Diversity Spending Pays Back in Dollars and Sense

As the largest private employer in the city of Philadelphia and the fourth-largest in the Commonwealth of Pennsylvania, the University of Pennsylvania (Penn) wields a mighty economic punch—$725 million in direct spending and $1.06 billion in supply chain spending through approximately 9,000 active suppliers reported for FY2006.

Penn acknowledges that its vitality as an institution of higher education is linked to the quality of life in its neighborhoods, city, and region. As early as 1986, the university’s Purchasing Services department initiated a local community purchasing program, “Buy West Philadelphia,” to pursue business opportunities with local enterprises that could supply the products and services required by the university. In 1994, Penn launched a formal Supplier Diversity Program to identify and encourage diversity suppliers to participate in the university’s purchasing process.

Today, through its Economic Inclusion Program, Penn’s Purchasing Services department leverages the university’s purchasing capacity, knowledge assets, and resources to drive its mission of socially responsible purchasing as a means to add value to and benefit from its extended vendor community. (See sidebar “Social Responsibility.”)

In addition to providing business opportunities for local suppliers and creating jobs for community residents, the inclusion program has empowered minority and women business enterprises (MWBEs) to compete with larger suppliers to provide the broad range of products and services required by Penn’s faculty and staff. Purchasing Services assists its community-based suppliers to develop e-commerce capabilities so that these small businesses can participate as approved suppliers in Penn’s e-procurement program.

Penn’s Purchasing Services classifies diversity-owned businesses as enterprises that are at least 51 percent owned and operated by a minority individual or group, as well as multi-ethnic businesses that in aggregate meet the 51 percent rule. The program also recognizes businesses owned by women, disabled individuals, veterans, and disabled veterans as diversity suppliers. Because Penn is a prime contractor receiving federal funds, the businesses claiming diversity status must be certified by the Small Business Administration (SBA) and self-register on the SBA Central Contractors Registration Web site in order to become an approved supplier to the university.

Last year, Penn’s purchase of good and services from neighborhood businesses totaled nearly $73 million, up from just $1.3 million in 1986. Of that 2006 spend amount, almost $53 million went to minor-
ity vendors.

Ralph Maier, Director, Purchasing Services, at the University of Pennsylvania, sees the Supplier Diversity Program as a win-win partnership between Penn and its community of suppliers. “We believe it is the premier program in higher education, and it is a model for other organizations across the country,” he says. “Engaging local community and diversity suppliers in our purchasing process has resulted in new business opportunities and job creation for local residents.”

Building an E-Marketplace

In January 2004, Penn partnered with SciQuest, Inc., Cary, NC, a provider of on-demand procurement automation and supplier management solutions, to host the university’s new, enhanced Penn Mar-
ketplace e-procurement system. Powered by SciQuest’s Spend Director, a supplier enablement, catalog management, and procurement platform, the e-procurement system would interface with the university’s Oracle enterprise resource planning (ERP) system.

Spend Director integrated Penn’s critical mass of supplier catalogs into an online, fully automated, user-friendly shopping environment that encouraged the use of preferred contract suppliers for better spend management.

Josh Rose, Director of Product Marketing at SciQuest explains, “Spend Director serves as an automated shopping front end to [Penn’s] Oracle eProcurement system. The solution serves as an aggregation point for all suppliers that work with Penn.”

By directing campus-wide, purchase-order transactions through participating Penn Marketplace suppliers, the system began to yield cost savings almost immediately. Using the Spend Director solution, Rose says, “Penn was able to significantly increase visibility into [its] enterprise-wide spend.”

“In 2006,” says Maier, “about 71 percent of our purchase order transactions were processed to Penn Marketplace participating suppliers.” Penn now mandates that all Marketplace supplier spend goes through Spend Director.

To integrate Penn’s community and minority business partners into the new electronic supplier
exchange, the university added SciQuest’s Diversity Supplier Manager application later that same year. The application complements the minority supplier recruitment and enablement processes.

Supplier Diversity Manager identifies products and services available from diversity suppliers, accurately categorizes the suppliers into standard diversity classifications, and promotes these certified suppliers to the Penn community. The application inserts diversity classifications into the electronic supplier profile that resides within Spend Director and identifies diversity suppliers with an icon at the point of shopping. In this way, Penn directs purchasers toward diversity suppliers.

Rose points out that because all the diversity transactions are captured and stored electronically, Penn then can monitor and track diversity spending on the Penn Marketplace exchange against its procurement targets. The software tracks the diversity spending through customized reports that the university can use to report diversity spend information to state and federal agencies or use for benchmarking diversity spending goals.

Empowering Diversity Suppliers

Continuing to expand its commitment to diversity inclusion, in July 2006 Penn launched the Diversity Supplier Development Program (DSDP) in collaboration with Drexel University Procurement Services and the Pennsylvania Minority Business Enterprise Center (PAMBEC). The program aims to increase opportunities for Philadelphia-based, regional, and national diversity suppliers to develop mutually beneficial business relationships with the purchasing organizations. In addition, the program provides mentoring services that assist minority suppliers to compete successfully and on an equal basis with much larger enterprises in the electronic purchasing environment.

Purchasing Services partners with SciQuest to provide the participating business suppliers with procurement technology skills development assistance. Penn covers the training costs for the suppliers, who then are required to assume responsibility for meeting Penn’s business and procurement technology requirements after one year. These requirements include providing a full range of normal business services, maintaining a company Web site, dedicating e-business resources, developing and managing a Penn-specific electronic product catalog, receiving electronic purchase orders, submitting electronic invoices, and participating in online competitive bidding and bid solicitation events.

The DSDP initiative met its goal of enabling 10 diversity suppliers by the end of 2006. As of February 2007, the Penn Marketplace electronic exchange counted 33 diversity suppliers among its 168 total suppliers for an inclusion rate of approximately 20 percent, the highest of any SciQuest e-procurement customer in higher education.

Meeting Diversity Targets

Diversity suppliers who participate in Penn’s e-procurement program can realize a significant increase in business during their first year in the Penn Marketplace, as well as leverage their involvement with other SciQuest customers in higher education and the private sector.

For Penn, including minority business enterprises in its procurement system fulfills the institution’s compliance requirement for its federal contracts, sustains its supply-chain management best practices, and fulfills its mission to promote socially responsible purchasing.

Penn was the first university to select the Diversity Supplier Manager solution to meet its diversity business objectives. Today, according to Rose, more than 20 institutions use the application to track their diversity spend. The Diversity Supplier Manager application now is a standard feature within Spend Director.

Rose says that SciQuest has used its collaborative relationship with Penn to develop future product initiatives based upon feedback and input. In addition, Penn is a charter member of the SciQuest-sponsored Innovator’s Circle, a higher education industry focus group that later this year will release a benchmarking study on best procurement practices among institutions of higher education. (See sidebar, “Benchmarking Study Identifies Most Innovative Procurement Practices Among Universities.”)

“The collaboration with Penn has been terrific for SciQuest,” Rose says. “The relationship is open, honest, and very collaborative. The procurement organization is strong, innovative, and very opinioned. This fits extremely well with SciQuest’s customer-oriented culture.”

Penn continues to add diversity suppliers to the Penn Marketplace each month. Maier says the university’s goal is to increase diversity supplier participation in the electronic exchange to 25 percent by FY2010.

Benchmarking Study Identifies Most Innovative Procurement Practices Among Universities

SciQuest, Inc., a provider of on-demand procurement automation and supplier management solutions, in conjunction with IBM Corp. and the Pennsylvania State University Center for Supply Chain Research, has released the key findings of the first Innovator’s Circle Benchmarking Study, which identifies those factors that enable select universities to stand out as the most innovative, best-in-class procurement practitioners.

These factors include:

• Existence of a clear institutional policy that recognizes the value of the procurement function to the entire organization;
• Selectively applying strategic sourcing where it can make the best economic leverage;
• Moving from transactionally centric purchasing to technology-based solutions; and
• Establishing metrics that drive appropriate behaviors by procurement and its internal customers.

“We’re excited to see SciQuest take an interest in the procurement needs of higher education institutions. A study of this magnitude is needed to help amend the most common budgetary mistakes often made within institutions,” says Ralph Maier, Director, Purchasing Services, at the University of Pennsylvania, a charter member of the Innovator’s Circle.

The findings of the Benchmarking Study of procurement in higher education can apply to federal, state, and local government entities as well, and enable these organizations to create and maintain intelligent spend management programs.

The Innovator’s Circle initiative was established in 2004 by SciQuest and 10 of its university customers. Members of the Circle meet regularly to investigate and report on trends and best practices in their procurement implementations. The current Benchmarking Study, the first of its kind within higher education, was initiated to develop a repeatable methodology to serve higher education for the future.
IBM’s Public Sector Procurement Consulting Practice designed the survey questionnaire and collected data. The IBM Center for the Business of Government funded the study.

Pennsylvania State University’s Center for Supply Chain Research supplied data analysis for the study and will deliver the final report.

To request a copy of the complete Innovator’s Circle Benchmarking Study when available, log on to www.govinfo.bz/6777-150.

Social Responsibility

The University of Pennsylvania supports socially responsible purchasing as promoted by the Institute for Supply Management (ISM) in its publication “ISM Principles of Social Responsibility.”

The Institute defines socially responsible behavior and practices for supply professionals as “a framework of measurable corporate policies and procedures and resulting behavior designed to benefit the workplace and, by extension, the individual, the organization, and the community….”

Citing diversity in purchasing practices, ISM advises: “Proactively promote purchasing from, and the development of, socially diverse suppliers. Encourage diversity within your own organization.”
The publication also addresses the areas of Community, Environment, Ethics, Financial Responsibility, Human Rights, and Safety.

For the full-text document “ISM Principles of Social Responsibility,” which also contains a supply management audit for social responsibility principles, log on to www.govinfo.bz/6777-151.

©Institute for Supply Management™. All rights reserved. Reprinted with permission from the publisher, the Institute for Supply Management™.