Buying Smarter

Lehigh Valley Association of Independent Colleges (LVAIC) incorporated in 1969 as a group of six independent Pennsylvania higher-education institutions whose mission was to expand educational opportunities for students, provide professional development for faculty and staff, and engender greater economy and efficiency of operation among its member institutions.

Today the 501c3 nonprofit consortium, and its purchasing entity LVAIC Business Services, wields an estimated $900 million economic impact on the Lehigh Valley region and the local communities it serves, according to the Human Capital Research Corp. LVAIC’s budget is funded by the member colleges, governmental and private sector grants, and student fees for certain programs. Assessments are partially prorated according to enrollments.

LVAIC Business Services is a model of procurement efficiency with more than $50 million in joint purchasing of products and services and over 100 purchasing contracts and service agreements covering the original six member colleges, seven associate member colleges, their private and public partners, and their suppliers and vendors. Its successful collaborative purchasing programs generate substantial cost avoidance savings for the participating schools, enabling even the smaller members to realize better pricing through group buying power than they would be able to achieve on their own.

Begin Small

LVAIC’s success came slowly. According to William J. Marushak, Director of Business Services, the legal entity was in place before group purchasing began. “Purchasing evolved from [academic collaboration], and it was a slow, painful process,” he says.

At its incorporation in 1969, the Pennsylvania consortium’s primary focus was academic collaboration among the six founding institutions: Cedar Crest College and Muhlenberg College in Allentown, DeSales University in Center Valley, Lafayette College in Easton, and Lehigh University and Moravian College in Bethlehem. The schools’ visionary purchasing directors realized early on that they could pool resources and streamline procurement processes by identifying their common vendors, common suppliers, and common products, bid out the shared commodities, and get a better price for all the members.

Elizabeth M. Lees, Purchasing Director of Muhlenberg College, relates that in the 1970s the informal, member-managed group tried to bid out No. 2 fuel oil and absorbent products. When the bid results were reviewed and the group was ready to make the award, one purchasing director decided not to change vendors after all. The other purchasing directors realized that they would need full commitment among the consortium members and trust to accept the changes in vendors and products that would have to be made in order for the entire group to get better pricing on these commodities.

The consortium reached a turning point in the early 1980s, says Lees, when athletic trainers brought a list of training supplies, such as tape, ice packs, and more, to the LVAIC purchasing directors to put out for bids. “When the bids came back,” she says, “there were significant savings, even though these were the same vendors they had used in the past. All the schools were able to take advantage of it.”

The bid with training supplies encouraged renewed interest in bidding absorbent products, now called coarse paper products, as well as other services such as vending, typewriter repair, and vehicle rentals. Lehigh had a vending contract and asked the purchasing directors to make it available to the LVAIC consortium, which in turn asked the vendors to make the contracts available to the entire group.

Buoyed by its successes, LVAIC approached several community colleges to join the consortium as associate members. Lees remembers that she was at Lehigh Carbon Community College when her CFO received the invitation. Already familiar with LVAIC through her association with the National Association of Educational Buyers (NAEB), she was ready to jump on board.

Adding the community colleges brought increased buying power to the group, says Lees. In turn, there were more contracts with significantly more work for the purchasing directors. “It got to the point where it was hard for them to do the purchasing duties for the consortium plus their jobs at their own institutions,” she says.

In 1996, the purchasing directors asked LVAIC for clerical support, someone to put the RFPs together and review the bids. LVAIC hired a part-time clerical person to handle the growing administrative tasking.

Stay Focused

Marushak points out that the purchasing consortium operated without a dedicated LVAIC representative for 30 years. During this time, he says, “Each [college’s] purchasing director was on his own. The CFOs helped, but the purchasing director was the one who put it together, above what he or she did at the home institutions.” Despite its informal structure, the purchasing consortium managed to reach $2 million in buying power by 1996.

As the portfolio of collaboration continued to grow, LVAIC’s Board of Directors, comprised of the presidents of the member schools plus LVAIC’s Executive Director, who serves as the consortium’s CEO, acted upon a recommendation by a consulting firm and hired Marushak as the full-time Director of Business Services, with responsibilities for growing the consortium’s group purchasing. When Marushak joined LVAIC in 1999, the consortium’s portfolio totaled $10 million in group purchasing. Five years later it had grown to over $50 million.

“We grew,” he says, “by having a dedicated person in the LVAIC office managing over 50 groups, including facilities, athletics, information directors, purchasing directors, campus police chiefs, any operational components of the institutions we’re meeting with now. It’s pretty extensive.”

Before Marushak was hired, says Lees, when the purchasing directors were on their own, they would try to bring together everyone involved in the bidding. Some would come, many would not show. It was difficult to get their cooperation. “Once [Marushak] was hired and everyone knew the decision came down from all the presidents of the institutions,” she says, “he went out and started meeting with the IT directors, the plant operations directors, asking what their needs were. He’d bring the list back to us and then we could act on it, but we always kept the communications open through [Marushak] with those departments.” The constant dialog, she says, actually helped purchasing to negotiate more successful contracts.

Create Partnerships

When Patricia L. Reich, Director of Purchasing at Lehigh University, came to Lehigh three years ago from the private sector, she saw that the critical mass LVAIC had achieved early on bred successes that in turn encouraged new collaborations with the purchasing directors to make other bids start to happen. “It was a labor of love in the beginning,” she says. Adding the full-time manager position enabled the purchasing consortium to make a quantum leap. “Support from the top helped [LVAIC] ramp up to where it is now,” she says.

“From where I sit as the Director of Business Services,” says Marushak, “the top-down support is extremely important, but for my success it’s the bottom up and lateral. If I can’t build consensus of support at the bottom and mid levels, this organization would not be successful in group purchasing and business services. There’s no way we would have grown from $10 million to over $50 million if we didn’t have the support of the major stakeholders who are asked to buy off our contracts, who are asked to be a part of what we’re doing.”

Marushak emphasizes that the smaller institutions, by working with schools such as Lehigh, now can buy through the group and afford higher quality products and services than what they could afford on their own. Equally important, he says, is that LVAIC receives a high level of support from its vendors. “We pride ourselves on building partnerships with vendors,” he says. “You don’t get that [support] if you don’t have the credibility and the buying power. We do have their attention. When you’re spending over $3 million a year in office supplies, that’s significant.”

Look Past Price

Reich points out that LVAIC seeks to buy quality and includes value-added programs that encourage members to buy into the purchasing agreements. “We try to emphasize to the other stakeholders that we’re not out there to buy the cheapest stuff. We look at other things as well: Is it good service, is it good support, is it a good warranty?” She gives the example of Lehigh’s computer agreements that include extended warranties and in-house, manufacturer-trained tech support.

Nor is anyone forced to participate in bidded contracts, says Reich. “People aren’t forced into doing something that would make them uncomfortable and break that trust, that camaraderie. We go out for bid. We let them know up front. If six of 12 say they are going to participate, then they participate and [the others] are not forced.”

For entities such as municipalities thinking about starting their own purchasing consortiums, says Reich, including value-added programs that are important to their members will help them get more members to buy in to their purchasing agreements.

Lees recalls that a municipal group approached LVAIC about instituting a purchasing program of their own. They came to meetings to see what the consortium was doing. It was evident they had the same problems as LVAIC early on. One township would participate, one township used only this vendor, and no one wanted to trust the others. Lees says the lesson here is to get everyone who uses the products and services talking together.

Define Programs

Marushak defines the steps followed by LVAIC Business Services in the formal bidding program. His Project Recommendation Report is an extensive but user-friendly due-diligence model that covers the project from initiation to follow-up evaluation:

Statement of Improvement Opportunity: Identifies the pursuit of a particular project, vendor, commodity, or service.

Available Alternatives: Helps schools identify and decide if the program is appropriate for them.

Conclusions and Recommendations: Gets down to the decision process based on financial and other benefits of the project.

Implementation Schedule and Matrix and Implementation Team Matrix: Drill down to which departments need to be consulted on the decision to move on to the project.

Six-Month and Twelve-Month Diagnostic Reports: Create a follow-up program after the project is implemented leading to renewal, termination, rebid, or reevaluation of a contract for services.

Marushak says that the stakeholders decide if after the evaluation a contract needs to be extended or rebid. “I’m the one who will put the RFP together,” he says, “but it’s really a decision of the stakeholders.” They discuss these issues at every group meeting and make decisions as a group. If the contract is to be rebid, he puts together the conditions and specs and submits the proposal to the purchasing directors for final approval and endorsement.

Stand Together

Conflicts can arise when vendors try to circumvent the system. Citing her tenure at the community college, Lees recalls that the community colleges added their own regulations to state policies covering advertised public bids. When a vendor contacted her and tried to get information on her first coarse-paper bid, using the tactic that community colleges had to release that information, she politely advised the vendor that his request did not fall under the regulations and she did not have to release the information he wanted.

Lees advises purchasing personnel in municipalities to heed the example and educate their departments about ethical purchases. To some, she says, “their idea of a good purchase is just to look for the cheapest price.”

LVAIC, likewise, has been challenged, says Lees. “[Marushak] has to tell [the vendors] that these are the rules and this is the way [LVAIC does it]. This isn’t just the purchasing director telling you this.”

Marushak adds that now everyone is aware of expectations, and if they have questions they know to call the purchasing directors. “There have been times,” he says, “when if a community college wasn’t sure of the practices they had to adhere to, they would not participate. Now they are astute about what they can and cannot do within the context of their policies and procedures.”

The schools can choose to opt out of participating in a project based on internal pressures and expectations or from a community college perspective that it may not meet the litmus test of what they have to follow.

Incorporating performance bonds into bid specifications also can help circumvent conflicts with suppliers.

Marushak cites price increases this year for coarse paper, oil, and resin-based products. LVAIC was able to bypass the price increases because of its relationships with suppliers and how it wrote the bid specs.

“No. 2 fuel oil prices started to go through the roof,” Lees relates, “and vendors who had the contracts said they could not honor the contract prices any more and were going to charge another price instead. People involved in these contracts have to realize they have to stand firm and tell vendors ‘you signed this contract,’ and hold them accountable for it.”

LVAIC refused to pay the increased price and went with the next company that had participated in the contract. “That person to this day still has the contract,” Lees says.

She cites another situation with coarse paper for the schools when substitutions were made and the products did not fit. “The next time [LVAIC] wrote the bid specs, [we said] that there were to be no substitutions. We also wrote in—and here’s the value-added that we look for as a group—that if they sent a substitution without prior permission we would have the right to send things back at their cost and the right to go to someone else for the products.”

By taking this unified stand to protect the schools, Lees says, LVAIC seeks to eliminate problems from suppliers who might look for other ways to circumvent the bid specifications and keep their profit margins intact.

Marushak meets with suppliers, account reps, and executives on a quarterly basis to make sure they cover these issues and to share with them the concerns of the entire LVAIC membership. “We believe in being as proactive as possible to decrease the amount of problems that may occur,” he says.

Centralize Purchasing

Marushak encourages centralized purchasing. “All our schools do have at least one purchasing professional in place,” he says. However, many municipalities may not. He suggests the model in which a dedicated person at each municipality would be assigned to a certain project. By starting small with these
liaisons and building upon their individual successes, the entities eventually will be able to validate the creation of a centralized position.

Marushak outlines the procurement process as beginning with his monthly call for proposals from the member schools. The purchasing directors can present their ideas to LVAIC to see what the consortium can do as a group.

For example, Moravian needed to dispose of old computer monitors that contained mercury and hazardous waste. Marushak presented a computer scrap-recycling program to the purchasing directors, then to the IT directors. He suggested due diligence to identify the departments that would be impacted and to see if there was a need for computer recycling. Next he interviewed several organizations to see who could meet the group’s needs. He drew up terms and conditions of the agreement and presented it to the purchasing directors. They reviewed it, and at this point they could seek legal counsel for even further review and endorsement. LVAIC finalized the contract, signed off on it, and the members started purchasing the service. As a result, LVAIC selected a local company, a decision that aligned with the consortium’s mission to promote business in the Lehigh Valley. That relationship has been so successful that LVAIC is presenting it to a state consortium.

LVAIC also has benefited from an examination of hazardous waste disposal. In this case Lehigh approached its staff in health and safety to assemble a list of suppliers that met the requirements. Responses were analyzed by Lehigh’s certified safety professionals and recommendations whom to select and why were made to the group. Everyone was able to comment on the specs and add what they needed or wanted before the bids went out.

Several schools chose not to participate, but those who did benefited because they could take advantage of Lehigh’s staff expertise and also receive better pricing. Lehigh, the largest of the institutions, benefited from even lower pricing due to the larger volume of participating users. And the vendor benefited from the additional number of local schools participating that in turn generated a more efficient pickup run for the hazardous waste material.

“This is a good example of sharing resources among the institutions,” Marushak explains. “The largest receives better pricing than it would get on its own and the smaller and midsized institutions receive price benefits and the valued expertise of the Lehigh staff.”

“The vendor consolidates his runs and pickups and passes those savings on to us through a price decrease,” he says. “This encapsulates and summarizes everything we do.”

Marushak admits that LVAIC is successful due to the close geographic connection of its member schools, but he believes that because of the way LVAIC has built its culture the members could be miles from one another. “It’s the system we operate under that makes us successful,” he says.

From a vendor perspective, having the group within a 26-mile radius puts LVAIC in a position to maximize savings. “But you can have municipalities right next to each other who don’t even talk.” he says. “We have competition [between] Lehigh and Lafayette, the oldest football rivalry still played, and here they are at the same table buying office supplies together.”

“This isn’t specific with just our consortium,” adds Lees. “The [rival] mentality has to be let go. By working together, everyone benefits. If you keep a vendor to yourself so that you’ll have an edge on me, then you’re not doing the job that you should be doing for your college or municipality, or whatever.”

Study Successes

Municipalities can look to the LVAIC consortium as an example of responsible purchasing. “As a taxpayer,” says Reich, “people look for what their folks are doing to contain costs and at the same time keep services up.”

LVAIC’s savings are clearly documented, Lees explains. “[Muhlenberg’s] president can show [parents] that through the local purchasing consortium we have saved X amount of dollars. As a taxpayer, I would like to know that the person at my municipality buying rock salt or whatever was participating in some sort of joint purchasing organization so that I know my tax money is being used wisely.”

Marushak says that it’s easy to overlook the amount of intellectual capital in LVAIC’s 50 groups. “If you look just at the purchasing directors, we rely on these experts to lead the discussion. That’s the magic that makes us tick. We are able to leave our egos at the door and rely on one another to help us do what’s best for the group, which goes back to our institutions and our students.”

In summarizing LVAIC’s success, Marushak says, “I want to emphasize that no matter what school we work for, no matter how big or how small our schools are, the bottom line is that we’re here to serve our students and to serve the heritage and history of our institutions—past, present, and future. That’s what holds us together.”

The same approach can be applied to municipalities, he says. “They are there to serve their constituents as best as they possibly can, to preserve the history, the present, and the future. Regardless of how close or how far you are from one another, if you can keep that as the basis for your working together, and keep that in mind, I think the opportunities for collaboration are endless.”

 

Editor’s Note: William J. Marushak (left) has served as the Director of Business Services for the Lehigh Valley Association of Independent Colleges (LVAIC) in Bethlehem, PA, since 1999.
Patricia L. Reich, C.P.M., A.P.P. (center), is the Director of Purchasing at Lehigh University, Bethlehem, PA, and an active member of the LVAIC consortium. Elizabeth M. Lees (below, left) has served as Director of Purchasing at Muhlenberg College, Allentown, PA, for eight years and previously as Director of Purchasing, Lehigh Carbon Community College. For information about LVAIC, visit www.govinfo.bz/5195-201, or send correspondence or questions via
e-mail to: marushakw@lvaic.org; par2@lehigh.edu; or lees@muhlenberg.edu.

 

Questions to Ask When Exploring Collaborative Opportunities

• What does it mean to collaborate?
• What are the rules of engagement?
• What is the level of commitment? How much information can/should I share?
• How do I know that I can trust my colleagues?
• Do I have support from the administration to make decisions that impact my group/department?
• How do we measure member loyalty?
• How much additional time and resources need to be allocated to the group?
• Who is going to organize meetings and execute action items?
• How are decisions going to be made?
• What/who is the governing body?
• My institution is small in comparison to others. Does this mean we have less influence on decisions?
• How much is this going to cost?
• Can we do better as a standalone institution?
• We compete for the same resources. How can we possibly collaborate with our competitors?
• What can be done to promote collaboration among competitors?
• We belong to other associations. Why would we want to join/start another one?
• How will the group ensure participation in collaborative projects?
• Does my entity need to participate in all projects undertaken?
• How will the group deal with noncompliance issues?
• Is the mission of the group in alignment with my entity’s mission and value system?

 

Keys to Successful Business Services Collaboration

1. Endorsement and support from major stakeholders
   
2. Incorporation of a system that identifies group collaboration opportunities
   
3. Prioritization of collaborative projects
   
4. Setting clear, concise, and attainable goals
   
5. Establish policies, procedures, and expectations for group engagement
   
6. Understand the culture of each member institution and representative department
   
7. Centralized vs decentralized purchasing
   
8. Quantify the “hard” and “soft” cost avoidance savings for each project