brought back into Peoplesoft so we have a record of the order, and we can pay the invoice automatically.”

This, of course, is the Holy Grail of university operations. Yes, e-procurement will help save money, but it may not be so obvious to the casual observer. A recent study at Aberdeen University estimates that a manual transaction costs $23 more than an electronic one—a significant source of savings for universities that process hundreds of thousands of transactions each year.

But the real value, say procurement administrators, comes from “soft savings.”

“E-procurement has enabled us to do more with fewer people,” says Smith. “I don’t think the tool itself provides the savings so much as the simplicity of providing the end user the ability to order through the vendor. If ordering was difficult, we would have to do it centrally.”

Kaloupek agrees: “We think there are many soft savings on the administrative side, because the process is timelier, and people don’t have to duplicate their work. For example, if you order regularly from a supplier, the system keeps the information from your previous orders, and you can go in and call up your last order and edit it. You don’t have to redo your work.”

Smith says that, in addition to cost savings, administrative expectations have changed as the value of the e-procurement system has been realized.

“When we started on this path, our chief financial officer was all about ‘what’s your cost savings?’” she says. “I don’t think I’ve had that question in four years. Now it’s more about what are we doing to add value to campus.”

Jane Wong, interim chief operating officer at the University of California San Francisco, says the major benefit of electronic system is the visibility. “Now we see where the purchase orders are, whereas before we never knew. Before this system we could never accurately measure that, but now we can see the discount benefit, which has amounted to savings in the low six figures for the university.”

Although e-procurement has automated many processes that had been performed manually, it doesn’t necessarily reduce procurement staffing needs. Contract management is a key to the success of an e-procurement solution, and at UCSF, procurement staff have had to learn new skills.

“When you are doing paper there is one set of skills, but now it is much different. They need more analytical skills now,” says Wong. “Why doesn’t that invoice match the purchase order? We need to find out whether the buyer made the change, or whether the vendor made a substitute. We have a price point that they cannot go over, because some of these contracts are negotiated contracts, and they are not supposed to substitute or give us a higher price. It turned out that some of the vendors were increasing the price over the negotiated the price. In the past these kinds of things would go unnoticed, but now we can quickly catch it in the system.”

After adopting e-procurement, the University of Michigan went from 18 vendors to 165 vendors--without increasing purchasing staff nor IT support staff, notes Smith. “Where we have increased is in our contract management staff.”

She says that after implementing e-procurement, there were so many transactions going on that it became necessary to make sure the vendors were behaving.

“That’s where we use contract managers. They essentially babysit the relationship with the supplier and make sure that they fulfill their end of the deal,” she says.

Contract compliance results in better prices in the long run, and provides more visibility into whether a vendor is living up to its end of the agreement. “In the past we might have spent three million dollars with a particular vendor, but we didn’t have a line item detail to know exactly what that meant,” notes Smith.

One of the most convenient aspects of e-procurement—being web-based—is that ordering, approvals, tracking, and contract maintenance can be done from nearly anywhere.

“One of our researchers was on a research vessel cruise somewhere out at sea,” recalls Schmidt at the Marine Science Institute. “While they were out there on the ship they needed some supplies, and they made the order, which got sent to a supply ship, and so they got it while they were at sea.”

Kaloupek at Virginia Tech likes that the system is available 24/7. “You can have a professor at a conference in another state, and he can log in at any time and order or do his approvals. He doesn’t have to be here. People use the system at midnight and at all hours over the weekend. It’s crazy to look in there and see people log in at four in the morning and start ordering things.”

But, e-procurement is not only about laboratory beakers and office supplies. Because they can tie into the enterprise system, some e-procurement solutions can be used to arrange print orders, schedule rooms, or reserve a car from the motor pool.

“Our police department is in there,” says Kaloupek. “If you are in student programs and are planning an event, you can send a requisition to the police department to say ‘I need police service at this event next week, and here’s the money.’ That’s an example that people really wouldn’t think about, but Student Services has to pay to have police come and do an after hours event, and they can do this now through this internal system. It will eventually become our business system for ordering supplies and maintenance and so on. Maybe we’ll even offer travel services someday.”