Procurement at Penn Creating a High Performing Organization Ralph Maier Chief Procurement Officer October

1. Procurement at PennCreating a High Performing Organization   Ralph Maier Chief Procurement Officer October 8, 2007

2. About Penn Private Ivy League Institution Annual Operating Budget - $4.87 billion Payroll including benefits - $2.54 billion Procurement - $1.15 billion Organizational Structure Central purchasing office with supply & fulfillment related business partners Purchasing Overview Twelve staff members (10 professional)

3. About the Purchasing Process Oracle Financials 1,800 system users Delegated point-of-demand order creation & approval for transactions <$5,000 The Penn Marketplace Content management provided by SciQuest Incorporated Combination of punch-out & hosted catalogs MasterCard Purchasing Card 1,600 cardholders/transaction approvers $1,000 transaction limit Electronic Purchase Order Invoicing Electronic trading partner services provide by Global Exchange Services

4. The Role of Purchasing The role of Purchasing is characterized by the following: Business objectives that are in line with the President's “Penn Compact” A top business objective of the Executive Vice President An on-going institutional priority A clear and strong mandate to effect transformation and change Empowered to lead cross functional teams Focused on opportunities across the organization Creating synergies in the supply chain

5. Our Value Proposition Provide value, opportunity and return-on-investment to our key stakeholders Customers Provide an efficient ordering and payment process, exceptional customer service and support, best-in-class pricing, supplier base that meets the product and service requirements of the institution Suppliers Establish mutually beneficial business relationship that meets customer requirement, provides an opportunity for increased market share, increased profitability, interaction with the campus community Management Leverage the institution's investment in technology and buying power to deliver administrative efficiencies, increase compliance and reduce risk, and deliver significant financial ROI

6. Strategic Business Plan Our Strategic Business Plan is the blueprint for success: Establish a clear alignment of organization priorities, goals and objectives Make purchasing easy Focus on core competencies Leverage external strategic partner relationships Measure performance & deliver return-on-investment Promote accomplishments

7. Strategic Business Objectives Purchasing Services will deliver the following by FY2010: Complete redesign of all P2P customer training programs Deliver $50 million in new documented cost savings Proactively manage 80% of annual purchase spend Increase annual contract supplier spend to $300 million Increase annual collaborative contract spend to $30 million Increase marketplace supplier participation to 250 suppliers Drive 75% of annual purchase order transactions to marketplace suppliers

8. Procure-to-Pay Process Overview

9. Procure-to-Pay User Guide

10. Purchase Order Process Document

11. Purchase Order – Step 1

12. P-Card Process Document

13. Customer Relationship Management Engage customer base to identify business requirements, expectations & satisfaction levels Satisfaction surveys Focus groups Commodity teams Advisory groups Best practice initiatives Solicit input on new programs, technologies, potential supplier relationships Communicate project objectives, timelines, expected deliverables, and regular updates to the campus community Provide opportunity for customer feedback

14. The Penn Marketplace Penn’s private supplier exchange launched in 2002 Partnership with SciQuest Incorporated since 2004 Spend Director application 175 marketplace suppliers 71% of purchase transactions in FY2007 Catalog content management Content management services provided by SciQuest Combination of hosted and punch-out supplier catalogs Supports enablement of diversity suppliers – 34 diversity suppliers currently in the marketplace Critical success factor in making purchasing easy $7.8 million in documented supplier enablement cost savings

15. Penn Marketplace Web Site

16. Supplier Showcase

17. Supplier Template

18. Sourcing & Contracting Objectives Develop business relationships with suppliers that share these characteristics Develop competitive value-based pricing Be innovative Emphasize support and service Form strategic alliances Invest in technology Promote proactively Contracting decisions are based on the supplier's ability to Provide value – service and support in addition to price Meet capacity and distribution requirements Conduct business electronically Meet long-term contractual obligations Support socially responsible purchasing

19. Spend Management Identify strategies to leverage spend across all commodities, organizations & buying methods What do we buy? How do we buy? Who do we buy from? Focus on high volume, high priority commodities and suppliers School and Center contracting for specific commodities Compliment Penn contracting initiatives with collaborative buying relationships Management is looking for results, not who did the work

20. School & Center Spend Analysis Spend analysis across all purchase and payment methods First year documented cost savings by School & Center

21. Collaborative Buying Utilize local, regional and national relationships to increase capacity without adding cost Collaborative buying partnerships enable Purchasing to: Focus internal resources on priorities and higher yield opportunities Aggregate purchasing skills and capabilities in pursuit of common goal Provide additional opportunities for benchmarking, shared services and best practices

22. Collaborative Buying Purchase spend increased from $135K to $24.9M in five years Educational & Institutional Cooperative is Penn’s primary business partner $11.3 million in CY2006 Other partnerships include: PA State contracts US Communities Novation PACC Documented cost savings of $3.4 million

23. Educational & Institutional Cooperative

24. Reverse Auction Competitive Bidding

25. Contracting History History of new contracts awarded by fiscal year FY2008 goal is 60 new contracts (23 in 1st quarter)

26. Compliance Market acceptance versus mandate compliance Driven by response to key stakeholder's “What’s in it for me? Better service and support Reduced order cycle time and administrative effort Higher quality suppliers Access to new products and innovative technologies Lower cost for products and services Utilize business tools to identify non-compliance, determine root cause, and take corrective action Internal Schools & Centers Suppliers Mandate when necessary (supplier base)

27. Performance Management P2P annual business goals and objectives are established in support of the Strategic Business Plan Validated annually by senior management and communicated to the campus community Balanced Scorecard performance management software enables senior management to monitor performance against plan Performance metrics established to measure staff performance against plan during the fiscal year Quarterly performance updates Compensation based on performance against goals

28. Cost Containment Cost containment is the organization's top performance metric Annual savings goal with stretch goal linked to Consumer Price Index (CPI) Formal private industry acknowledged cost savings criteria Document product and service cost savings directly benefit Schools & Centers $105M in document cost savings Research equipment & supplies Technology products Office equipment & supplies Services Current Savings Goal (FY07 to FY10): $50 Million Documented Savings as of 10/1/07: $17.3 Million

29. Purchasing Return on Investment ROI based on documented savings versus annual operating budget

30. Promoting the Organization Purchasing Services web site is an effective method to promote: The organization’s role and value proposition Changes to policies or procedures New purchasing projects, commodity or technology initiatives Exchange of ideas and suggestions with customers and suppliers Key accomplishments Monthly “What’s New in Purchasing? e-mail to over 2,000 faculty and staff Presentations, case studies, articles and press releases

31. Recent Purchasing Awards Institute for Supply Management (ISM) “Principals of Social Responsibility” award in 2006 Aberdeen Group’s “Best Practice in eProcurement” award in 2006 Participation in the “Innovator Circle” Best Practices in Higher Ed eProcurement study sponsored by IBM National Association of Educational Procurement (NAEP) “2006 Excellence in Procurement” award

32. Critical Success Factors Strategic vision validated by senior management Focus on core competencies Creating a sense of urgency Investment in technology Collaboration with Schools & Centers Collaboration with suppliers and strategic business partners Retain and recruit necessary skill sets Consistent and on-going support from senior management Internal and external marketing

33. Thank You! Contact Information maierr@pobox.upenn.edu Additional information is available in the Purchasing Services web site at: www.purchasing.upenn.edu