Local Procurement Strategy for Philadelphia’s Higher Education & Healthcare Institutions

Controller Alan L. Butkovitz launched the Anchor Procurement Initiative in January 2014 with the release of “Survey of the Current and Potential Impact of Local Procurement by Philadelphia Anchor Institutions.”  The 2014 report drew upon publicly available data supplemented by surveys of procurement officers at the City’s major higher education and healthcare institutions (“Eds‐and‐Meds anchors”).  It identified $5.3 billion in non‐payroll spending, in very general categories.  A $14 billion sector supporting over 100,000 employees and over 100,000 students and visitors, Philadelphia’s Eds‐ and‐Meds anchors procure a wide variety of goods and services.  While many if not most services are procured from local vendors, the January 2014 report estimated that about $1.14 billion in commodities are procured from sources outside the City.  This means that the anchors are exporting a substantial proportion of their procurement dollars, and thus are probably not maximizing their economic impact on Philadelphia.   The current report drills down into actual purchasing data to identify promising opportunities for procurement from local manufacturers.   

Since the release of the January 2014 report, the Controller’s Office has deepened its engagement with the City’s largest Eds‐and‐Meds anchor institutions.  Thanks to excellent cooperation from the major institutions, which provided nearly $3 billion in fine‐grained procurement data, the Controller’s Office is now prepared to offer a much more detailed and specific analysis of the anchors’ supply chains – what sorts of things are purchased in large quantities across institutions and where they are bought.  Using this ‘demand’ data in conjunction with the ‘supply’ data produced in 2013 by the Mayor’s Manufacturing Task Force, the current report provides an analysis of the gap between what the anchors demand and what the local economy currently supplies.  The Controller’s office has identified over half a billion dollars in promising growth opportunities in 13 manufacturing sub‐sectors. Those with the most potential are surgical appliances, medical supplies, HVAC equipment, and office supplies, representing $531 million in annual spending; currently only $102 million (19%) is local.

The present report can inform a roadmap to developing clusters of economic activity driven by demand from the City’s largest institutions.  By leveraging existing local demand, the Controller believes that Philadelphia‐based manufacturers can grow to serve regional and even national supply chains.  Where manufacturing capacity is lacking, this report points to the types of enterprises that Philadelphia might attempt to attract and nurture using its economic development policy tools.  This report also breaks new ground in probing the function of “integrators” like Office Depot and Owens & Minor in the supply chain of large institutions, and proposes an important role for them in developing a local procurement program.  In the final analysis, the Controller understands that this approach must make business sense for all involved: it must not be charitable impulses that drive this program, but what renowned Harvard Business School professor Michael Porter calls “shared value.”

Finally, this report makes concrete recommendations toward following the lead of cities like Cleveland, Baltimore, Detroit, Newark, and Chicago in devising a plan to implement an anchor‐led procurement strategy. The Controller’s Office has had numerous conversations with partners in the Eds‐ and‐Meds anchor world, as well as with numerous other institutions and organizations that would form the nucleus of a support coalition, and all seem willing to get behind this agenda.

Download Full Report