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"On a lot of campuses, purchasing is the whipping boy," says Victoria Windley, director of Procurement Services at University of Delaware. "But not here."

And with good reason. The school has rethought just about every aspect of its procurement system, beginning with the elimination of paper requisitions way back in 1992, to the development of a Web-based shopping engine for everyday purchases, to a new initiative that seeks to eventually eliminate paper checks to all regular vendors. The evolution of purchasing at Delaware also resulted in the consolidation of the Purchasing and Accounts Payable departments. The goal? Get Purchasing and Accounts Payable out of the transaction business.

"If Purchasing and Payable folks are so dragged down by transactions, and not doing strategic work, somebody should be looking at it," says Windley, who is also on the faculty of the National Association of Education Buyers (NAEB) (www.naeb.org) procurement academy.

The elevation of the Purchasing department to a strategic function represents a major advance in the status of a department long looked on as a bureaucratic necessity that faculty and staff tried to maneuver around.

"Procurement as a function, regardless of the industry, is incredibly strategic to the bottom line," says Doreen Murner, CEO of the NAEB. "And higher ed is realizing that there is a significant impact that procurement can have on campus."

So now is "career opportunity time" for execs in purchasing, and those above them, says Tom Fitzgerald, CEO of E&I (www.eandi.org), the largest educational buying consortium in the U.S.

"There's probably $20 to $40 billion in costs that can be cut from higher ed just through supporting preferred vendor contracts, reduction of maverick spending, higher and more uniform quality and processes, electronic commerce and e-business, and through collaboration with other colleges," Fitzgerald says.

Or, think of it in multiples of 20, says Lawrence Summers, president of Harvard (MA). Because most institutions can only spend about 5 percent of their endowment each year, they'd have to raise $20 million in new capital to equal the amount they'd realize from cutting $1 million in costs.

If you think this is starting to sound like the oft-repeated admonishment that higher education needs to run its operations more like Fortune 500 companies, you may be right. But it's getting a lot easier, with established best practices, case studies, the evolution of e-procurement solutions, and great advances in consortium buying practices.

If you follow Summers' multiples of 20 thought process, the University of Pennsylvania would have to have raised an additional $1.4 billion in new capital to equal the $72.2 million in bottom line savings that the Purchasing department has squeezed out of its operations in the past eight years.

Penn began by installing Oracle Financials, which would evolve into the Business Enterprise Network (BEN), a suite of integrated, Web-based financial and procurement applications. In 2002, it launched Penn Marketplace, an online shopping site that ensures users purchase within Penn contracts. With an updated SciQuest version of Penn Marketplace launched in 2004, Associate Director of Purchasing Services Ralph Maier has seen a 78 percent reduction in maverick buying since 2000. Moreover, 90 percent of purchasing orders are entered in the field and routed electronically to vendors.

"In four years we've doubled the spend through our purchasing application; we now do $650 million through the purchasing application and $20 million through the purchasing card," Maier says.

Penn currently has more than 80 of its vendor catalogues online, accounting for nearly 70 percent of purchasing transactions. And of those 80, 11 are EDI enabled, which has reduced the paper involved in processing by 45 percent.

"We have been able to shift the focus of the purchasing organization from tactical to strategic activities," Maier says. "Now we can focus our resources on value-added activities like negotiating contracts and managing customer relationships."

It's true that Maier's department has been cut from 26 employees in 1996 to just nine now, but that's not where the biggest savings comes from when schools move to strategic purchasing and e-procurement, says Andrew Bartels, analyst with Forrester Research (www.forrester.com).

There's a rule of thumb that the cost of processing a paper-based requisition ranges from $100 to $125, versus $10 in processing costs for electronic requests. But those numbers come with a large caveat, Bartels says, because "70 to 80 percent of what you get for those dollars are fractions of peoples' time."

"A lot of those costs are non-extractable; you can't redeploy 10 percent of a person. Instead what you may do is free up 10 percent of that time for more important things," he says.

"There's probably
$20 to $40 billion
in costs that
can be cut from
higher ed
just through
supporting
preferred vendor
contracts."
-Tom Fitzgerald,
E & I

So, yes, cutting the steps in an approval process from 27 to six saves lots of people a little bit of time. But the big money comes when you devise a system that forces the university community to stay within contract.

"We have found the largest savings really comes from compliance with sourcing agreements," Bartels says.

Capturing the benefits of contract compliance is a continuous cycle. Implementing e-procurement solutions, particularly Web-based shopping engines that are easy to use, increases compliance. Increased in-contract buying, when coupled with the spend analysis capabilities that come with most e-procurement solutions, gives universities ever greater leverage in negotiating more advantageous contracts.

Anyone who's been through the process knows that implementing e-procurement is a waste of time and money unless you've first de-constructed the purchase transaction. Before Penn began its transformation, it took a hard look at workflow.

"We didn't want to automate a flawed process," Maier says. "We took a step back and redesigned the purchasing process as best we could into a four-step process: Customer has a need, customer places an order, supplier ships and bills, supplier gets paid."

This is a far cry from business as usual in purchasing. "One university we worked with had 25 separate steps to approve a purchase order," says Stephen J. Wiehe, CEO of e-procurement vendor SciQuest (www.sciquest.com). "They looked at it and said, 'This is woefully illogical.'"

Vendors agree that planning to buy an online purchasing application often forces an institution to make process decisions.

"It does force a lot of decisions that people have ignored or avoided making," says Kurt Sollod, CEO of Boston-based OrgSupply (www.orgsupply.com). "Like what's the approval rule? What's the dollar limit? Should we really be paying all invoices under $2,000 without auditing?"

Research outside of academia supports the need for re-engineering. Forrester Research surveyed 60 North American purchasing managers who had recently implemented electronic purchasing tools, asking them how much they changed processes, and what kinds of cost reductions were realized. Of those that reported little or no process change, only 11 percent saw "significant improvement" in the cost of goods purchased. Of those who implemented significant or dramatic process changes, 59 percent realized a significant reduction in the costs of materials.

"The impetus for change has to come from within the enterprise," Bartels says. "A vendor who has done a good job selling a product says, 'This is a tool. We're not promising terrific results unless you take the opportunity to change your processes.'"

Tackling e-procurement is one step in the re-visioning of the procurement department, and it's one that often requires incredible investments of money and know-how up front. But schools that don't have a budget like the Massachusetts Institute of Technology, which developed a homegrown solution, or Pennsylvania, can piggyback on the efforts of a number of higher ed purchasing consortiums that have made the pursuit of strategic procurement part of their mission.

"We didn't want
to automate
a flawed process."
-Ralph Maier,
University of Pennsylvania

E&I, which has 1,500 members and has been in business for 70 years, has paired with SciQuest to electronically enable the catalogs of some of its most popular vendors. These "portable" catalogs and contracts can be plugged into many e-procurement solutions, saving schools and vendors the expense of producing and updating catalogs. Even the Penn Marketplace takes advantage of this feature, incorporating a variety of E&I catalogs and contracts into its system.

The Boston Consortium for Higher Education (www.boston-consortium.org)is also getting in on the e-procurement scene with OrgSupply. The consortium gave a development grant to OrgSupply to develop its "Buyer" module, which began as an in-house project at MIT but is now in use at Harvard and several other Boston-area institutions. A low-cost approach to e-procurement, OrgSupply's solution helps institutions manage the online buying that's already happening by centralizing all online catalogs in a simple Web shopping experience.

WAICU, the Wisconsin Association of Independent Colleges and Universities (www.waicuweb.org), has also added e-procurement to collaboration project that could eventually lead to the consolidation of all back-end processes at its 20 member schools. The online shopping site will allow each school to set up its own authorization codes and requirements for each vendor, but give all the schools access to the WAICU negotiated contracts. For many WAICU members this will be their first foray into e-procurement, and first chance to do electronic spend analysis.

"The CFOs of the colleges, for the first time, will actually know what they are buying and what they paid," says Rolf Wegenke, CEO of WAICU. Capturing this data will also help WAICU when it's time to renegotiate its contracts.

Fitzgerald of E&I likens higher ed's adoption of strategic procurement principles and e-procurement to "the penguin principle."

"This is the phenomena in which all the penguins come to the edge of the iceberg and wait for someone to jump in," he says.

And now that schools like Penn, Notre Dame (IN), Arizona State University, University of New Mexico, and others have taken the plunge, and bobbed to the surface to say how great the water is, the rest of higher ed should soon follow.

"If the penguin principle is correct, we're going to see some pretty rapid adoption, if they can find the funding and the way to rationalize these investments," Fitzgerald says.

But what's next in the strategic evolution of the Purchasing department? Many schools, like Penn, are investing heavily in e-sourcing, which is the process of inviting potential suppliers to bid online on contracts.

"You can almost look at it as an eBay," says Ron Police, senior vice president, Higher Education and Healthcare at Oracle (www.oracle.com), which has a suite of E-Business products, including an iProcurement module. "Someone in Purchasing can go out and do an open bid online, whereas before that process was very manual, very time consuming."

"Institutions
are starting
to grade
their suppliers'
performance,
identify the best
in class, and
continue to work
with them."
-Stephen J. Wiehe
SciQuest

And after the materials procurement process is under control, some predict the addition of services like advertising, legal, and consultants to the e-procurement and supply chain management process.

"It's very common for services to represent 30, 40, or even 50 percent of total spending," Bartels says. "Just by focusing on goods, you're missing the iceberg under the water."

And if purchasing goes the way some are predicting, students won't be the only ones getting graded at the university. Electronic transactions allow for much easier assessment of supplier performance. Superior suppliers will retain their preferred status, with the rest weeded out as institutions seek to winnow their vendor databases to consolidate purchasing. (As is the case at Penn, where a 25,000-vendor database has been focused into the 80 to 90 that have been electronically enabled.)

"Institutions are starting to grade their suppliers' performance, identify the best in class, and continue to work with them," says Wiehe of SciQuest.

Universities grading performance--that seems to make sense. But first they need to embrace and master the strategic role of purchasing.

"As cost cutting becomes more imperative, the first thing consultants look at is supplier relationships," says Sollod of OrgSupply. "There's a lot more visibility for Purchasing; before they were just paper pushers."

Rebecca Sausner is a freelance writer based in Brooklyn, New York.

Many institutions today realize that they have to utilize technology to go beyond service and more towards personalizing and extending their relationship with students. The ambition now is to create an environment that strengthens the connection to students and other clients that is open and alive. And, it requires the judicious use of two-way communications, coupled with the database and information processing power to keep track of the relationships.

Rising energy prices are spurring university and college administrators to take steps to cut costs, ensure adequate power, and implement energy-saving initiatives in an increasingly technological-dependent campus environment.

If online education is such a lucrative opportunity, why do so many distance learning projects fail? That's the key question many universities are struggling to answer as they prepare their budgets for the 2004-2005 academic year.

In fact, in recent weeks, university presidents and trustees have been sequestered behind boardroom doors, trying to estimate next year's tuition income from traditional classroom settings and online endeavors. Some trustees surely demanded more information about long-term Internet revenue opportunities--and failed distance learning projects from years past. And it's no wonder. For example, one online education company that spent more than $100 million developing a best-in-class distance learning platform. Yet the company's online courses attract fewer than 1,000 students. That's a development cost of $100,000 per student--a horrid return on investment that would get most university presidents fired.

Without hands-on competitive research, how can you effectively position online programs in the marketplace?

Still, for-profit education companies and some universities continue to spend lavishly on their distance education programs. In some cases, pure envy drives the digital pursuit. Instead of focusing on students' needs, many traditional universities dream of competing with the distance education arm of University of Phoenix (www.uopxonline.com), which had 99,000 online students as of February. During the first six months of its current fiscal year, the university's revenue grew a stunning 59.3 percent to $361.8 million. It's not surprising that University of Phoenix's parent company, Apollo Group Inc. (www.apollogrp.com), is a Wall Street darling. Shares in Apollo have more than doubled over the past 12 months.

In years past, business professors told their students to analyze dominant organizations like Microsoft Corp., up-and-comers such as JetBlue Airways Corp., and Fortune 500 veterans like General Electric Co. Today, those same business professors, their students, and university officials are captivated by the University of Phoenix's spectacular growth. They read about the online university's success in the pages of BusinessWeek, The Wall Street Journal, and The New York Times. Trustees of brick-and-mortar IHEs call their university presidents and demand to know, "How come we're not in that market?"

In fact, most universities do offer distance learning programs. But many of them don't live up to their hype. In some cases, immature technology is to blame for the online woes. Yet far more often, distance learning initiatives fail because of internal cultural issues across multiple departments--academic, financial, marketing, and so forth.

Combat resistance. I'm willing to bet that some of your own institution's professors experienced culture shock when your university asked them to teach online courses. That's cause for alarm: You can have the best online tools in the world, but they're useless without buy-in from your faculty and staff. What can you do about such resistance? Instead of making blanket demands of your faculty, ease them into the online learning world. First, identify a few progressive professors who are willing to be early adopters (read: guinea pigs) when you're rolling out new distance learning tools. Then, have your IT team--whether internal or outsourced--work closely with your early adopters to design intuitive tools for online education. And don't forget to ask the students what they want. Too often, we forget that students are customers. Sometimes, we're so busy preaching about the value of education that we forget to ask our customers how we can serve them better. Be sure to include alumni in these exploratory conversations--especially those who earned undergraduate degrees from your university and are now seeking online MBAs and other graduate degrees.

Shop the competition. Your faculty and administration should also do some comparison shopping. You know the University of Phoenix is successful, but do you know why? Has anyone at your own institution taken a University of Phoenix online course? Without this hands-on competitive research, your university isn't qualified to effectively position its online programs in the broader marketplace. You can bet that Toyota's engineers test drive--and disassemble--Honda automobiles regularly. To stay competitive in the digital world, IHEs would be wise to take a similar approach. Once you've got a good feel for the competition, let your early adopters and target customers (that is, prospective students) test graphical user interfaces, Web sites, and other core components of your distance learning system as it is developed.

Go for the standards. All of these systems should be designed on established technology standards, such as Ethernet, TCP/IP, Linux, Unix, Windows, and SQL (structured query language). And stick with mainstream software tools such as Blackboard (www.blackboard.com) and well-known video streaming software from RealNetworks (www.real.com) or the like. I've seen far too many distance education strategies fail because the system was designed on proprietary hardware or software that mainstream IT managers and programs didn't know how to support.

Hold workshops. When your early testers give the distance learning system a green light, it's time to hold informal workshops for your faculty. Here, the early adopters can show your technophobes the inherent power and value of distance learning systems. Do this once per semester, for two or three days at a time. Videotape a few of the workshops and promote sample online courses to non-attendees through your intranet.

Think 'complementary.' Finally, instead of predicting the demise of traditional brick-and-mortar classrooms, position distance learning as a complementary tool--much in the way that a microwave oven complements (but certainly doesn't replace) a traditional oven. Also, be sure your early adopters can describe why it's critical for an entire faculty to line up and support the distance learning system. Those who rally behind the system will energize students and generate grass-roots interest in online learning among their families, neighbors, and friends.

Exploit the Web. Even the best-designed distance learning systems can't thrive without proper marketing. Far too often, I spot distance learning ads in traditional print magazines. Don't forget that the online education process occurs in a digital medium, and you can't always be sure that print readers are Web savvy. When promoting online education programs, it's smart to spend your marketing dollars on the medium you're operating in--the Internet.

Use Web tools. In addition to promoting online programs via your Web site, embrace marketing tools such as Google's AdWords (adwords.google.com) and AdSense (google.com/adsense). For a small fee, AdWords ensures that your university is prominently displayed in the advertising portion of Google's search engine. When Web surfers search keywords associated with your university (such as "online MBA" or "online graduate courses"), up pops your institution's name. Similarly, AdSense delivers your online ads to education- and college-related Web sites. Google doesn't disclose pricing for AdSense and AdWords, but it's safe to say that the advertising tools won't break your budget. I know dozens of small firms that embraced AdSense and AdWords with great results.

Launch an e-letter. Another good idea: Have your Office of Alumni Relations launch a monthly e-newsletter for graduates and friends of the university. Using a low-cost design tool like Microsoft FrontPage or Macromedia Dreamweaver, a Web designer can whip together a simple one-page e-newsletter in less than a day. Use your established e-mail system to send the e-newsletter to alumni with known e-mail addresses--but be sure to give recipients the choice to "opt out" and cancel their e-newsletter subscription.

Promote to your e-letter audience. And don't neglect to heavily promote your online graduate programs within the e-newsletter. This approach allows you to truly zero in on your core audience: Web-savvy computer users who are familiar with your university and might be interested in online courses. Assuming you follow the advice above, you'll wind up with free or low-cost electronic messaging, rather than expensive print advertising that may not reach your target audiences.

Don't cheapen the brand. Some universities steeply discount their distance learning courses in order to attract students. This approach can backfire, however, because it cheapens your institution's brand and may prompt your traditional brick-and-mortar students to question why they're paying higher fees than their online counterparts. It gets even trickier to manage tiered pricing when a course has online and classroom components. The wiser move is to stick with a single pricing formula across the digital and physical worlds, and, whenever possible, allow your students to move seamlessly between them.

Go back to the source. Last--but certainly not least--if the strategies above don't work out, revisit your customers. Talk to alumni, current students, and prospective students, and find out where, precisely, your online strategy went wrong.

Joseph C. Panettieri has covered Silicon Valley since 1992 writing for InformationWeek, Ziff Davis Internet, and others. He is the former editorial director of the New York Institute of Technology.

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