Greater Savings from Competitive Vendor Contracts
By BreAnda Northcutt
February 11, 2016
When you’re ordering pens and note paper, or drying your hands on paper towels in the restroom, you’re probably not thinking much about the aggressive negotiations that took place to secure the best prices on those items. But those agreements with vendors have saved the university millions of dollars over the last several years.
As part of the Financial Sustainability Action Plan – the initiative to generate $250 million annually at maturity to invest in the university – campus leaders are considering ways to expand our strategic sourcing opportunities. Already this fiscal year, Contracting Services has exceeded its savings target of $7 million through well-negotiated sourcing agreements with vendors. These agreements provide lower prices to UC Davis departments and research facilities than those available to the general public.
These examples are part of a UC systemwide effort to get more savings from the goods and services purchased by all 10 universities across the system. The five medical centers have partnered in a similar effort. Collectively, the UC savings is significant – over $175 million annually since the initiative began in 2013.
In search of more savings, the first FSAP Exploration Committee of the Financial Sustainability Action Plan evaluated additional opportunities and came up with proposed ideas that could save an additional $16 million annually. Campus leadership recently gave committee members the green light to move forward on developing detailed business plans for each of the ideas proposed.
Many of the proposed ideas recommended establishing consistent procedures to ensure all purchases made by the University – or on behalf of the University – are capturing pre-negotiated discounts. A recent review identified $9 million of purchases from our top 10 strategic sourcing partners that had bypassed existing agreements – simply because the individual placing the order wasn’t aware of the agreement, or didn’t directly mention they were from UC Davis.
“We’ve made a lot of progress, but we know our decentralized systems on campus leave savings on the table,” explained Mike Allred, UC Davis’s Controller and Associate Vice Chancellor. “And we’re working aggressively to capture those savings by deploying new technologies and working with departments to raise awareness.”
In recent years, UC Davis has taken an aggressive approach to strategic sourcing, deploying technology more effectively. Mike Morgan, strategic sourcing expert with the procurement office, remembers what it was like a decade ago.
“When performing spend analytics 10 years ago, I had to call the supplier to find out what we were buying,” recalls Morgan. “We’ve implemented new electronic tools to help us view and analyze where we’re spending money so we can identify opportunities to negotiate more competitive contracts on those goods or services.”
The ideas proposed by the Financial Sustainability Action Plan’s Exploration Committee are intended to help capture more university spending within existing vendor agreements.
“Once our new technology tools are fully operational, new personnel and procedures are in place, we’re confident we will continue to see growing savings in the area of strategic sourcing and provide greater customer service to the departments at UC Davis,” said Allred.
BreAnda Northcutt is Communications Director for the Office of the Vice Chancellor and Chief Financial Officer