Procurement at Penn Creating a High Performing Organization Ralph Maier Chief Procurement Officer Oc

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Procurement at PennCreating a High Performing
Organization Ralph Maier Chief
Procurement Officer October 8, 2007
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About Penn

• Private Ivy League Institution
• Annual Operating Budget - 4.87 billion
• Payroll including benefits - 2.54 billion
• Procurement - 1.15 billion
• Organizational Structure
• Central purchasing office with supply
  fulfillment related business partners
• Purchasing Overview
• Twelve staff members (10 professional)

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About the Purchasing Process

• Oracle Financials
• 1,800 system users
• Delegated point-of-demand order creation
  approval for transactions lt5,000
• The Penn Marketplace
• Content management provided by SciQuest
  Incorporated
• Combination of punch-out hosted catalogs
• MasterCard Purchasing Card
• 1,600 cardholders/transaction approvers
• 1,000 transaction limit
• Electronic Purchase Order Invoicing
• Electronic trading partner services provide by
  Global Exchange Services

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The Role of Purchasing

• The role of Purchasing is characterized by the
  following
• Business objectives that are in line with the
  President's Penn Compact
• A top business objective of the Executive Vice
  President
• An on-going institutional priority
• A clear and strong mandate to effect
  transformation and change
• Empowered to lead cross functional teams
• Focused on opportunities across the organization
• Creating synergies in the supply chain

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Our Value Proposition

• Provide value, opportunity and return-on-investmen
  t to our key stakeholders
• Customers
• Provide an efficient ordering and payment
  process, exceptional customer service and
  support, best-in-class pricing, supplier base
  that meets the product and service requirements
  of the institution
• Suppliers
• Establish mutually beneficial business
  relationship that meets customer requirement,
  provides an opportunity for increased market
  share, increased profitability, interaction with
  the campus community
• Management
• Leverage the institution's investment in
  technology and buying power to deliver
  administrative efficiencies, increase compliance
  and reduce risk, and deliver significant
  financial ROI

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Strategic Business Plan

• Our Strategic Business Plan is the blueprint for
  success
• Establish a clear alignment of organization
  priorities, goals and objectives
• Make purchasing easy
• Focus on core competencies
• Leverage external strategic partner relationships
• Measure performance deliver return-on-investment
  
• Promote accomplishments

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Strategic Business Objectives

• Purchasing Services will deliver the following by
  FY2010
• Complete redesign of all P2P customer training
  programs
• Deliver 50 million in new documented cost
  savings
• Proactively manage 80 of annual purchase spend
• Increase annual contract supplier spend to 300
  million
• Increase annual collaborative contract spend to
  30 million
• Increase marketplace supplier participation to
  250 suppliers
• Drive 75 of annual purchase order transactions
  to marketplace suppliers

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Procure-to-Pay Process Overview
An effective and efficient process requires a
great deal of coordination between Suppliers,
Purchasing, Schools/Centers and Accounts Payable
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Procure-to-Pay User Guide
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Purchase Order Process Document
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Purchase Order Step 1
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P-Card Process Document
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Customer Relationship Management

• Engage customer base to identify business
  requirements, expectations satisfaction levels
• Satisfaction surveys
• Focus groups
• Commodity teams
• Advisory groups
• Best practice initiatives
• Solicit input on new programs, technologies,
  potential supplier relationships
• Communicate project objectives, timelines,
  expected deliverables, and regular updates to the
  campus community
• Provide opportunity for customer feedback

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The Penn Marketplace

• Penns private supplier exchange launched in 2002
• Partnership with SciQuest Incorporated since 2004
• Spend Director application
• 175 marketplace suppliers
• 71 of purchase transactions in FY2007
• Catalog content management
• Content management services provided by SciQuest
• Combination of hosted and punch-out supplier
  catalogs
• Supports enablement of diversity suppliers 34
  diversity suppliers currently in the marketplace
• Critical success factor in making purchasing easy
• 7.8 million in documented supplier enablement
  cost savings

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Penn Marketplace Web Site
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Supplier Showcase
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Supplier Template
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Sourcing Contracting Objectives

• Develop business relationships with suppliers
  that share these characteristics
• Develop competitive value-based pricing
• Be innovative
• Emphasize support and service
• Form strategic alliances
• Invest in technology
• Promote proactively
• Contracting decisions are based on the supplier's
  ability to
• Provide value service and support in addition
  to price
• Meet capacity and distribution requirements
• Conduct business electronically
• Meet long-term contractual obligations
• Support socially responsible purchasing

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Spend Management

• Identify strategies to leverage spend across all
  commodities, organizations buying methods
• What do we buy?
• How do we buy?
• Who do we buy from?
• Focus on high volume, high priority commodities
  and suppliers
• School and Center contracting for specific
  commodities
• Compliment Penn contracting initiatives with
  collaborative buying relationships
• Management is looking for results, not who did
  the work

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School Center Spend Analysis

• Spend analysis across all purchase and payment
  methods
• First year documented cost savings by School
  Center

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Collaborative Buying

• Utilize local, regional and national
  relationships to increase capacity without adding
  cost
• Collaborative buying partnerships enable
  Purchasing to
• Focus internal resources on priorities and higher
  yield opportunities
• Aggregate purchasing skills and capabilities in
  pursuit of common goal
• Provide additional opportunities for
  benchmarking, shared services and best practices

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Collaborative Buying

• Purchase spend increased from 135K to 24.9M in
  five years
• Educational Institutional Cooperative is Penns
  primary business partner
• 11.3 million in CY2006
• Other partnerships include
• PA State contracts
• US Communities
• Novation
• PACC
• Documented cost savings of 3.4 million

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Educational Institutional Cooperative
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Reverse Auction Competitive Bidding
Initial bids
Total cost of contract bid declined dramatically
as a result of the reverse auction process
Cost of Contract
Winning Bid
Classroom Renovation Bidding Event Duration
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Contracting History

• History of new contracts awarded by fiscal year
• FY2008 goal is 60 new contracts (23 in 1st
  quarter)

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Compliance

• Market acceptance versus mandate compliance
• Driven by response to key stakeholder's Whats
  in it for me?
• Better service and support
• Reduced order cycle time and administrative
  effort
• Higher quality suppliers
• Access to new products and innovative
  technologies
• Lower cost for products and services
• Utilize business tools to identify
  non-compliance, determine root cause, and take
  corrective action
• Internal
• Schools Centers
• Suppliers
• Mandate when necessary (supplier base)

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Performance Management

• P2P annual business goals and objectives are
  established in support of the Strategic Business
  Plan
• Validated annually by senior management and
  communicated to the campus community
• Balanced Scorecard performance management
  software enables senior management to monitor
  performance against plan
• Performance metrics established to measure staff
  performance against plan during the fiscal year
• Quarterly performance updates
• Compensation based on performance against goals

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Cost Containment

• Cost containment is the organization's top
  performance metric
• Annual savings goal with stretch goal linked to
  Consumer Price Index (CPI)
• Formal private industry acknowledged cost savings
  criteria
• Document product and service cost savings
  directly benefit Schools Centers
• 105M in document cost savings
• Research equipment supplies
• Technology products
• Office equipment supplies
• Services
• Current Savings Goal (FY07 to FY10) 50 Million
• Documented Savings as of 10/1/07 17.3 Million

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Purchasing Return on Investment

• ROI based on documented savings versus annual
  operating budget

151 Ratio
111 Ratio
91 Ratio
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Promoting the Organization

• Purchasing Services web site is an effective
  method to promote
• The organizations role and value proposition
• Changes to policies or procedures
• New purchasing projects, commodity or technology
  initiatives
• Exchange of ideas and suggestions with customers
  and suppliers
• Key accomplishments
• Monthly Whats New in Purchasing? e-mail to over
  2,000 faculty and staff
• Presentations, case studies, articles and press
  releases

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Recent Purchasing Awards

• Institute for Supply Management (ISM) Principals
  of Social Responsibility award in 2006
• Aberdeen Groups Best Practice in eProcurement
  award in 2006
• Participation in the Innovator Circle Best
  Practices in Higher Ed eProcurement study
  sponsored by IBM
• National Association of Educational Procurement
  (NAEP) 2006 Excellence in Procurement award

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Critical Success Factors

• Strategic vision validated by senior management
• Focus on core competencies
• Creating a sense of urgency
• Investment in technology
• Collaboration with Schools Centers
• Collaboration with suppliers and strategic
  business partners
• Retain and recruit necessary skill sets
• Consistent and on-going support from senior
  management
• Internal and external marketing

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Thank You!

• Contact Information
• maierr_at_pobox.upenn.edu
• Additional information is available in the
  Purchasing Services web site at
• www.purchasing.upenn.edu