A year into his job as leader of one of the country’s top public universities, Holden Thorp—hotshot scientist, teacher, and biotechnology entrepreneur—recently announced one of his first signature efforts as chancellor of the University of North Carolina at Chapel Hill: improve purchasing.
It’s a sign of the sorry state of the economy—and, evidently, of the even sorrier state of higher education’s capacity to run its business operations in a businesslike manner—that such a decidedly unsexy function can now reign as a priority.
Certainly purchasing wasn’t what this much-watched academic was hoping would occupy his time. But when management consultants from Bain & Company last month unveiled their findings on ways Chapel Hill could save a ton of money, better procurement showed up as the leading opportunity.
“The glamour and excitement of academic life is getting grants, publishing, and winning teaching awards,” says Mr. Thorp. “It’s not about getting purchasing straight or fixing IT.” But as he told me shortly after sharing Bain’s findings with his trustees, “Every dollar I save there is a dollar that I can invest in academic programs.”
Chapel Hill, which is facing state-imposed budget cuts, spends more than $400-million a year on goods and services, and about $150-million of that comes from state funds. Mr. Thorp says if there are ways to reduce even that state share by 10 percent through better procurement procedures and technology, they are worth his attention: “That’s the same as getting a $15-million gift every year, and I spend a lot of time doing that.”
With faculty and staff jobs on the line at many institutions, you can expect many other chancellors and deans to soon echo Mr. Thorp’s refrain. Changes in purchasing, like improving energy efficiency or making better use of space on the campus, are not as fundamentally central to the cost structures of higher education as, say, altering approaches to teaching loads. But any savings realized in these administrative matters also aren’t nearly as disruptive.
As a consumer, the $350-billion nonprofit higher-education sector is no incidental player. On average, about a quarter of every college’s budget goes to buying the goods and services that keep the engine cranking. So collectively, depending on whether things like construction and lease costs get counted, that could amount to between $50-billion and $100-billion a year. But as the Bain study and several others consistently show, Chapel Hill is hardly the only laggard.
Most colleges don’t take full advantage of purchasing cooperatives, don’t fully exploit e-commerce opportunities, and don’t track what they are buying and from whom. They also don’t do a very good job of concentrating 80 percent of their spending with 20 percent of their suppliers, a common industry tactic that helps companies exploit their buying clout.
“You’ve got a lot of universities just doing transactions” rather than meeting with their on-campus clients to understand their needs or negotiating deals with suppliers, says Richard R. Young, a professor of supply chain-management at Pennsylvania State University at Harrisburg, who has studied university purchasing practices. They are “paper pushing.”
The Education Advisory Board is another consulting company that has begun digging into procurement practices for some of its university clients, at their request. It recently analyzed purchasing data for a top-20 private research university (it declined to name it) as a prelude to a larger project. The company found that the institution was paying nearly 5 percent more for items than the average hospital pays.
“I don’t think universities know how bad they are,” says Noah Rosenberg, a practice manager with the Washington-based company.
One of the notable exceptions is the University of Pennsylvania. In 2006 Penn set out to save $50-million over four years on the $400-million in annual spending that its purchasing department controls. It met the mark 11 months ahead of schedule this July. Most of the savings came from instituting electronic purchasing systems, paring its number of core suppliers for goods like research materials from 575 to 170, and using “strategic sourcing” techniques like those the supply-chain professionals recommend.
To be sure, the culture of the academy, where the principle of personal choice can sometimes extend to office supplies, doesn’t make matters easier, even when institutions have identified purchasing as a priority. Consider this: New York University recently saved $750,000 by switching to remanufactured laser-printer cartridges, and Stephen Heller, a vice president who oversees purchasing there, says he still hasn’t heard the end of it: “We get daily hate mail about it.”
Four years ago, NYU created a Web portal it calls i-Buy, complete with an i-Buy “Bob” mascot, to encourage faculty and staff members to take advantage of the many purchasing arrangements Mr. Heller’s staff had negotiated. The department rewards high-volume users of the system with i-Buy Bob caps and bobblehead dolls.
The portal, along with other investments in new technology and procedures, has helped NYU save $1.2-million a year. “The barrier for most purchasing departments is nobody will fund it,” says Mr. Heller.
But as the rumblings from Chapel Hill suggest, the era of treating administrative departments like purchasing as a backwater may soon be in the past. That’s a no-brainer even i-Buy Bob could get his head around.
Financial Affairs is a column on the business of the academic enterprise. Send comments and ideas to goldie@chronicle.com
