Purchasing and supply management is rarely a top priority for school districts in the United States, but our research suggests that it should be. As a result of state budget crises, school districts are facing declining budgets for the first time in more than a decade.¹ They are already struggling to meet stringent local and national guidelines for student achievement and to maintain their crumbling infrastructure. Better management of purchasing could help them make ends meet without compromising educational quality.

In our experience with school districts around the country—most recently with the Chicago Public Schools and the Puerto Rico² Department of Education—we found that bringing better discipline to purchasing and supply management can save school systems from 10 to 35 percent in many categories of nonpersonnel spending, including textbooks, transportation, food, and janitorial services. Annual savings in large urban school districts have ranged from $30 million to $40 million.

To achieve those sorts of figures, school districts need to examine their spending practices and to refocus on the original mandate of their central purchasing functions: saving money. Many of these departments have grown more concerned with filling out forms than with outcomes, and the result is that many departments have become inefficient bureaucracies that waste the taxpayers' money and frustrate both teachers and school administrators.

School systems should ask two questions about every product and service they buy: "How much can we save by purchasing it centrally?" and "If it is complex, should the user—as opposed to central purchasing—buy it?" The answers can help determine whether each purchasing decision is made centrally or locally and what role the purchasing department should play (Exhibit 1).

Some commodities, including those provided by utilities and office supply companies, should be controlled centrally. The potential savings are huge, and it doesn't really matter who is, say, the cell phone vendor or what type of copy paper a school system buys. For more specialized products, such as educational devices for hearing-impaired students, the right product is more important than the savings, and special-education staff members are the natural decision makers.

Identifying the role of the central purchasing department will also help determine how many people it requires. For items the department buys centrally, employees need to design product specifications, evaluate vendors, manage the bidding process, and track savings. For items procured locally, a small number of workers can support bids and evaluate vendors. And for a handful of the most complex procurement decisions (about enterprise software or capital investments, for example) the purchasing department must work closely with the relevant functions to achieve savings without compromising quality—a labor-intensive endeavor.

This approach, recently applied in Chicago, identified significant opportunities for process improvements and cost savings, even in categories once thought untouchable, such as textbooks. In Chicago, textbook procurement had remained decentralized because of three long-held beliefs. The first was educational: teachers, not bean counters, should pick textbooks. The second was organizational: local schools should control vendor relationships. And the third was economic: administrators believed that textbook publishers set a nonnegotiable, fixed price for each book, so no savings were to be found.

But the last of these beliefs proved false when the Chicago public school system did a close analysis of its textbook-purchasing practices. Of almost 13,000 titles the district had bought more than once, 44 percent had been purchased at different unit prices. Because nearly 30 percent of the orders were for fewer than ten books, the school district hadn't captured the best of those prices by getting volume discounts, and it had incurred extremely large administrative costs.

These facts, once communicated, helped change the system's perception of its entire purchasing function. For some, this study was one of the few times the purchasing function had focused more on saving money than on the procurement process. For others, debunking the myth of standard pricing helped make it clear that local vendor relationships might be standing in the way of big savings. A surprising number of teachers have expressed interest in coordinating their purchases to achieve greater overall savings for the district.

In all—through better negotiating, asset swapping,³ and improved demand management—Chicago stands to save 33 percent of the more than $40 million it spends annually on textbooks (Exhibit 2). In Puerto Rico, without increasing the budget, school officials almost tripled the number of books they purchased for students in some subjects. Opportunities for savings were also identified in other areas, such as capital construction, educational equipment, food service, and janitorial services. In transportation, for example, the savings came from redesigning and once again putting up for bid the bus routes for both regular and special-education students.

Conducting an analysis like the one in Chicago isn't necessarily difficult, but acting on the results can be. Purchasing departments that have long failed to deliver value will need strong support from their superintendents and school boards if they hope to change their processes significantly. But given the millions that major school systems spend on goods and services, few districts can afford not to take a closer look.