Dollars & Sense

Here are five critical steps that can cut procurement costs.

Procurement is one of the most complicated and time-consuming processes for any school district. Dealing with paper catalogs, stacks of forms, an ongoing stream of checks and an array of vendors can overwhelm even the most efficient organization. What’s more, managing costs can prove daunting.

However, times are changing. Some districts are installing electronic systems to automate and consolidate the purchase process. They are negotiating volume discounts by consolidating vendors and finding the lowest available price for each item. These steps enable schools to tap into new efficiencies and savings.

What makes e-procurement so attractive is its ability to tie together dispersed systems and help an organization consolidate suppliers. By eliminating the manual processes — where each department or employee buys through a different set of suppliers — a school district can gain far greater control over who buys items and what price they pay for them.

The Edgecombe district in Tarboro, N.C., which has 14 traditional schools plus an alternative school and an Early College High School, has purchased an array of goods online since 2002. Employees in various departments generate requisitions, receive approval for the purchases, turn in their purchase orders and choose among approved vendors.

If they order through an online catalog, they automatically link to items that fall under purchasing contracts for the state of North Carolina, which ensures that they get the best possible pricing. It also makes ordering a one-click proposition. During the 2004-2005 school year, the district saved $53,438 on a $5 million budget for supplies, materials and equipment.

At California’s Oakland Unified School textcafe source-linebreak District (USD), which manages 146 district schools with more than 45,000 students, the march toward e-procurement has paid enormous dividends. Not only is the district saving about $2 million annually, it is also improving the educational process by ensuring that computers, supplies and books are available when and where they’re needed, says Michael Moore, operations officer for Oakland USD. (See “Oakland USD Is on the Money ” on this page.)

PUTTING E-PROCUREMENT TO WORK

John Kost, managing vice president of government research at Gartner, an IT research firm based in Stamford, Conn., says that the most successful e-procurement systems focus on several key areas: design, content and usability; effective workflow that routes purchase orders, requisitions and approvals quickly and efficiently; integration with financial and enterprise resource planning systems (ERPs); tight supplier integration so that the system proves advantageous for everyone involved; and the ability to view reports and analyze information. The last area can help a school district manage suppliers, secure better pricing, handle audits and planning, anticipate availability problems and improve the overall purchasing process.

Building an effective e-procurement system requires attention to organizational processes as well as technology. Here are five tips to help you achieve the maximum success for your school district’s e-procurement system:

1. Embrace a decentralized buying model. Too often, school administrators feel very uncomfortable at the thought of relinquishing control of purchasing. In reality, significant productivity gains result when an organization decentralizes the purchase of goods and services, Kost points out.

For example, at Okaloosa County School District in Fort Walton Beach, Fla., which includes 39 schools and 30,500 students, buying takes place directly at the school level. Richard Norris, director of purchasing, has made 120 of the most popular items available though two online vendors. The firms ship pens, paper and other supplies directly to the schools.

This results in an annual savings of about $350,000 in warehousing costs, better pricing and next-day delivery. Norris points out another advantage: “We are able to match schools’ needs more precisely since they are handling the ordering. We don’t have to keep extra supplies in a warehouse and try to anticipate what schools will need.”

2. Use e-quotes. When an organization buys from a select number of vendors, it’s possible to negotiate better pricing. A buyer can log in using a familiar Web browser and navigate through menus and online forms with minimal difficulties. A Web portal also can speed and simplify the process of soliciting bids.

For instance, at Edgecombe County Public Schools, a quote for 2,040 cases of recycled paper went out to 20 approved vendors. The school district received eight responses ranging from $47,753 to $59,630.

“We paid less for this paper than we would have under the already negotiated low state term contract price,” says Lynne Hill, the schools’ purchasing agent. “Using e-quote saves thousands of dollars per school per year.”

3. Build controls into the workflow. A primary goal of e-procurement is to build a more efficient, streamlined system for buying goods and services. Although Oakland USD was able to cut the per-unit costs of products by consolidating vendors, the biggest gains came from revamping its business processes and eliminating administrative overhead.

A well-designed system can increase oversight and provide an improved understanding of who is spending money on what. At Oakland USD, administrators can view reports that show purchasing details at the click of a mouse — including who bought the item and the date the transaction took place. That increases employee accountability, says Moore.

4. Tie the system into an ERP application. While it is possible to use a standalone e-procurement system, Gartner’s Kost says that school districts can benefit by linking e-procurement and ERP systems. When data and reports flow back and forth, it’s easier to track purchase orders, invoices and other financial data. This often contributes additional cost savings and improves vendor relationships.

The Los Angeles Unified School District, with 1,030 schools and educational centers and a $13.4 billion budget, is taking this approach. It plans on using an ERP system to manage more than 12,000 contracts with 72,000 vendors. The e-procurement application which is scheduled for introduction in July 2007, will provide visibility into buying patterns, inventory levels, order status and reordering trends, according to Jeanne Marmalefsky, director of ERP change management at LAUSD.

5. Provide adequate education and training. It’s impossible to achieve maximum return on investment on a system unless employees are able to use it to its full advantage. E-procurement is more than the sum of computers and software. When employees understand organizational goals and how business processes work, they’re better able to make bottom-line contributions. “Everyone comes out ahead when people understand how to use a system to maximum advantage,” says Okaloosa’s Norris.

The march toward e-procurement is gaining momentum. Ultimately, districts that put all the pieces together are finding that it’s possible to slash costs and crumple the inefficiencies of paper and manual processes.

“It’s bringing buying into the 21st century,” says Oakland USD’s Moore.

OAKLAND USD IS ON THE MONEY

SUMMARY

When California's Oakland Unified School District (USD) turned to e-procurement in 2004, “We completely transformed the way we purchase supplies, textbooks, technology and other goods,” observes Michael Moore, operations officer for Oakland USD.

CHALLENGE

With an $80 million annual budget involved, Oakland USD administrators knew that effective e-procurement was critical. In the past, buyers had to sort through information from 32 different vendors and engage in a 12-step process that could take weeks — even months — to complete. “The process was slow, cumbersome and undependable,” Moore recalls.

SOLUTION

In 2004, the district migrated to an e-procurement system. The Web-based offering, dubbed OUSD eMarketplace, automates the procurement process from supplier product content through financial settlement. OUSD also began paring down the number of preferred vendors on its procurement list.

Today, 60 percent of the district's procurement takes place online. Various departments and schools can make purchases based on their budget allowance and, if they hit their limit, the system blocks further orders. Office supply products arrive the next day, and computer and electronics items usually arrive within a few days.

The district requires any item worth $500 or more to include an asset tag from the supplier in order to track the movement of an item and manage it throughout its lifespan. Vendors must deliver products exceeding $500 directly to the warehouse, where the district can keep those items under lock and key.

RESULTS

Oakland USD now saves an average of 20 percent on its purchases because it is able to negotiate better pricing due to volume buying. In addition, it has slashed labor costs associated with the procurement process. The time required to handle a procurement transaction has decreased from about one hour and seven minutes to 14 minutes. This has helped the district trim the number of full-time equivalent employees by 3.9 and achieve $850,000 in various labor and delivery savings the first year alone. Combined with the savings realized through better pricing, total savings tallied about $2 million.

More importantly, Oakland USD has changed the mindset and dynamics of education. “Teachers now have the supplies and equipment they need to stay with the lesson plan,” Moore says. “They get excited because they have the tools to teach more effectively, students get excited because they are more engaged and parents get excited because kids are coming home happy. The greatest benefit isn't financial; it's that the e-procurement process is helping to improve education.”

E-PROCUREMENT SCORECARD

California's Oakland Unified School District reduced a 12-step purchase process to seven steps and saved time with e-procurement.

Conventional Procurement

Requests: 7 minutes
Input: 3 minutes
1st Approval: 1.5 minutes
2nd Approval: 2 minutes
Requisition to Purchase Order: 3 minutes
Fax: 3 minutes
OUSD Distribution Center Check-in: 5 minutes
Driver Delivery: 30 minutes
Site Receiver (Manual Check-in of Delivery): 1 minute
Receiving : 3 minutes
Take to Requester: 3 minutes
AP Sends Payment: 5 minutes
Total: 66.5 minutes

OUSD eMarketplace

Requests: 3 minutes
Online Input: 3 minutes
1st Approval: 1 minute
2nd Approval: 1 minute
Requisition to Purchase Order: N/A
Fax: N/A
OUSD Distribution Center Check-in: N/A*
Driver Delivery: 0 minutes
Site Receiver (Manual Check-in of Delivery): 1 minute
Receiving: N/A
Take to Requester: N/A
AP Sends Payment: 2 minutes
Total: 11 minutes

*for direct site deliveries

TIME, WORKLOAD AND COSTS FOR PROCUREMENT

California's Oakland Unified School District / Conventional Procurement / OUSD eMarketplace

Purchase Orders 2004-2005 School Year / 24,594 / 8,500
Total Number of Minutes Spent on Tasks / 1,635,501 / 59,500
Full-Time Equivalent Positions / 15.5 / 11.6
Number of Vendors in System / 1,511 / 3*
Dollar Amount Spent Using System / $72.8 million / $7.2 million

*Although Oakland USD retains all vendors, e-procurement is channeled through three primary vendors.

Samuel Greengard is a business and technology journalist based in Portland, Ore.

Oct 31 2006

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