What is Purchasing's Responsibility? page 12

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NAEP National Association of Educational ProctJremefrt

TAB LE OF

Letter from the CEO 4 You Can Get There From Here

Doreen Mllrller, CEO, NAEP With nulumn flllJL nllProaching, nlollg with the Ilel.l8On of regionnl meeLinp. remember NAEP na your OIle-stop aouroe for professionnlassisUlnce nnd development.

Features 8 Ethical Behavior in Purchasing

Craig Passey, C.P.M. In our business, ethica is n subject that never seems to grow l tale. ernig Pru!.sey shnres Il perspective that he hns dC\'eloped over hi! .nallY yenrs of experience.

10 How to Access Consortium Purchasing Agreements Under Your State's Small-Purchase Exemptions Eric Denby, C.P.M . If you're n IIUblic institution, no mntter which st.'lte you may be answering to, the ~smnll dollar purchase~ exemption probably represents IIll excellent way to access oonllOrtium oontract.s.

12 Is There a Time Bomb in Your Lab? Cory Harms a nd Bill Dicsslin No purchase is too benign that fundnmentol considerations CUll be ignored. Me nlnbomtory refrigerator for example. An -innocent" lapse in purchnsing IIttenlion helped oonditiOll1l build to an expl(l;lliol"l,

14 Let's Talk About the Time Value of Money (TYM) Burr Millsap, CPA, M.BA Tune Vnluc of Money tcchniquC1i can be great tools for the purchasing 1)l'()f~ionnl. Here is the first of n series of articles that hopefully relllO\"et! much oCthe nI)'1tery lurrounding this subject.

Departments 6 Heard on the Streets

Cory Harms Busineu ctl5ual. In one way it's great., but ill it really whnt we want to be? Perhops nppenrance does help define the profCSllional more Ulan we mny lhink.

'8 Roamin' with Yeoman Bria n Yeoman Green versus Sustainable? Price versus Coat? EffcetiverlC88 \'ersu8 Efficiency? Brian Yeoman warns that we should be discriminating in how we "throw~ these terms around.

20 Best and Final Craig Passey, C.PM. We've a ll dClllt with it. "This one needs to be rushed: Oh, really'? Pcrhallll, nnd merely perhnll8, n liUle hUlllor in the right situntion can toke the edge oft

EDUCATIONAL PROCUREMENT JOURNAL 1

OF EVENTS

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2 EDUCATIONAL PROCUREMENT JOURNAL

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BUSINESS

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FROM THE CEO

You Can Get There from Here.

Doreen Murner CEO, NAEP

First, Go to wwwNAEPnet.org.

I can't beJiC\'C it's already fall. I reached It

big milestone this summer, shillping my eldest olT to begin her college career. It's

the beginning of a new reality for both of us - bittersweet (well, for me at least) but also exciting, invigorating. We both gel to experience new realities. My identity as her Wmother ft still exists, but is it is changing 8h811C. My

We have launched a new Web sitcdesigned to make it ellSl' for you to find thc L'uC8t research, l)rofessional dcvelollment, and sel'\;CCS like University Surplusjrom NAEP. Connect with a colleague that has worked his or her way through a challenge similar to one you may be faci ng. NAEP can hel» you discover solutions, focus your

energies, or even re­daughter is stepping up to meet her future with that combination of fierce independence and shaky uncertainty so common with col­lege-bound freshmen. Should she declare her mlijor? What if an.cr a year or SO of following

" .. 1 like a state of continual becoming, with a goal in front

Ught your professional ~mojo" (we all slump a little bit e\'ery now and then) with new ideas and a fresh outlook.

NAEP understands that C\'CI)'tIne's road­mall is unique. That's why we designed our

and not behind." George Bernard Shaw

that Ilath, she decides it isn't. (or her? What. are her options? Gee, it would be so much easier if the unh'crse would just Il rovide a road mal),

It's the sallie with our careers. The best way to make sure your future is in your own hands is to connect with the resources Ltt'll help l'OU to innovate, that make l'our con­tributions \'aluable and visible. Surround yourself wiLh the best. mi nds in the busi­ness, and learn from their successes and faitures. And that's exactly what your Membership in NAEP delh'ers.

site so that you can 1C\'erage the association and its resources your way. It's what you need, whell you need it, all ill one place, and available any­where you have a \\eb connection.

As we mo\'e into what isour Fall Regional meeting season, I hope that all of you can attend your region's or district's meeting. The education and networking will pilL l'oU further down the road on your C\'er-(l\'Qlving career. Please log in to l4v.w,NAEPneLorg to find out where your meeting is - and reg­iSler for it today! \\lhether it's online or race-to-face, your Memoorshi]) in NAEP can be your career GPS.

-'a Educating Higher Education Help us to tell vour story, and give vourself and Procurement deserved recognition. Send us your ideas, articles, and thoughts. Contact JoumaIEditot@naepnetorg.

4 EDUCATIONAL PROCUREMENT JOURNAL

NAEP National Association of Educational Procurement

5523 Research Park Drive, Suite 34D Baltimore, MO 21228 Phone: 1443) 543-5540

Fn (443) 543-5550 Web Site: www.naapnelorll

2007·2008 Editorial Board CtH:h"irs Cory Hl rIItI lowl S,l ,. 1.1 0111. 1111'/ tlh.rmsCilmt'.edu

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ON TH E STRE ETS

I Know I Am Comfortable ... But Do I Look Professional

by Cory Harms Iowa Slate University

IIO\'e casual Friday ... si lt ing at my desk in my jeans and university I-shirt , tennis shoes, all comfortable and relaxed ... until

the VI' of Business comes o\'er in his suit and tie, and , feet like crawling in a hole.

(h'er the last 10 years, business casual has become the norm on many campuses, and casual Friday is casual to the extreme in some cases. 1 frequent ly recall the Dither' .... car100n in which people are in bathrobes Rnd lul us, and [ \\"Onder if we're \'cry far at all from Ihal.

Some of ),ou lIay wonder if I'm gelling ready to go 01T of Ihe deep end, crusading against your casual work wear. Far from it. I can't be the first one to cast a slone as I sit comfonably in my Dockers'" and short· slt.'e\'ed shirt , But sornetinl(.'S when I get Ihe urge to dress more formally (oram forced by circumstance), I wonder if 1>OOpie regant me more seriously when I am in a suil. and tie. I know I actually feel more professional on those occasions. I wonder if I acl more professionally 100. In any case, ifpe<>ple per­ceive me as more professional, it 's not a bad thing.

The trouble with dressing "II for SjleCific meet ings is that, in Purchasing, we can't always predict who will come to meet "'it h us on a gi\-en day: II professor, a \'('ndor rep, a dean, II. chancellor? It is hard to be pre­pared clothing-wise for these meet ings. When we are dressed casually, howdo others Ilerceive us? Are we shortchanging our­selves b)' dressing down? 00 we dilute our

. No

professionalism 11)' succumbing to t he casual work re\ulution? We dress up for church, funerals, parties, but when we meet ",i th those \\ith whom we are tl)i~ to negot.i3te, helll, or in lluence, we rlress dO\\l1?

I was genuinely worried when I started 10

examine Ihis topic, as I feared nail)' of you would brand me II radical. But a recent nash poll on the NAEP homepage asking aboul causal attire (see inset) seemed 10 relie\"C nlY fear&. (h·er 5U: of the respondents indio cated that ther bcliC\"C our lirofessionalism on camllUS is diminished by causal attire. Might it also be diminished off·campus as well , with our community, vendors, other agencies, and colleagues?

6 EDU C ATIONA L PRO CUREMENT JOURNAL

A lot of the lalk around NAEP lately has been about raising the standard of the litO­fession, beeoming more visible on campus, dealing with Ihe shrinking population of our profession, Bud retaining membership in our organization. Doesn't dressing the part help us to be seen as more professional and necessary? Could we be doing ourseh·es a dissenice by dressing down?

II I \"e made rou think a bit llbout this, I hope it's a good thing, As for me, I wonder what it would cost to ulKlate and maintain mywardrobe, kno\ling thllt it is far easier to go casual. But then again, perhaps you \\ill see me at the next llrofessionai conference in my new suit and wonder, ;,Who is that professional-looking guy?"

Cory Harms is th, associ­ate director 01 Purchasing allowa Slate University. He is President of Ille MINK (Missouri, Iowa, Nebraska, and Kansas)

Region and serves on the NAEP Editorial Board. He has Pfesenled al both regional and national NAfP meetings, and has spoken for the Missouri Association 01 Public Purchasil"lO (MAPP). e-Mail: ctharms@iaslale.edu

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Ethical Behavior in Purchasing

by Cra ig Pa .. e y, Brigh8m Young University

Ina recent sun'eY conducted by ~'ast Company, \;si lors to their Web site were asked: -/I/we YOII et'€r I(lkell qffice SIII,p{il'S flomer 69% said yes. Would thecllncl id response

of our NAE1' Membership show greater integrity? lIeadlines exposing corruption or scandal could ntWeT happen to )'00, right? You maintain professional "alues and mornls "'hich insulate you from such indiscretions. Convin<:oo of your immunity? Can you then aru;wcr the followi ng questions?

• 113\'c )'011 C\'er lold an assistant to tell someone else you were in II. meeting because )'011 didn't want In be bothered?

• 113\'6 rou e\icr graJlt4..>d perks to )'Ol1rseltlhal you

"'ouldll" want l'1l\'ealed IllIbliely?

• Ihwc )'OU t\'er placed a personal expense on your travel reimbursement or purchasing card, or inflated actual costs?

• lIa\"e )'OU I!\'cr embellished your profe5Sional experience or credentials?

If you haven't sailed through personal introspection unscathed, into which of the follO\\ing categories does your beha,<ior fall?

Conformity - ~ lIey, thai's what the boss does".

Obedience - ~Must not be wrong if my SUIK! .... ,i$Or told me to do it~.

Opportunism - -It's not "TUng irno one e\'er finds out".

Ego - "They're sure no one can outwit their controls - "1ltch this".

Nartlssism - ~ I t 's not "'TOng if it 's good for my Institution".

Ra tiona liza t ions [)ouglas Richins, 23·yeaneleran of ille Utah J)j~ision of

Purchasing ami new head or WSeA, a Ii).state purchasing consortium, is a frequent presenter on the topic of ;o busi· ness ethi es~, lie pointed out to NAEP Members after a scandal had rocked the Slale of Ulah years ago lhal, 8l\'o Inlliler lIow big orSlllulllh8(/ofJlJramo /lul i/It'O/tJe(/, erery 1"JerSOI/ acc/lsed 0/ u'roHgcioillg h(ls Oll~ tllillg ill CO/Hlllon. b't'erg sillgle persollIIllSCOIII: iHCeti /till/scl/lhal IIisat:liolls wen! jllstjfierl!" The I)rocess of ralionaliulion is the trap that ensnarel\ us.

8 EDU CATION AL PRO CUR EME NT JOURNAL

So whether it is helping yourselflo office SUllj)lieSj taking personal time you don't rel)(lrt; claiming meals wilh family, friends, or co-worken as business meals; padding eXlK!1lSe reports; acceilling 1K!l'5Onal favun from suppliers; or worse - some mtiooalizations may fvllow these similar themes:

• ~lYilll /L'hol t/lis ills/iluliolv'atlmillis/ro/iOll Il'tIsles, (figure .. ,.

• ~For Id'OII could 114' IIIIIkillg oll ihe O/dside , ... "

• ~N1er II'/IIIII'LVI dOIl~/or lI,e Ullh'1!rsil1l,." ~

• ~ror Ifle 1111/1)11111 oi/!- /llaiis I Ullswn after "Ollrs, ... "

• ~For 11'11111 III is t'1!lIlIor IIl/1kn qff ollr ofXOlIlIl , •• , ~

Perhaps Ihe real reason th:tt countless seminars, articles, and books Oil business ethics have failed todeli\'er results of (:hanged business behavior is that we still think this mailer of"elhics· is aboul someone else and nOI us. Somet imes I'o'e !Cnd 10 judge othen by their actions and ourselves by our intentions. Yet we continue to look elsewhere for remedies.

I)eople who are appalled b~' embezzlement and theR do not see their smaller decisions, which gradu:ll ly dull their ~nse of right and I'onmg, as enabling greater infractions.

EveI)' new 1'C\'elltl ion in the media of a corporate or gO\" trnment breach of resllOnsibility breeds a new wave of "detect and protect" legisla tion, new policy creat ion, or il1(:reased O\'ersight and audits. A proliferation of rules and regulations wilt not ha\"ll the desired effect on behavior and nC\'er Ilili. Whether you call it ethics or I"CSponsibilil)' or decency or something else, we are still talking about hoo· esty - plain and simple. Opcn organiutional 1)Olicy "'ill ue\'er alter personal decisions behind closed doors.

When faced ",ilh an ethical challenge, most leaders rely on laws lind regulations rather than makin,gdecisions based on tNth and integrit)',

A recent bloggercleverl)'wrote: 8Alliheseelllic8 siles ani just plll"" u:ollderju/, bul - so II'IIOI? Jau COrl? legi${/I!6 ii, /lOll Ctlil ~ il/doclrimlle ii, flud yOIl ClIII ~ /}flcd/wle it, ~ You can, hO\\'{l\'Cr, leach l)!!Oplc to emulate it when leaders dem· ollstntle it

If you currently lead a Purchasing grotI l) or ha"e aspira­lions to do so, tllke note: St{l\'Cn R, CO\'ey s,'lid, ~ 0/ all lefllier IlIj/llra llrefi,,'/ura 0/' chomcler, uo/ Ilbility. ~

F" II 2008

Cansidtr th is wisdom: ": .. II'lum f€(Jdmf-per$Ons in 1}f)lI'er - iYllOru fllics in 1101

attl!pli Ny IlItJ CONSl!f{IIi!lttu qflliri r (lc/ jOllA, IIIf!1J CONI n'bllie W Iht1 l"Yll icislll Q/rJ«Jple It'II0 lI'illj lldge l/udr/ie/iON$.

II~ PIlau 1I011Jie tllt1SlfwellleCollrt, blll lt'e (l1'fJ melllber~ oj

'he COIl 1" Q{lmbiic U})in jon, A boss, booN/, or OryUNi.·"Clliot/ I!lIIbarr(lS$l!(l by QUI' /le/ jolls JJQler1lialfu 11(1$ grm/er ]JOltV QIV U$ fll(lII fI COll rt. q/'f(1w - !JfIniishllll!n/ h(/$ iegll llilllits Ot'" 0 11' it/come. Reillg fired does /lolr t .... ,Joe booIc (.,.,.,,,,,1"11 ~' IiQlQt .. nd 1'oMer. pub. 2OOl.

You ms.:.' nt\'cr faoo being tentl imHed o\'er your unethical beha\ior. If you are leading by example and are trulydcdicated to beinga l:>Urehasing 1)1"0-

res.~ional , you mu.~t rosler and nurture the habit of ethical beha\ior, j!\'cn in small things, , \)U

must ha\'e a oonsisu~n t , method of making deci­sions that goes beyond state and fI..'<Ierdllaw, institutlonall)Olicies, and is usdul in mak· ing lhe right dedsion - c\'Cn in those sometime-grey areas.

Mike Zaramba, In his recent blog art icle enlitled ·Corpordle ethics - a culture, nO( just a policy.- makes an excellent I)() inl when he said:

~f.:xeclilim 111IIs/lood by I".mmple It'hen it OOllles to dh icol behar-jar. For me, 11101 is (lIt! heflrl qf

llie iSslie - pllbfic Imsl Clluf II rt!$JX)tlsibilily 10 (lIe U.s. IlLlJXIlJt!r i$ II dilly u(m:e a llli beYOIllII/lefi(lliciary respoN' $ibililies qf most COrpQrtlle officers. I II sharI, Ollr Imslllm tleerls to embract! the spin't ojllll!S6 rutes Gild 1101 uWfOOcli 'hem as simply a ~chec""h~ bar~ colllpliance isslle.

I ~ ----

• ~'t

www.n,..p ... t ,o 'g

n 'lrillg Illy 15 yearsal Stlllltey, 1111/ bOSSttl, La r ry G«ffaglier 1111(1 Pilil NololI, exempli/ied

11101 1'"11 spi ril, fOllg IH>jore Ihere 11.'(1$ II jormol eth ics potil"IJ.

1111ellel-er I eIICOlw /l'rf!(1 /1/1 ellli· cal dj/eltlllw) IlId r Ol/ idana: I /'/1S

«/tWUs - ~ I Vhllt$ (1/6 rig/l t lhillg to {lor 1.'01 file riglll lhillgjor file shllTehofders, mt, Slmllell,

or tlleciifJ1l l - si mply, lI'hllt lcaS Ihe RIG/ lTlh ing to {Io. OnCt! you redllce fi ll istlll! to IIlis core consider, Ol ioll, Ille allSII 'er becomes slroighljorwarrl,·

A Model for Ethical Declsion.Maklng Michael Suhaka ane! Nanette Sorensen of the l'urchaslng

m ... ision of The Church of Jesus Christ of Latler-d:\y Saints grn. ciollsly gll'.e lhe author pentlission to use a (\e(:ision model that they dt. ... ~Iopt>d. In the aclj1lC(!nlIllOtk!~ ethicality I'C(luircs.: • Personal integri ty • l)cdication to being a Purchasing profession."d

• Uncompromised loyalty to your employer

Cut the acljace nt model OUl and refer to it on.en so that you wi ll be knowll by )'OUf peers ane! clients as /J,e ethical Procurement professional.

Craig Passey, C,P.M .• has enjoyed a 3O-year career in Purchasing & TraV(!1 for Brigham Young University. Provo. Utah, and I()( the lOS Church in Sail lake City. His writing and leachIng draw 'rom diverse experience and assignments in

both international and domestic procurement. He has a BS In Financial Planning and Counselino, with a minOf in lnlernatlonal Relations from BYU. e·Ma,i!: craig_passey@byu,edu

EDU C ATIONAL PROC UREMENT JOURNAL 9

How to Access Consortium Purchasing Agreements Under Your State's Small-Purchase Exemptions

by Eric Denby, C .P.M. University of Virginia, Director of Procurement SeNices

All public institlltion members can access cooperntl\'e IlUrchasing agtl.>emcnlS by relying on small' llUrchase exemlltions. And the truth is, it's easier than you think.

Here's how it works. ~:ach state's procurement regulations ]IMide some measure of latitude for purchases made under \1tiious dollar thresholds. KnOl\1l as small-purchase exemp­tions, these thresholds can be as low as $500 or a.~ high as $50,000. Oftentim~ these threshold amounlS are subject 10 atijustment on an annual basis 10 aceoont for inflation or 1.0 provide increased discretion ror public agencies.

Member! who know their institution's smalHlUrchase e..~mptions can take ad\~,uu;age of the fl exibility prmided u .. kr their state regulations 10 util ize COOpen!.Ir.'f: agree.. mt':nlS, C\'etl ir ll~y are O(hcmise pl'C(:luried from doing so for larger IlUrchases. This Iln)\ides Ii significant benefit in the ronn of cost savings 3milahle through consor1ium purchas­ing, which could not othernise be realized beeause of the smatl.nollar\'oIume of the purchase.

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Small·purchase t.xemptions also alleviate Ihe burden and prohibitn-e costs of conducting rormal bids or solicitations for relatn-eb' low purchase amoont.s. With lhal said, it is imllOrtant to keell in mind that each illSlitution, depending UllOn size, may have V'.tlying thresholds under which Iheran purchase.

At the Unn'ersit)' of Virginia, for examllte, the small·dollar threshold is $5,000. Up 10 I hL~ dollar le\l~ I , depanmenl'i may make l)Urchases \\ithoul competition. This accounts for more than 85,000 transactions and about $40,000,000 worth ofpur. chases per )'ear. Based on th€!sc slatistics, the small-dollar purchases 3CCOtInI, for apllro.ximately 9iX of all transact ion~ at the University. This type of l)Urchase opponunitYlll'Q\ides the Hexibilil)' to purchase from establishl..od Uni\'t!rsity conlracts or rrom thooe cooperatil'e contracts orthe end·users choice.

To take advantage or small·purchase e;(el1lptions, public institutions should:

1. llefer to their respecLn-e Codes of Procurement 10 deter· mine the dollar thresholds apJllicable to them.

2. Determine if these amounts are indexed 10 inllation or some additional melric b), consulting slate bulielil'lS or speaking \\ilh officials from lhe state dcll,U1l11enl of IlUrchasin&' administr.l.lion 10 see what these new thresholds are.

:I, Rescarch consor1ium purchasing agreements i!.\'llitable for SpecirlC commodities and/or scn;ces.

, . ~~nsure trult their aggregate IlUrchases rrom any given eon· sortium contract are not in excess of the dollar thresholds thaI woold necessitate bidding or CO nl l)etilil'e solicitat ion. llemember that stales llrohibit the splining of purchases for the purpose of meeting the small· purchase thresholds.

8)' follo\\ing these simple steps, any member Institution a n begin to take ad"amageorconsortium IlUrchasing under the small·purchase exemptions found in each state. To team more :tbout small.purchase exemptions, please contact OOIllIN ia Jlce@rollll i.org.

Eric Denby, C.P.M., is the dIrector of Procurement Services at tile UniVtlrsity of Viroinia and has been in the Procurement profe~on for 30 years.

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CAUTiON

Is There a Time Bomb in Your Lab? by Cory Harms a nd Bill Diesslin fowa Stare University

When the tXJ110SiQIl rocked one of our C3mliUS labs late on It Saturday night in Seillember 2001, it was It

miracle l1obody \\1lS in it. ~\'el)'cei l i ng panel was lifted from iUl frame, the \\indows in the lab were pushed out almost an inch, and the door of the jusl-elCilloded freezer destroyed part of the clndl!r hlock wall on the other side of the room. The concussive force W",IS

enough to injure or kill. A fire folloYt"ed the explosion, triggering the sprinkler system, which nooded lab and office Sjlttce below. The damage closed the lab and offices for two months. Rel).1ir and rebuild costs were substantial, but not nearly as cosi ly as the wounded reputations of the lab, its workers, and the researcher.

What does this hal'c 10 do with I~rchu.si ng? On most campuses, Purchasing has the p<M'cr to delegate that buying authori ty in dilTerent. YI'lI)'$ (e.g., procure· ment card, s.mall·dollar purchases, elc.). Purchasing also houses the dala concerning what and how things are purchased. In the case above, the freeler (8 non·lab consumer model) was bought through Purchasing, and the lab was inspectL-d by our emironmel1lal healt h and safety depllrtmenl. The lab man· ager Instructed the workers not to I)ut \'OllIlile chemicak in this grade of freezer. This. accident should Ile\'er have happened, )'et none of us truly perceh'ed the risk. Luckily no one wu hurt , bUI the stigma sur· rounding the lab lind t he researcher IlCrsists. Indeed, the researcher lamented that this type of incident. ~embarnsses you enough that )'ou want to end your career."

In this case, a household freez.er was in\·otved ... nOI uncommon in many labs since consumer lIlodels are incXJlCnsi\'c b)'

comparison. The problem hen! was thal someone used it to store tetrahydrofuran (TlIF) , a volatile chemical. 1\\'0 conrlil ions then comhil\(.-d to cause the explosion. First , as II domestic appliance, the !Teezer was sealed, which resulted in the concentnlling uf the r lU"s olT-gassing. Setond, and more crit ical, was Ihal Ihe thennostat and lighl swi tch in this grdde of unit often pr(l(luce sparks. In this case, the thennostat was the like \)' culpri t.

Many labs buy consunlcr model refrigern. tors anti freezers for fairly mundane needs such as kccping lunches and be\'eragescoltl . The I)roblem, of course, comes O\'Cr time as the usage migrates to chemical storage. It. hase\l!n been witnessed where lunches and chemicals sil side by side. ilemoving the light switch may seem like R solution, but il. only sef\·t!S to provide a false sense of secu· rity. Doing 50 could '"oid the Underwriters l.aboratorye (UI,) label along I\;t h any related insurance CO\'Crage. I

So, ..... hen a new need for II lab unit arose recenti)', you can bet ..... e (I>urchasing) got iO\'ol\'ed, ..... orking closely "i th our el\\i ron­mental health and safety department.

There are two types of refriger.ators for chemica.l storage. One Is the volatile-storage L'Ib refrigerator, RIKIIOO IXoor is looexplosion­prooftype. In most cases, the \'U latile·5torage unit is what is ~cd because il eliminates the source of spark and is specifical ly designed for chemicals. Although more CXllC11Snll than a CO llSOmer model, it is well YI'Urth the a\'Oidance of the cost lISSOCiated "ith 0. serious aceidenl Without a doubt, lhe researcher in the case aoo.'C now ~ thal I1(l ne ..... labs on campus should be al lowed to house consumL>r- IJ.1)pliances.

12 EDUCATIONAL PROCUREMENT JOURNAL

Clearly, Purchasing should be It It!arler in this area, working hand·in-hand wit h em;­mnmental safety folks, researchers, lab managers, and students. This can include educational programs, labeling and signage, the mandating of la!)..grnde equillment, or perhaps even lobbying for legislation. This and similar areas lire where l>Urchasing can add signiflcanl \':tiue, aligning its mission ",;th that of other areas.

ISome unn'el"lI1e5 lin! bfginn lll3 10 mandate IIIaI only bb . pplbnceJ . rt used Gr lhal .. n 1\etI' Ilbs '" lISt pure. tab nfrI~t"" .nd tM"'rs. So:tn.t ~Ies .... ,,, .Is<! ~ \.I .. , 10 ha,,, Dub' lab.pkt wtll§ M~_

Cory Harms Is the associ­ate director 01 Purcnasing at Iowa State University. He is President 01 the MINK (Missoun, Iowa, Nebraska, and Kansas)

Region and serves on the NAEP Editorial Boald. He has presented at both regional and national NAfP metltings. and has spoken lor the Missouri Association of Public PUichasing (MAPP). .-Mail: clnarmsittastate.edu

Bill Diesslin is the assistant director 01 Envilonmental Health and Salety ilt lowa Stale University and helps

"'--'--'''''''' coordinate malOr envi ron-mental contracts with PurchaSing. e-Mail: wmdiessOiastate.edu

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Let's Talk About the Time Value of Money-by Burr Millsap, CPA, M.B.A. University of Oklahoma (17lis is tllf!Jlrst qf/. series qf arlicit!& 011 /Jle 'nll/e Iu/lie oj MOTlf!J/ alld its imporlllllCf1 IQ tile PWrt has;"g projessioll.)

HOW many of us ha\'e actually used WM in our profes­sional careers? I hope many, bul I ~ perhaJIS few. ntM techniques can be extremely beneficial to us, and

altbough they are somewhat of a challenge to understand and usc, they're NOT inscrutable, Ifyou\'e been scared away from them so far, )'OU just hal'en't had the right teacher. I

mean to take tare orthat In this and rolloYting articles. Why does monl'Y have a ~time ntlue-? Not 1lei!aU5e of

inHation! Forget Ihat. The time l'alue arises from the fact Ihat money, like other things, can be rented, When you put money in a sal'ings aceoUJlt, you rent it out (to the bank). As long as)'ou leave it there, you get paid interest (the rent). When you borro", money, someone else is renting il 01.1110

)'ou, As long as an amount is oulSlanding, you ha,'c to Imy inl~resl (the rent) on iI, This. and not inHalion, is I',hy money has time '~tlue.

M I situations (problems) mainly ~k imlll'O\'Cment. If we find ourselves in Siluation A, is there a better Situation 8 that we could achiC\'e? For example, let's say \\'c are cur· rel.ly obligated under a lease agreement to pay Sf)()() per month for the next 24 momhs (Situation A) . Is there a dif· ferf nl arrangement i could de\'elop (Situation B) - such as settling Ihe ent ire amount no", - so thaI I would be better ofT (in this case, wTinging out better Yalue for illY institu· tion)? i}C\'Cloping the information to help answer this kind of qUl'Slion is what lVM is all aboUl,

So, lVM techniques help us eYl!.luate alternatives, They he ll) us attain the conHdence we'd like to hll.\'e in makIng de<:isions that tum out like we plan,

MI techniques do their job by correeliy making us take into account opportunity costs. If I \\ithdraw $1,000 from It

sa\ings account to purchase a piece of equipment, I'm not

only facing the cost oflhe e(luillment but also the cost oflhe interest I'm not earning any longer. The lost interest repre· sents the decision's OlllJOr1unity cost, Therefore, TVWs job is to make sure"'e correctly count those costs as we weigh the pros Ilnd cons, In our examille, let's sa)' thut our justjfi· calion for purchasing the equipment is that it will make us money, \\ell, if thaI 's the case, not. only should it make enough to pay back the Si ,OOO, but it should also CO\'er the interest we're not making since the SI,OOO was wi thdrnwn. As long as the C(luipment can earn us both, then we're no worse orr - at the "ery least, and hopefully much better orr - than if \\'e'd len. the money In our account. (It is this fea ' lUre of nrM, this taking inlo account the oJll)onunity cost, that is often referred to as -stressing the problem,ft because it forces the choice to face an extra and essential hurdle,)

The ba,~ic structure of any TVM problem is that it CXlm· prises four Ilieces of information, If we know any three of the pieces, I'o'e can always soh-c for the fourth. Sometimes, though, we may not know, but ha\'C to estimate, one or more of the three pieces, which is OK as long as our assumpHons are reasonable and have good support. The important IlOint here is that 'JVM problems are structurally easy.

What are the pieces then? lIere is the list, • l'resent Value

• future Value

• '>arment

• Rate

• I'eriods

But wail! There are live pieces here, not four! Ttue, but any gil'en MI Ilroblem will onb' deal \\;th four, To help a lillIe further, the table below shows lhe different possibilit ies.

Know, Allsume, Know, Aslume, Know, A.sume, Sol""

Present Value of Annuity Problems

Future Value of Annuity Problems

Present or Future Value o f A Single Deposit Problems

Tablet.

or Estimate

Payment Rate

PE!fiods

Present Value

Payment

Rate

PmiOds

Future Value

Present Value

Aate

Periods

FUlute Value

14 EDU C ATIONAL PROCUREMENT JOURNAL

or Estimate

Rate

PeriOds

PresenT value Payment

""" Periods

Future Value

Payment

Rate

PerIOds

Future Value

Presem Value

or Estimate

Periods Present Value

Present Value PaymenT

Paymenl Rate

Aate Periocls

Periods FUMe Value Future Value Payment

Paymenl Rate

Rate Periods

PeriOds Future Value

FUTure Value Present Value

Present vaJue Rate

Rate Periods

TVM

or the three categorics of problems liSled in Table I ( I~nt Value of Annuity, f'uture Value of Annuity, Present or Future Value of a Single l)eposll), the Present Value of Annuity problems gr.'e newcomers the mOllt trouble. So that's the one we'Ulltart I'oi lh, beell!Se as Mom says, "Eat )'OUr\'cgetl4bles first, 54) )"OU can took rOnl'anl lo the resl .~

Pir.sl, for the lime being, let', set aside the label "P'resent \'alue.~ Wht! Because It 15 often possible to have a 'lYM prob. !em in whk h the "prestn," \'a1ue )'l)U're 50hing for is actually in the future. For eWIIIlIe, if you want to ~, how much mone')' )1),"'11 need to Iut\ll \~ on the dale )'OU retire, the n'M problem)'ou'd rwed 10 do todaywoold be in the category or ~J"resent Value or Allnwty Problems. ~ In the arcane lingo of lUI J)I'OlMems, that amoun! is called ~ I"resenl \\l.lue" a't'.n though it is an amount 10 be achial!d well ofrimo the futUft'. So instead of using thatiingo.1eI: ' re- Iabel it as the "SI:arting· OUiAmoom,"

Next, leI's deal I'Iith the word "Annuity," This is another \ictlm oIWM's l1ll'Sl.erious \'ert\aC\dar. An IUlnuity is simply It periodic 1~'fIlent. That 's it. So, by that tiefinilion, )'oor house ~'ltlt!nt is an annuity, )'oor car ~ment ill an annuil)" your Ulilit)' blll payments are annuiU~ and on and on. Gosh, en.!n your IIaYChe<:k Is an annuil), (since the word doesn't care \\hetller we're talking Kbout monl')' coming in or going out). Instelld of gi\ing),oo a differenl label 10 Illay \\ilh, leCs just lea\'e it at -Annuity.- You get the )dea. For most 'IVM prob­lems, )'00'11 find (or assume) that the :mnuit)' is a fixed amount. One hundred dollars per month, for example. But it

~' igllre I .

Startlng-Out Amount

Peood t f'CI'lOd 2 f>efiOd 3 P1KiOd 4 F'efiOd S

doesn't necess;lriiy Jur.'e 10 be fixed, and It doesn'llI\lOeSSalily have 10 be momMy. It could be daily, quanerly, semiannually, annually, or any ·5hade~ in between or be)'Ond.

Graphically, a Start ing·OuI Amount oran Annully flroblem looks like t'igure J.

So if \\'e imagine a savi~ account., for exarnille, the Starting-out Amount is the number of dollars I'I'e wooJd need - swting out - to fund a series of Ih'e payments, I'Iith each payment being made on the period's last day. The diagonal lines, slanting up"-aM to the right, represent the interest earned each period. The n~rtkaJ lines represent the pay­ments (I'Iithdraw:lls). The pattern coold be described, perhaps. as ·one Sltp up and three steps down-, if)-.:ltJ catch Rl)' drift.

To conclude this portkm o! thediscussion, the trickinessoC calculating the Slart.lng,Out Amount ill ob\iou~ l'lTapped up in the facltiuu the interest earned In each subsequent period is less and less as the balance d the account declines. The actual math formula has been ck. ... -elolled and is kl~1lble .. . for )-.:ltJ strong· hearted souls. f'or the rest of us, there are filUlncial calculators (such as the Texas Instruments SA II Plus) and Excel spreadsheets that greatly simplify the effort. Usingthese tools, in the taseofthe examille lloo.-e, I'I'e'd need 10 know or lISSume: ( I) the In tcrest r.ue, (2) the Mmount or the annuity (the periodic iX\yment), and (3) the number or periods. lJ)' "plugging" these three values into our tool, it I'Iill compute ror us the 4th V'.tlue - the Staning·Out Amount - or in the lingo, the i'menl Value o! Annuity.

In the next artkle, we'll learn how to use these lools to help us sohoe Pn.-sent Value of Annuity problems.

lurr Millup. CPA, M.B.A., Is aSSOQate vice president lor Administration and finance at the University of Oklahoma. He earned In Bachelor of Science in Acc:oun\Jng Irom!he Uriversityof Central ""'.UL_ Oklahoma in 1972 and his Master 01

Business Admmlstration Irom the Urwef'SIty 01 adahoma in 1985. lie is the 2002 reapienl of the NAEP Nail O. Markee CommunicatClf of the Year Award and the 2004 reaplent of the NAEP Protesslonal Perspecbye Award. He VOlunl3nty serves as preSIdent 01 the board 01 directors 01 E&I CooperatiVe and as associate editor 01 the NAEP Journal. e-Mail: bmiIJsapOou.edu.

EDUCATIONAL PROCUREMENT JOURNAL 15

WITH YEOMAN

Some Words of CAUTION by Brian Yeoman NAEP

I have a recurrent conversation with a \'CrY

old and dear friend. I tell him the prog· ress we are maldng on greening the

campus, and he throws cold water on me by the buckets. The American College and Uni\'ersily I'residents Campus Climate Commitment (ACUI'CCC) now has more than 500 signatories., I tell him. BUI he is convinced that the only thing happening isa bunch or~green\.l'8Shing.·

This got me thinking. One Ilre'o'llient fhing I enc<lUnler routinely is the confusion of terms. These foreJCallllJle: • Gn.-en "ersus Sustainable • Price ,'ersus Cost • t:fficiency ,'crsus Etrecli\'eness

Green verau. Sustainable

Those using the term ~sust!linable" 10 describe their program, product, senice, or organization are creating confusion. Think about it. lIow can anyone claim sustainabil· it)' when nonrenewable fossil fuels underpin a product or senice throughout ils lifetime? This is true with travel, heating. ai r condi­tioning, and many other things. /low can these be called "sustainable~?

Many claim their products io be U·:EJ) ... • certified. There are more l'iho claim their llroducts will get )·ou LE~:n'" points (Note: they are credits noLpoints). Let's disl)()SC of this quicklr. The United Slales Green Building Council (USGBC) does not certify products, and no single product will make or break )~ur Ilrojcct.

WHAT YOU BOUGHT. THE PAPERWORK IT TOOK TO BUY IT.

There is a better way. l et HGACBuy do the heavy lifting and satisfy the bid process for you .

For those wanting to create a sustainable future, the best label we have currently Is "geen~ (rromlight green todarkgreen). Calling such efforts ~sustainable" is not legitimate.

So how can you tell whal's truly green? Or what shade it really is? You can do )'our own homework or you C".1n turn to third parties such as the Pores! Stewanlship Council (FSC), GreenGuard~ Green Seal"; and/or 8uildingGreen. The t:nvironmenlal Protection Agency (EPA) and the nepart. menl of Energy (DOE) jointly operate the ENI.;HOY STAlt- program, which can also help. Their\\'ebsites are fabul ous Rnd :11)111"0-priatelydelailed. There are also mallY green professionals licensed as architects, design· ers. or engineers who t~"pically ha\'e dC\'oted their careers to educating the llUblic aboul

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these issues. Contact, the local office of the American Institute of Architects (AlA) and ask for information about the Commillee on lhe Environment (con~) ,

Price versus Cost It remains intriguing how ollen the

oonrusion belween price and cost arises, F.xamining lhe entirely of a product's or senice's finand al impact on the campus was viewed as \'00000 economies. Procurement has historically concerned itself with the financial imlilkations of the price on the fate of t.he I"e(luisition; freight, Ilayment tenns, cash discounts, insurance, etc. Myriad additional price· related oonsiderations I" ... rely came into focus. In the llrea ofsc.ientific instruments·

rarely a considerat ion. That a device required liquid nilrogen was not a factor. Thal the item had to be shilllied 11 ,000 miles \ia lruck, shi ll, rail , and truek again was of litt le concern. If 100 dC\;<:e was assembled using the labor of l6-)'Car-olds working for $2 a da)' in Shanghai, it didn't maUer, So it is willi. greal joy thaI we now openly embrace Ihe nOliOIl of be>! \'3100

and comllrehensive lifecyc!e analysis,

Efficiency versus Effectiveness El'er notice hOW' in vogue ~efficie ncy" Is

and how)'ou rarely hear about ~clTeclive­ness"? I want 10 explore this confusion of terms but guess "'hllt? I can't. \\1ly?

EfficicIK.'y! This column is limited 10 000 words. That is efficiency at work. t.\'Cr try 10

lion, for example, power consumption was have an efficient con\'ers.'1tion y,i th your

SHARP.

~.

-'" <? t Y I e r - C"JERPIUAR"

SIeeIc:8S(I .. gYl!i

mTandus ., ........... .

~---.-. ~"'--

Milliken Contr.lCT

t'L'a.!."\..."'\!1@

(; P.! Bobcat.

FI\'~ mmuta.1II It uba to 19.~ FR.EE axaI to CMI'

:i2 nat100aIJy I.t contncb,

thousands of pnxlucta aDd the opportunity to ,hili ,,,,,,,hln,,,,,,,

spouse or children? El'CT think about how ntllny eggs a female salmon laid for ),ou to get Ihal choice fillet! Oh well, enough for now, I will \isil this again, Uemember that you, 100, call do great things, and I'll bet the best ),ou\'C ever done was not effi cient but certainly elTective,

Brian K, Yeoman, director 01 Education and Development at NAEP, Is the reti red associate vice presidentlOf Faeilities Planning aoo Campus

Drvelopment at the Uniwrsity of Texas Health Science Center at Houston. a·Mail: byeOman@naapnet.org

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EDUCATIONAL PROCUREMENT JOURNAL 17

If the walls of our nation's great institutions could wlk, they would have to agree Ihal something has

changed over the past few years.

Universi ties and colleges have been involved in large·scale purchasing contracts for decades. The purchasing professionals at these institutions arc noticing that the way they buy is changing. What is causing Ihis change? Sustainability.

The Tides are Changing Cooperati ve purchasi ng has been around for a long time and is not necessarily a new idea. What is new in the past 10 years is the growth of numerous cooperative purchasing opportunities on the Internet. according to Bob Wood, Director of Procurement at North Carolina State University. Wood has spcnllhe past 20 years in educational purchasing for onh Carolina Stale University and he works to get the best deal for the taxpayer 's dollar.

"The internet made cooperative purchasing blossom," says Wood. " lnstilUtions arc now able to shop for the best coop dea ls, letting their

stakeholders know where they need to buy to get the best price."

With the rise of online technology came the abi lity to collapse old models and reach beyond the region. Wood has also noticed that along with accessibil ity.

'-___ ....I the biggest change Bob Wood has been the rise or

awareness around the need to buy green. In an eITon to meet these new pol icies, agencies sueh as U.S. omrnunitics have created online search functions to assist purchasers in isolating environmental product infonnation. U.S. Communities is fu nher maximizing the web in a partnership with SciQuest, Inc., to integrate all of a participating agency's contracts onto one system.

Rex Hardaway is Director of Contracts at Emory University, where he has devoted the last 20 years, and has more than 35 years of experience in higher education procurement. He notes how the

stainable

environmcnt is heavily influencing purchasing decisions.

"Every single print contractor I mect with has to have an environmental certification. This wasn't the case onc year ago," says Hardaway. "Certification is driving spending. Today, 99 per cent of presentations arc environmentally-focused. Nobody a few years ago was asking about Volatile Organic Compounds (VOCs),"

Why be Cooperative? Universitics and colleges are we ll aware of the need to incorporate sustainabi lity into their practices. Emory Univers ity in Atlanta, Georgia. and North Carolina State University in Raleigh have even gone so far as to hire a Sustainability

C Copynght2008 US CommUnltJes Advertonal

Director to create plans and strategies to successfully navigate this new environment.

H ardaway Rex Hardaway believes that

cooperative purchasing has helped 10 drive the cost out of green purchasing. With limited budgets, time constraints, lack of professional expertise and staff limitations, cooperative purchasing makes it easier to meet policy requirements.

"The most compelling reason to purchase cooperatively is the abi lity to leverage spending," says Hardaway.

Wood agrees that the most important benefit cooperati ve purchasing oilers purchasers is thc abi lity to receive the best overall value for their dollar. Cooperative purchasing also allows agencies to acquire goods and services at pre· established prices, they have access to online catalogs, administrative lime is reduced and partnerships are promoted. The benefits are clear, but do the homework. Some cooperatives charge fees for thei r servIces.

A Green Purchasing Program In an elTort 10 adapt to this changing environment, cooperative purchasers are ramping up their offerings to include green contracts. At U.S. Communities, the Green Purchasing Program gives public agencies access to a broad line of environmentally certified products and services. From Energy Star to EcoLogo to Green Seal, the Green

Purchasing Program iden tifies items in its contracts that meet third­party environmental certification standards to help public agenc ies meet the ir responsible procurement needs. U.S. Communities also provides access to volume pricing, no matter what size the agency is, and delivers the product to their desk.

From office supplies to school furniture, and technology products! solut ions 10 lab suppl ies, the availability of green contracts is growing. Cooperative purchasing agencies are looking at new contracts with a green lens. Whether it is renewable energy, hybrid fleets (buses, cars, etc.), biofuels, renewable energy credi ts, reduced means of garbage collection, water use management, or energy efficiency evaluations, many categories will be available to universities and colleges in the near future.

Sustainability is here to stay As Wood and Hardaway make evident, sustainability is not a fad and wil l only be increasing over time. The Association for Advancement of Sustainability in Higher Education, Rex points OUI, has developed the Susta i nabi I ity Track i ng,Asscssmen t, and Rating System (STARS), which allows institutions to measure their campus' sustainability and qual ify

for different levels of recognition. This is a way for institutions to make distinctions for themselves. For example. North Carolina Slate University is set to be one of the fi rst universi ties to have LED lighting placed in a parking deck. This is just another example of green buying.

Universities and colleges are urged to review their contracts, investigate their institution 's policies, work with the ir stakeholders and contact vendors to find which one will work for them. As Hardaway points out, institutions that do the ir homework and al ign their purchasing with suslainable programs such as AASHE wi ll better position themselves in thi s changing environment. The bottom line is, cooperative purchasing is keeping institutions in the green and working toward a more sustainable future.

Green Program, an MBA from st.

, College and has led . Communities' Green

Initiative since its inception in 2006. She can be reached at ckuranko@uscommunities.org.

Advertoflal

AND FINAL

This One Needs to Be Rushed, Please!

by Cntig W. Passey Brigham Young University

One of the first books recommendCfllo me shortly after beginning 1\ C3retr in Purchasing was The Ropes /oSkr-,1 alld

tIle Ropes 10 Kllott\ by R. ICichard Rilli and Slc\'cn I.e\.)'. aGoogling~ it (or the authOf" reJ. erence, [ was shocked to learn it is now in its 7th edition - Ilrobably in multiple lan­guages. i read It in theoriginBI hieroglyphics on JlltPyrii. (See tille page below.)

l.\-en after all these years, I still recall II

principle taught by the wise old professor.

The sage was boasting thaI he could wri le cClnsulling reporu without l!\1! r setting foot inside the company oc'Cause ~all companies have the same two problems: hick of leader· ship and lack of oommunication .~ The lalter prol.l lem has hampered efficient:)' in (l\'ery org<Inization I know. It probably plays havoc with yours as well.

lIere is II simple example from my past. t.,\·ery requester has an expectation regard· ing the deti\·cry dale of the item requeswd. t~'en the editor who assigned me this art icle prob .. lbly hact a suhmission date in mind. So, requesters tell buyers when they want things. Simple, right?

In Procurement offices other than your lirecision Ilrocess,a requesler states the item must be reeei\'ed no later than IOa.m. tomor· row. \\ll intCf'lltet that 10 mean sometime in Llttl ne.~ Iwo months, since Mr. I~l. lell. it sit­ting on the dock for six weeks the last time we brought one in ()\'emighl. Purthermore, we can deduce t.hat had he really wanted il tomOrr(l\\' momi~ he wouldn't be request­ing it for two more days!

You're Ilrobably thinking that I am stretching Ihe tru th to make a point , but allow me to share a true· life in<:ident.

It had already been one or two of those d~'$ we hate in about two-and·a-half hours.

1 " 'as stressed! Doyle 1')'00 from the l'ress

made an unchar.u:leristic pel'S(lnal \1s11 to my office signaling this was a mission of great import .

MHe)" erni&- I\-e gol a rush onler," My eyes glll1.ed m'er as the air left my

lungs. ,,() h,~ I replied nonchalanLly. ~ I'II pul it on the rush pile."

"No," he protested, "This is urgellt." MWell, why didn't you say so? I'll put it on

the urgent pile." lie waits for eye contact and speaks in II

slower cadence, After len years ofbanl ering wilh him, I know I hMijustcrosse<! a line.

"Look, Passey. I don't want )'OO pulting this on any pUe. In fact, I don't caJ'! where )'ou put it as long as it is the nt'.Xt.thing )'ou do,"

20 EDUCATIONAL PROCUREMENT JOURNAL

I'd nC\"eI" seen him so serious, so naturall)' had 10 push il II little farther like an

Olympic chamllion in \'erbal gymnastics. ~Let me elqllain how Ihis works. 1:,\'el)'One

wants their order 'rushed,' so that's ihe low­est prioritY, Before we do those, we do the 'urgent ones.' But berore we can work on the 'urgent ones', we do 'life or death! Right now, though, I'm working on the 'kcclljohl lose job' categol)'. Then - I'll do the ' life or death ' ones.-

We both laughed, and I promised 10 get it placed right away for my dear rriend - and I did. With the crisis solved, I called lind teased him about the ASAP instruction he lQ\'ed to "Tite on his purthase requests. I suggested he change to a scale from I to 10. aiM meant keep jobllose job. "2" was life or death, "'J" "'aS urgent, ~4~ rush, a.nd so on to number · IO~, which meant in 6 month-',

lie actually Slarta l using the S)'Stem, In fh-e years, he only put a ~ I · twke, and IImcw his job " 'as real ly on the line and ~ho]llll'd

right. on thai PUIl]lY,~ t.,\-en in jest, it was so much clearer than ~as soon as possible!~

Moml of the stOI)'? 1)0 peoille ignore your requests? Or do),ou just. need to be a little more llrecise? I mean, concise? Uh, clearer?

Craig Passey, C.P.M .. lias enjoyed a 3O-year career In Purchasino & Travel for Brigham Young Uniwrsity, Provo. Utah, and for the lOS ChlJfth in Sail Lake City. His writ-

ing and teaching draw from diverse experi­ence and assignmenls in both inlemaliooal and domestic procufemenl. He has a BS in Financial Planning and Counseling, with a minor in International Relatioos from BYU. e-Mail: craig.Jl3Ssey@byU,edu

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