Image via WikipediaToday, budget challenges are at the forefront of concern for all in higher education. Here’s a roadmap for a procurement revolution for colleges and universities. Through the use of reverse auctions, higher education executives can make sure their institution’s procurement operation is able to get the most “bang for the buck” and maximize the value of every purchase by benchmarking best practices in the private and public sector.
There’s been much talk of late – on sports radio, the four-letter network, and on sports pages and blogs – about major colleges and universities coming together to form major “super-conferences” for sports – namely the 800 pound gorilla that is major college football. When the dust settles, alliances and rivalries that have been in place for decades may well be put aside for yes, you guessed it, the almighty dollar.
Whether we see “football Armageddon” this year – or in a couple of years or even a decade from now, one thing is for certain. We have seen that yes, campus leaders are – at their core – businesspeople. They have to be! It is essential that they be excellent managers – and leaders – in order to have their institutions survive and thrive in an increasingly complex, highly competitive and rapidly changing world of higher education today – all while facing major budgetary pressures from a loss of both state funding and donor support, while in many cases seeing their endowments plunge in value as well. Yes, they are academic institutions, and yes, they are non-profit. However, no university president or college provost today – whether their home discipline is accounting, biology, or philosophy – has to be able to think and act like the leader of a major corporation – one that may have as many employees – and the revenue and expenses – of a Fortune 500 company!
With all the attention of late on the business of college sports, we have come to really appreciate that yes, the institution does have to balance its balance sheet and squeeze out at least to the break-even point on its income statement. If not, the future can be full of “unpleasantness” – spending freezes, employee furloughs and layoffs, discontinued programs – bad stuff! So, if a college can lower its procurement costs, this can free-up dollars to retain faculty, to preserve services, and to ensure that the quality of the institution is upheld – even in the face of dire economic circumstances.
Recently, we have seen an increasing number of colleges and universities around the country – mirroring the best practices of major companies, state governments, and even the federal sector – to increasingly make use of reverse auctions in their procurement. What is a reverse auction? Think of it as eBay – but in reverse! A reverse auction is a process in which a buyer solicits bids from interested sellers, and those sellers have the opportunity to submit a single bid, or multiple bids that decrease in price. So while we typically think of bidders bidding up the price to be paid in a forward auction to buy something, this works literally in reverse – as bidders are bidding down the price at which they will sell an item to a buying organization. While a reverse auction can be held in a physical event, most reverse auctions take place through a web or system-based electronic interface – an electronic marketplace.
Over the past decade, the evidence is quite clear – reverse auctions can produce savings on everything you buy – from paper clips and computers to yes, bulk purchases of utility power. They have become a proven tool for Fortune 500 companies and large governmental buyers, and now, with the advent of web-based, user-friendly interfaces, in many cases, an online e-marketplace can be the easiest – and fastest – way to reach new potential suppliers and ensure that you are maximizing the effectiveness of its procurement dollars for organizations of all sizes around the country and around the world. By partnering with a reverse auction provider, organizations can actually achieve substantial procurement savings – not just in dollar cost outlays, but in critical metrics such as time and manpower – all with a process that is likely to be more transparent and less subject to bid protests and other legal issues than standard operational methods.
And, for public sector agencies, there are a number of private sector partners to choose from, such as Co-exprise (http://www.co-exprise.com/), FedBid (http://www.fedbid.com/), and Procurex (http://www.procurexinc.com/), each of whom are experienced in partnering with governmental agencies to produce 10-20% savings – perhaps more – and in some cases, much more – on your acquisition dollars.
While reverse auction activity is rapidly growing in the federal government and at the state and local level as well, it is just now beginning to take-off with institutions of higher learning. Recently, Procurex helped a Midwestern university save $675,000 on a major purchase of coal, producing these savings in an extremely competitive electronic auction process that drove the institution’s price point down by having 7 potential suppliers issue 73 bids in just a 45-minute long event! There have also been individual institutions, such as Emory University in Atlanta, that have integrated reverse auctions into their purchasing processes to the point where electronic auctions have become a “first-choice” for procuring all manner of goods and services. Indeed, we have now even seen systems of institutions, such as the military academies and the University of Tennessee system’s work with FedBid, Inc., a Vienna, Virginia-based leader in the providing reverse auction services to governments at all levels. And FedBid’s model is to work with institutions on buys as small as $3,000, meaning that most of a college or universities purchasing could – and perhaps should – be competed via its electronic marketplace. And not just to make sure that an institution is getting the absolute lowest market price for the myriad goods, commodities and services necessary for any major customer-focused organization to operate today.
Finally, with all the attention on the University of Nebraska – and perhaps Notre Dame – joining the Big 10 Conference for football (and oh yes, the other sports as well), the Big 10 has led the way as a model for aggregating purchasing not just across individual campuses and entire systems, but between them as well. For over half a century, member institutions of the Big 10 – plus the University of Chicago – (see Table 1) have cooperated on all manner of cross-institutional research projects and student support initiatives through the Committee on Institutional Cooperation (CIC) (http://www.cic.net/).
Table 1 – CIC Member Universities
University of Chicago
University of Illinois
Indiana University
University of Iowa
University of Michigan
Michigan State University
University of Minnesota
Northwestern University
Ohio State University
Pennsylvania State University
Purdue University
University of Wisconsin-Madison
CIC member instituions have also cooperated to pool their purchasing power and save precious budgetary dollars through conduct joint reverse auction-based procurements. All told, the CIC Purchasing Consortium has produced aggregate savings in excess of eight million dollars, across a wide variety of items, including:
· IT equipment
· office suppliers
· furniture
· copy paper
· audio-visual equipment
· energy.
Based on results like these, The CIC recently announced that it was extending its contract with Procurex through 2013.
ANALYSIS
It is quite clear that higher education budgets will be under intense strain for the next coming years, with many predicting no end in sight for the state budget crises that have taken a huge toll on public colleges and universities. Private institutions have fared even worse in many cases, with falling endowments and a declining pool of applicants – with the ability to pay – or even to get financial aid.
So, for all the attention the “super-conference” debate has brought to the revenue side of the equation for college and university administrations across the land for the biggest, brand name, flagship-level universities, the real issue for all higher education executives is how to cut costs at their institution – even if it is one that doesn’t make SportCenter on a regular basis – if ever. For the procurement departments at hundreds of very good, but non-football power schools, this is a time of counting paper clips and making sure that every dollar and every penny of funding gets the most “bang for the buck.” So now is most certainly the time for all in charge of higher ed purchasing to take a first – or another look – at how you can best employ reverse auctions to become a “Procurement Hero” in this era of big budget crises! And for college presidents, university chancellors, and members of governing boards, why not ask the “why aren’t we doing this” question to get your staff moving on this – yesterday!
Here at the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/), we’re particularly focused on how all colleges and universities can best make use of reverse auctions in institutional procurement operations and maximize the value of each and every purchasing dollar. If you’re interested in learning more – or if you have a story to share about your own experiences using reverse auctions in a higher ed environment, please contact me at dwyld.kwu@gmail.com.
About the Author:
David C. Wyld (dwyld.kwu@gmail.com) is the Director of the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/). He currently serves as the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a noted expert on reverse auctions and e-procurement topics, being widely published on the topic and a recognized expert/consultant in the area. He has been named among the Rising Stars in Federal Information Technology by Federal Computer Week.
Read more: http://bizcovering.com/business/be-a-procurement-hero-in-a-time-of-great-budgetary-needs-maximizing-purchasing-power-amongst-colleges-and-universities-through-reverse-auctions/#ixzz0r9chmTmC
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