March 12, 2014
Topic: Campus News
The initial wave of U-M’s Strategic Sourcing effort saved the university more than $16 million in fiscal year 2013 on six categories of purchased goods and services, ranging from computers to office supplies.
It is anticipated the university will see similar levels of annual savings for these categories in the coming years, based on volume and continued use of the Strategic Sourcing contracts.
Strategic Sourcing is a systematic approach for consolidating the university’s spending with select, high-quality vendors to maximize pricing discounts. It is an integral part of the university’s overall cost containment strategy to keep U-M affordable for students and to support the institution’s academic missions of teaching and research.
The FY 2013 savings exceeded original projections of $14 million, on a total annual spend of approximately $70 million on the purchasing categories that were included in the first Strategic Sourcing wave.
Success of the Strategic Sourcing program has been due in large part to widespread support from colleges, schools, and units across the university. On average, the university’s Strategic Sourcing contracts were used 95 percent of the time in FY 2013 for purchases made from the categories included in the program.
“Our effort to implement Strategic Sourcing began in FY 2012 when stakeholders from colleges, schools, and units that collectively represented at least 70 percent of a commodity’s spend worked with Procurement Services to review spending data, develop bid specifications, and offer feedback during the vendor selection process,” said Nancy Hobbs, director of procurement services. “As a result of this team effort, the university was able to exceed the original Wave 1 savings target by $2 million.”
The university realized the following savings in FY 2013 as a result of Strategic Sourcing:
• Computers — $7 million
• Peripherals — $880,000
• Office Supplies — $4.1 million
• Benefits Administration — $2.8 million
• Janitorial Supplies — $530,000
• Furniture — $720,000
“The decision to purchase HP computers has offered many benefits to the university, with the first being large cost savings. This allows our institute to invest in other technical solutions that might otherwise have been difficult to fund,” said Steve Munn, manager of information technology at the Institute for Social Research. “Another advantage the program offers is great administrative support. We needed to return an extra monitor, for example, and the process was extremely easy.”
The contracts for Wave 2 of the Strategic Sourcing effort were finalized in late FY 2013 and are now being used by the colleges, schools, and units. Wave 2 is expected to save the university $6.8 million in FY 2014 — and the same amount annually in subsequent years — in seven additional categories that include audio-visual equipment, food supplies, IT temporary staffing, and pharmacy benefits management.
Of the nearly $23 million in combined actual and estimated annual recurring savings from both waves of the program, $6.1 million represent savings to the university’s general fund budget. Contracts for Wave 3, which includes lab, medical, and surgical supplies, phone system maintenance, and others, are currently being negotiated and will be available for use in FY 2015.
“As the different waves of the Strategic Sourcing effort continue to unfold, we’ll be sure to keep the university community apprised of the future success of the program," said Tim Slottow, executive vice president and chief financial officer. "The savings from Strategic Sourcing will go a long way towards the university’s goal of reducing or reallocating an additional $120 million in recurring general fund costs in FY 2013 through FY 2017.
"These general fund savings enable the university to keep tuition increases down and support investment in our academic mission. We’d like to thank everyone for their support of this key element of the university’s ongoing initiative to contain costs.”
Strategic Sourcing is one component of the Administrative Services Transformation project.