When South Australia's Port Adelaide Enfield Council decided to implement a new e-procurement system its IT leaders knew the move would save the local government body a great deal of money. What they didn't count on, however, was just how useful it would be in getting rid of unwanted bureaucracy.
Mention e-procurement to most IT executives and the first thing that will probably leap to their mind is cost savings. For many organisations, both public and private, e-procurement is viewed as a means of rationalising dealings with suppliers, a way to reduce inventory and obtain the best possible price on new purchases by forcing dealers to compete online for your business. In the public sector, however, e-procurement has another important role to play, one that should make government bodies of all sizes stand up take notice - that of "red tape buster".
It is a scenario familiar to most government organisations: what starts out as a closely monitored approval process for purchasing supplies all too often devolves into an authorisation bottleneck, the result of such factors as a change in administration, new legislation, budget cutbacks or managerial reshuffling. Before you know it, a system designed to maintain the strict accountability that is part and parcel of doing business in the public sector has become convoluted, encumbered by bureaucracy and soon acts as more of a hindrance to commerce than a help.
In such instances, heading down the e-procurement path is not only a money-saver, but also an opportunity to revamp existing processes and replace inefficient manual approval structures with software that runs an automated system of checks and balances. These rigid software controls allow for the approval process to be decentralised, putting purchasing power in the hands of those government employees who can wield it most effectively, while at the same time allowing financial controllers to keep a tighter rein on purse strings than ever before.
Such was the case with Port Adelaide Enfield Council, (PAEC) the local government body of one of South Australia's largest urban centres.
The push for PAEC to implement an e-procurement system came from the Local Government Association (LGA) of South Australia, which approached the council in October 2000 about joining a pilot program the LGA was organising in conjunction with one of its subsidiaries, ecouncils.com, and e-procurement software vendor Strategic E-Commerce.
Jointly funded by the LGA and South Australia's Local Government Finance Authority, ecouncils.com began life as a cooperative purchasing authority. In late 1999, when its parent organisation reoriented itself based on an e-business strategy, the purchasing authority was naturally expected to follow suit. Soon, the buying collective adopted an Internet economy strategy and reinvented itself as an e-commerce hub, taking on the new mantle of ecouncils.com as a trading name. Today the organisation's main business is assisting councils down the e-procurement path.
The pilot the LGA invited PAEC to take part in involved trialling e-procurement systems in two South Australia councils: one a regional council in a rural part of the state, the other a sizeable council in a metropolitan zone. The LGA thought PAEC was the perfect candidate for the urban half of the pilot. Although geographically a part of Adelaide, Port Adelaide Enfield is large enough to be considered an urban centre in its own right, one of only three in the whole of South Australia. Nearly 70 per cent of the state's industries are north-west of Adelaide, and a large portion of them is in the PAEC area. It was the ideal place to test a new government e-procurement system.
By October 2000, PAEC was committed to the pilot, and signed agreements with the LGA and Strategic E-commerce, the vendor whose products, StraightBuy and StraightSell, would form the backbone of the new e-procurement system. Responsibility for the project was handed over to the council's Special Projects Group, a committee which has a mandate to pool and coordinate council resources to deal with IT infrastructure issues and headed by the council's corporate services director, Mal Jonas.
"For the most part, strategy is shaped by the state government," Jonas says. "We provide an interface to those major projects with a multi-disciplinary team that's made up of many planners and engineers."
Jonas was formerly employed by Enfield Council, where he managed a community centre before ascending to the corporate services director's position in July 2000, after 14 years' service. Although trained in human resources, he first cut his teeth in IT by installing systems in the offices of local councils in the early 80s. Today, the corporate services directorate he presides over is responsible for overseeing PAEC's financial system, as well as its IT unit, which includes all records management and geographical information systems (GIS).
PAEC is one of the only two metropolitan councils in SA to provide its own valuations for rating assessment on non-residential properties (in addition to Adelaide City Council, which covers most of Adelaide's urban centre), and so much of Jonas' records management and GIS chores consist of maintaining property files and overseeing the council's vital property rating infrastructure.
According to Jonas, the primary challenge posed by the project was getting the e-procurement software to interface with PAEC's ageing back-end financial system.
For almost 12 months, which Jonas describes as "longer than everyone expected", the Special Projects Team was busy doing what Jonas calls "back-room work" - toiling on an interface between Strategic E-Commerce's e-procurement solution and PAEC's elderly corporate financial system, a 12-year-old product called Total Corporate System from Canadian software and system solution firm GEAC. The council had used the GEAC system successfully for 10 years and was not looking to upgrade, a stance which Jonas claims posed plenty of challenges for the integration team.
"I think [the decision to keep using GEAC's Total Corporate System] provided some problems for GEAC initially," he says. "They were busy developing new products and we were asking them to do an enhancement on an older product."
Change of Habits
Jonas was wary not to fall into the trap of using expensive technology to merely duplicate inefficient manual systems. He immediately recognised that the e-procurement project was a chance to update PAEC's cumbersome approval processes and take full advantage of the new efficiencies made possible by the Internet.
"It really forced us to re-examine our manual systems," Jonas says. "We'd had a degree of frustration since the amalgamation in 1996, particularly with bringing together two creditor systems. Problems of duplication were rife, and the habits formed by employees in the two separate councils before their amalgamation meant there had been resistance to changing some of our policies and philosophies."
Jonas saw the purchase of the new e-procurement technology as a golden opportunity finally to get serious about examining these issues, and as he says, "do something concrete about them". That meant making sure that the people with the most knowledge of the products being ordered were the ones doing most of the purchasing.
"Our manual system was pretty archaic and very bureaucratic," Jonas says. "We had lots of paper flying around the place. Most purchasers were part-time' purchasers. It was supposed to be an incidental part of their clerical function, but it used to eat up lots of time."
The old manual approval process also meant that many staff were reliant upon very few staff. "You could run into situations where someone was off unexpectedly and you'd have to put your purchasing decisions on hold until they returned, because there were only a limited number of people who were authorised to approve it," Jonas says.
Adopting e-procurement software provided very strict parameters which allowed officials to grant workers new purchasing authority. Now PAEC's purchasing officer and a finance manager work together to determine the level of purchasing authority employees should be given and then build the appropriate controls directly into the software.
"The software controls maintain the integrity of their decisions, and that's released a lot more people to purchase directly themselves," says Jonas. In fact, the new system allows the council to maintain much stricter controls than before. Since the software is self-monitoring, people who aren't authorised to deal with certain suppliers or products, or to conduct a transaction above a fixed dollar amount, are simply locked out.
All Together Now
With the old system, Jonas says, purchasing officers tended to be very remote from the project or group that was making the supply request. A succession of people were part of the internal audit system, and they would regularly counter-authorise purchases. The process was very unwieldy, and people often ended up with the wrong product.
Thanks to e-procurement, Jonas claims, the council now spreads that responsibility around more evenly throughout the organisation, which means that purchasing decisions are now made faster and with fewer mistakes. "A bunch of numbers and short descriptions of various products don't mean very much to some people, but if you provide a qualified technical person with the ability to order directly out of an online catalogue, that cuts out a lot of opportunity for error," he says.
Jonas cites the head mechanic at PAEC's Kilburn Depot, deep in the industrial heart of Adelaide, as a prime example of how this system has paid off, to the tune of $10,000 . "It's broken down many barriers," he says. "Before, we had a fairly limited set of people authorised as purchasers, but many people placing demands on those few. Now we have many more people authorised to make those purchases. It's freed up a lot of time."
Not surprisingly, the many months spent developing the interface between the e-procurement software and the council's legacy financial system meant that not much progress was made in terms of building the relationship between the council and its suppliers.
"Initially we struggled with things like bandwidth, because our council has quite a number of remote sites," Jonas explains. "While the Internet provided lots of opportunities, it also created a few challenges, like how to get reasonable service out to those remote sites."
Nevertheless, after a solid year of work, the system was ready to go in October 2001 and officially announced to the wider community. At last, PAEC could start inviting suppliers to come on board. The long time spent in development was not an impediment to the project's roll-out; suppliers were busy dealing with their own problems in adapting to a Web economy, and most of them had been hard at work developing online catalogues using the Strategic E-Commerce OpenBuy platform.
Too Big to Ignore
Meanwhile, e-councils.com had amassed some 30 councils under its banner. Suppliers simply couldn't afford to ignore such a large purchasing block. ("Critical mass wasn't an issue for us," Jonas says wryly.) By November 2001, PAEC was making its first online purchases using the new e-procurement system.
Jonas claims that reducing the number of suppliers the council deals with has generated the most significant cost savings. "In the past we've had far too many suppliers," he says. "Even though council only had a limited number of people authorised to make purchases, people had a tendency to go off on their own to source supplies. We were left with duplicate supplies or lots of similar products - and not always at the best available price. E-procurement was an opportunity to tailor our purchasing methods and reduce the number of suppliers."
But tailoring an organisation's purchasing methods also presents its own set of challenges. Jonas stresses the importance of learning how to apply the software controls properly in order to achieve maximum efficiency. "It's easy to tie yourself up in knots," he says. "The security system is so good that you can limit people too much, to the point where they become frustrated. It's important to get the right balance, to give the right people access to suppliers and their products."
Now that the e-procurement system has been running for close to a year, Jonas plans to introduce online tendering in the near future. Once a system is in place to enable suppliers to bid for the lowest possible price, he expects to see cost savings to increase dramatically.
For the time being, however, Jonas is content to enjoy the new leverage PAEC has in its dealings with suppliers, all thanks to the success of the e-procurement pilot.
"Because we've got a strategy which gives preference to e-procurement, it will be those suppliers that have online catalogues that we go to," he says. "The message to our suppliers is loud and clear: if a supplier can't provide us with the opportunity to deal with them electronically, they're going to lose our business." FKilburn Depot:
From Woe to Go
One of the reasons Port Adelaide Enfield Council decided to roll out an e-procurement solution in the first place was the council's Kilburn Depot, which sits in the industrial heart of Adelaide and houses hundreds of government vehicles and other heavy equipment. As corporate services director Mal Jonas puts it: "We knew that the greatest efficiencies - and any deficiencies - of the new system would be revealed at Kilburn Depot."
Although the depot is attached to the council's technical services department, since the introduction of the new e-procurement system much of the responsibility for maintaining inventory at the site has been transferred to the head mechanic.
So far, the council could not be happier with the results. "At Kilburn Depot, we maintain a fleet of about 300 vehicles, not to mention some stationary engines, pumps and all sorts of things," Jonas says. "So one of the first things we did was to get our supplier of air filters and oil filters online. Very quickly, we eliminated 1000 stock items off our shelves."
According to Jonas, ordering online requires very little rekeying of information, which makes it easier to bestow purchasing authority on subordinates. "It's mainly point and click to place an order, and since you select straight from the supplier's online catalogue, we've overcome a heck of a lot of problems associated with not translating catalogue numbers correctly and specifying the goods," he says.
Fortunately for the Kilburn Depot, the main supplier of vehicle parts is located nearby, resulting in a just-in-time supply arrangement. Delivery is usually next day; same day if it is urgent, which if the depot is running properly, should rarely be that case.
"The head mechanic is now able to order a vast number of very different oil filters and air filters directly rather than go through the store," says Jonas. "He orders direct, the goods come directly into the appropriate area of the depot and he's got virtually no store stock."
Jonas claims the new system has saved the council "a pile of money" in only a few months. "In that area alone we figure it's saving us $10,000 a year," he says. "We used to have $30,000 worth of stock sitting on those shelves, so also it frees up a lot of space for us."
Port Adelaide Enfield Council
Located about 11 kilometres north-west of Adelaide's central business district, Port Adelaide Enfield Council is actually two councils that were spliced together in March 1996, when Port Adelaide Council was amalgamated with nearby Enfield Council.
The result is an elongated council boundary which takes in nearly 10 kilometres of beachfront real estate, as well as Adelaide's largest port, Port Adelaide, a container terminal and also one of the state's largest transport hubs. Large slabs of residential area to the north-east of Adelaide's CBD were also absorbed in the amalgamation, and so in addition to the vast industrial area surrounding Port Adelaide the council also governs more than 100,000 residents in nearly 55,000 households.