Power Purchasing
Procurement Management makes smart moves to save University time
and money
By Eileen McCluskey
Special to the Gazette
Procurement -- buying staplers, centrifuges, desk chairs, airline tickets,
and all the other things it takes to run a large university -- is big business
at Harvard. Getting all these goods used to be a big headache . . . but
not any more.
Nowadays, the procurement process is not only easier and less time-consuming,
it's a lot less expensive, too. In fact, purchases are now being made at
a savings of $4 million annually, and that's not counting reductions in
labor and administrative costs across the University.
This favorable turn of events came about by turning an old process on
its head.
Until the mid-1980s, the purchasing process was embodied in the University's
central purchasing department, whose 35 to 40 employees sought economies
of scale by examining each purchasing request and either bidding the purchase
or channeling it to a prenegotiated contract.
"That process required too much time to place an order," says
Bill Hoyt, director of today's Procurement Management Department. "And
sometimes the goods received were not exactly what the departments wanted.
So they rightly resented the requirement that they work with central purchasing."
In an effort to correct the central-control bottleneck, purchasing authority
was delegated, in the mid-'80s, to departments within each of the schools.
The resulting local autonomy was positive, but the prices paid in this splintered
buying structure -- without the benefit of volume discounts -- increased
substantially from central-purchasing days.
Turning the Tables
In 1995, after looking at best business practices in purchasing and with
some pro bono help from McKinsey & Co., Hoyt and his colleagues defined
a new deal for companies wishing to sell to Harvard. Under the old system,
vendors demanded guarantees of a certain volume of University business in
exchange for lower prices -- a requirement impossible for individual departments
to meet.
Now, explains Hoyt, "we approach vendor negotiations in a very different
way. We say to vendors, to become a preferred vendor, you must promise that
you can capture 50 percent of our market in your first year by dropping
your prices and improving service. In return, we will act as your partner,
analyzing how you can be most cost-effective in marketing to the University."
The burden is on the vendors to attract business because, as Hoyt notes,
"the preferred vendors are recommended to the community but not mandated.
The suppliers can't capture the market share without offering significant
savings and excellent service."
Purchasers using the network of preferred vendors seem satisfied so far,
and impressive cost savings resulting from the preferred vendor program
are in abundant evidence throughout the University. Laboratory supplies
through VWR Scientific Products (VWRSP), for example, show savings of more
than $528,000 over a 21-month period. Savings through a preferred vendor
partnership with Staples in 1998-99 are estimated at $825,000. Furniture
savings from October '97 to February '98 with Office Environments of New
England, the newest vendor alliance, were $154,000.
Sheila Sheridan, director of facilities and services at the Kennedy School
of Government, has been taking advantage of the partnership with Staples.
"One year after the program was in place," Sheridan reports, "our
analysis showed nearly 33 percent savings just in office supply costs. That's
not counting the labor costs we save on billing, auditing, and tracking
supplies."
Vendors from Heaven
In the interest of launching a successful procurement system overhaul,
Hoyt sought, at the start of the process, to uncover purchasing issues important
to the community.
"We met with key administrators in the Schools and asked what their
vendors from heaven would look like," says Hoyt.
They told Hoyt and his colleagues that vendor service is as important
as price in their fast-paced world. Issues such as speed of delivery, accuracy
in filling orders, and accessibility of vendor representatives are all essential
parts of the service mix.
"A frequently used phrase is 'value-added services,'" Sheridan
says.
"Staples is adding value that in the long run is very important
to us, such as recognizing how we work at Harvard, knowing our needs, and
offering speedy delivery." Sheridan says she is pleased with how well
the Staples partnership is working so far. "At the end of the first
year, we showed a 95 percent satisfaction rate at the Kennedy School."
Cathleen Coyle, administrative assistant to Dean Joseph S. Nye Jr. at
the Kennedy School, says "Service through the Staples partnership is
great. And the supplies come very fast. I can place an order at 4:30 p.m.,
and the products will be there the next morning." What's more, Coyle
adds, "prices are better than before."
Price and service are important in the realms of laboratory research
and teaching, too.
Roger Morey, manager of research operations in cell biology at the Medical
School, notes that VWRSP "usually has the best price" on laboratory
equipment and supplies. Morey also notes that he rarely pays shipping costs
under the partnership, and says "the delivery time for most items is
the next day, or at most, the day after."
Morey relates one of the more dramatic examples of vendor commitment
to University satisfaction. "VWRSP sponsored a session with Medical
School laboratory managers in which they asked for our complaints. They
got the difficult 'patients' together in one room," he says with a
smile, "and we told them what was on our minds. VWRSP actually wanted
the constructive criticism! And they solved many of the problems,"
he adds.
When the Department of Molecular and Cellular Biology (MCB) first partnered
with VWRSP, the department required that the vendor take on the management
of their laboratory supply room. While researchers and faculty members held
their breath, VWRSP moved in during the July 4, 1996, weekend.
"They knew what they were doing," says MCB Director Jim Ciotti.
"They painted, organized, and cleaned up." Today's stockroom provides
satisfied faculty with "a very detailed report itemizing who bought
what, when they bought it, and how much it cost," Ciotti notes.
Keeping Tabs
Granted, things are going well. But how can an individual administrator
in a single department keep tabs on whether the Staples, VWRSP, furniture,
or other company's prices remain the lowest available? This is where contract
executives from the central Procurement Management office, such as Sandi
Newton, come in. One of Newton's jobs is to monitor partnerships.
"We meet with the vendor representative on a weekly basis,"
Newton says, "to address problems as they come up. We conduct periodic
checks on invoices to see that the prices match what we agreed to in our
contract. We also look at their competitors' prices to see that our preferred
vendors' prices are in the ballpark."
"Vendors often have 700 customer accounts at Harvard," says
Hoyt. "Before the vendor alliances were in place, we were unable to
get favorable prices. Now, with all these local buyers working together,
we're benefiting from a consortium effect. When the University works in
concert, it's awfully powerful. And it only takes a little bit of orchestration
to make sure that everyone's needs are met. More needs to be done, but we've
made a good start."
Copyright
1998 President and Fellows of Harvard College
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