STRATEGIC VALUE OF PROCUREMENT – Part I They Told Us Where To Go!

1. STRATEGIC VALUE OF PROCUREMENT – Part I They Told Us Where To Go! Presented by: NAEP 2009-2010 Strategic Visioning Committee Nancy Brooks, MPA Iowa State University Jim Hine, MBA, CPIM Univ. of California-San Francisco Rob Kelly, CPSM, C.P.M., CPIM University of Notre Dame Noah Rosenberg, Practice Mgr., Education Advisory Board

2. Overview • Challenges in Higher Education • Current economic conditions • Fundamental shifts in environment • Where procurement is positioned now • Expectations of procurement • Possible strategies to meet those expectations

3. Current Economic Conditions Current economic conditions combining to create extreme challenges: • State underfunding of many public institutions • Endowment losses crimping budgets at many private schools • Federal research dollars threatened by ballooning federal deficits • Drop in median income levels increases need for student aid • Giving to colleges and universities, first to go, last to return

4. Fundamental Shifts Fundamental shifts in environment further exacerbate the situation: • Brick & mortar competing with online delivery • More emphasis on global involvement • Possible increased state control of H.E. procurement • Public scrutiny on tuition increases and endowment spending rates • Managing corporate relationships now an institutional effort with multiple constituents • Institutions are forced to keep up with technology demands (and costs) of their students

5. Speculating on the Next Decade Current Budget Austerity Unlikely to be a Temporary Phenomenon • Closing the Gap • A Shrinking Core • Reducing faculty lines • Narrowing research footprint • Consolidating programs • A More Productive Periphery • Hardwiring spend discipline • Modernizing support services • Tapping new revenue sources Immediate Response to Downturn A Temporary Reprieve Hiring Freezes 4.0% Cost Growth1 Salary Freezes and Employee Layoff 5.2% Revenue Growth1 Travel Restrictions Endowment Tuition Federal 4.0% Cost Growth1 Capital Project Delays Research State 2009 2010 Time 1. CAGR 1994-1995 through FY 2004-2005

6. Procurement Mission: First Line of Defense for the Core University Playbook for Managing Through the Recovery Disciplining Outside Spend Faculty Advisory Groups on New Technologies Collaborative Buying Consortia Consolidating IT Outlier Unit Profiling Standard Desktop Image Optimizing Facilities Benchmark Against Private Sector Pricing On-Contact Purchasing Incentives Common Terms for Space Energy Reduction Consulting Reducing Admin Labor Business Service Centers Single E-mail Platform Shared Services Core Faculty Research Footprint Curriculum ERP Code Sharing Spend Mapping Volume Discounts from Top Suppliers Expanding Control Spans Process Automation Utilization and Cost Baselining Energy Chargebacks Process Standardization Enterprise Architecture Planning Server Form Consolidation Space Utilization Chargebacks E-Procurement Integration Central Strategic Sourcing Teams Central IT Help Desk Outlier Unit Profiling Health Benefits Audits

7. Outside Consultants Cast Focus on Procurement Savings Identified by Bain & Company at UNC-Chapel Hill (in Millions)

8. Expectations of Procurement To meet these challenges senior administrators expects Procurement to dramatically drive down costs by: • Increasing the amount of spend under management • Reducing procurement processing time and costs • Deploying new procurement technology • Maintaining regulatory compliance • Enhancing customer service levels • Generating year-over-year efficiency gains

9. Possible Strategies Procurement can meet these objectives by: • Repositioning Procurement as a strategic partner with leadership • Reinventing supplier relationships • Leveraging technology more • Creating true cross-country collaboration models • Providing value in non-traditional areas and ways • Understanding your potential and plan accordingly

10. Repositioning Procurement • Develop Strategic (not tactical) Partners on Campus: • HR/Benefits • Research • Academics • Students • Buy Solutions • Aware and alert to institutional risks

11. Reinvent Supplier Relationships • Your position: • How strategic are you to the supplier? • How strategic is the supplier to you? • Build Trust • Takes time • Fairness • Collaborate to find solutions

12. Need to Drive up the Evolutionary Path Procurement Investment Timeline Standardization and Functionally Equivalent Mandates Automating Processes and Consolidating Contracts Dashboards and Performance Metrics Consolidated Shared Services Centers Involvement in Non-commodity Spend Electronic Invoicing and Payments Level of Sophistication Price Benchmarking Contract Consolidation Data Analyst ERP Procurement Module E-Procurement Punch-Out Catalog Maximizing Data Analysis and Strategic Sourcing Category Managers Paper Purchase Order Consortia Contracts P-Cards Time

13. Integrate Sourcing and E-procurement User Price Savings* System/ Consortium Strategic Sourcing Supplier Paid Fees Electronic Procure to Pay Department time savings Central FTE’s Freed Campus Strategic Sourcing Increased Small/Diverse Business and Sustainable Product Spend Significant increase in controls and reporting * Lowered prices, avoided price increases, and prevented supplier overbilling

14. Leverage E-sourcing, e-RFX, Reverse Auction Overview: Systems designed to help automate, standardize, enhance and streamline sourcing processes: • Market expanded with FreeMarkets reverse auction phenomena of late 90’s • Interactive/distributed data/requirements collection, linked to spend analysis tools • Standardized/modular RFP templates, with weighting/scoring criteria to support price/quality point type awards (total value), straight price based, or flexible bidding • Optimization logic enables split awards, “what if” analyses, etc • Can be integrated into contract management and procurements systems • Multiple delivery models: managed, on-demand per event, hosted, ASP, owned  Benefits • Achieved savings of 25-30%, up to 50%, advanced techniques another 12% • 40-60% reduction in sourcing cycle time • 50% reduction in resource requirements/costs (admin, analysis, evaluation, etc.) • Build in non-price based criteria (e.g., small/diverse/local business) • Enables expanded supplier discovery: locating potential bidders • Increase in defensibility of awards, archival ability etc. • Ability to source non traditional categories such as HR Benefits, service contracts

15. UC Strategic sourcing example

16. Leverage New Collaboration Models • Consortiums/Cooperatives/GPOs • National • Regional • State • Other “interest group” oriented collaborations • Collaborate with Suppliers

17. Expand into Non Traditional Areas • Pursue opportunities in supply agreements to further institutional goals beyond savings and revenue • Internships • Research • Strategic Initiatives • Sustainability • Leverage the skills and strengths of the procurement organization beyond supply management • Negotiation • Facilitation • Relationship Management • Project Management

18. Understand Your Potential & Plan Accordingly • Staff the procurement organization to address the institution’s environment, needs and trajectory • Technology • Remote campuses and locations • Internationalization • Prepare for the generational tide which has already started “going out” in 2009 • Succession planning • Staff development • Knowledge transfer

19. Where They Told Us To Go • Become a strategic partner with campus (not a process) • Create beneficial/strategic supplier relationships • Minimize administrative burden thru technology • Implement best practices • Provide value in non-traditional ways – expand your utility/value

20. How Do We Get There? Stay tuned for: Strategic Value of Procurement – Part II Practical Approaches for Increasing Strategic Value

21. Thank You Questions?