For businesses as for individuals, the same rules apply when buying goods and services:
Penn's Purchasing Department, working together with other Penn departments and outside suppliers, is now putting those principles to work for University buyers.
About two years ago, according to Associate Director Ralph Maier, the Purchasing Department examined itself with an eye towards refocusing on its core mission of procurement service. "We asked our customers what the ideal procurement process would look like," he said. "In their eyes, the ideal process would have four steps: the customer determines a need, the customer places an order, the vendor ships and bills the University, the vendor gets paid."
This stood in sharp contrast to the process then in place, in which even the smallest orders had to go through a 52-step procedure that averaged 18 days to complete. To make matters worse, most of the orders flowing through this pipeline were for relatively small amounts. As Purchasing Director Robert Michel explained, "Our study found that purchases of less than $500 accounted for 80 percent of all transactions we processed, but only 14 percent of the total dollar volume of University purchases. We decided we needed to focus our efforts on the other 86 percent."
This, in turn, meant "empowering purchasers of small-ticket items to make the decisions at their end," he said. The way to do this was to move order processing out of Purchasing and into the offices actually buying the goods.
The first step in this process was the development of a procurement credit-card program. Working with the Accounts Payable office, Purchasing began offering a MasterCard procurement card to University offices last July as part of a four-month pilot project. After the pilot program proved successful, the card, issued through the First National Bank of Chicago, was rolled out on a University-wide basis.
The card allows business administrators to complete small transactions by themselves without having to go through Purchasing. In addition, Mr. Maier said, "with help from UMIS, we developed back-end software that lets users track their purchases on-line."
There are currently about 500 MasterCard procurement cards in circulation across campus. Purchasing estimates that the card has saved Penn over $220,000 in processing costs in the 16 months since it was introduced. The card has produced almost as much savings in the first four months of this fiscal year ($107,040) as it had in all of fiscal 1995 ($120,080). So far this year, both the dollar volume and number of transactions processed with the card are running at about 3.5 times last year's pace, a sign that the new card is being rapidly accepted on campus.
Already, Penn's procurement credit-card program ranks as the leading such program among American universities, and one of the 40 biggest overall, in terms of dollar volume.
The department has taken the next step with the roll-out of the Penn Purchasing World Wide Web site (http://www.upenn.edu/purchasing/) earlier this fall. The idea for the site came to Mr. Maier and Mr. Michel when they attended a meeting of Ivy League purchasing agents in the fall of 1994. "One of the items on the conference agenda was an overview of the World Wide Web given by an MIT techie," Mr. Michel said. "Our reaction was 'We have seen the future!' because of the implications of what we saw."
What they saw was a tool that would:
The site, which was developed over the summer by Purchasing Agent Abe Ahmed, already allows Purchasing to disseminate information quickly about changes in policy, rules and suppliers to campus buyers and lets buyers access this information at their convenience. The ultimate goal is to allow buyers to connect directly to suppliers through links from the Purchasing web pages; one supplier, 3M, had a custom Web site for Penn customers accessible from Purchasing's Web pages.
"While we are not the first university to have a purchasing home page," Mr. Maier said, "ours is the most robust site, and the first to implement direct links to manufacturers. Other universities have contacted us to ask about what we've done in this area.
"Together with the procurement credit card," he added, "the Web site gives us the opportunity to explore electronic commerce."
Purchasing's next major initiatives are aimed at taking advantage of Penn's size and buying power to both save money and build a better West Philadelphia. The department, along with the Medical Center's purchasing office, has contracted with Coopers & Lybrand to find ways to leverage Penn's buying power to achieve maximum impact. Mr. Maier explains that the offices hope to do this "by getting procurement organizations to work together to meet differing needs in a unified way, by speeding transactions, and by increasing customer involvement" in all aspects of the procurement process.
Another place where Penn Purchasing seeks to maximize impact is in the minority and West Philadelphia business communities. "This means working with smaller suppliers to help them understand how we do business at Penn, and then giving them an opportunity to do business with us," Mr. Michel said. This can take the form of direct contracts with small firms or partnerships with larger organizations, such as the arrangement between Fisher Scientific and West Philadelphia-based EMSCO Scientific.
Currently, Penn does business with 325 West Philadelphia suppliers, many of which, like EMSCO, are minority-owned. "Having identified most of the existing area businesses that could be potential suppliers," Mr. Michel said, "we now have an opportunity to bring new businesses to West Philadelphia."
Having Penn's suppliers locate in the area, he said, "would improve service to Penn. We can also help businesses find more potential customers among other West Philadelphia institutions" such as Drexel University, Philadelphia College of Pharmacy and Science, and Mercy Catholic Medical Center.
But "the big payoff," as he put it, "is jobs." Penn encourages its suppliers to hire in West Philadelphia when they expand in the area, as Xtec Corporation did when it opened a new service center this past spring. While this initiative is still embryonic, it has worked as Purchasing had hoped: Of 16 new jobs created so far by the expansion of four Penn suppliers in West Philadelphia, 10 have gone to neighborhood residents. The department is actively engaged in additional efforts to bring more businesses and jobs to West Philadelphia.