At Police headquarters in Wellington, national procurement manager Stan Pope says in ballpark figures, the annual Police budget currently sits at around a billion dollars. Of this, about 75% is spent on salaries and $200 million is allocated to buy everything from cars and computers, to batons and pens.
The Police were always major backers of GoProcure says Pope, due to the sheer volume of daily purchases the organisation makes. For example, the Police operate 2850 vehicles – generating approximately 20,000 fuel transactions a month. Patrol cars operate 24/7 and are never off the road unless they’re being serviced.
In terms of uniform and equipment, the Police have over 1600 line items in their procurement catalogue – and prior to moving to electronic procurement, had identified around 410,000 transactions a year that they would be able to manage using an end to end e-procurement solution.
Stationery, in particular, had always been a big area of spend. “The police spend $6.5 million a year on stationery so it’s a bit of an issue,” says Pope. “We’re accessing 4500 lines of stationery within our catalogues and we’re placing about 35,000 purchase orders to Corporate Express every year.”
The impetus to move to e-procurement came as the Police identified major inefficiencies in their procurement process. As Pope points out, manual systems were costing the Police money in a range of areas. “With a manual paper-based system,” he says, “the process was – fill out an order form, take it to somebody to sign off, get somebody in accounts to fax, mail or phone to place the order. Then confirm the goods have arrived, code them to a cost center and the general ledger, then batch it and enter it into the finance system.” At any one of these stages, he says, someone could sit on an order – slowing down the process even more.
And as orders could not be tracked efficiently, the concept of ‘just in time’ procurement was not a workable option for Police. “All the stations used to have huge stationery cupboards,” says Pope, “and we even had our own internal stationery warehouse in Auckland that purchased from our suppliers and then acted as a distribution point – it doesn’t get much worse than that.”
The move to a SAP financial system in 1999 dramatically cut costs from the procurement loop says Pope. “Under the old manual systems we determined our costs were $42.15 per procurement transaction. The value of the product was irrelevant. It didn’t matter if we ordered one Bic pen or a new car, the process of filling out forms, doing the receipts, making the payment, sending the remittance advice off – all those facets added up to $42.15. Once we put SAP in that dropped to $5.48.
After the introduction of SAP, Pope says the Police began to look at what sectors of their supplychain could be enabled with an end to end e-procurement solution. Three vendors were identified as providing the greatest volumes to Police. Corporate Express for stationery, SPEL for uniforms and equipment and BP for fuel.
At the earliest stages of the GoProcure project, Pope says process transparency and adherence to Police purchasing policies were immediate benefits. “The new structure we’ve established is affording us about 99.5 % purchasing compliance,” he says. “For stationery for instance this gives us a strong position when renegotiating contracts.
“We can go to the market and say ‘we bring huge volumes to the relationship’ rather than in the old days when we’d say to the different police districts we had this fantastic contract with a particular company but we had to hope people actually complied and purchased products from that company. We had no control, but the new system gives us very tight compliance now.
After the plug was pulled on GoProcure, Pope says the Police considered establishing direct links with their major suppliers. “That was going to be our preferred option – just establish a VPN (virtual private network) link and get on with business. The problem was that meant four holes in our firewall and that was less than ideal from our IT people’s point-of-view. They only wanted one, so that’s the way we had to go.”
With GoProcure gone Pope says the Police scanned the horizon for the next e-procurement “tall poppy” to appear. “By closing down GoProcure the government had said they didn’t think it was their role to establish that tall poppy,” he says. “We said in our eyes Tranzsoft appears to have demonstrable experience, they had runs on the board in this area and we’d already had some dealings with them.
“So we said let’s have another look at whether we can effectively use a single point of contact and establish Tranzsoft as our xCBL hub (xCBL is the XML component library for business-to-business e-commerce).
Instead of a range of suppliers trading with Police directly, Pope says the three-year deal signed with Tranzsoft means the Police need only establish one VPN connection to Tranzsoft – but can still gain all the benefits of trading electronically with multiple suppliers – as those suppliers connect to the Tranzsoft hub. Tranzsoft’s Rod Hall says Corporate Express is already transacting with the Police via Tranzsoft, and implementation work has begun with BP and SPEL.
Pope says its possible three additional suppliers will join the hub by the end of the year. He adds that the new system has dropped the Police’s cost-per-procurement from $5.48 to $5.23, but this may be about as low as it goes.
“It’s the law of diminishing returns,” he says. “You have to watch that the cost of squeezing out the next efficiency improvement doesn’t actually exceed the benefits that you’re going to get out of it – and we think we’re nearing the optimum point now.”