Oct. 8, 2009

Skorton announces directive to reform purchasing system; could yield savings of up to $40 million

President David Skorton has committed to developing and implementing sweeping changes in the way Cornell buys goods and services. The improved procurement system will allow staff and faculty to purchase the same goods and services they always have, but at better prices -- and save up to $40 million a year.

"The university is at a critical juncture and if we are going to devote more of its funds to our core mission, we must agree collectively to spend less on administering the institution. Streamlining and directing our procurement process is a critical step toward reducing expenditures without major impact on our core mission and minimizing the effect of the budget deficit on our employees," Skorton said.

Dean of Faculty William Fry said: "Given the expected savings, all of that will help the academic side of the house. If the faculty understand that benefit, I think we'll all pitch in. I would like to see it done."

Skorton's directive will require that once the new purchasing system is up and running, Cornell will buy only from selected vendors and only via an improved version of Cornell's e-SHOP online ordering system. New software will analyze spending more closely so finance officials can negotiate more favorable contracts, Skorton said.

These changes will yield cheaper prices, less paperwork and savings of up to 10 percent of the $450 million in operating funds that the Ithaca campus spends annually on everything from radioisotopes to Post-It Notes and animal feed, Skorton said. Procurement represents 25 percent of the campus's $1.9 billion operating budget, so changes in the way purchases are made will have a far-reaching effect on the budget, he said.

Given this mandate, Joanne DeStefano, vice president for finance, announced that she will gather senior finance advisers Oct. 21 to discuss how best to seek input from the campus community and follow Skorton's directive. "We will create significant savings without sacrificing the core mission of the university," DeStefano said.

The $30 million to $40 million procurement savings goal represents at least one-third of the $90 million the university plans to save on administrative costs. The $90 million in recurring savings will reduce the annual budget deficit to $45 million, a dramatic reduction from the projected 2015 budget deficit of $135 million.

Cornell has more than 70,000 vendors and four main ways employees can buy materials. But the university buys only 12 percent of its goods and services from preferred suppliers at reduced rates. And employees use e-SHOP only 12 percent of the time that it is a viable option for a purchase. "Our procurement system was developed almost 20 years ago using outdated technology, is not user friendly and is difficult to maintain," DeStefano said. "And it doesn't capture the data necessary to maximize management decisions on vendor and pricing strategies."

The Office for Supply Management Services in the Division of Financial Affairs has already begun work on three projects to streamline procurement.

The first step is to finalize and implement new software called "Spend Visibility." The Office for Supply Management Services created it to track and analyze spending across campus. "Without the reporting, we don't know what areas to target for potential savings," DeStefano said.

The second is to make e-SHOP, which has been up and running since July, more efficient and easier to use. The biggest e-SHOP savings come from reducing the paperwork and processing costs of transactions, said Thomas Romantic, senior director of supply channel management and business services. E-SHOP also offers detailed data that can help analysts identify potential savings, he said.

Thirdly, the Office for Supply Management Services will look for potential savings in such commodities as office supplies and information technology hardware.

Purchases from local vendors, small businesses and businesses owned by women and minorities will be considered, DeStefano said. For example, a local vendor's low shipping costs and high service levels could offset a unit price that's higher than that of a national supplier.

The new procurement system will help us minimize layoffs, Skorton said. "We are counting on this program to save jobs as we continue to reduce the university budget. Every dollar we save by buying items for less money will reduce the need to cut budgets elsewhere." The university's largest expense is salaries and wages, which represent 57 percent of the operating budget, so reduction in procurement costs means reduced pressure to make personnel cuts, he said. "The reason we're working on procurement first is so that we can preserve jobs while protecting the core mission of the university."

To realize the savings, the university community will have to commit to changing the way it purchases and does other business. "There's not going to be excessive centralization, but I would be disingenuous and dishonest if I didn't tell you I think we're too decentralized in general," Skorton said.