Educational Procurement Journal - December 2007 - (Page 8)

Calculating Procurement’s deﬁnition of cost savings and a set of tools to use in developing a cost savings and beneﬁts program are needed. Cost Savings and Beneﬁts: What Are They? There are many different deﬁnitions for cost savings, and they can vary greatly among peer institutions. The primary method by which Procurement is able to achieve savings is through the competitive bidding process. The most common form of savings achieved is the reduction in the purchase price of goods and services. Another process used by Procurement professionals to achieve savings is through direct negotiations with suppliers. Strategic supplier partnerships have become popular over the past few years. Procurement is able to document savings and achieve process efﬁciencies through volume rebate incentives, electronic summary invoicing and other procure-to-pay process efﬁciencies. For the sake of simplicity, a general deﬁnition of cost savings that encompasses many areas, such as cost avoidance, competitive bidding and value-added services, results in a tool kit and is segmented into four general categories: 1. Sourcing Savings 2. Consumption/Usage/Inventory Savings 3. Supplier Incentives 4. Process Savings, Compliance and Risk-Reduction The categories vary, both in their speciﬁc deﬁnitions and their contribution to the bottom line. The synergy among these elements enhances the overall value Procurement can deliver. by Brian Rounsavill, Princeton University; Chris Mihok, Yale University; Jim Hine, University of California, San Francisco; Judy Smith, University of Michigan; John Riley, Arizona State University; Kevin Lyons, Rutgers University; and Michael LaPointe, University of Illinois. Introduction In today’s global economy, outsourcing, mergers, stafﬁng reductions, Internet auctions, e-settlement and e-procurement are commonplace. Measurable standards, value propositions, cost-containment strategies, streamlined transaction processing and return on investment are topics that engage organizational leadership’s interest. As Procurement professionals, it is critical that we have the ability to quantify and logically explain these various measures in deﬁning the value that Procurement brings to an organization. Achieving measurable savings is the primary method by which Procurement can demonstrate its value in supporting the Institution’s educational mission. A signiﬁcant obstacle in quantifying the value of Procurement is the lack of standardization among schools in measuring cost savings gained through the actions of Procurement. A universally accepted 1. Sourcing Savings When savings numbers are reported, often they are impressive in their size or scope. Having a set of generally accepted deﬁnitions that can be applied to different campus environments is helpful in validating the efforts of Procurement and adding credibility to the profession. A basic set of tools for schools to use in developing a cost-savings and beneﬁts program will be provided in the March issue of the Educational Procurement Journal. The tools can be tailored to ﬁt any Institution’s speciﬁc needs and will include case studies, showing the “whats and hows” for each tool. 2. Consumption/Usage/Inventory Savings A substantial but often overlooked measurement is consumption or usage. This area has often the most potential for cost avoidance, and it provides a simple way to realize this potential through inventory analysis. Meaningful attributes include: 1. Item Specification Savings, 2. Consumption/Usage Savings, and 3. Inventory Draw-Down Savings. Again, in the March issue, a case study will show the “whats and hows” for this tool. 8 EDUCATIONAL PROCUREMENT JOURNAL December 2007

Table of Contents Feed for the Digital Edition of Educational Procurement Journal - December 2007

Educational Procurement Journal - December 2007 Contents Letter From the CEO: Sustainability in Higher Education Heard On the Streets Calculating Procurement's Value Cost-Per-Copy Contract and Site-Based Funding At a K-12 School District Bargain-Basement Solutions to Automate and Streamline Procurement Processes LEED & Leadership Certification Roamin' with Yeoman Best and Final

Educational Procurement Journal - December 2007

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