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U finds big savings in purchasing

August 6, 2012


Op Ex 300

By operating more efficiently, especially in common-good or shared-services areas, the U of M is putting more time and money back where it belongs—into academics.

By Adam Overland

Two years ago U of M faculty and staff were buying one of about 47 different computer configurations through its main supplier, Dell. A 2010 polling of IT directors found that just three configurations would make about 80 percent of users happy. Today, says interim director of Purchasing Services, Tim Bray, "87 percent of purchases from Dell now use these three configurations." With everyone choosing from fewer models, the U has been able to negotiate better bulk purchasing prices from Dell, and in addition, IT staff now support fewer models, freeing up their time. Annual savings: $1.2 million.

Associate VP Mike Volna calls it a huge success. "Getting departments' buy-in on how to spend money is always a challenge here," he laughs. "So to get 87 percent alignment with the preferred system configurations…it's amazing."

Computer configurations are just one part of a U-wide strategic sourcing initiative that has and continues to examine where the U spends money and how it might better spend it. The results so far: $13 million in savings on expenses ranging from office, lab, and medical supplies to travel and more—and annual savings of $7.2 million. That's money colleges and departments aren't spending on day-to-day fundamentals that they're able to reallocate. The sourcing initiative is one successful example of what President Kaler has called for more of: "operational excellence."

Smart shopping
Think of "strategic sourcing" as smarter shopping—a procurement process that continually analyzes, improves, and re-evaluates University purchasing activities. Every year, the U buys tens of millions of dollars of goods and services needed to keep offices, labs, and other operations running. Scientific supplies and equipment cost more than $100 million per year. Office products run $10 million—with paper alone costing the U about $1 million per year. Maintenance, repair, and custodial supplies are $11 million per year.

Travel Discounts
Travel Services
offers two online travel booking sites: Cliqbook and Compass, as well as a discount program through Delta.com. Cliqbook and Compass both provide easy online booking tools and immediate University contract pricing on hotels, car rentals, and Delta Airlines. The Delta.com savings are only available by going first through the Travel Services website to Delta.com. In many cases, University discounted pricing applies to personal travel as well. In the past two years colleges and departments have saved more than $700,000 using the online tools.

In some cases, smart purchasing is simply a matter of using better technology to create awareness. Consider that more than $1 million per year is spent on toner and ink jet cartridges used in printers. After finding widespread purchasing of new cartridges even when remanufactured ones of the same quality were available, U Stores instituted a system that notifies a buyer purchasing a new cartridge if a remanufactured one is available, and at how much of a savings. Lynn Hein, U Stores purchasing manager, says that little notification may save $275,000 a year.

E-procurement
Savings like that could become more regular if standardized purchasing methods were in place and an e-procurement tool now on the table is implemented at the U.

While U Stores currently offers a cost-efficient electronic procure-to-pay process, the shopping interface is outdated and not easy to use. Many potential users avoid using the Enterprise Financial System because they see it as cumbersome and complicated. One of the big advantages to the new tool will be that users won't need to be skilled in PeopleSoft to use it. All U employees will be able to "shop" and build a shopping cart for purchasing.

The promise of a better system includes new, easy-to-use shopping software with more vendors, resulting in a more focused, one-stop shopping experience. In addition, these vendors would be available using the most efficient procure-to-pay process, reducing both processing time and cost.

"We think we could double the number of suppliers, increase transactions by at least 50 percent, and double or triple the dollars flowing through the current tool," says Bray. And that means more savings will be realized as more purchases are made using preferred University vendors where discounts have been negotiated.

A one-stop e-procurement tool would also include better product descriptions, images, search capabilities, and the ability to shop across suppliers, says Bray.

"Think of it as an Amazon.com shopping cart," says Volna. "If you really want people to buy from your preferred vendors, then make it easy. Make it so easy that they wouldn't want to do it another way," he says.

Implementation of the e-procurement tool was just endorsed by the operational excellence executive team led by President Kaler.

Graph of areas of Strategic Sourcing Initiative savings to date.Major areas of strategic sourcing savings.


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Operational Excellence

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