Conducting line item spend analysis has given Oxford University the negotiating power to move away from adversarial supplier negotiations, said the university’s head of purchasing.
Line item spend analysis included taking into account every individual purchase, classifying them, identifying who made the purchase, what department it was for and what supplier was used.
Mark Bowen, director of purchasing at Oxford University, told delegates at this year’s LUPC & SUPC Conference that the detailed information his spend analysis has provided enabled the university to increase order volumes by consolidating suppliers and providing more negotiating leverage to make sustainable savings.
“You will get lower pricing from suppliers if you commit volumes,” said Bowen.
Line item analysis has shown Bowen the exact market share a supplier has in any particular purchasing category, allowing him to offer his suppliers contracts of larger volume in exchange for per item cost savings.
“When you’ve got this kind of data behind you, it does become much easier to have these discussions,” said Bowen.
Giving an example he added: “Because although we spend £42,000 a year with you, your opportunity is that we also spend £62,000 with supplier X in the same category, and £18,000 with supplier Y in the same category. So although you’ve only got £42,000 of university spend, the potential is for you to double that.”
The ongoing information that spend analysis provided has enabled Bowen to make sustainable savings by consolidating the spend of different departments.
He also described the challenge of convincing academic stakeholders of the value of centralised procurement.
When the university consolidated purchasing of GE manufactured medical equipment to a single supplier, Bowen said they made a 10% saving. “The supplier that was selected saw a 220% in sales on GE produces,” he said.
When the contract came up for tender again they made an additional 8% saving. Bowen said this was partly “because the data was a lot better”, but also because “the other people who used to sell the GE [products] suddenly didn’t sell any at all [and] decided they wanted to win that back”.
The savings the procurement team are achieving makes them an investment, Bowen said.
“With line item data, better information,” he added, “you can talk to suppliers on a much more even footing, and there is a lot of money to be taken out of our costs.”