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Harvard Pushes Bulk Buying Effort

Alums say savings could run to $100 million

By Elisabeth S. Theodore, Crimson Staff Writer

A year after a consultant told Harvard it could be saving millions by buying in bulk, the University is moving forward with a number of cost-cutting measures and is contemplating streamlining other administrative functions.

Officials leading the effort say it’s being received well across the University, but several prominent alums continue to argue Harvard could be saving more.

At issue is Harvard’s traditionally decentralized structure, in which each of its schools operate independently.

The consultant’s report confirmed what some had been saying informally for years—that by making purchases on a school-by-school basis Harvard was pulling its punches and not using its size to negotiate better deals.

Now, in the wake of a recent deal with IBM that will save around $3 million a year, officials are negotiating deals on a host of other purchases from airline tickets to cement, travel and construction materials.

The Savings

University President Lawrence H. Summers says that when he took over two years ago, he realized Harvard was headed for tougher financial times and began to take steps to save money.

He commissioned a report by consulting firm McKinsey—at an educational discount—to suggest where potential pork could be cut from the University budget.

According to Vice President for Finance Ann E. Berman, the report said Harvard could save $15 to $30 million a year by combining its purchasing power. Particular areas of focus included information technology, construction and printing.

Though relative to its $17.5 billion endowment, these sums sound like pocket change, Summers and others say that they would actually make a tremendous difference, as the University aims to only spend the interest it earns on the endowment.

“Every million dollars per year we save is the equivalent of $20 million for the endowment, so it’s a very high leverage activity for the University to realize,” Summers says.

In the PC deal—the first to be completed under this new effort—Assistant Provost Daniel Moriarty brought together IT officers from each school to plan a discount deal on laptops, desktops and servers. IBM, he said, offered the sharpest discounts in a competitive bidding process that involved other prominent manufacturers.

“Different schools were potentially cutting deals with different companies,” Provost Steven E. Hyman says of the pre-IBM era.

Every dean has signed on to the new deal, and Moriarty, who is Harvard’s chief information officer, estimates the savings for the University will be between $2.5 and $3.5 million a year, depending on the volume of purchases.

Berman is working on negotiating discounts on travel arrangements and says she hopes to conclude a deal on construction materials within a year.

And the University has hired an outside firm to find cheaper printing prices for its many publications, based on the combined volume of its eleven schools.

Berman, Summers and others say it’s too early to measure the full benefit of these efforts, but that they are optimistic they will make a difference.

Where Harvard has made University-wide contracts—a deal for office supplies was already in place before the McKinsey report—it has seen broad compliance, Summers says. 75 to 90 percent of applicable purchases were made through these contracts.

Alumni Pressure

But for a group of alums—who bring big-names and fat checkbooks to the table—these efforts fall short of their potential.

Some alums have been stewing about lost purchasing power for years. But after what they call encouraging signs that accompanied Summers arrival, they intensified their lobbying campaign, meeting with Summers, Hyman and members of Harvard’s Governing Boards.

As an offshoot of their campaign, a February New York Times article chronicled their efforts.

The article revealed that D.C. lawyer John B. Henry II ’71 and former Democratic senator Timothy E. Wirth ’61, wrote Summers in February arguing that the University should be saving far more using competitive pricing—between $100 and $250 million dollars annually.

“Harvard has the opportunity to save at least the equivalent of the income generated from the recent Harvard capital campaign, and, if we are lucky, perhaps even more,” Wirth and Henry wrote.

Henry and Wirth argue Harvard is being too selective and too flexible —Summers should institute mandatory, “across-the-board competitive sourcing,” they wrote.

As of now the University is only focussing on the individual priorities McKinsey highlighted and is allowing schools to participate at their discretion.

According to Berman, McKinsey said 40 percent of the total $1 billion Harvard spends on goods and services cannot be bid on competitively.

Services like legal counsel, where expertise rather than price is paramount, and real estate, must be purchased individually, she wrote in an e-mail.

Summers and Berman say that mandating the schools’ participation in purchasing plans would bring no added windfall.

“We appear to be getting the available benefits [of competitive pricing],” Summers says, adding that a study of other organizations’ purchasing plans confirmed Harvard’s decision.

But Henry and Wirth, as well as other concerned alums, say that Harvard’s projected savings don’t realize the full potential of centralized procurement, which can only be determined by soliciting bids on the entire $1 billion worth of University contracts.

Robert C. Waggoner ’58, a former chair of the Visiting Committee on the College and a co-chair of his class’ fundraising drive, says he would be “surprised” if a full effort resulted in less than $100 million in savings.

“I don’t think we really know,” Waggoner says.

But Waggoner dismissed more conservative estimates. “A typical reaction by the manager of an independent fiefdom always is there aren’t these savings to be obtained,” Waggoner says.

He echoes the sentiments of other alums, when he explains one root of his concern. “No one wants to give money to an organization that’s being spendthrift,” says Waggoner, who himself has endowed a economics professorship.

Centripetal Motion

Savings aside, the new purchasing plans come as part of an effort by Summers to rein in the highly autonomous schools and get them to work together where it’s to their benefit.

Where efforts in the academic realm have at times been met with resistance, Summers has succeeded in convincing the schools to budge on administrative matters—like the purchasing plans—University officials and some of the alums agree.

“Larry’s leadership has been essential,” Moriarty said of the IBM effort. “Having that kind of support behind this, [saying] ‘Let’s really talk through why it makes sense to think about a collective action here,’ is very important.”

According to Hyman, the University is now looking to go beyond these first steps and perhaps consolidate further.

Moriarty recently convened a meeting of schools’ administrative deans to consider how smaller schools might combine administrative procedures to save money, Hyman says.

“They’re making lists of places where they would like to share expertise or rely on one school as a service center so they’re not duplicating projects,” Hyman says.

C. Boyden Gray ’64, the White House counsel to former President George H.W. Bush, has pressured Harvard on this issue as well. He says Summers’ efforts at administrative centralization seem logical despite over three centuries’ worth of tradition.

“The historical tradition of each tub on its own bottom has served Harvard very well in terms of academic excellence, and I certainly don’t think they ought to give it up in terms of how schools go about their primary task of picking faculty and admissions,” Gray says. “But for bricks and mortar, for purchasing, I don’t think they sacrifice any of the values of that historic policy.”

—Jenifer L. Steinhardt contributed to the reporting of this story.

—Staff writer Elisabeth S. Theodore can be reached at theodore@fas.harvard.edu.

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