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August 29, 2005
Strategic Sourcing Project pays off for second time

BY michael terrazas

The first phase of Emory’s Strategic Sourcing Project, which capitalizes on economies of scale to negotiate the most cost-effective contracts with University vendors, yielded about $2.5 million in annual savings. Rewards from the project’s second phase could be even greater.

Estimates for Phase II savings, spread out over a number of commodity and service areas, range as high as $3.1 million annually, according to the project’s steering committee. Launched in summer 2004 by Mike Mandl, executive vice president for finance and administration, Strategic Sourcing has resulted in competitive, preferred vendor contracts on everything from office furniture to lab equipment, from courier to telecommunications services. And, with a little help from the Emory community, the savings still have room to grow.

For example, one of the vendors involved in Phase II is Federal Express, with which Emory has a long-standing relationship. According to Mandl, annual University expenditures with FedEx exceed $800,000, and the initial cost savings from the preferred vendor arrangement will be roughly $150,000. But more than half of that total annual expenditure (about $500,000) is spent on expedited shipping; if Emory managers and supervisors determine more judiciously which packages truly require expedited shipping, the University will save more.

“This is one of many purchasing areas where we can save without necessarily changing the way we do business and even more with simple changes in our business thinking,” Mandl said in a memo to managers.

Another commodity area that could see a significant change is computer software. Emory is negotiating with Microsoft to implement an annual, University-wide product licensing agreement that could yield some $150,000 in savings per year. But perhaps just as important, according to John Ellis, co-director of academic technologies for the Information Technology Division, is the fact that Emory’s compliance with product licensing is ensured.

“It has three main benefits,” Ellis said. “It would reduce the total cost for Microsoft expenditures; it ensures that all Microsoft applications at Emory workstations are compliant with licensing agreements; and it provides for workstations to be outfitted with the latest software. A lot of Emory areas have delays in upgrading, and older versions of software are more prone to security breaches and virus attacks.”

Just as in the project’s first phase, the Strategic Sourcing steering committee worked with Huron Consulting Group of Chicago to help negotiate the best deals with vendors. Other commodity areas included computer hardware, copiers, telecommunication services, and medical and scientific supplies. Committee members said the second phase more closely involved Emory Healthcare (EHC) than Phase I.

“[EHC] is so structured and almost always there already are tight controls in place, so you seldom see huge opportunities, but when you combine [EHC] with the University, the volume opportunities become greater,” said Gary Teal, senior associate vice president for Woodruff Health Sciences Center administration and a steering committee member. “It’s nice to have a group like Huron that can be aggressive with vendors.”

Teal said there is no Phase III in the works for Strategic Sourcing, but that could change depending on how successful are the arrangements worked out in the first two phases.

“I’ve been involved with projects like this before, but this is the best one I’ve done; it set a standard,” Teal said. “In the past we may have seen things happen in a more compartmentalized way, but now it will be Emory-wide—and that’s the way it should be.”

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