What is E-procurement?

Anytime technology promises to deliver cost savings and greater efficiencies, college and university officials take notice. E-procurement is getting a lot of attention on campuses these days as institutions look for ways to leverage the Web.

Electronic procurement, or e-procurement, is the purchase and sale of supplies and services over the Internet. Benefits can include reduced material and operating costs, less paperwork and faster acquisition. E-procurement can range from simple online buying of materials to heavy involvement in e-marketplaces that involve dozens of supply chain partners.

It's on the rise among colleges and universities, as it is among businesses, says Tim Minahan, senior vice president and managing director of supply chain research at the Aberdeen Group in Boston. Several factors are driving the trend, Minahan says, including continued pressures to cut operating costs, and revenues other than tuition fees that have leveled off for both public and private universities.

Other factors are lower costs for e-procurement technologies; the availability of new, less-expensive delivery options such as hosted and on-demand e-procurement services; and improved access to supplier enablement services and networks.

Lower material costs due to improved user and contract compliance enabled by e-procurement are among the biggest benefits. “The typical e-procurement user reports paying 7 percent lower prices overall by using e-procurement to encourage users to buy from preapproved contracts,” Minahan says.

Colleges and universities can also benefit from renegotiating supplier contracts based on improved visibility into expenditures and aggregation of spending across the institution.

According to a 2004 report on e-procurement from Aberdeen, which surveyed about 150 organizations, enterprises, on average, reduced off-contract or “maverick” spending by 64 percent, slashed requisition-to-order cycles by 66 percent and cut requisition-to-order costs by 58 percent.

Universities that have launched e-procurement programs are seeing gains. The University of Pittsburgh deployed an e-procurement system from Epicor Software in 2002 and has some 1,200 users on the system. Before finalizing the purchase, the university ran a working pilot system with a small group of suppliers and users, says Maureen Beal, associate vice chancellor for financial operations at the University of Pittsburgh.

Currently, about 30 catalogs of universitywide contracted suppliers are represented on the system, for products such as scientific, facilities maintenance and office supplies; photographic and audio-visual equipment; computers and related supplies; furniture; and cell phones. Pittsburgh is looking to add more suppliers, Beal says. The Web-based procurement system is linked to the university's Oracle Financial System for account number validation and payment processing.

E-procurement helps reduce paperwork at the university. “The e-procurement purchase-to-pay process is completely paperless,” Beal says. “Orders are sent electronically to suppliers, and payment to suppliers is automatically generated based on the e-procurement purchase order, in accordance with contractual payment terms.” This eliminates the need for paper invoices.

But the biggest gain is the cost saving. “One of our goals is to use the university's consolidated spending power as leverage to keep supplier prices low and to gain other contractual benefits,” Beal says. “This means reducing the number of suppliers on campus and encouraging university purchasers to buy on-contract.”

Many of the suppliers are accessed via their Web sites, where university purchasers have access to the suppliers' full catalogs, which show Pitt-discounted pricing for all items, Beal says.

Launching a Card Program

Another institution, Wayne State University in Detroit, has launched several e-procurement initiatives during the past decade. The first, a Limited Purchase Order online system, was deployed in 1996 and eliminated the need for requisitions, supervisory approvals and printed purchase orders.

In 2000, the university launched a procurement card program, with National City Bank/Visa as the card provider. It includes more than 2,000 cards and handles some 45,000 transactions per year, says Joan Gossman, purchasing director. Using the card, purchasers can place orders on the Web, by phone or in person.

The purchasing department has negotiated several high-volume contracts with vendors of products such as computer hardware and medical supplies and equipment. Using links to the Wayne State Web site, users can make online selections, obtain e-quotes and make direct purchases using procurement cards or a university purchase order, Gossman says.

Before online purchasing, Wayne State's average turnaround time for a completed purchase was about three business days, she says. With the Pro Card program and online partnerships, processing time averages 1.5 business days.

In addition to faster receipt of goods, the Pro Card has resulted in a “drastic reduction in invoices that flow into disbursements,” says Gossman. “The procurement card generates a single electronic invoice each month that is reviewed and authorized by the Pro Card director and paid electronically. At a minimum, this has reduced the number of invoices by 45,000 a year. That has created significant payroll savings and soft-dollar savings for the end-user departments.

Rather than investing time in small orders, buyers at Wayne State now devote more attention to strategic areas. That includes looking for volume purchases and working with the State of Michigan/Higher Education Purchasing Consortium to coordinate the purchase of electricity, natural gas, travel, mailing and print services, vehicles, road salt, and a variety of commonly used goods and services, Gossman says.

Executing e-procurement initiatives presents challenges as well as benefits. Minahan says Aberdeen research shows that the biggest challenges are securing budget and executive support, enabling and managing supplier content and transactions, and obtaining participation and adoption from employees.

Supplier enablement, which involves negotiating contracts and working out process and technology issues, continues to be a big challenge, says Pittsburgh's Beal. “It has taken us several years to enable 30 suppliers,” she says. “Although these 30 are some of our largest suppliers, we are currently looking at ways to accelerate this process by possibly ‘tapping out' to third-party e-procurement hubs that have thousands of pre-enabled suppliers from which to choose.”