Colleges Deploy E-Procurement Systems to Slash Costs and Control Spending
Colleges deploy e-procurement systems to slash costs and control spending.
Prior to the end of 2005, when staff or faculty had low-dollar purchases higher than the purchasing card limit at The Pennsylvania State University, they had to submit a requisition that flowed through an approval path for the order to be placed.
People authorized to make purchases usually searched for products using a paper catalog; then they often had to enter a requisition to get one or more approvals. When the invoice arrived, they’d have to match it with the order and approve payment.
“Many of the steps in the process were paper-based, manual and inefficient,” says Mike Conroy, Penn State’s e-procurement manager.
Besides taking too much time, the purchasing process was prone to error, adds Joyce Haney, Penn State’s director of procurement services.
“It wasn’t unusual for someone to make a mistake at some point in the process, Haney explains. To cite just one problem, too often there was a miscommunication between the purchaser and the vendor, causing the wrong product to be delivered.
E-procurement is now saving organizations $700 billion annually.
SOURCE: SPG Media Research
By 2006, the low-dollar purchasing system at Penn State changed dramatically, as the school moved from paper-based purchasing to an electronic procurement platform provided by e-procurement specialist SciQuest. The Penn State system, called eBuy, automates most of the purchasing process, from ordering to matching invoices.
Better still, the web-based system resides on SciQuest’s server, so it requires no additional infrastructure at the school.
Those benefits — time-saving automation and low cost — are incentives for schools such as Penn State to deploy e-procurement systems. Most begin by automating just a portion of the purchasing process, such as approval, budget enforcement, direct entry into suppliers’ order-entry systems or invoice matching.
No matter how extensively the model is applied, e-procurement reduces purchasing time and overhead, encourages users to buy from preferred vendors at the best prices, and frees procurement officers from paper pushing so they can focus on more strategic projects.
By increasing sales volume to certain vendors, e-procurement can boost a school’s clout with primary suppliers while at the same time reducing the vendor’s cost of selling to the school. Penn State finds that such benefits translate into reduced costs.
“A number of our suppliers have offered incentives for us to use our e-procurement system to purchase from them,” says Haney.
Some vendors offer free shipping or deep discounts; one, which in the past had refused to give Penn State any discount, fi nally relented and sharpened its pencil.
Haney hopes to eventually reap additional administrative cost savings by bringing the higher-dollar purchases into eBuy. But because that required additional interface development with the University Accounting system, it would have delayed the e-procurement implementation. “We wanted to get benefits from the system as quickly as we could, so we attacked the low-hanging fruit,” she says.
E-procurement reduces requisition-to-order processing costs on average by 48 percent.
SOURCE: Aberdeen Group
Penn State’s eBuy was originally restricted to handling orders of $5,000 or less because those purchases didn’t require authorization. Authorized users log on to the purchasing site, select the vendor they need from the list, access the vendor’s online catalog (which lists the university’s contract pricing), and place items in their shopping cart, just as they would on any e-commerce site. The order goes directly into the vendor’s order-entry system and is often shipped the same day. It might even arrive at the school in 24 to 48 hours, compared with a week or more under the previous system.
Penn State was one of SciQuest’s first customers to implement electronic invoicing in 2005. Invoices are received and matched electronically. The invoices that don’t match the original order are flagged and have to be resolved. But those that do match can go through automatically. “Most of the labor-intensive, time-consuming manual steps have been taken out of the purchasing process,” says Conroy.
Other colleges say a major advantage of e-procurement is that it speeds up receipt of products. The University of Washington improved procurement efficiencies, cost savings and compliance last October when it launched Ariba’s eProcurement purchasing system. The UW eProcurement implementation was intended to handle purchases from the central store, which bought frequently needed items in bulk and resold them to end users.
Phase 2 of the implementation expanded eProcurement to outside vendors. “We found that using eProcurement, where orders go directly into the vendor’s ordering system, people could get the product from the supplier just as quickly as they could from our internal stores,” says Laurie Hunt, associate director of UW eProcurement.
Unlike Penn State, UW hosts the system on its own server, but Hunt says the school is keeping it as “plain vanilla as possible” because the more it customizes the program, the more complex upgrades could be. However, it did add some minor tweaks. Among them: Users see their budgets on the screen as they are making purchases.
UW decided to take a cautious approach to its launch by piloting it to only 80 customers. But Hunt says if she had to do it over, she would have deployed it, if not all at once, at least more rapidly. “We would have achieved the benefi ts more quickly if we had an initial rollout across the organization,” she says.
One problem with the gradual and voluntary rollout is that user adoption has been a bit slower than Hunt would have liked.
To increase acceptance, Hunt’s department has a team dedicated to training and helping faculty and staff. The team holds biweekly classes and has developed customized departmental training programs.
Hunt says the school has a lot of incentive for encouraging people to use the system. She estimates the total cost of placing an order using the new eProcurement system at $18, compared with around $62 per order using UW’s legacy purchase order system.
Tight Purse Strings
Other schools hope that e-procurement will help them get their budgets under control. At the University of Pennsylvania, procurement represents the second-largest share of the school’s annual operating budget. The procurement department wants to free itself from daily transactional activity so it can deliver more benefit to the school.
“We wanted our department to be more strategic; to add value to the institution,” says Ralph Maier, the university’s director of purchasing services. He says since implementing SciQuest e-procurement, his staff now spends 90 percent of its time performing data analysis, supplier evaluation and contracting and cost containment activities that he believes reduce costs.
Pennsylvania connected SciQuest to its Oracle Financials system to automate approvals and budgeting. In the past, partly because of the campuswide approval work flow, the average time for an order received by the supplier was 18 days. Now, 90 percent of all purchase orders are received by the vendor within a day.
“Requests for authorization could sit around for days, and no one knew where they were,” says Maier.
Today, about 180 suppliers are on the school’s e-procurement system. Suppliers on the system now receive about 74 percent of all the university’s purchase orders.
Maier’s purchasing team leveraged its e-procurement technology to save $89 million over a 10-year period ending in 2006. The school’s purchasing group launched a new four-year, $50 million cost containment initiative in June 2006. In the 30 months since July 2006, the system has exceeded $40 million in documented cost savings.
Nittany Lions Gain Procurement Ground
Here are the benefits that Penn State reports from e-procurement:
- Customer satisfaction. According to a Penn State survey, 86 percent of respondents were satisfied or very satisfied with the eBuy shopping experience. Eighty percent said eBuy improved the time to purchase items.
- Speedy invoice processing. In fiscal year 2007–2008, 95 percent of invoices processed using eBuy automatically matched orders accurately. All those invoices were processed with no human interaction.
- Streamlined purchasing. eBuy’s electronic process saved the procurement department more than 73,000 pieces of paper during the last fiscal year, supporting the university’s environmental stewardship initiative.