Since the mid-1990s, the use of new technology has altered the way colleges and universities conduct purchasing. Card technology played a major role in an early phase of this revolution and seems likely to gain an important position in the next phase of this process re-engineering as well.
The early phase mentioned above involves the widespread introduction of the purchasing card–a financial transaction card provided to an approved individual by his or her campus department. Purchasing cards facilitate basic purchasing activities such as online ordering and traditional in-store purchases of departmental supplies. The cards can provide tremendous time and labor savings when compared to traditional purchase order and invoice-based processes.
In most cases, purchasing cards use special card and transaction identification codes to facilitate data processing at the institution. A well-designed system enables transaction data to automatically be merged into accounting systems for bookkeeping and budget reconciliation processes.
Ten years ago, the purchasing card was a new concept in higher education. The decentralization of purchasing control was viewed by many as a troublesome area. The thought of a university, in essence, co-signing responsibility for an employee-held credit card was foreign. Today, it seems that the majority of institutions utilize some form of purchasing cards.
The next phase in the purchasing revolution takes the strengths of purchasing cards–purchasing flexibility, time/cost efficiencies, and automated data processing–even further. True web-based purchasing, or eProcurement, promises to make every computer desktop a secure location for real-time purchasing.
The Chronicle of Higher Education described emerging eProcurement technology as an area of electronic commerce providing real savings for colleges and universities. They described a study by the National Association of Educational Buyers that found 85% of responding institutions planned to use some form of electronic procurement to replace traditional processes.
The sheer volume and dollar value of the transactions conducted by colleges and universities is a major reason that this percentage is so great. According to Larry Toy, president of the Foundation for California Community Colleges and manager of a major educational purchasing cooperative, aggregate campus spending could be as high as $50 billion. Other estimates suggest this spending is closer to $100 billion.
Today, the majority of this spending is decentralized and inefficient, limiting an institution’s ability to negotiate discounts based on volume. The Chronicle defined eProcurement via the following example:
“For colleges, [it] entails using a customized Web site, where anyone in the college can log in and shop for supplies or services from the institution’s catalog database, without making any telephone calls or filling out any paperwork. In one click, a requisition can be on its way to the administrators who approve purchases. At the instant a requisition is approved, the system creates as many separate purchase orders as are needed. The orders reach the suppliers over the Web, often within minutes, and the supplies are delivered, if needed immediately, the same or following day. Managers can use the detailed electronic records from such purchasing transactions to help them negotiate group buying agreements with other institutions and gain better discounts from suppliers.”
To the contrary, traditional higher education procurement processes are described as follows:
“Typically, employees pick up the phone and order supplies from their favorite retailer —a practice that purchasing departments condemn as “maverick buying.” Most colleges now use purchasing cards —a precursor of e-commerce in which the colleges give staff members credit cards for purchases below a certain dollar value —†to reduce the amount of paper they process for small expenditures. But the cards don’t generate the detailed transaction records that many colleges say are needed for controlling expenses; e-commerce systems produce just the type of records that are needed.”
The article investigates the eProcurement efforts at several early adopters of the technology. Samples findings include:
- The University of Pennsylvania reports direct savings of $3.8 million in a single year from its eProcurement efforts. The institution’s online catalog currently lists more than 500,000 products and 1,600 users.
- In the first three months following the installation of its eProcurement system, the University of Indiana used it to electronically purchase $2.5 million worth of equipment from a single vendor, Dell Computer.
- Emory University expects its investment in online purchasing to bring a $10-million savings during the initial five-years.
Not all experiences with the technology have been flawless. The author cites problems that have faced the industry including:
- vendors priced themselves out of the market
- eProcurement modules provided by major software and ERP vendors did not meet the demands of the marketplace
- eProcurement pioneers built solutionsfor corporate markets that did not fit well into higher education environments.
Today, these hurdles are being overcome as a new era of eProcurement systems and programs are being deployed at progressive, cost-conscious institutions. Systems from companies such as Azulix and Higher Markets have been developed specifically for higher education. Early deployments suggest that the technology can save on administrative costs, cut time and labor from the purchasing cycle, and enable the institution to negotiate larger volume discounts from their merchants.
How will card technology impact this new era of purchasing?
The systems deployed to date rely on the employee to provide a username and password to enter the system. From this information, the employee’s approved purchasing limits and restrictions are accessed. In the future, an added level of control and security could be obtained by requiring the employee to utilize an ID card or token to prove their identity. This could be achieved through the use of any of a number of card technologies, including barcodes, magnetic stripes, smart cards, proximity cards, or contactless cards.
According to Raymond Lim, Chief Operating Officer for Pleasant Hill, CA-based Azulix Inc., “At Azulix, we see the use of an ID card as a second step that can provide an added level of security to system logon. A large-scale deployment can involve thousands of faculty and staff at the institution and many more vendor representatives–all wanting the flexibility to conduct their departmental business from the office, the home, and on-the-road. eProcurement makes this possible and card technology can make it even more secure.”
With eProcurement systems becoming more common on campus, the impact of card technology on the purchasing process seems likely to grow. Administrators responsible for card technology on campus should consider initiating discussions with those responsible for technology in the purchasing department. Because one day soon, the use of a card for purchasing system login may be as common as the use of today’s procurement cards.
A link to the Chronicle of Higher Education article is provided at www.azulix.com/articles. You can learn more about eProcurement and Azulix at www.azulix.com.