May 05 2011

Finding Savings While Spending

Upgrading to an e-procurement solution has numerous benefits for institutions, including impressive savings.

Procurement usually means pushing money out to pay manufacturers, but can procurement also bring money in? It is at Emory University. Just ask Loette King, senior director of procurement and contract administration for the 13,381-student university in Atlanta. 

Before fully modernizing their procurement system, the university's process was "very labor intensive, inconsistent and generally paper-based," she says. After automating to an e-procurement solution from SciQuest, the university was able to tighten control of and increase its visibility into the procurement process.

"The implementation of e-procurement has enabled the university to save approximately $2.5 million annually," says King. About 30 percent of this savings was from process efficiencies (tightening control) and 70 percent came from negotiated discounts and contract compliance (increasing visibility).

Another way of putting it: Universities can't afford not to modernize procurement. Emory was able to achieve $6 of benefit for every $1 it paid to SciQuest.

Searching for Savings

Emory is not the only university reviewing its procurement process. Over the last several years, universities have been seeing a decrease in their operating budgets and a need to gain control over what they are spending, according to Julie Hepner, product marketing director for higher education at SciQuest. "By driving spending to negotiated contracts, organizations can buy more at reduced rates," says Hepner. 

With a modernized procurement process, those routine (or supposedly routine) procurement activities such as catalog shopping, placing purchase orders, purchasing, tracking, receiving, invoicing and settling can all be conducted in a time- and cost-efficient closed-loop electronic process that's simple enough to ensure end-user compliance.

Changing the Game

In choosing an e-procurement provider, Emory reviewed several solutions and chose SciQuest because of its focus on the higher education market, ease of use and SciQuest's willingness to listen to its customers to implement enhancements, says King. 

Before Emory's modernization of its procurement processes, customers would search for goods and services by various means, receive different prices for the same items and had no budgetary oversight of their activities, says King, who has been with the university for more than 10 years.

Purchase orders were only required for items over $1,499 – in line with single-purchase limits for individual purchasing cards, according to King. "Even in this atmosphere, our customers felt that they had more control of purchasing what they wanted when they wanted," she says. "This was our biggest hurdle to overcome."

Also, prior to the implementation, procurement only had visibility over about 25 percent of the overall spending, which was being tracked through manual procurement processes, according to King.

"We needed a solution that was easy to use, achieved total visibility for all relevant spending, provided the campus with the goods and services it needed, ensured that everyone received the same price and allowed the business officers to have more control and insight on the financial obligations that were being made," she says.   

In short, the procurement team wanted to completely transform its purchasing processes and redefine its role to be one of savings and service, not simply completing bureaucratic tasks and general oversight. "If successful," says King, "we knew this endeavor would build on the first step in the procurement transformation – renegotiating key contracts – and ultimately empower procurement to realize even greater savings as well as incremental gains on the contracts already in place."

Think Holistic

While many universities have made the transformation from paper to some type of online ordering process, according to SciQuest's Hepner, the challenge with many of these tools is that users can't make all of their purchases through them. As a result, processes remain disjointed and, consequently, the ability to analyze, spend and negotiate better contracts doesn't exist.

Implementing a solution that is as holistic as possible is ideal. "I highly recommend including the entire procure-to-pay functional spectrum in solution selection and design,” says Derek Smith, managing director of higher education practice for the Huron Consulting Group, which was hired by Emory to guide it through the procurement modernization process. “Institutions should also consider incorporating strategic sourcing efforts into the program to maximize savings and increase user adoption."

More generally, Smith says, it's very important to focus on upfront planning efforts for all aspects of the initiative. "These efforts should include developing a comprehensive plan broad enough to cover activities beyond the actual technology implementation, such as change management, business process transformation, training and post go-live support plans."

Other important components of planning include defining the end-state solution to include financial systems integration requirements and establishing adequate resources for the project, Smith says.

Measuring Success

Emory's procurement plans were ambitious to say the least and, once realized, provided more consistency, an easy-to-use process and addressed the complete procure-to-pay cycle. "The e-procurement system automated the entire process, eliminating the error-prone 'invoice-the-university' practice. And it automatically matches the invoice with the purchase order, issuing an alert if there's a problem," says King.

There are a number of ways that Emory's Procurement Services is measuring its success, King says. Asking and digging out answers to these questions can help determine how well a procurement process is working:

  • How much of the university's business is electronic? In other words, how many invoices and payments are now processed electronically compared to the manual processes that used to be in place?
  • How many vendors does the college still write checks to, and where can improvements be made? Related to this is the number of purchase orders processed.

At Emory, prior to being fully automated to the e-procurement system, approximately 18,000 purchase orders were processed annually (which included significant manual data entry), according to King.

Today, more than 140,000 purchase orders and 230,000 invoices are processed annually via Emory Express, "creating new levels of efficiency through the elimination of manual processes, and helping to avoid the type of maverick, off-contract spending that occurs when purchases are made outside of the e-procurement system," King says.

  • How much spending is being driven to preferred suppliers and is there an opportunity to drive further savings? "Whereas, in the past, there was no effective way to ensure spending was being driven to contracted suppliers," says King, "e-procurement has empowered a new level of compliance, tracking and visibility." 

Another indicator of success has been the numerous comments made by many of Emory's suppliers that the system in place makes doing business with Emory much more efficient. King says she actually has suppliers coming to her asking how they can become a part of Emory Express.

As a top research university, Emory purchases lab equipment, instrumentation, chemicals and supplies. Kris Schoolfield, director for Fisher Scientific, is responsible for the Emory/Fisher contract and interfaces daily with her sales team at Emory to ensure that the company meets its  contracs commitments. On a weekly basis, she talks with Emory purchasing to resolve any issues and work toward maintaining a successful contract for both sides.

Before e-procurement and online "punch out" (moving transparently from a buyer's procurement app to a vendor's web storefront), purchase options were provided via glossy, paper-based or web-based catalogs. "The punch out solution is much easier to maintain than a hosted catalog," says Schoolfield. "It provides real-time data, pricing and availability." This approach to purchasing offers other benefits as well, says Schoolfield, including the following:

  • The customer can see the correct price immediately, without waiting for a catalog update to be reviewed and approved.
  • Better descriptions and pictures for the product are available via punch out.
  • Punch out shows whether a product is in stock and what warehouse it's shipping from. 

Another key benefit is that frustrated shoppers don't have to call the procurement department to determine where they can buy. They simply use the system and it's all taken care of, a wholly different atmosphere than before. "Procurement and finance teams can now be proactive instead of reactive," says SciQuest's Hepner. The accounts payable team isn't bogged down with manually keying invoices, and procurement can negotiate contracts they know the campus will use.

Customer Focus

An important result of Emory's procurement upgrade has been what King calls an incredible improvement in the university's customer relationships. In the past, when someone didn't receive a product on time or there was a problem with approvals, procurement was immediately singled out, because of its gatekeeper role in the process, King says.

"This us vs. them mentality is changing thanks to the transparency provided by Emory Express. It's facilitated a new level of communication and respect between procurement services and its customers," she continues.  

With the majority of spending being driven through Emory Express, procurement services now has the visibility, down to the line-item detail, required to manage how money is being spent and to drive savings.

Above and beyond cost savings are the improvements that the procurement team has affected at Emory, says King. "The majority of spending is now under management, an enormous improvement from just a few short years ago when 75 percent of spending went unmanaged."

In total, more than $190 million is processed through Emory Express annually. "The right processes, committees and communications are in place to ensure that customers are empowered to do their jobs and support Emory's commitment to excellence as an internationally recognized liberal arts college and research university," King says.  

4 Secrets to E-pro Success

Having helped usher in a new procurement process at Emory University, Loette King, senior director of procurement and contract administration, gained a wealth of experience in successfully rolling out this kind of program. Here are some of her best practice tips.

Abolish mavericks. Gain control over the off-contract spending that takes place through old practices such as “invoice the university.” Maverick purchasing introduces more risk to the university because, in almost all cases, the buyer assumes liability for the purchase and use of a product that could be faulty.

Engage customers in the process. Engage customers (end users – both those who would be requesting goods and services and those who have financial approval authority over those purchases) in the process of designing and implementing the system. "This was key" to Emory University's procurement upgrade, says King. "It was very important to involve the end users so that they were a part of the process and could understand what it is we were trying to accomplish."

Market the program. Establish a communications group to provide the campuswide communications and marketing required to ensure widespread adoption of the e-procurement system. One of Emory's key innovations was to establish a call center to provide real-time operational support to customers and serve as a high-touch service for acquisitions with unique requirements to connect customers to a professional buyer or commodity manager for more complex purchases.

Gain external insight to achieve goals. Consider hiring a consulting group to provide outside expertise into procurement operations and offer insights into the strengths and weaknesses of the procurement department. Consultants can also assist in determining what technologies and processes need to change within the department in order for it to achieve its goals.