Logistics Technologies
A research university is probably among the last areas one might think of as a hotbed of opportunity for new logistics technologies. In the case of University of Toronto, eProcurement is poised to revolutionize the business processes that today impose tremendous barriers to effective use of research and teaching resources.
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It is a widely held truth that for research to occur those engaged in research need the freedom to acquire products from any source they can find to meet their objectives. This is commonly referred to as ‘academic freedom of choice.’ This principle poses enormous challenges for universities faced with the need to balance empowering researchers while containing the administrative demands such an open framework creates. For the researcher (or Principal Investigator) on a day-to-day basis, empowerment can be a two-edged sword. Once the realm of central administration, researchers in decentralized institutions have had to become skilled in sourcing, negotiating and expediting while developing expertise in accounting, import, customs and supplier relationship management. In a large, complex institution like UofT the result often is myriad homegrown business processes or ‘shadow systems’ designed to meet parochial needs. The impact of this state of affairs is daunting.
An internal feasibility study uncovered some sobering facts. Highly skilled laboratory technicians, trained and employed to support principal investigators in their research, were spending as much as 40% of their time on procurement activities. Similarly, business officers, whose core responsibility is to provide budgeting and financial management support to principal investigators and their funding bodies, were occupied 30% of the time with procurement activities. Add to this the knowledge that off-contract spending was costing millions in lost discounts and the course of action was clear. A solution had to be found to drive down process costs and increase productivity by enabling our researchers to invest more time and dollars in their research and teaching. While containing product costs had always been a concern, finding a solution that enabled researchers to do more research and their support staff to more effectively support that research became our primary driver.
Solution alternatives were plentiful as were the business models. UofT has had a successful purchasing card program for a number of years. Unleashing the masses armed with pCards and access to Internet shopping appeared to be a quick solution but was not enough to meet the needs of such a diverse and complex organization. The ultimate solution had to have the potential to become the purchasing channel of choice. This meant optimizing the end-user experience and by ‘end-user’ our definition had to include every function that touched the process from shop to pay.
To achieve this goal, the ultimate system had to be easy to use with a broad, deep product offering, fully integrated with the university’s financial systems and with the flexibility to tailor business rules to locally defined standards. The sole absolute that would render a solution unacceptable was in the area of costs passed along to the end-user. In this era of continuing budget cuts, universities need to leverage every opportunity to stretch financial resources. Therefore any business model based on transaction fees or subscriptions would not gain the broad acceptance that would be necessary for the viability of the system.
A number of options were explored including 3rd party catalogue aggregators, eMarketplaces and in-house solutions. Most solution providers heavily promoted the product cost savings that their systems would make possible by way of curtailing maverick spending. We felt that while this was attractive in it’s own right – the ROI forecasts suggested that ANY solution would be better than nothing – the proposals did not adequately address the end-to-end process improvements we believed represented the real benefit. Virtually all proponents claimed their products capable of being integrated with our ERP system and therefore take us the rest of the way through the purchase cycle, but few if any had actually done it or could reasonably estimate the cost of doing so.
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Ultimately the University decided in favour of developing a supplier portal based on Enterprise Buyer Professional, an eProcurement module of SAP the university’s ERP system. This option had a number of appealing characteristics. For the university there would be no new intermediaries added to the supply chain that would have the potential to add cost to the process or cloud the business relationship. This strategy had great appeal for suppliers also, which we felt was critical. We recognized early on that significant cooperation and commitment of our suppliers would be necessary to ensure a successful project. Using a portal strategy we would leverage the investment suppliers had already made in eCommerce infrastructure limiting the need for any additional investment to developing electronic document exchange functionality for the purchase order and invoice.
We saw a number of other important benefits to the portal strategy. Financially and strategically this approach represented the lowest risk. We were able to limit financial risk by implementing a pilot with limited users and suppliers. This enabled us to proceed cautiously with frequent consultation with stakeholders. Up front investment was limited to software licenses and consulting services where we were careful to ensure that supplier enablement skills were transferred to our internal development staff. In this way we were able to work closely with a pilot group of end-users and with a few suppliers to identify specific functionality preferences and requirements with a manageable working group. The objective of the pilot was twofold; to ensure that the final product released to the general population would meet key functional needs, and to develop a supplier enablement template that would allow us to engage a critical mass of suppliers at a brisk but controllable rate.
At the time of this writing, UofT has engaged several suppliers including VWR Canlab, Lyreco Office Products and Dell Computers. Users are able to shop at one or all suppliers in a single ‘shopping excursion.’ Principal Investigators are able to designate Lab Technicians or other support staff to purchase on behalf of the lab with spending limits or commodity restrictions, as he/she deems appropriate.
The eProcurement Process
At the start of a shopping excursion the user is presented with a familiar web interface. With a single authentication the user has access to all of the suppliers in the portal, each of which presents the user with UofT contracted pricing and the suppliers’ lead times. Based on the commodity or end-use of the product as indicated by the user the system tags each line item with the correct tax applicability code. The ‘backend’ system routes electronic shopping ‘carts’ to predefined approval authorities and verifies that the research accounts have the funds available to commit the purchase. Once these checkpoints are passed, the SAP system transmits purchase orders to the suppliers’ ERP systems where orders are queued for fulfillment. When the goods are shipped, the supplier transmits an electronic invoice where it is parked in the university financial system. Finally when the goods arrive the end-user acknowledges receipt in the system, a process analogous to checking a packing slip. At this point the system has the information required to attempt a 3-way match of PO, Goods Receipt and Vendor Invoice. Upon successful 3-way match the system queues the invoice for payment via electronic funds transfer, completing the purchase cycle.
What have we accomplished?
The process for the Principal Investigator is dramatically simplified. Shopping is reduced to ‘point-and-click.’ They no longer need to be concerned with budget over-runs, applying the correct sales tax or getting the contracted price.
For financial managers detailed, real-time information, elimination of budget risk and clear audit trail puts an end to the days of the paper chase and shuffling funds between accounts to cover over-drafts.
Central Procurement departments have consumption reporting at a granular level of detail that was once the stuff of dreams. eProcurement is seen as the dawning of an era of supply base de-fragmentation.
For the university’s supply partners the opportunities come in the form of increased market share and reduced cost of doing business; two essential factors in driving down product costs for end-users. The eProcurement environment also enables suppliers to get closer to the consumer facilitating communication and collaboration.
Where do we go from here?
The most important next step for the university is to attain a critical mass of suppliers that will maximize the utility of the system for the community. But there are opportunities well beyond the supplier Pareto point. As an internal tool it won’t be long before our building maintenance crews are equipped with wireless devices enabling them to access the system from any work site on campus to order repair parts.
Leveraging eProcurement through integrating it with our student registration systems hold tremendous promise to make life easier for students. Soon it will be possible to enable students to order the text books prescribed by the courses selected and have them delivered to their home or campus residence. Ditto for personal computers that need to adhere to university technical specifications.
In essence, we are only bound by the limits of our imagination. One thing is certain. eProcurement at the University of Toronto is just the beginning of a process that will revolutionize the way academia and the business world engage.