MEET A PURCHASING ENTREPRENEUR

Peter Russo has been an entrepreneur for more than 20 years. His hands-on experience is diverse—
everything from founding start-ups in his basement, to serving as chairman of a venture-owned
turnaround, to licensing products to billion-dollar companies. He has opened design, sales, and
distribution offices in both China and Japan, overseeing the transition of production and materials
supply from the United States to China. Russo has also created production methods that are
proprietary to the United States, successfully defending them against competitors with overseas
sourcing. He’s set up direct consumer selling systems and has developed and sold hundreds of
products to America’s largest big-box retailers, such as Wal-Mart, Toys “R” Us, and Petco. So, what
could entice this serial entrepreneur to leave his own business and become the director of
purchasing at Babson College? Considering that Babson has the premier entrepreneurship program
in the country, according to U.S. News and World Report, it’s a perfect partnership. The academic
world has traditionally been characterized as somewhat rigid and bureaucratic, following traditional
rules and regulations engrained by decades of use or imposed by state legislators, boards of regents,
or other governing boards. Purchasing is no exception. It, too, operates in a clerical, paper-intense
atmosphere. But true to the very definition of an entrepreneur, Russo believes there is always the
ability to innovate, so he decided to come to Babson. “I undertook the challenge only because
Babson encouraged me to take a fresh view,” says Russo. “They recognize that providing superior
service and value can only be achieved by thinking of supply management as an entrepreneurial
business.” Russo’s approach was to evaluate college purchasing in the same way he evaluated
consumer products. “Buying can usually be segmented into buying processes and customer groups,”
says Russo.

In this discussion, Russo focuses on three buying processes and their associated customers:

1. Automated buying. This empowers the customer to independently purchase and manage
material from a defined inventory. Office supplies are the best example of this type of purchase.

2. Competitively bidded buying. This requires the research and evaluation of multiple options to
determine needs, best price, and service levels and is sent to multiple suppliers soliciting their bids.
Examples in this category include desktop printers, kitchen equipment, software, and construction
materials.

3. Contracted services. This buying process involves using the expertise of suppliers that team with
the college to provide products used on a daily, ongoing basis, such as dining services and books.
“Our purchasing department is no different from most companies in the private sector,” says Russo.
As he sees it, today’s challenge is twofold:

1. Leverage technology to simplify and automate repetitive activities while capturing and
disseminating information/knowledge.

2. Maximize strategic alliances for best practices and supply management in areas that are outside
its expertise. Russo goes on to explain how Babson’s purchasing group plans to address these
challenges.

PREPARING FOR CHANGE

Among Russo’s first endeavors was to reinforce the idea and benefit of centralized purchasing,
operating on a foundation of service. “Creating an effective, efficient process requires consistent
campuswide use,” says Russo. “To achieve this goal, our purchasing department would have to be
recognized by our customers as capable of reducing complexity and adding value, knowledge, and
skill to the process.” In the past, the typical purchasing process was initiated with the customer
coming to the purchasing department with a product and supplier already selected. Overall, the
process was manual, with hand-completed paper forms and little use of technology. Everyone knew
that before a purchase order was placed for any significant buy, policy required three bids to be
received by the purchasing department. Some thought this process turned the purchasing
department into the “purchasing police”—a mindset that Russo feels can be avoided with the
proper buying processes. “We want to be viewed as fast and flexible, with creative solutions to
sourcing,” he says. Russo inherited an experienced team, led by two veteran staffers with extensive
college purchasing experience. “I’m very fortunate,” he says, “to have a staff that’s not just talented
and experienced, but service minded.”

Russo and his team evaluated and modified the buying process to meet the desired format of the
customers, but he felt it would also be critical to increase the campus awareness of each new
service. Russo also wanted to communicate the staff’s knowledge and professionalism. He and two
key staff members are currently taking certification training to become Certified Purchasing
Managers.

Raising the bar higher, Russo has set his sights on attaining the new Certified Professional in Supply
Management (CPSM) designation. “Many of our customers have advanced degrees,” says Russo. (It
should be added that Russo considers everyone on campus a customer.) “We are obviously in an
environment that values expertise,” he continues, “but it takes more than education. It takes
motivation to enhance credibility. We need to continually increase our level of knowledge,
professionalism, and service.”

TAKING CHARGE OF PROCESS IMPROVEMENTS

In his first few weeks at Babson, Russo realized that his purchasing manager, Anne, and his buyer,
Kerrie, were very good at administering the process that was in place. “More importantly, they were
well respected by the customers on our campus,” he adds. “But I realized that the antiquated, paper-
based system they were using needed updating. It was too labor intensive and dependent on the
staff’s personal knowledge.” The system was weighed down by lengthy procedures and minimal
automation, with no capabilities to assimilate current technology-driven processes, thereby
creating two obstacles. First, Russo’s team was prevented from fully leveraging group buying
efficiencies or maximizing product knowledge. Second, Russo was concerned with “what if?” Should
one of the purchasing team leave for another job, a major setback would be inevitable. Speaking
with his team, Russo discovered that day-to-day operations required 100% of their attention,
leaving little time to enhance the purchasing process. He quickly learned that his talented staff was
drowning in paperwork and telephone calls. The inspiration came in the form of a question: What
would you do to fix what isn’t working? “My staff really had knowledge of which processes were
effective and which needed changes. In many instances they had started to lay out solutions;
however, limited time and resources kept the realization of these improvements on perpetual hold,”
says Russo. “I also believe,” Russo continues, “that an effective purchasing process is built upon the
customers’ desired buying behavior. We realized it was not effective to force customers to change
their behavior to meet a purchasing process. Our first steps were to prioritize our objectives,
establish our strategies and timelines, and outline measurable goals. Next, we quickly determined
what actions could reduce their current workload without risking service levels, so my team could
focus on enhancing the process. Then we went into action.” Russo empowered his staffers to get
the job done, then let them be. After just six months, their progress was impressive!

AUTOMATING THE EVERYDAY

Kerrie focused on the automated buying processes. She spent many hours at the computer, creating
an interactive purchasing website for both internal customers and suppliers. When it’s up and
running, a new era will begin. Gone will be manual entries and multiple data inputs. POs being faxed
across campus and then re-entered by hand into the system will finally be a thing of the past.
Customer-friendly, user-driven resource pages will also be in place. The campus will have a master
supplier list with links to company websites, eliminating the time-consuming search for basic
products and suppliers. The suppliers will also benefit, with access to complete information on how
to do business with Babson and forms for each online process. Best of all, every aspect of the
website can be continually refined, adapting to the appropriate circumstances.

As their workload is reduced by automation, both the purchasing and accounts payable
departments will be able to explore new, improved ways to serve customers.

CLOSING THE BACK DOOR

The underside, if you will, of Babson’s entrepreneurial culture is the action-oriented independence
of its internal customers. Supply management channels are often overlooked by those who believe
“we know what we want, so why do we need central purchasing?” The result has been multiple
purchasing of single-need items, lack of safeguards, inconsistent pricing, and contracts. Russo’s
goal? “To maximize our department’s ability to leverage campuswide buying power, benchmark
resources, negotiate better terms, eliminate duplicate spending, and manage contract services.” He
adds, “We haven’t forgotten that faculty and staff want maximum freedom in sourcing, so our
challenge is to preserve their independence—and still improve the way we manage the $145 million
in college spending every year.”

Anne put her efforts behind improving the competitively bidded buying process. She started
evaluating current campuswide strategies for products and services that were previously made on
a single-purchase basis. A great example of this is the snack vending machines. Around the Babson
campus, there are many snack vending machines. Each of these machines was purchased on an
individual, as-needed basis. The result was a total of six machines, bought at six different times.

More importantly, Babson received no financial incentives, such as a percentage of sales for allowing
the suppliers to put the machines on campus. Often the machines had malfunctioning card
readers—a problem Babson seemed powerless to impact with so little supplier leverage. Taking a
strategic approach, Anne re-evaluated the customer need for campuswide snack vending. She
started with a survey of the customers’ buying needs.

To develop a new strategy, Anne also evaluated headcounts of residents and office staff, studied
traffic flow, and benchmarked her findings against other schools. This effort culminated in a request
for quote (RFQ). An RFQ is a document provided to bidding suppliers which details exacting
parameters of the goods or services being requested. For example, an RFQ from snack suppliers
might include details like number, kind, and location of vending machines; snack prices; method and
timing for refills—even issues regarding potential vandalism are covered. This provides the suppliers
with all the specifics on which to base their bids and, later, the contracts. The result is that now,
Babson will have just one supplier that will manage approximately 22 machines, and a
comprehensive card payment system. Babson will enjoy shared profits— and online live tracking of
snack purchases by machine!

Another effort Anne developed a travel portal to help faculty, staff, and alumni access discounted
flight deals, hotel rates, and special promotions. Anne is also preparing the launch of a beta test for
a new procurement card system, allowing customers to make adjustments to a general ledger prior
to posting online expenditures. Not only will this allow users to better manage their budgets, but
the time spent by the purchasing department making adjustments will be reduced by over 20 hours
a month.

DEVELOPING NEW RELATIONSHIPS

Although the traditional college purchasing process presents both challenges and rewards, Russo’s
enthusiasm peaks when he talks about contract services. He draws from his pre Babson decades
and recalls that finding the right partner was crucial. Leveraging a supplier’s expertise, whether it’s
in raw materials testing or third-party fulfillment and distribution, was a major tool in realizing
success. The common perception is that outsourcing reduces supply options and service
management flexibility.

Russo feels differently. “It actually increases capabilities,” he says, “as I can leverage the talent, skills,
and assets of both Babson and the supplier.” As a modestly funded entrepreneur, Russo often called
on suppliers to perform functions that would traditionally go to a key department in a larger
company.

In order to make this “outsourced/in-house operation” effective, a cultural shift must take place.
Suppliers need freedoms and restrictions, as well as incentives and guidelines that are similar to
those of an internal department. “I try never to fall into the trap of thinking that the customer is
always right, or that the supplier is holding out and can always do better,” says Russo. “Once you
replace ‘us’ and ‘them’ with ‘we,’ the returns come in multiples!” Russo’s relationship-building
philosophy is practical and powerful:

• Get a tight contract agreement, stating even the most basic terms. Who gets what, as well
as when, where, and how they get it. When facts like this are unclear, the relationship can
suffer.
• Set a tone of collaboration and teamwork. When suppliers realize we’re all on the same
team, they provide revolutionary new products, enhance production methods, and even
reduce their prices—voluntarily!
• Fight for supplier rights, protect them in company-driven experiments, help to train their
employees, and collaborate on improving their companies! In short, make sure you
understand and respect their company’s mission, goals, and objectives.
 • Together create goals, measurements for success and a communication system that assures
clear and constant understanding of action steps and timing. Establishing such strong
relationships with suppliers has often resulted in lifelong friendships for Russo. Ironically,
these friendships have made it easy to terminate professional ties when the alliance is no
longer working. “Cooperation and communication at that level ensures that there’s no
mystery about performance requirements,” Russo adds

CASE SOLUTION

With a classmate, carefully read the case study of "MEET A PURCHASING ENTREPRENEUR" and
answer the following questions:

1. Why Russo decided to be on the purchasing teem at Babson?

2. What are the three buying processes in which he focused on? Describe it?
3. What were the main problems related to buying process?
4. Describe the steps Russo and his team followed to improve the buying process?
5. How did Anne solve the problem about a snack vending machine?
6. Do you think Russo followed the purchasing objectives? Explain your answer.

Please attached a PDF file with your answers, including a front page with your names.

Remember:

• Assignments turned in after the due date will be penalize.

• To earn full credit questions should be answer thoroughly and correctly.