Reference no: EM132198214

METROPOLITAN UNIVERSITY

In early March, senior buyer Daniel Bluestone was reviewing information he had collected about the purchasing function at Metropolitan University as part of his first major work assignment in the university's purchasing department. Much of the data suggested that adequate controls did not exist for the order process.

Metropolitan University

Metropolitan University was a private educational institution located in New York City. Last year, the university's twenty-two schools, 25,000 undergraduates and graduate students, and 6.000 employees occupied 390 buildings on a sprawling urban campus.

The Purchasing Environment

University policy clearly stated that all buying responsibility rested with the purchasing department, and gave the department a classic" charter to obtain the best price and delivery for needed materials and services.

In the calendar year just passed, 30,000 purchase orders were issued, with an aggregate value of $35 million. Both the number of individual orders and the dollar value had been growing at an annual rate of 20 percent, and it was expected that this would continue for the foreseeable future as the university maintained its planned expansion. A new $150 million capital improvement plan was under consideration.

The purchasing organization consisted of thirteen people, six of whom had specific commodity buying responsibilities. Department headcount had not changed in four years because of strict budget constraints imposed by the university administration. When there was an occasional vacancy, attracting qualified purchasing professionals to the academic environment was difficult.

Purchasing faced an increasing sophistication of the supply and service needs of the Metropolitan community as technology levels rose. Greater buyer breadth and expertise were required just to stay current with user demand. The purchasing department was using temporary personnel and student aides to stay current with the workload.

Three months ago, Daniel Bluestone carne to the university with about a dozen years of industrial procurement experience. When he was hired, the director of purchasing asked him to take on a six-month overview assignment to look at current purchasing policy and procedure.

The Purchase Order Process

The purchasing system at Metropolitan University was paper-based and manually operated. When a need was identified, the requester filled out a preprinted and prenumbered requisition form, obtained necessary approvals, and transmitted the completed form to purchasing. Blank forms were widely available.

Incoming requisitions were sorted by commodity area and given to the appropriate buyer on a first-come, first-served basis. No priority was assigned and each requisition got the same attention. Buyers would complete the purchase, adding their identifying letter code to the six- digit number already on the form.

Receiving documents and invoices were matched with purchase orders in the purchasing department, sent to the requisitioner for approval, and, subsequently, to accounting for payment.

The Control Problem

Requisitioners complained that purchasing was not responsive to needs, was taking too long to handle emergencies, and was unable to provide status information on requisitions and purchase orders in process. The situation at the present time was such that a significant number of requisitioners had "broken” the buyers' letter codes, and were beating the system by adding the appropriate buyer code to purchase orders and placing their own orders directly with suppliers.

Suppliers voiced common complaints that payments were continually late, and that questions about invoice status went unanswered.

Daniel Bluestone felt that the rest of his six-month departmental analysis project would be wasted if purchasing management did not address the control issue immediately.

Answer the following:

1. For the Metropolitan University case, list and discuss the major problems.

2. Provide an outline of some solutions and discuss how each solution would resolve problems.

Do not provide as the only solution the “computer solution,” that is, put in a computerized purchasing system, and viola, we are done! Computerizing a broken process may not necessarily make the process any better, faster maybe, but not better.