Procurement methods go to the head of the class in the Pennsylvania State System of Higher Education
There is a small group of procurement leaders who have made the jump from running government procurement teams to running a higher education procurement shop. Invariably, they love it. They talk about the ability to feel a part of the mission when they are on campus and can see the fruits of their labor when they eat in the dining hall (food service, kitchen equipment), walk across campus (landscaping, facility maintenance) or attend a sporting event (sporting goods, concessions, the mascot’s uniform). Ask any of them what’s the biggest difference between government and higher education procurement and they’ll tell you that the latter is marked by an incredible degree of decentralization.
In working with higher education procurement leaders for a decade and a half, it has always been a given that decentralization was a fact of life on campus. So, when I talked a month ago with Jenny Doherty, the chief procurement officer of the Pennsylvania State System of Higher Education (PASSHE) and she told me that just a year into the job, the purchasing staff from 13 campuses in the PASSHE system now reported to her, I did a double take. To pull this off in five years seemed unlikely, but to do it in a year seemed impossible.
If the PASSHE transformation story was a movie, it would start on a brisk winter day in January 2019 when one of its costars, PASSHE Vice Chancellor for Administration Sharon Minnich, strode into the system’s headquarters in Harrisburg, Pa. Minnich came from central casting as a public sector change agent: a Master’s Degree from the elite Fels Institute of Government, highly accomplished procurement head for the Commonwealth, stints at SAP and Deloitte Consulting in government transformation, and most recently, a state cabinet secretary leading the biggest groundbreaking organizational and HR changes Pennsylvania has seen in generations (not hyperbole!).
While the change that Minnich and Doherty led was accomplished in record time, it was years in the making. Like many publicly funded university systems, PASSHE faced tremendous financial pressures.
Minnich explained that a primary impetus for the “system redesign” was a need “to get the universities to a more financially stable model for the future, because we had been historically losing enrollments. The demographics have been declining because of the lower high school graduating population. And with increasing costs as we were raising tuition and room and board, you started to see this gap in terms of students coming into the system schools. So, the redesign was really [intended] to look holistically around what we could do to redesign the system to better function for the students now and in the future.” Savings from improving operations like procurement could help slow down the cost of education, keeping college affordable.
The roots of change at PASSHE came from the university presidents themselves. Together with Minnich and a new chancellor who arrived a year earlier who were intent on building collaborative bridges with the campuses, the presidents committed themselves to a system redesign process that would build more centralized shared services organizations for procurement and HR.
Procurement redesign was three-fold—launching strategic sourcing for high-spend goods and services contracts used by the schools, standing up a new shared services organization, and implementing new technology to enable automation and process standardization.
Minnich presented the plan to the PASSHE Board in October of 2019 and was working on laying the groundwork for all three initiatives when the world changed in March 2020. When the COVID pandemic hit, “the university presidents said, ‘We need to move and we need to move faster than we were intending to move,’” said Minnich. They realized that “they needed to make changes, and their schools were shifting to no students on campus and not sure when they were going to go back.” The presidents now were asking how they could drive down costs and still provide services to students.
While widespread change occurs when stakeholders pick up and embrace the mantle of change, big change in the public sector happens with active support from senior leadership and a credible, effective and hands- on project owner to drive it. A few months after the onset of COVID and the decision to speed up the system redesign, Doherty joined PASSHE as director of procurement shared services.
Doherty had spent her career in the public and private sectors leading procurement transformations. She was a consultant at Pittsburgh-based FreeMarkets before joining the Pennsylvania Department of General Services (DGS), where she led a strategic sourcing effort that aggregated the demand of state agencies to reduce cost and increase opportunities for diverse businesses.
“We needed to bring somebody in who could lead the vision forward, who understood procurement services, how to create that professional procurement organization and to lead that transformation. She was critical to making all three initiatives successful. Without her, I think it would have been a much, much more difficult journey to go on,” said Minnich.
Unlike many of her peers, Doherty had no experience running a university procurement operation. “I’m respectful of the practices and the procedures and the importance of working very closely with our legal counsel, but I wasn’t overly sensitive to the culture of higher education because I didn’t know it,” said Doherty. “I think that is part of why Sharon and I were able to come in without a higher ed experience [and be successful] because we had the public experience but weren’t overly sensitive to the dynamics of a higher ed organization.” The traditional culture of decentralization that had ruled PASSHE procurement for decades was not something the new leadership team had internalized, so they weren’t limited or constrained by it.
Doherty was able to successfully cut through the objections from stakeholders who may be resistant to change. She credits her experience with the state which gave her confidence in this new role. “Coming from the Commonwealth where we made big changes, I knew the art of the possible and that it could be done. I had already learned in public procurement that just because somebody says you can’t do something doesn’t mean you can’t. Ask for the policy, look at it, challenge the status quo. There’s always fear of change, but we can work through that,” she said.
Every change agent needs a few allies and Doherty had that in Jeff Mandel who ran procurement at PASSHE’s Bloomsburg University, and was a longtime advocate for shared services and strategic sourcing within the PASSHE system.
“I could see it at the university level, and I could see it at the system level. There were many opportunities where we could see spend across universities with same vendors where we tried to apply leverage or synergy on those spend opportunities and solicit and/or contract on behalf of all the PASSHE universities where it made sense,” said Mandel.
Years before the system redesign initiative was hatched, he had begun building informal collaboration bonds with other PASSHE schools in the eastern half of the state. Three years ago when Bloomsburg’s neighbor, Mansfield University was down to one buyer. Mandel and Bloomsburg agreed to take on Mansfield’s purchasing responsibilities. One by one, three other eastern schools came to Bloomsburg as they became short-staffed. Before long, five PASSHE universities relied on Bloomsburg for much, if not all, of their procurement needs.
Thanks to Mandel, “you had a lot of the concepts in process for many years and [Mandel] had been trying to move them forward,” said Minnich. “So, when the redesign came, we leveraged what he had done. The plan was to create two regions—eastern and western— that serves groups of universities regionally,” with a third team reporting directly to Doherty that managed system-wide contracts.
As the plan for developing this shared service organization began, a potential stumbling block was that every purchasing head on the 14 campuses had a director title, the same title as Doherty’s. The team needed to develop a new role for these long-tenured procurement leaders. Fortunately, the mission of the new procurement organization lent itself to the development of a number of leadership roles. Doherty changed the orientation of the purchasing staff. Previously, the staff at each campus was focused only on serving the needs of that campus, whereas now the orientation switched to a commodity- specific model. A buyer’s role was to manage all procurements for a specific set of commodities (materials, IT, services, construction), regardless of which campus needed it. And to manage these commodity teams, Doherty needed commodity leads—a perfect fit for the former directors.
Starting with the loose collection of schools that Mandel had organized in the east in October 2020, PASSHE gradually added a few schools at a time to the eastern regional team, headed by Mandel. In January 2021, Doherty began pulling the western schools into a team with the last one brought on in March. By the end of the process, the purchasing staffs all now reported to a central purchasing director.
But just as the purchasing staff was aligned, a related and important personnel challenge emerged with the legal support. Previously, every campus had its own procurement counsel. And while it planned on managing a huge number of transactions going forward, PASSHE procurement didn’t want to coordinate with 14 lawyers. Ultimately, the eastern and western regions each were aligned with a dedicated legal counsel as was the third group that manages system-wide contracts.
As Doherty and the team begin ramping up their sourcing activities, they were mindful of the consequences of a switch from local, campus-centric purchasing teams to a broader team with enterprise- wide responsibilities. Many of the universities are in rural parts of the state where the school is a significant driver of economic activity. And the purchasing staff’s role was to support the priorities on their campus.
Mandel said, “Their first and foremost priority and direction was to serve their respective universities and what they thought their constituents at those universities needed. Even from a reporting structure, obviously, all of those [university purchasing] directors and their staff reported to those universities. So that was their primary stakeholder and that was their primary viewpoint.”
The PASSHE team acknowledges the need to strike a balance between buying from local suppliers and the benefits of buying in bulk from larger providers. Ultimately, however, the burning platform is the pressure to drive down costs to keep college affordable for middle- and lower-income Pennsylvania families. And as they point out, being able to attract those students to the PASSHE campuses is itself an economic multiplier for those communities. Even if the halls of their dormitory are cleaned by products sold by a national distributor, those students are spending money in restaurants and stores in those towns, and their parents are staying in local hotels when they come to visit.
Doherty credits the changing work environment brought on by COVID in accelerating the acceptance of the new shared services organization. “The employees have the option to be virtual, and everybody was already working virtually when we started this. Work- from-home remotely was already a proven concept thanks to the pandemic. So, building this procurement shared services organization with people across the whole state, working virtually seemed natural. We have gotten questions lately asking if procurement people are coming back to the office because the rest of the campus has to go back to the office. And I’ve said, ‘no, not if they don’t want to.’ We committed that they would have the flexibility as long as their supervisor was okay with it. If being in an office could tug at the loyalty of the buyer back towards their campus, working remotely made it easier to accept their new role reporting to the central procurement office.”
For many organizations and many leaders, one change of this magnitude would be enough. But PASSHE had another critical procurement project that needed to be undertaken—an upgrade to its eProcurement system. PASSHE had been using SAP’s standard system that dated back to 2005. As Minnich said, “It’s still a bit antiquated. It didn’t have all the tools that a modern eProcurement system had. We were looking for a way to automate procure to pay because all of the invoices were coming in on paper and going to accounts payable, who was doing the data entry. So, we were looking for a tool that would be able to give us a two-fold benefit.” The new system would generate efficiencies on the payables side and “give us better spend data to help drive down the costs going forward,” as PASSHE could use it to make better decisions and better leverage their spend.
There were two options for how to sequence the launching of the shared services and eProcurement implementations—sequentially or simultaneously. Minnich opted to do them in parallel.
Implementing shared services meant training the entire purchasing staff on a new set of standard processes across the new organization. So, it was logical to teach them at the same time the way to use the Ariba system. In combining the two implementations, Minnich and Doherty unearthed some practices that were in need of reform.
“We’re discovering inconsistent payment [processes] across the universities that are funneled into our new system,” said Doherty. As she and her team dug deeper, they found $37 one-time purchases were treated as requisitions in the system as were $99 payments to referees. Implementing the new system made Doherty, “think through thoughtfully what the long-term process is for these payments.”
While leading two change management efforts at the same time made it more intense, it narrowed the window when the organization had to live with change.
“We’re all one team now,” said Minnich. “So, it’s like we’re in it together and we’re learning the new tool, we’re learning the new organization. So, to me it was the right answer. It’s definitely tougher, but I think it’s more of a short-term challenge. Did we have a lot of bumps? Yes. But if I had to do it again, I would do it the same way. Once you embark on change, you’ve got a group that’s focused on it and [Ariba] is just the tool that’s going to enable it.”
As it has to so many organizations, COVID presented an existential crisis to the PASSHE system. But the PASSHE team, led by Minnich and Doherty, responded to this crisis with one of the boldest procurement transformations on any college campus. Time will tell if the changes bring about the necessary cost savings, but their achievements in bringing about those changes are indisputably impressive.
David Yarkin, the former chief procurement officer of Pennsylvania, is the president of Government Sourcing Solutions, a consulting firm that works with 34 states and most large cities, counties and schools, helping them save money through cooperative contracts. Email David at [email protected].
Editor’s Note: This article originally appeared in the Second Quarter 2021 issue of Government Procurement.