Several years ago I participated in a UB article called “Spotlight on Procurement.” The focus was on the emerging recognition of procurement as a key strategic contributor to the financial health of a university— rather than simply serving the tactical, back office transaction shop and “compliance cop” roles in which it was historically cast.
After all, supplies and services represent the second largest chunk of university spending after salaries and benefits. For tier-one research institutions, supplies and services spending can be 25 to 30 percent of the operating budget. For the University of California’s 10 campuses, that’s $8.1 billion annually.
In the UB article, several colleagues and I argued that just the sheer amount of purchased dollars dictated procurement have a “seat at the table.”
The severe budget crisis faced by higher ed institutions had placed cost containment at the forefront and thus led more chief financial officers to see the importance of procurement’s presence in the C-suite, in the position of chief procurement officer.
If it was not to be a permanent seat, temporary placement could stem the tide until funding stream levels returned to normal.
30 percent over 30 years
Now six years later, not only hasn’t there been a return to “normal” but higher education funding has continued to diminish. Such is the “new normal.” Its primary driver is the continued divestment of state support for higher ed.
The average four-year public university has seen per-student state and local funding drop more than 30 percent over the past 30 years. The cuts in public research institutions have been the most severe, averaging a 26 percent drop in investment since 2008.
The typical state reduces appropriations to higher education during economic downturns in favor of more immediate spending needs (such as safety net programs), but fails to fully replace their disinvestment in the universities once the downturn is over. Coupled with state divestment is the reduction in federal research support due to tighter budgets.
The University of California has already seen a 20 percent drop year over year.
A source of revenues
The reality is that state and federal funding cuts have led to an evolving model of university administration that’s greatly influenced by a corporate style of management. This style not only focuses on cost containment, but also, just as importantly, on revenue generation. And what organization within a university has the capacity to best deliver both?
It’s none other than strategic procurement and its evolutionary offspring, supply chain management.
The strategic plan is to not only significantly cut the cost of purchased supplies and services, but also to generate additional revenue through negotiated cash incentives and strategic partnerships, such as branding agreements for banking, telecom, coffee and so on.
Private industry boardrooms have for some time been concerned about another global economic slowdown. Accordingly, their procurement and supply chain management organizations must act in ever-more strategic ways.
Their charge is not just to come up with more innovative spending cuts but also to use the supply chain as a way of building extra revenues.
As outlined above, university boardrooms are faced with a real, present and ever-increasing funding slowdown. It is essential to the financial health of their institutions that these leaders also look to the cost-cutting and revenue-generating capacity of effectively structured, operated and empowered procurement and supply chain organizations.
In fact, I’d argue that not only should there be a seat at the C-suite table for the chief procurement officer, but perhaps that seat should be a little closer to the head of the table.
Bill Cooper is associate vice president and chief procurement officer for the University of California system.
