When Washington, D.C., School Superintendent Arlene Ackerman quit her job in May to take the top school post in San Francisco, she gave several reasons for her decision. District of Columbia bureaucracy is dense and Ackerman felt that she was micromanaged by too many people. The payroll system was plagued with problems, and teachers were repeatedly paid late or in the wrong amount.
The final reason? An inefficient procurement system, in which basic orders routinely took months to process. Ackerman told the Washington Post that she had complained about the procurement system—a system out of her control and so slow that textbooks sometimes arrived only at the end of the school year for which they were ordered—for more than two years.
That system might be an extreme case, but frustratingly slow or complex procurement processes are a common problem for school districts—and one the newly emerging electronic procurement industry promises to solve.
Pencils, paper, and toilet tissue could come easier to Detroit schools with a new internet ordering system, for instance. Under a three-year agreement with Office Depot set to begin July 1, principals can expect delivery of an order within 24 hours.
“The schools will be able to go online for the complete catalog of office supplies,” said Jonathan Maples, a DaimlerChrysler vice president on loan to the district. “This will become a role model for how the district hopes to do business in the future.”
Under the old system, principals had to fill out an annual supply checklist. Choices on the order form often were vague, resulting in problems such as schools receiving boxes of construction paper instead of photocopier paper. Long delivery delays were routine under that system, Maples said.
The East Side warehouse that serves the 167,000-student district houses as much as $7 million worth of obsolete equipment and undelivered material, administrators said. Stolen and misappropriated supplies were common problems.
“It’s so antiquated and cumbersome to order all your supplies for one whole year,” Joy Middle School Principal Ronnie Phillips told the Detroit News. “Now, we can purchase supplies whenever we need them.”
The electronic approach to ordering will let administrators track every item purchased, Maples said. The district expects to save about $500,000 in the first year alone through bulk purchases and other discounts, interim chief executive David Adamany said. The district buys $4 million to $5 million in supplies annually.
“We’re finally doing something about the disgrace in purchasing,” Adamany told the Detroit Free Press.
Office Depot handles similar arrangements with Toledo Public Schools and other systems nationwide.
Why buy electronically?
Consumers all over the world have discovered the benefits of buying through the internet, and school purchasers can reap many of the same benefits—convenience, speed, and reduction of paperwork. Buyers can shop whenever they have time instead of being limited to store hours. Once placed, orders are received by the merchant instantly instead of a few days later, as with mail order catalog purchasing. And, with a good computer system, pointing and clicking should be less of a hassle than filling out forms.
As the electronic purchasing business heats up in the education market, the number of firms in the field is multiplying quickly. Among them are office supply stores with large customer bases among schools, new e-businesses that focus solely on electronic procurement, and traditional school supply retailers that have added e-commerce to their offerings.
In addition to Office Depot, office supply stores Office Max and Staples count schools among their customers and offer online purchasing. “Our core audience is the small business customer and the home office customer, but we certainly have school customers as well,” said Office Max spokesman Steve Baisden. The Office Max web site offers “Your Office Max,” a feature that lets regular customers create an online account. With this account, customers can create templates for frequent orders and access reports of their ordering activity over the internet.
Just as with any internet store, buyers at www.officemax.com can search for items and select them for ordering. Orders also can be placed on hold before they are sent—a feature that could be useful to school purchasers, for whom selecting items for purchase and having the order approved usually are separate steps of the purchasing process. Office Max does not offer bulk discounts over its regular prices, but Baisden noted that the prices already are discounted from manufacturers’ suggested prices.
At Staples, school districts can buy directly from www.staples.com with a credit card, just like any individual. Schools also can make contract arrangements with Staples. Contract customers can take advantage of aggregate pricing: As orders from different individuals within a single company or school district come in, they are aggregated automatically to qualify for bulk discounts. Account access can be given to as many people as the district chooses, but before orders are filled, a designated purchasing manager is notified and must approve them. Both stores offer free delivery on orders over $50.
Buying from an office supply store over the internet is usually a straight credit card purchase between buyer and seller, just like those that occur when you buy books or clothes or flower seeds over the internet. In some cases, vendors offer store credit lines in addition to accepting major cards like Visa and MasterCard, but the principle remains the same: Whoever logs on to make a purchase has to have a valid credit card number, and the purchase is usually charged immediately and shipped straight from the vendor to the buyer.
Electronic procurement companies
In contrast, a new rush of companies offers not just online sales, but entire online procurement systems to schools. Instead of selling supplies directly, companies like Simplexis.com, eschoolmall.com, Epylon.com, SHOP2gether.com, KawamaCommerce.com, and DemandStar.com bring together customers and vendors. In addition to supplies, many of them broker sales of services, including landscaping and building maintenance. They facilitate ordering without ever taking possession of the goods. Electronic procurement is nothing new in the business world, but these online procurement sites tailor some services specifically to the needs of school districts.
“We started doing electronic procurement in the small-business market and had a number of education customers, but the system wasn’t quite right for schools,” said Ben Holsinger, education product manager at SHOP2gether.com. “So we built a new system just for schools, using educators’ input.”
Small businesses often have one person doing the ordering and don’t require orders to be authorized by a separate person. But for most school districts, requisition and authorization are separate phases in the procurement process. Small businesses often are content to pay for purchases immediately with credit cards, whereas education institutions tend to have more complex requirements for purchase order management and audit trails. And although there is considerable product overlap in the small business and school supplies markets, some products are different.
Electronic procurement systems differ in the details, but most work in one (or both) of two ways. Some operate as catalogs: Purchasers log onto the site, search for the items that interest them, compare and select items, then submit a requisition order. At other sites, purchasers submit requests for bids, and vendors in the system respond with offers.
With eschoolmall.com, customers log on to gain access to an aggregate catalog of products from multiple vendors. (eschoolmall.com is not affiliated with eSchool News and is not to be confused with SchoolMall, a fund-raising company through which schools receive a portion of the proceeds from catalog sales.)
“Our electronic catalogs are presented in a uniform format, so customers don’t have to keep adjusting to different-looking screens,” said spokeswoman Marlene Petter. Searching for products by product type, supplier, price, or keywords brings up a list of items. Users then can click on any item to access more detailed information on it. The site contains no advertising.
This system offers an advantage over shopping directly through separate vendor catalogs, said eschoolmall.com customer Brenda Bray, business administrator for Pennsylvania’s Palisades School District. “We can cut across several different vendors and compare their products and prices,” she said.
Some electronic procurement companies offer another advantage: They allow purchasers to join forces and qualify for greater volume discounts. With Epylon.com, buyers can participate in an aggregate buying system with other school districts. According to Ted Murguia, vice president of products at Epylon.com, the process works this way:
Through eMail or an electronic bulletin board, a registered Epylon.com user puts out a message stating what kind of goods or services she is preparing to bid on. Other buyers interested in the same goods or services respond, until a buying group is assembled. Once the buying group is arranged, the group’s central administrator (typically an administrator from the school district initiating the bid) gathers more detailed information about the items and quantities of items that group members want to purchase.
The central administrator selects appropriate vendors and submits a request for proposals. Vendors respond with bids, and accepted bids become contracts listing fixed prices for line items. Group members then can requisition supplies from the vendor at contracted prices. Buyers also can participate in a quicker and less formal aggregate request-for-quotes process, in which an administrator quickly would pull together a buying group for an immediate purchase. SHOP2gether.com also offers aggregate buying.
Features tailored to education
The new electronic procurement companies claim to have built features into their systems that correspond to the ways schools do business. For example:
• To meet a school district’s need to have one or more people filling out orders and a different person approving orders, all the major electronic procurement packages incorporate multilevel authorization capabilities. District administrators decide which users receive which capabilities. With Simplexis.com, a teacher or administrative assistant might have an account allowing the user to log onto the site and send a requisition order. Instead of instantly filling the order, Simplexis.com sends an eMailed notification to whoever is designated as the next member of the procurement chain—perhaps a financial manager who checks the order against the budget, or a principal with the power to approve or reject the order. Only when as many people as the school’s system calls for have approved the order will Simplexis.com send it for fulfillment.
• In recognition of the fact that schools districts sometimes are limited to purchasing from an approved group of vendors, many electronic procurement accounts can be customized so that only products from selected vendors appear to users when they log on to shop, or so that requests for bids issued by a school district go only to their designated vendors. With eschoolmall.com, for instance, accounts can be set up so that when teachers log on, their choices are limited to a selected group of vendors, whereas administrators have access to all vendor information, so they can keep abreast of market prices.
• Because procurement procedures and requirements are entrenched and vary from state to state and even from district to district, most major electronic procurement firms work with districts to tailor their systems to district needs. For example, to work with the Palisades School District, eschoolmall.com had to accommodate a Pennsylvania requirement that account numbers appear in a certain format, Bray said.
Electronic procurement companies get most of their vendors from school vendor lists, and once districts are registered, they work with the vendors they have chosen. “Schools buy from pre-selected vendors at pre-negotiated prices,” said Jared Cameron of Simplexis.com. “What we do is transform the purchasing process from an inefficient, paper-based process to an electronic process.”
The companies say vendors are eager to sign on, since doing so increases their accessibility in exchange for a small transaction fee. Since school districts typically approve a group of vendors, vendors are unlikely to pick up a lot of business from new schools by registering with an electronic procurement company. But they might increase their competitiveness with schools that have approved them.
“Our account managers work with vendors to help them stay competitive,” said Epylon.com’s Ted Murguia. “If a vendor is consistently missing bids by a few dollars, we’ll let them know that they might want to adjust their pricing.”
Some sites, like KawamaCommerce.com, are “vendor-neutral,” offering access to multiple vendors without promoting any in particular. Most are free of blatant advertisements, though they might allow some promotional features to vendors. “The vendors certainly want to advertise on the site,” Murguia said. “We don’t have ads, but we do have sponsorships—white papers written by vendors, which are promotional and informational.”
Since electronic procurement companies use vendors suggested by schools and never take possession of the products being sold, they don’t take responsibility for problems between districts and vendors. But most said that if customers were consistently unsatisfied with a vendor’s products or services, some action would be taken.
“Any school district can block any vendor from doing business with them,” said SHOP2gether.com’s Holsinger. “But if we had repeated problems with a vendor, we would probably get rid if it.”
“We don’t play judge, but we have mechanisms on the site for buyers to rate vendors,” Murguia said. “Buyers can check ratings and comments posted on the site by other buyers, and the market will decide.”
Tackling the back end
Of course, ordering supplies is only half the procurement battle. The other half is receiving and paying for goods. Most of the electronic procurement companies working in the education marketplace recognize the need in this area, and they are developing software that will let them integrate with schools’ existing accounting systems.
“Accounting integration requires much more complicated meshing than purchasing systems do,” said Simplexis.com’s Cameron. To use the ordering and tracking functions of most electronic procurement systems, schools need nothing more than an internet connection and a browser. For now, this is as far as most systems go.
After selecting items, authorizing, and placing orders, schools must make their own arrangements with vendors for delivery and payment. With accounting system integration, however, schools will be able to access financial information and encumber funds for purchases as part of the ordering process, easily track items from ordering to receiving, and access payment information through the procurement system, the companies say.
“A company’s ability to work with our financial system is very important,” said Bray. “If we have to take all these purchase orders and re-enter them manually into our accounting system, it’s going to be slow and impractical.” Bray, an eschoolmall.com customer, said that her district does not yet have integration between the procurement and financial systems, but that eschoolmall.com is working on the problem and hopes to implement a solution this summer.
An interesting feature of the accounting integration system being developed by eschoolmall.com is payment by electronic transfer. “When information on received merchandise is entered, the system creates a liability to pay,” spokeswoman Petter said. “Schools choose among various payment options, including electronic fund transfer.” The advantage of paying electronically? “Schools can determine the exact date on which the money will be transferred out of their account,” Petter said, “so they can keep funds in the bank longer.”
The bottom line
School-focused electronic procurement is such a new field that most of the companies in it are barely out of the testing phase. So, there’s no reliable data on how long it will take companies to register new schools and get things running smoothly at new sites, or on whether school districts will realize big savings by using them.
In general, electronic procurement companies make their profit from transaction fees paid by vendors, and most of the services are free to schools. An exception to this rule is eschoolmall.com, which charges school districts $1,000 per year for the service (the fee is waived in the first year). Petter said this fee ensures that schools have input into the continuing development of the service.
“If the vendors were the only ones paying, they would be able to throw their weight around more,” she said. “This way, schools can come to us and tell us that certain things aren’t working, and we’ll listen.”
Proponents of electronic procurement systems say they work much faster and more efficiently than traditional procurement systems. Because orders are transmitted instantly over the internet, less time elapses between the time an order leaves the customer’s hands and the time a company receives and begins to process it. More important, electronic procurement has the potential to reduce dramatically the amount of time schools spend processing orders before they ever get out the door.
All this is said to save schools money as well as time. The U.S. Department of Education has estimated that a single purchase order costs a school district $125 in paper and labor costs, and electronic procurement companies claim they can reduce that number dramatically. SHOP2gether.com says its group-buying platform “is projected to save billions”; Simplexis.com claims that “costs for processing purchase orders can be reduced by more than 50 percent” by using the system.
Not everyone is swayed by promises of savings, though. “They claim there are no costs to the schools, but there is a cost to the vendors, and sooner or later that cost will be passed on to schools,” said Ted Makarewicz, director of purchasing for Georgia’s Fulton County Schools.
Since he purchases for a large school district, Makarewicz already is able to negotiate deep discounts. He also said the current lack of reliable financial system integration to encumber funds when orders are placed could be “a huge problem,” and he doesn’t see enough benefits to offset the negatives.
“I could set up direct online purchasing with almost any major supplier, so why would I want to use a middleman?” Makarewicz said.
Traditional school suppliers go electronic
Indeed, many traditional school suppliers now are on the web. J.L. Hammett Co. and School Specialty Inc. both have embraced electronic procurement, and their internet sites offer functions falling somewhere between straight sales and the more complex capabilities of electronic procurement companies like Simplexis.com, eschoolmall.com, Epylon.com, and SHOP2gether.com.
The venerable J.L. Hammett has been selling school supplies since the 1860s. Of course, the company has changed with the times, and these days you can buy computer accessories along with your erasers and chalk. Changes also have been made in the way that orders are processed. Hammett still has stores and distributes paper catalogs, but purchasers now can log on to the company’s web site to buy supplies as well.
“Our goal is to get to 40 percent of our business coming from online,” Richmond Y. Holden Jr., president/chief executive officer, told Education Week. So far, about 22 percent of the company’s business comes from online sales, according to spokesperson David Marigold.
Once customers register with eZone, Hammett’s electronic ordering system, they can search the database of 22,000 products by manufacturer, subject, or grade the product is used in, price, or keyword. Orders can be “suspended,” or placed on hold, until one or more levels of authorization are obtained. Payment can be made through traditional purchase orders, credit cards, or debit cards. So far, Hammett boasts about 22,000 online customers as well.
Hammett’s eZone also offers some simple budgeting functions. School districts can enter their budget information and allocate funds by line item as they order, and Hammett provides flat file transfers in ASCII format to schools’ accounting systems for free.
Like Hammett, School Specialty Inc. has been in the school supply business for more than a century and now offers eCommerce capabilities. School Specialty’s web site, Junebox.com, sells about 50,000 products from some 2,000 vendors, according to representative Patty Hart. In order to get contract pricing, districts must register with Junebox.com. About 2,000 have done so, and the company is registering approximately 100 more districts per day, Hart said.
“One thing that’s different about Junebox.com is that School Specialty already does business with about 80 percent of the school districts in the country,” Hart said. “So when we register districts to do eCommerce on our site, we’re often transferring existing business to the web rather than trying to recruit new customers.”
In addition to online purchasing and paper catalog sales, School Specialty offers a catalog on compact disc. “Ordering from the disc takes you through the same process as ordering from the site,” Hart said. Staff can access the CD-ROM from school computers, search for items, and create a purchase order. Once an order is approved, it can be transferred from the CD to School Specialty through the Junebox web site.
On their own
Electronic purchasing doesn’t have to mean contracting with an electronic procurement company. And electronic purchasing systems don’t have to be web-based. In Montgomery County, Maryland, district staff developed their own electronic purchasing system, which was implemented in 1994. The system works over the district’s mainframe computer system without having to connect to the internet.
“Teachers and staff enter their orders throughout the day by logging onto the ordering screen on their computers,” said Giles Benson, director of materials management for Montgomery County Public Schools. “In the evening, orders are automatically consolidated, given purchase orders, and sent to vendors by fax.” Even the faxing is done automatically, and copies of purchase orders are automatically faxed to the schools where they originated.
Benson said this system requires less time and fewer steps than the old, paper-based ordering system. “We’re a big district, with almost 190 schools,” he said. “Under the paper system, an order had to travel from the school where it originated, to the procurement office for approval, to the accounting office for encumbrance, to the vendor for fulfillment.”
He added, “We have an internal ground mail system, but at each step, if the mail delivery for the day had already gone out, the order would sit a whole day before even being sent along to the next office. Now, the order arrives in the vendor’s fax machine the day it is entered.”
Order approval and budgeting have been streamlined under the electronic system as well. When users log on to the system, the system detects where they are and pulls up budget information, such as the different budget lines available to the user and the amount of money left in each account.
“If an art supplies account has $5,000 left unspent in it and a user tries to order $6,000 worth of supplies, the system won’t let him,” Benson said. Principals and designated teachers or staff in each school are authorized to approve orders with an electronic signature.
The next step for the Montgomery County school system is purchasing over the internet, Benson said. The district has arranged with a few major suppliers to transmit orders electronically instead of by fax. “That’s the most efficient way,” Benson said.
Eventually, the district will consider signing up with a web-based electronic procurement company. But it will have to be with a company that can offer accounting systems integration. “We don’t want to take a step back as far as financial control,” Benson said.
Which procurement system is right for you?
The explosion of online purchasing systems in the last year means school districts have several choices. When evaluating different systems, keep these questions in mind:
To pay or not to pay?
If cutting costs is a priority for your district, you might be better off using an electronic procurement company that, like Simplexis.com or Epylon.com, is free to schools. On the other hand, if you can afford the $1,000 fee, you might have more leverage with a company such as eschoolmall.com, for whom you are a paying customer.
Is the system easy to use?
One of the virtues of electronic purchasing is supposed to be its power to save time and aggravation, so test several systems and pick one that lives up to this promise.
Will it integrate with your accounting system?
Especially in larger districts, this could be a crucial point if you want to avoid entering by hand thousands of orders into your accounting system. Most electronic procurement companies are developing systems integration products, but question them closely to find out if and when you will be able to use this feature with your existing accounting software.
Contract pricing system or aggregate buying group?
Whether you’d be better off with a bring-your-own-contract system or a company that offers aggregate buying depends largely on the size of your school district. Are you big enough to get good discounts under your own power? If so, you might be better off with a simpler system that lets you shop from an online catalog and buy at contract prices individually negotiated with vendors. Is your district so small that you have little negotiating power? Then you might consider a company that lets you combine your needs with other districts before purchasing.
Single-vendor or multivendor system?
The answer to this depends on how much you want to shop around. If you tend to do most of your purchasing from a single company, such as School Specialty or J.L. Hammett, and you’re satisfied with the prices you get, it might be easiest to sign up as an online customer with one of these companies. If you like to comparison shop on every purchase, you might choose a system like KawamaCommerce.com, which lets you compare bids on a coordinated form.