The University Record, December 14, 1998
By Jane R. Elgass
Leveraging its buying power in developing contracts with prime vendors over the past three years has yielded impressive results that include an annual cost savings of $4.775 million and a $3 million reduction in inventory, the Regents were told at their November meeting.
In briefing the Board on the prime vendor program, Phil M. Abruzzi noted that the program also has eliminated annually an estimated 81,425 orders, either via purchase orders or transactions with M-Stores, as well as 407,000 invoices on an annual basis.
The program began three years ago, initially with laboratory supplies, when the University decided to identify areas of opportunity to leverage the Universitys purchasing power, explained Abruzzi, who is director of Purchasing and Stores. At that time, the University issued 8,000 purchase orders for lab supplies, resulting in 40,000 invoices. Under the new program, there is one purchase order and 12 invoices, representing the entire University.
And transaction costs have dropped dramatically, according to a Medical School study. The average per transaction cost with prime vendors is $1.10, compared with almost $12 the old way, Abruzzi noted.
Today the U-M has prime vendor contracts so far for the Ann Arbor, Dearborn and Flint campuses with 17 companies and agencies, covering everything from pencils and test tubes to electrical components and temporary staff.
Overall goals that guide purchasing staff in administering contracts for the University include quality materials at lower cost; reducing total transaction processing costs and on-hand inventories; reducing investment in depreciable equipment; and for purchasing activities to become transparent to the user.
The University has established a pay-per-click leasing program for copiers in which all users pay the same price. This has eliminated departmental purchase of copies in some areas, which has saved capital investment dollars, eliminated service maintenance contracts and lowered the overall average cost per copy for a lot of departments, Abruzzi noted.
He said that unit participation in the prime vendor program is not mandated. We worked collaboratively with the units to develop the program and continue to work with them on that basis. Weve had outstanding cooperation from the units, overwhelming support.
One of the biggest pluses of the program, Abruzzi noted, is that it is transparent to the user. Departments contact the vendors. They dont have to go through Purchasing or Accounts Payable.
He also told the Regents that Purchasing doesnt wait for the departments to come to us. We are constantly looking at where University money is being spent. The biggest challenge, he noted, is keeping the word out there, so individuals are aware of the various prime contractors and the savings that can be realized in the cost of both products and process by using the prime vendors.
Abruzzi said there is 93 percent compliance with the laboratory supplies program with an annual volume of $6 million, with the need for a particular commodity line or a unique instrument representing the remaining 7 percent.
Continuous monitoring, to see how the program is working from both the supplier and user end, is part of the program and includes a 40-person focus group.
Unit acceptance in other areas includes copier supplies at 96 percent with an annual volume of $525,000; 98 percent for plumbing and electrical supplies, at $4 million; 96 percent for office supplies, at $4.5 million; and 98 percent for chemicals, at $2 million.
Kevin Donovan, business manager, Purchasing and Stores, told the Regents that when the U-M was developing the program, vendors had refined just-in-time services, and there was a lot of talk about taking advantage of electronic commerce. Unfortunately, he said, electronic commerce was a lot of rhetoric. So we pushed and were proactive.
Fisher Scientific [the first prime vendor, for lab supplies] was willing to take the risk and use electronic commerce with us. We dont do anything manual anymore. Were down to one-tenth of the cost of the traditional processing method.
We also point out to the vendors that this program reduces their costs, and let them know we want part of that savings. They dont need to send representatives to all the different units. Thats a tremendous time-saver.
The whole approach, Donovan noted, is a change in business practice.
The prime vendor program with Boise Cascade, which was the second vendor to sign on, amounts to about $4.5 million annually and is perhaps the most visible one of the 17, since every office needs pencils and paper. Boise Cascades prices, Donovan noted, represent a 20 percent savings over the next best price, and supplies are being delivered to desktops, not docks. Boise Cascade has trained more than 1,000 U-M staff in the use of its online ordering program.
Donovan noted that the rate of acceptance by units is exceptionally high in part because they are partners. Its a win for everyone.
The U-M spent $400 million overall in procurement last year, with 80 percent of that on commodities. But the prime vendor program is not limited to goods. It also includes agreements with Manpower and Kelly Services.
And Donovan pledged that he and his staff will continue to go after more opportunities. One of our guiding principles, he noted, is Dont wait. Create. We also work to include all stakeholders and systematize where possible.
Additional prime vendor contract opportunities that currently are being explored include subscription services, courier services, travel, air conditioning supplies and paint products.
Robert Kasdin, executive vice president and chief financial officer, said the Regents will be briefed on a variety of other programs, such as the P-Cards, that are designed to take cost out of the system. [The prime vendor program] is particularly important, he noted, because of the implications it has had in reducing inventory on hand.
Provost Nancy Cantor noted that the prime vendor program has taken a huge burden off faculty and researchers.
Faculty and staff are encouraged to visit Purchasings Web site, www.umich.edu/~purch, and choose Prime Vendors and Universitywide Contracts, to stay up-to-date on new initiatives.
In addition to Donovan, individuals who have been instrumental in development and maintaining the prime vendor program include Bonny Webber, manager, University Stores, who administers the program, and buyers Pam George, Grace Park, Steve Royce and Ron Trimmer.
Air Products, BOC Gases, Boise Cascade, Brighton Electric, Cryogenic Gases, Fisher Scientific, Gage Co., Galloup Co., Kelly Services, Manpower Inc., Nellcor Puritan-Bennett, Sigma-Aldrich, Young Supply, Cannon Paper, Commerce Paper, Nationwide Paper and Paperworks.