Staying On Track

Let's face it: No one said e-procurement was going to be easy.

[From iSource Business, December 2000] For Alan W. Daniel at Texas Instruments, the challenge was remaking purchasing processes to take full advantage of a new e-procurement system. For John L. Kallok, with Los Angeles County, it was the integration of an e-procurement system with a legacy financial system. These purchasing professionals have had to address distinctly different issues while implementing their respective systems, but their stories are illustrative of the types of issues that can arise when a purchasing organization moves to a new procurement system.

Planning for Change at Texas Instruments

Alan Daniel is procurement tools manager at Dallas-based Texas Instruments, where he oversees the implementation of e-procurement systems. TI, a $9 billion manufacturer of computer chips and other electronic components, began its e-procurement initiative in 1998 with the goal of increasing the purchasing department's participation in supplier management in the area of maintenance, repair and operating (MRO) goods and services. In the capital equipment and direct materials areas, the company had already developed commodity procurement teams charged with managing supplier relationships. But in MRO, TI had about 5,000 suppliers, making effective supplier management  and the attendant reduced costs  impossible to achieve in practice. Daniel and his team started by examining how the company's purchasing personnel spent their time. TI used an in-house, legacy mainframe system for most of its $300 million in annual MRO purchases. Not surprisingly, Daniel found that purchasers spent a great deal of time processing the approximately 370,000 MRO-related transactions generated within the company annually, with each purchaser handling about 5,000 transactions per year. This meant they had little or no time to spend managing suppliers. As it was, the purchasing staff was hard-pressed to maintain up-to-date supplier product and pricing information in TI's internal database and catalog. "With a lot of procurement activity focused on transactions, you couldn't very well get the supplier management and the material cost savings you were looking for," Daniel says. The key issue for Daniel thus became envisioning and designing a purchasing process that would let TI reach its goal of improving supplier management in MRO. Daniel explains: "The challenges going into the implementation were to understand the process we wanted to use for procurement, that is, a procurement strategy that addressed the process changes we needed to make, and then to pick a solution that let us enable those process changes."

The strategy TI adopted was twofold: reduce the supplier base to a more manageable level and, at the same time, move purchasing staff from performing tactical functions (processing POs) to more strategic work. To implement this strategy, the company looked at different tools that would allow end-users within TI to connect directly to suppliers for MRO purchases. eProcurement seemed a natural fit, since, as Daniel says, "It allows you to take purchasing out of the middle of the transaction."

By the end of 1998 Texas Instruments had decided on a course of action: implement an electronic catalog for MRO supplies, along with a purchasing card system. Texas Instruments began evaluating e-procurement providers in the fourth quarter of 1998 and had selected Intelysis by the end of the first quarter of 1999. With a contract in place in May, TI and Intelysis formed a cross-functional team to oversee the implementation of Intelysis' ConnectTrade solution, which uses existing hardware and Web browsers to automate the purchasing process through online catalogs. After installing the system in a little more than 60 days, TI began a two-month pilot program with a subset of users before rolling the system out to all U.S. employees on Oct. 1, 1999.

Currently the system has about 1,100 users, who can access seven electronic catalogs (or e-catalogs) to order supplies from key TI suppliers such as Boise Cascade, Boise Tech, CompUSA and Fisher Scientific. Three more e-catalogs were due to come online by September 2000. More important, the Intelysis system is now on pace to handle about 120,000 purchasing transactions in 2000, or about one-third of the total annual number of MRO orders coming out of TI.

Given the average number of transactions per year for the company's purchasers (5,000), Daniel estimates that the catalog system has allowed Texas Instruments to reduce its purchasing staff involved in processing orders by 20 full-time equivalent employees. While some of the reduction has come through attrition, with new vacancies not being filled, TI is also meeting its goal of shifting increasing numbers of buyers to the more strategic function of supplier management. Daniel adds that because the new system is making purchasing more efficient overall, the company will be able to grow its business without having to hire additional buyers.

End-user acceptance of the new system has been high, according to Daniel, who says that the computer interface for placing orders was made as easy-to-use as possible to overcome any potential "pushback" from requisitioners.

TI also turned off part of the legacy purchasing system to ensure that employees used the new e-catalogs. The result has been reduced maverick purchases and a reduction in Texas Instruments' supply base from 5,000 to a projected 200 by the end of this year. The company's goal is have about 90 percent of MRO purchasing transactions going to those 200 suppliers.

Daniel says he is quite pleased with the new system's results to date, but he continues to stress that the results are a product of the overall strategy rather than of any particular e-procurement software or system. "I can't overemphasize how important it is for you to have the right strategy and the right mindset on processes before you go implement a tool," he says. "If you just put a tool in place without changing any processes, you're not gaining very much."

Dealing with Legacy Systems in Los Angeles County

While Texas Instruments was dealing with the challenge of reforming processes, Los Angeles County was working to integrate a new purchasing system to a legacy financial system. L.A. County covers a vast area and a huge population. In fact, if the county were a state, its nine million people would make it the ninth largest in the nation. Accordingly, the government that serves the county is also massive, with more than 80,000 employees in about 40 different departments working in nearly 500 different locations. The county government's annual budget of $13 billion funds a major chain of hospitals, one of the country's largest sheriff departments, county jails with 20,000 inmates, a court system with more than 40 offices and all the public works and administrative systems required by such a large jurisdiction. Despite its size, the county uses a centralized purchasing department, part of the internal services department that provides information, technology services, facilities management, contracts and purchasing services for the county. The purchasing department makes all purchases of commodities and services up to $100,000, although it delegates some of the authority to the government's other agencies. Those agencies can make buys up to $5,000 or make purchases off the county's 1,200 pre-negotiated contracts. The county's annual buy, totaling about $900 million for the fiscal year that ended June 30, is remarkably diverse, including everything from paperclips, tortillas, livestock, pacemakers and artificial limbs to road graders, helicopters and automobiles. "You name it, the county seems to buy it," says John Kallok, project director for the county's online purchasing system, called County Acquisition Management Information System (CAMIS). Until recently, the purchasing department essentially used a manual system that was becoming increasing difficult to maintain, according Kallok. By 1997, the county recognized it had to upgrade its purchasing system to be able to cope with the volume and diversity of orders, to manage its 1,200 supplier contracts, and to keep track of its inventory. Kallok explains: "Trying to update information for that many price agreements  some of which are for thousands of items and some of which may be just for a handful of items  and distribute that information to all the procurement points throughout the county with a paper-based process is just about impossible. Everyone on the user end who is trying to use those agreements to acquire things has to maintain a huge library of catalogs and become very conversant with what's available. It's just not reasonably possible to expect that you will be able to have the right information in everybody's hands at the right time."

The purchasing department developed a strategy that called for automating the purchasing process and providing end-users with access to the county's price agreements through online catalogs.

With e-procurement still in its infancy in early 1998, the county elected to acquire a mainframe-based ERP system called the Advanced Government Purchasing System (AGPS), from Information Management Specialists (Informs) of Montgomery, Ala. The system, which is used by several state governments, is designed to handle all the detailed purchasing transactions conducted within the county government, such as initiating solicitations, maintaining supplier lists and maintaining records of all transactions. To ensure compliance with the county's negotiated contracts, AGPS provided a structured system that would enforce all the applicable purchasing rules and regulations. The county acquired the Informs system in February 1998 and implemented it in the central purchasing department later that year, in September, under a two-year, $2.2 million contract.

At the same time, the county had Informs work with e-procurement solution provider Commerce One, based in Pleasanton, Calif., to put together a combined interface system that would allow the county to use the mainframe system with e-procurement tools, such as online catalogs. During an initial pilot implementation, the county put 20 catalogs online in its e-procurement system. Commerce One's BuySite software allowed county employees to search the catalogs, compare prices and check supplier inventories. Buyers could place goods in a virtual shopping cart and check out when finished. The system, preconfigured with the county's buying rules, would approve routine purchases or route exceptions to managers for electronic approval. Sounds good, but the CAMIS project ran into a snag before the county could fully implement the new system. "What bit us was our legacy system," Kallok says. The issue was that, as part of its effort to automate the purchasing process to the greatest extent possible, the purchasing department wanted to interface the AGPS with the county's centralized financial system. That system, a legacy implementation of American Management System's government finance system, had been in place about 20 years and had been heavily modified over time. The challenge was all the greater because the county's central purchasing system was specifically designed for government. "The e-commerce companies are going after the commercial market first," Kallok explains. "They are building their ability to interface first to systems like SAP, PeopleSoft and Oracle Financials. So we are breaking our own trail in terms of building our own interface." The Y2K bug further delayed the integration efforts in 1999 because, by the time Kallok's office had the necessary software in hand, the county's office of the controller was focused on addressing issues relating to the rollover to 2000. Once the New Year passed, the controller and the purchasing department were able to return to the integration issue. By August 2000, the county had completed the first phase of testing for the interface system and had entered phase two, with a pilot implementation planned for September.

Meanwhile, the purchasing department has continued to work with Commerce One and plans to have an initial set of the county's most heavily used contractual agreements, with such suppliers as Office Depot and Grainger, available for use. Countywide rollout will take place in 2001. Ultimately, the county wants to have online catalogs in place for all of its more than 1,000 suppliers. While CAMIS is clearly still at an early stage of implementation, Kallok is optimistic that the automation provided by the system will produce considerable efficiencies and help the county gain better control over its purchasing. Nevertheless, given the delays engendered by the county's integration requirements, he urges purchasers looking at an e-procurement implementation to consider how they will tie new and legacy systems together. "What kind of systems they have in place and how they want their e-commerce or e-procurement capabilities to interact with their existing systems is an initial consideration for any organization that is going to pursue this," Kallok says.
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