Review of E-procurement Demonstration Projects · ABC E-procurement Demonstration Project 3 CSIRO...

Review of E-procurement Demonstration ProjectsAustralian Broadcasting CorporationCommonwealth Scientific and Industrial Research OrganisationSpecial Broadcasting ServiceDepartment of the Environment and Heritage: Australian Antarctic Division

© Commonwealth of Australia 2005

ISBN (print) 1 74082 089 4ISBN (online) 1 74082 090 8

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by an process without the prior written permission from the Commonwealth.Requests and enquiries concerning reproduction and rights in this publication should be addressed to:

Commonwealth Copyright AdministrationAttorney-General’s DepartmentRobert Garran OfficesNational CircuitCanberra ACT 2600

Contents

Executive Summary 1Overview 1

Summary of Key Learnings 1

Conclusion 1

Overview Report 2Introduction 2

Methodology 2

Objectives 3

Agency Demonstration Projects 3

ABC E-procurement Demonstration Project 3

CSIRO E-procurement Demonstration Project 5

SBS E-procurement Demonstration Project 7

AAD E-procurement Demonstration Project 8

Key Learnings 9

1. Strategy 10

2. Stakeholder Management 11

3. Requirements 13

4. Change Management 16

Conclusion 17

Agency Participants 18

E-procurement at the ABC – Australian Broadcasting Corporation 19

Summary 20

ABC Purchasing Profile 20

Overview of ABC E-procurement system 21

Key Learnings 23

1. Supplier Engagement 23

2. Understanding the End User 24

3. Data Standards 24

4. Project Scoping, Resources and Communication 24

Conclusion 25

E-procurement at CSIRO – Commonwealth Scientific and Industrial Research Organisation 27

Summary 28

CSIRO Purchasing Profile 29

Overview of CSIRO E-procurement System 30

Key Learnings 31

1. Order Approvals and Hierarchy 31

2. End User Needs 32

3. Procurement Strategy 32

4. Supplier Selection and Communication 33

5. Project Scoping and Managing Resources 33

Conclusion 33

E-procurement at SBS – Special Broadcasting Service 35

Summary 36

SBS Purchasing Profile 36

Overview of SBS E-procurement System 37

Key Learnings 38

1. Security Issues are Vital 38

2. Catalogue Maintenance 39

3. Users Have Varying Needs 39

4. Understand the Full Business Process 40

5. XML Data Transmission 40

Conclusion 41

E-procurement at the AAD – Australian Antarctic Division 43

Summary 44

AAD Purchasing Profile 44

Overview of AAD E-procurement System 45

Key Learnings 47

1. Choose Service Provider Carefully 47

2. Analyse Spend and Develop Strategy 47

3. Communication is Essential 48

4. Keep It Simple 48

Conclusion 49

6 C’s of eBusiness Barriers© 49

Glossary 51

1

Executive Summary

Overview

In 2003, the National Office for the Information Economy (NOIE), now the Australian Government Information Management Office (AGIMO), a business group within the Department of Finance and Administration, sponsored four Agency E-Procurement Demonstration Projects. The Agencies were selected based on their diverse procurement spend and the volume of transactions they were conducting with small to medium enterprises (SMEs). They included the Australian Broadcasting Corporation (ABC), the Commonwealth Scientific Industrial Research Organisation (CSIRO), the Special Broadcasting Service (SBS) and the Australian Antarctic Division (AAD).

The purpose of the Demonstration Projects was for each Agency to:

• identify business processes that could best be utilised and improved by e-procurement systems

• test the technical feasibility of electronically enabling suitable business processes and demonstrating connectivity to SME suppliers.

In mid 2004, The Faculty was engaged by AGIMO to review the four projects, document the activities and outcomes, analyse the material and identify key learnings. Information for this report was gathered through a variety of methods. These included reviewing background material from each Agency and conducting interviews with participants, suppliers and service providers.

Summary of Key Learnings

The four Agency E-procurement Demonstration Projects resulted in the following key learnings:

Strategy – Embed a robust procurement strategy that incorporates e-procurement and complements broader business needs and strategies. Ensure policies are in place to implement the strategy.

Stakeholder Management – Identify and manage key stakeholders – both internal and external – at all levels. Manage their needs, issues and concerns, throughout the project life cycle. Secure their support and maintain communication.

Requirements – Know the requirements of suppliers, end users and business processes. Properly select and utilise technology, project tools and resources. Understand how they impact the e-procurement system.

Change Management – Understand and manage the impact of change on the organisation and its impact on policies. Appreciate the influence of stakeholders over this process.

Conclusion

The systems trialled in the E-procurement Demonstration Projects prove that e-procurement can improve a variety of business processes. The projects also demonstrated the feasibility of electronic connectivity between Agencies and SME suppliers.

The E-procurement Demonstration Projects successfully provided a greater understanding of the issues and efficiencies of e-procurement within small Agencies. While each project was specific to an Agency, the general solutions, systems and key learnings may be common to other government organisations developing their own e-procurement programs.

Review of E-procurement Demonstration ProjectsExecutive Summary

2 Review of E-procurement Demonstration ProjectsOverview

Overview Report

Introduction

In 2003, NOIE was exploring the issues surrounding e-procurement systems in a government agency context. NOIE sponsored four e-procurement demonstration projects.

An area of specific interest to NOIE was how to best enable connectivity between Agencies and small to medium enterprises. NOIE wanted to fund the demonstration projects in order to test different approaches to dealing with small suppliers, as well as identifying issues and barriers facing both Agencies and suppliers.

After submitting proposals to NOIE, four different projects were selected for sponsorship based on their diverse procurement spend and the volume of transactions they were conducting with SMEs – the ABC, CSIRO, SBS and the AAD. NOIE provided funding for these E-procurement Demonstration Projects through the Small Business Assistance Package.

The purpose of the Demonstration Projects was for each Agency to:

• identify business processes that could best be utilised and improved by e-procurement systems

• test the technical feasibility of electronically enabling suitable business processes and demonstrating connectivity to SME suppliers.

Through this initiative, each Agency conducted an independent project using implementation methods, technology and a supply-base unique to its own situation.

NOIE did not request that the Agencies submit a formal business case in order to obtain funding. NOIE was interested in identified business savings or benefits flowing from the trial, but this was not the primary goal of funding the demonstration projects.

The defined time limit and small scale of the projects meant it was not possible for the Agencies to process large transaction volumes, nor determine a return on investment. However, each Agency has realised the advantage of its e-procurement system and the overall benefits to the business; and is committed to continuing with e-procurement.

In 2003, NOIE reorganised and became AGIMO. In November 2004, AGIMO was absorbed into the Department of Finance and Administration.

In mid 2004, The Faculty was engaged by AGIMO to review the four projects, document the activities and outcomes, analyse the material and identify key learnings. Four individual reports were written describing each Agency’s project, the participants, factors influencing implementation, status after project completion and key learnings.

Methodology

Information for this report was gathered through a variety of methods. Each Agency provided background documents and material to AGIMO. Interviews were conducted with Agency participants, suppliers and service providers. The data was reviewed and analysed to identify what was accomplished at each site, including lessons learned. More analysis uncovered the collective Learnings for the E-procurement Demonstration Projects.

Review of E-procurement Demonstration ProjectsOverview 3

Objectives

This report offers a concise summary of each individual project and briefly discusses its implementation and the associated outcomes. Key facts and project highlights are also noted. The report provides the consolidated key learnings across the four projects.

Agency E-procurement Demonstration Projects

This section gives a brief summary of each individual project. The implementation and outcomes are discussed at a high level. Greater detail on each individual Agency and its Demonstration Project can be found in the individual Agency reports following this overview report.

ABC E-procurement Demonstration Project

The following diagram outlines the key elements of this trial system.

Figure 1

ABC E-procurement System Diagram

Key Facts about the ABC:

• 4,500 staff located across Australia

• SAP R/3 ERP system

• 1,200 named SAP accounts

• 24,000 P/Os per year

• 70,000 invoices per year worth $530M

Hosted catalogues

mySAP Enterprise

Buyer Professional

SAP

Kaffe Orexi MYOB

iCMS

Newsagency

OCI Compliant Supplier catalogues

Business system

Complete Office

Supplies

Sony

SAP

GXS

1

2

3

ÄEnd Users

ÄEnd Users

Data upload

Hosted E-procurement System

RequisitionsPurchase

Orders

Data upload

B2B


The ABC’s Demonstration Project was designed to deliver streamlined purchasing processes through three integrated projects. The system included the following elements:

1. B2B Connectivity

The ABC established B2B connections to enable the electronic exchange of P/O and invoice data between its SAP R/3 system and key suppliers. Global eXchange Services (GXS) provided translation services for a variety of data formats. P/Os sent to Sony were loaded directly into its SAP R/3 system. P/Os sent to Complete Office Supplies (COS) were loaded directly into its business system. These transactions were transparent to the users.

2. Hosted E-procurement System with Punch out

The ABC also implemented an externally hosted mySAP Enterprise Buyer Professional system that interfaced to its core SAP R/3 system. This external system supported fast start-up, flexible-hosting arrangements and minimal impact on the internal ABC network and SAP infrastructure.

End users logged onto the mySAP Enterprise Buyer system from inside the ABC, browsed catalogues and added items to a shopping basket. The mySAP system supported internally hosted catalogues (i.e. Sony) along with OCI “punch out” to supplier hosted catalogues (i.e. COS).

Requisitions were routed for approval, processed in the ABC SAP R/3 system, translated into P/Os, exported to the GXS system, and sent to the supplier.

3. Non Purchase Order Transactions for SME Suppliers

The ABC used an EMS with workflow capability to electronically receive and approve invoices from small suppliers. The same process could be expanded to support large suppliers.

Business Information Systems (BIS) developed an open-ended interface to its iCMS EMS product. This externally hosted system supported the reconciliation and approval of non P/O transaction invoices in a test environment. In production, this would reduce Accounts Payable data entry and ensure timely payments to small suppliers.

The ABC used this technique with a cafe located in the ABC Ultimo building, Kaffe Orexi. In this example, an electronic invoice was exported from Kaffe Orexi’s MYOB system into iCMS. Purchases were reconciled and approved online by ABC staff in the test environment.

Project Status

The ABC project successfully demonstrated the B2B connectivity and the ease of use of an Internet-based requisitioning tool, although with a small supplier base. The small supplier component was successfully trialled in the test environment.

Overall, the ABC was pleased with the success of the trial and the future potential of e-procurement within the Corporation. Business cases are currently being prepared to justify the implementation of e-procurement into the organisation. Actual implementation details may differ from the trial depending on the business case justification in that some components may be run in-house rather than hosted externally.

Project highlights:

• 12 End users

• B2B via GXS

• OCI punch out to suppliers

• 3 Online suppliers

• mySAP requisitioning tool

• iCMS for SME invoices

Punch out allows end users to access supplier

hosted e-commerce catalogues via the

e-procurement system. This reduces the need for internal catalogue

maintenance

The EMS iCMS allowed ABC staff to reconcile

and managers to approve non P/O based

invoices quickly and efficiently


CSIRO E-procurement Demonstration Project

The following diagram outlines the key elements of the CSIRO e-procurement trial system.

Figure 2

CSIRO E-procurement System Diagram Key Facts about CSIRO:

• 6,500 staff in 22 divisions across 58 locations

• Diverse purchasing processes amongst divisions

• FMIS – UNIBIS

• 7,000 P-cards in use

• $300M in operating costs

• 90% of suppliers paid via EFT

Hosted catalogues

iCMS

Conexa Optus


Sigma Aldrich

SAP

Crown Scientific

Business system

1

2

3

ÄEnd Users

ÄEnd Users

XML Data Upload

Hosted E-procurement

System

Requisitions

Key in data

Purchase Orders

FMIS UNIBIS

Expense Management System Procurement

strategy

Project Highlights:

• 20 End users

• Conexa hosted requisitioning tool

• B2B via Conexa


• Hosted catalogues and OCI punch out to suppliers

• iCMS for Expense Management

CSIRO believed that consolidating and improving its procurement processes could reduce costs and deliver savings back to science priorities. To achieve this, CSIRO designed an e-procurement project with three major components:

1. Procurement Strategy

CSIRO developed a procurement strategy that supports the One CSIRO policy. This strategy is the cornerstone for the changes being introduced in the procurement area. CSIRO will build on this strategy as its e-procurement knowledge and experience grows.

2. Hosted E-procurement System

CSIRO chose the Optus/Conexa technology as a hosted e-procurement solution supporting punch out capability to supplier catalogues as well as hosted catalogues.


End users accessed the secure marketplace from CSIRO’s intranet, browsed catalogues and added items to a shopping basket. The Conexa system supported punch out to supplier-hosted, OCI compliant catalogues.

Connecting to Sigma-Aldrich and Crown Scientific catalogues in this way minimised CSIRO’s need to maintain internal catalogues. CSIRO maintained its Black Mountain Store catalogue, which was hosted on Conexa. B2B connections were established with Sigma-Aldrich and Crown Scientific for exchange of P/O data.

3. Expense Management System

CSIRO selected the iCMS software from BIS for its EMS. The system was trialled within CSIRO Corporate Finance, with minor changes made to ensure proper integration with UNIBIS, the Agency’s financial management information system (FMIS).

Purchasing card (P-card) transaction details were fed electronically from the card issuer to the CSIRO and uploaded into iCMS. CSIRO staff responsible for purchases reconciled their P-card transactions online and their managers approved each item online. The data was then extracted into UNIBIS.

Project Status

With the success of its E-procurement Demonstration Project, CSIRO is extending the implementation of each component across the entire organisation.

The integration of the e-procurement system into the overall core procurement strategy will promote e-procurement at the senior management level and maximise its usage at the end user level. Under terms of the new national contracts, suppliers will connect to the hosted system and support punch out capabilities to their own e-commerce sites. Finally, by developing an e-procurement system that is user friendly and easy to access, CSIRO hopes to reduce P-card usage. This usage will be replaced by transactions through the preferred ordering method thereby delivering value to the organisation through the new national contracts and improve the efficiency of CSIRO.

Electronic trading and sourcing philosophy

is embedded in procurement strategy


SBS E-procurement Demonstration Project

The following diagram outlines the key elements of the SBS e-procurement trial system.

Figure 3

SBS E-procurement System Diagram

The SBS E-procurement Demonstration Project aimed to support a web-based system for creating and approving catalogue requisitions. The system included the following elements:

1. Oracle iProcurement Installation

SBS configured and implemented the Oracle iProcurement software that was delivered with the upgrade to Oracle Financials 11i. The SBS system supported around 50 user accounts to purchase stationery and office supplies.

SBS setup internally hosted catalogues for three suppliers, COS, Fuji-Xerox and Semwood Pty Ltd. Altogether there were around 5,000 items in the catalogue.

The end users would use the standard Oracle iProcurement software functionality to browse the catalogue, select items and add them to a shopping basket, and then submit the requisition for approval by their manager. Once the manager had approved the requisition, the purchasing officer would process it into a P/O. The P/O was then emailed to the supplier. When the purchaser received the goods or services, they would go into the system and receipt the purchase order, enabling payment to be made to the supplier.

Key Facts about SBS:

• 900 staff across Australia

• Oracle Financials

• 50 P-cards in use



Project Highlights:

• 50 End users

• Oracle iProcurement requisitioning tool

• B2B via Oracle Exchange


• Internally hosted catalogues

Hosted catalogues

Oracle Financials

Complete Office

Supplies

Business system

1

2ÄEnd Users

Requisitions

Key in data

Email Purchase Orders

Oracle iProcurement

Oracle Exchange


2. Oracle Exchange

SBS also explored the potential for B2B connectivity between the Oracle Exchange and suppliers. The Oracle Exchange system was successfully tested and configured for this purpose. Technical and security constraints meant this portion of the trial was limited to the Oracle test environment.

SBS experienced issues with security constraints when trying to implement direct B2B connectivity with suppliers. The core SBS internal network is used to support the transmission of digital radio and television signals, which means it is vital to protect the network from any failure or security breach. These security requirements took priority over the e-procurement needs, so external suppliers could not access the Oracle system to receive and send P/Os and invoices.

Project Status

SBS successfully implemented the Oracle iProcurement system and is using e-procurement for day-to-day purchasing of stationery and office supplies.

The Agency will continue to explore opportunities for e-commerce with large and small suppliers that will increase the number of catalogues available in the system.

AAD E-procurement Demonstration Project

The following diagram outlines the key elements of the AAD’s e-procurement system.

Figure 4

AAD E-procurement System DiagramKey Facts about the AAD:

• 200 staff located in Kingston, Tasmania

• Legacy FMIS system – Midas


• Purchasing spend around $10M with

50 suppliers

• In-house developed, intranet-based

requisitioning tool

• Very low number of P/Os but hundreds of

line items

MIDAS FMIS

Purdon and Featherstone

MYOB

ÄEnd Users

Requisitions

Data UploadTasmania Business

Online

Resource Navigator

TBO

Catalogue data

Purchase Order


The AAD had developed an in-house requisitioning tool called Resource Navigator that enabled end users to browse catalogues and select items for purchase. Resource Navigator is a web-based system that interfaces to the Midas legacy FMIS running at the AAD.

The AAD was using Tasmania Business Online (TBO) to transmit P/Os from Midas to suppliers, particularly Purdon & Featherstone, a ship provisioner and key supplier to the AAD. Technical issues relating to uploading the data from TBO into the Purdon & Featherstone MYOB system had reduced the efficiency and effectiveness of the e-procurement system.

NOIE Funded Project Elements

The AAD requested funding from NOIE to conduct two specific projects:

1. B2B Gateway Project

The AAD engaged the consulting arm of TBO, ECEnable, to develop a gateway design that could provide B2B connectivity, catalogue access and messaging translations between any FMIS or ERP system, and supplier systems.

ECEnable delivered a gateway design to the AAD that incorporated a four-tier architecture supporting different supplier types: large, medium, small and micro or sole-operator. The tiers were designed to interface with various FMIS systems and messaging formats.

2. Identifying Barriers to E-business Uptake by SMEs

The AAD also engaged ECEnable to identify the common barriers that SMEs faced when trading electronically, and recommend actions to overcome these barriers.

ECEnable met with AAD suppliers to understand their issues and concerns, and made recommendations that identified the minimum investment required to ensure supplier participation.

Project Status

The AAD was unable to obtain further funding to implement the B2B Gateway project. Around the same time, TBO and ECEnable shut down. This left the AAD with no service provider, no consulting support and a major gap in its e-procurement project and systems.

Subsequent to the shutdown of TBO, the AAD has engaged GXS to provide connectivity services to suppliers. End-to-end testing has been undertaken and the system has proven robust and reliable during those tests. The AAD will be utilising e-procurement with its top suppliers (by volume) this Austral Summer.

Key Learnings

Each Agency approached the E-procurement Demonstration Projects in a unique way best suited to its business needs. Each implementation was different and provided its own set of key learnings. This section identifies the key learnings that were highlighted across all projects. This overall view may be helpful to other Agencies interested in implementing or expanding their own e-procurement program.

These learnings are grouped around four themes that can assist in delivering a successful e-procurement program:

1. strategy

2. stakeholder management

3. requirements

4. change management.

Project Highlights:

• B2B via TBO

• 1 Online supplier

• Internally hosted catalogue

Current Status:

• TBO no longer online

• B2B via GXS/EDIS


• Hosted catalogues and OCI punch out to suppliers


The learnings are initially summarised at a high level. Next, examples are provided that describe what the Agencies did and what was successful. Finally, the individual key learnings are highlighted so they can be incorporated in the development of any future e-procurement program.

1. Strategy

Have a clear understanding of business needs and expected benefits

By understanding the business needs and expected benefits associated with e-procurement an Agency can develop an e-procurement policy that supports those needs and complements other organisational strategies.

The ABC identified its business needs by developing a Scoping Study and using the study as a basis for its e-procurement program. CSIRO developed its e-procurement strategy to complement its One CSIRO policy. Both examples were successful and demonstrated the value in understanding the business needs.

A firm business case can establish the changes that will occur and how the cost of the project will be recovered through the benefits of the new system. A series of metrics can be created to measure the progress and success of the project. Benefits might include:

• support the overall need to automate the Procure-to-Pay process

• improve spend visibility in certain categories

• support a large volume of transactions of low cost goods that are easy to catalogue.

Key Learnings:

• e-procurement activity should be supported by a business case to drive rational decision-making

• use traditional procurement metrics (e.g. transaction volumes, spend through system, contract compliance) as a baseline for improvement

• implementing e-procurement is not the same as electronically enabling every purchase and every supplier.

E-procurement needs to be part of a larger Procurement strategy that incorporates Procure-to-Pay and electronic trading

Strategic sourcing and Procure-to-Pay are components of the procurement function. An e-procurement policy that leverages from an Agency’s sourcing strategy will help to deliver a complete procurement solution.

CSIRO developed a completely new procurement strategy that was built upon the implementation of an e-procurement system and includes B2B e-procurement connectivity as part of its tender specification for awarding national contracts. The AAD took a different approach. This Agency realised that by awarding aggregate supplier contracts, it could simplify the supplier enablement challenge through reducing the total number of suppliers and streamlining its business processes.

Key Learnings:

• ensure e-procurement is incorporated into the general procurement strategy

• e-procurement strategy should address different supplier segments like global, large, SME and micro businesses

• partner with suppliers that have the ability or the desire to transact online

• linkages between procurement policy and preferred suppliers can drive uptake and usage


• understand transaction volumes, categories and other procurement details to identify those spend categories best suited to e-procurement

• have high transaction volumes to maximise return on investment

• review all the elements of procurement (from strategic sourcing to Procure-to-Pay) to develop and deliver a complete solution.

2. Stakeholder Management

Securing management support is critical

Organisations with vocal and demonstrable senior management support have achieved the greatest traction with e-procurement. Officially removing other, less economical, ordering methods is tough, but necessary, to promote usage and reap the financial benefits.

Senior management at all four Agencies were committed to the development and implementation of the E-procurement Demonstration Projects. CSIRO’s commitment to the organisation-wide implementation is only possible because the Executive continue to support e-procurement and understand the value it brings to the Agency.

Ongoing implementation in a decentralised purchasing environment will require proactive management at all levels of the organisation. Middle managers need to actively demonstrate their support by using the new system and supporting the new processes.

Key Learnings:

• identify the value e-procurement brings to the organisation

• identify a project champion and secure senior management support

• proactive management is required at all levels of the organisation

• communicate the “value add” throughout the life of the program

• middle managers committed to e-procurement can encourage its use on a daily basis

• motivate middle management to actively participate in the system

• users follow examples set by their manager.

One Agency can have many different procurement processes

For historical reasons, an Agency may comprise of many divisions, business units or regions, each with its own procurement methods. Identifying the appropriate stakeholders across the entire Agency and managing their needs, issues and concerns will help to garner broad support for the e-procurement program and promote its use.

CSIRO currently has 22 divisions each with its own procurement process. To promote traction across the entire organisation the e-procurement system will be rolled out incrementally, and the business rules may vary according to divisional needs. Divisions will select their preferred purchasing environment, whether centralised or decentralised; identify those end users who will make day-to-day purchases; and determine the best method to train those users. This example epitomises the importance of managing multiple stakeholders while still benefiting the larger organisation.

Key Learnings:

• look across the entire Agency for the appropriate stakeholders

• understand the different business rules as they apply to e-procurement

• secure support by listening to needs, issues and concerns.


Demonstrate the benefits for suppliers

E-procurement is only viable when buyers and sellers participate; therefore suppliers are key stakeholders in the process. As with other stakeholders, understanding suppliers’ needs, issues and concerns will secure their support for the project. Suppliers may have different reasons to support e-procurement. As commercial entities, they are interested in reducing costs and implementing e-procurement to automate aspects of the supply chain process and help deliver those reductions.

The ABC trial suited Sony’s overall supply chain strategy which already supported B2B and electronic data interchange (EDI) transactions. Sony knew first-hand that electronic P/Os and invoices would reduce its daily accounts receivable activities. COS, an office supply company, wanted to expand its electronic trading capabilities and was prepared to spend time and money to make its catalogue OCI compliant. Kaffe Orexi, a local cafe supplying catering services to the ABC, needed a secure and reliable method of sending invoices to the ABC to assist with obtaining prompt payment. In each case the supplier had specific business drivers to warrant participation in the e-procurement trial and ensure the trial’s success.

Some SMEs are not interested in e-procurement because they believe it only adds to the cost of supply. The AAD was determined to challenge these misconceptions and worked with ECEnable, the consultancy affiliated with its service provider, to identify SME barriers to e-business.

Suppliers are not interested in expensive connections that deliver little in the way of order volume or commercial benefit, especially if they are supporting multiple e-procurement systems for various customers. If the fees are equal to, or exceed the margin on a customer account, then suppliers will be unwilling to participate. During the trial, CSIRO encouraged supplier participation by funding those costs associated with joining its marketplace.

Key Learnings:

• supplier engagement is critical to success

• understand suppliers’ concerns and ensure their continued support through ongoing communication

• keep suppliers abreast of Agency objectives and strategy

• suppliers dislike marketplace fees

• suppliers like e-procurement when it cut downs on data entry, improves data quality and streamlines their work.

E-procurement requires careful management of security and IT issues

Electronically enabling procurement processes will have an impact on the IT environment. The exact impact is dependent on the local infrastructure, network configurations and other details. Many e-procurement programs are initiated from the Procurement or Finance departments that may not understand the bigger IT picture. Identifying the appropriate IT stakeholders, securing their support and communicating with them will help to minimise issues later.

The ABC’s Scoping Study, written at the beginning of the project clearly, identified the security requirements for a firewall. Funds were then put aside and the project continued as planned. At SBS, the team approached the internal security group and were told there should be no problems integrating with suppliers. As the trial progressed and the requirements were better understood, additional features were identified that would considerably increase the cost and complexity of the system. SBS was not able to support these changes and selected an alternate solution to provide the B2B connectivity component of its project.


Key Learnings:

• ensure IT/Security is aware of, and supports, the e-procurement project

• communicate throughout all stages of the project

• IT activities in other areas may inadvertently impact the e-procurement program.

Manage end users’ expectations and they will embrace e-procurement

Ideally, e-procurement will promote a decentralised purchasing environment where staff previously unaccustomed to procurement activities are now responsible for these tasks. The tasks can include initiating or approving requisitions and acknowledging receipt of goods. These users are hands-on participants and therefore key stakeholders in the process. Managing their needs, issues and concerns is important to securing their support and participation in the process.

End users unanimously agreed that an e-procurement system could reduce the time and effort involved in the procurement process. At each Agency, users were very supportive of expanding the system to include more supplier catalogues and more line items available on those catalogues. The ABC particularly noticed with the uptake of PCs in the home, staff are becoming accustomed to accessing the Internet to browse and shop. Some users at the ABC and SBS were very comfortable with ordering items via the Internet, and accepted e-procurement with little training or prompting. Alternatively, there was a concern at CSIRO and the AAD that some staff would be unwilling to perform purchasing activities that were traditionally considered the role of support staff. Combined, these examples show a diverse range of user expectations that must be managed to support e-procurement.

Key Learnings:

• end users prefer a fast and easy procurement process

• PC use at home influences work behaviour

• some users are very comfortable with e-procurement

• e-procurement can impact the roles and responsibilities of individuals within the organisation.

3. Requirements

End users provide insight into what they need to do their job effectively

Understanding end user requirements and incorporating them appropriately into the new process can promote user participation in the program.

All users understood the inherent benefits of a web-based, front-end tool. Some users at CSIRO perceived the system to be slow and returned to their traditional purchasing processes of contacting the supplier via telephone, fax or Internet, and using a P-card or paying on account. These two examples demonstrate some of the user requirements and if incorporated into the requirements can promote user uptake.

Key Learnings:

• end users prefer a web-based tool for ease of use and convenience

• usability issues can slow acceptance of an e-procurement system.


Technical Specifications are an important factor in identifying e-procurement requirements

Technical specifications cover a variety of topics and provide the details necessary to design and implement an e-procurement system. Key learnings were identified in the following areas: supplier capabilities, business rules and workflow, electronic catalogues and data formats. The specifications mentioned in this section are in reference to the consolidated key learnings of the four projects and should not be considered a complete set of specifications necessary to implement e-procurement.

Technical Specifications – Supplier capabilities

Consulting with suppliers to understand their capabilities will help an Agency identify how to secure a B2B connection.

Each Agency realised the technical interdependencies involved and communicated with its suppliers throughout the projects. The ABC encouraged supplier participation throughout the project. The agency was then able to understand the suppliers’ e-trading strategy and objectives, their B2B transaction formats, their internal integration issues and their catalogue requirements. This example shows the importance of incorporating supplier capability into the technical specifications.

Key Learnings:

• understand supplier needs and connectivity capabilities

• large suppliers tend to be sophisticated, accommodating B2B connectivity and OCI catalogue support without major effort

• smaller suppliers experiencing e-procurement for the first time require guidance and support

• suppliers can find it challenging working with multiple customers, each with slightly different e-procurement requirements.

Technical Specifications – Business rules and workflow

Using a series of business rules, e-procurement can automate workflow and promote process compliance.

Each Agency understood the importance of workflow approvals to the e-procurement project. The SBS Human Resource system contained a hierarchy for use in approving leave and hiring staff, but this hierarchy did not relate to the Board delegated authority limits required to approve purchases. The purchasing hierarchy had to be identified and uploaded into the iProcurement system. When CSIRO implements EMS across the entire Agency each division’s business rules and the hierarchy approvals must be accurately maintained and accessible by the system.

Key Learnings:

• tailor approval hierarchy to support e-procurement

• understand the business rules and maintain accurate workflow

• automated processes need automated workflow

• GST issues can be complex and need to be considered.

Technical Specifications – Electronic catalogues

Online catalogues are convenient tools and help to automate the e-procurement system.

Together, the Agencies successfully tested a variety of catalogue types. Where an Agency maintained its own inventory, or the catalogue was small and contained, in-house catalogues


were preferred. The ABC and the AAD saw the benefit of using punch out over maintaining in-house catalogues. CSIRO wants to expand the number of suppliers on its e-procurement system that provide punch out capability. These examples demonstrate how understanding the use of electronic catalogues can influence technical specifications.

Key Learnings:

• catalogues can be managed internally, outsourced to a third party, or supported by the supplier

• internal catalogue maintenance requires significant ongoing effort

• suppliers with an e-commerce site prefer punch out or supplier hosted catalogues where they can offer controlled, inventory information and special offers

• punch out suits more complex catalogues.

Technical Specifications – Data formats

An e-procurement system often supports multiple data formats for B2B transactions. XML is considered a standard but there are many varieties of XML schemas in use, including cXML, xCBL plus industry standard schemes such as Rosetta.Net. Simpler formats are CSV files and spreadsheets.

CSIRO and the ABC utilised service providers that could support a variety of data formats. SBS found there was limited readiness amongst suppliers to send and receive P/Os and invoices in XML format. The AAD realised that sometimes the best solution was a simple one. For example, if the requisitioner begins the ordering process with a spreadsheet and the supplier completes the process with a spreadsheet, perhaps the most suitable format for exchanging data with that supplier is a spreadsheet. The experience of these four, diverse projects demonstrated current limited use of XML in Australia.

Key Learnings:

• use technology effectively; one solution may not support all transactions

• technology is moving quickly and standards are not always clear

• at this time, there is no clear XML standard for sending and receiving P/O data

• large suppliers with sophisticated ERP systems have the ability to exchange data in XML format but SMEs have limited experience with this format.

Define a thorough and realistic project scope

A well-defined project scope provides focus and direction for an e-procurement implementation.

The ABC project was ambitious and involved many different areas of e-procurement. Writing a Scoping Study helped the ABC identify and understand its trial requirements. In the initial stages of the CSIRO trial, requirements were specified to Conexa. As the trial progressed, feedback from end users and organisational knowledge identified changes to the original requirements. These enhancements incurred additional costs, limited the trial experience and delayed the full implementation across the organisation. These examples demonstrate the value that a well-defined project scope can bring to an e-procurement implementation.

Key Learnings:

• proper scoping and planning is critical to project success

• changing scope during an implementation can cost time and money.


Understand resourcing requirements

Adequate resourcing is required to properly design, implement and maintain an e-procurement system. This is true for Agencies and their suppliers. Staff are often required to complete tasks outside their formal job description, and developing a successful e-procurement system may require dedicated, skilled resources.

Agencies agreed that dedicated resources are helpful in managing workload and meeting timelines. The ABC engaged two full-time resources and supported staff in reprioritising their own workload. External consultants were hired to assist with the Scoping Study. COS, an ABC supplier, was very interested in developing its own OCI compliant catalogue with non-dedicated, internal resources. These examples show the importance of understanding resourcing requirements when developing an e-procurement system.

Key Learnings:

• dedicated resources bring necessary skills to the project and ease the burden for other staff

• leverage the supplier’s technical expertise to complement resourcing requirements and promote supplier engagement.

Be smart when selecting service provider/technology

Selecting the right service provider and technology will directly impact the project.

The AAD experienced considerable delays and frustrations when its service provider, TBO, shut down unexpectedly. Like any other supplier selection decision, it is important to conduct appropriate due diligence on service providers and vendors before engagement, particularly when they provide a critical link in the overall supply chain.

E-procurement systems have to be flexible and support various business needs, integrate into a multiple FMIS and support many data formats. Selecting a B2B service provider that provided these services meant that CSIRO, the ABC and the AAD were able to support these requirements.

Fees associated with a B2B service provider should not deter its use. The skills available can extend beyond the immediate integration needs and ease a difficult implementation. These examples show the impact the right service provider/technology can have on the overall e-procurement project.

Key Learnings:

• conduct due diligence on the service provider

• select a service provider to suit Agency requirements

• look beyond service costs to capability and competence.

4. Change Management

Identify barriers to implementation and incorporate them into a communications plan and a training program

Educating staff on the value that e-procurement brings to the organisation can promote its acceptance.

Each Agency recognised the importance of using a communications plan and training program to manage change. The AAD communication plan included an information pack to educate general staff on supply chain issues. SBS learned that many requisitioners were unfamiliar with the tasks associated with receiving goods and services. When e-procurement automated this process users required training and reminders to complete the task.


CSIRO’s program included training staff in the new e-procurement system, communicating the benefits of the new procurement strategy and using national contracts for preferred suppliers. CSIRO will further encourage the use of e-procurement by allowing each division some autonomy in designing the business rules used to implement the system.

Key Learnings:

• understand the impact of change within the organisation

• manage change through communication and training

• address internal communication needs

• communications and training needs can vary within one Agency

• procurement “literacy” varies in a decentralised purchasing environment

• receipting orders is an important part of the Procure-to-Pay process.

Tailor training to suit end users’ experience levels

Training users on the new policies and procedures associated with e-procurement can help them incorporate the new system into their daily activities. Training methods can include group training sessions, one-on-one training, electronic self-paced training courses, printed manuals and reference guides as well as the key user approach, using a “train the trainer” technique.

At SBS and the ABC, there was a wide range of experience and literacy with computer systems when implementing the e-procurement system. CSIRO, while on the cutting edge of scientific research, noticed staff computer literacy varied greatly and was unrelated to age, education or qualifications. These examples show some of the reasons why training on an e-procurement system needs to be tailored to support the different needs of the users.

Key Learnings:

• computer literacy varies among staff

• some users need significant training and assistance

• training should cater for different user needs and learning styles.

Conclusion

The E-procurement Demonstration Projects were successful in providing a greater understanding of the issues and efficiencies of e-procurement within small Agencies. While each project was specific to an Agency, the general solutions, systems and key learnings may be common to other government organisations developing their own e-procurement programs.

The overall themes from the key learnings are as follows:

Have a robust procurement strategy that incorporates e-procurement and complements broader business needs and strategies. Ensure policies are in place to implement the strategy.

Identify and manage key stakeholders – internal and external – at all levels. Manage their needs, issues and concerns, throughout the project life cycle. Secure their support and maintain communication.

Know the requirements of suppliers, end users, business processes. Properly select and utilise technology, project tools and resources. Understand how they impact the e-procurement system.

Understand and manage the impact of change on the organisation and its impact on policies. Appreciate the influence of stakeholders over this process.


Agency Participants

The following table lists the organisations contacted during the review process.

Role Organisation Agency – Contact

Agency AAD Roger KnowlesABC Josephine LindquistCSIRO Mark AlbiezSBS Gerard Tanguy

Consultants Acumen Alliance (CSIRO)Assist (SBS)ECEnable (AAD)IBM GSA (ABC) PSI Consultancy (CSIRO)Semwood Pty Ltd (SBS)

Suppliers Complete Office Supplies (ABC, SBS)Claredon Newsagency (ABC)Crown Scientific (CSIRO)Elsternwick Newsagency (ABC)Kaffe Orexi (ABC)Purdon & Featherstone (AAD)Science Supplies Australia (CSIRO)Sigma-Aldrich (CSIRO)Sony Australia (ABC)

Service Providers Acumen Business Solutions (ABC)Business Information Services (ABC, CSIRO)Global eXchange Services (ABC, AAD)IBM GSA (ABC)Optus/Conexa (CSIRO)Tasmania Business Online (AAD)Tower Systems (ABC)

E-procurement at the ABC

Review of E-procurement Demonstration ProjectAustralian Broadcasting Corporation

20 Review of E-procurement Demonstration ProjectsAustralian Broadcasting Corporation

E-procurement at the ABC

Summary

This review provides a brief summary of the ABC’s E-procurement Demonstration Project as funded by the National Office of Information Economy (NOIE), now the Australian Government Information Management Office (AGIMO), a business group within the Department of Finance and Administration. It includes a description of the ABC’s purchasing profile, an overview of the e-procurement system implemented by the ABC, key learnings resulting from this experience and the status of the system after project completion.

The ABC’s E-procurement Demonstration Project was designed to deliver streamlined purchasing processes through three integrated projects. The projects included:

1. Business to Business (B2B) connectivity with key suppliers for exchange of purchase order (P/O) and invoice transaction data

2. An Internet-based catalogue requisition tool with punch out capability to provide end users with a simple and easy-to-use way to raise and approve requisitions for day to day purchasing needs

3. An Expense Management System (EMS) to approve and process non P/O invoices from small and medium enterprise (SME) suppliers such as newsagencies and cafes.

ABC implemented these projects as a trial from August 2003 to February 2004. Following the completion of the trial, the system was deactivated and the results were evaluated. The ABC is in the process of preparing a business case for full implementation of these e-procurement initiatives.

The major business benefits that the ABC was seeking to achieve through these projects were:

• improved access to contracted ABC catalogues through a web-based requisitioning tool

• direct access to suppliers via electronic transaction connectivity

• electronic invoices to reduce Accounts Payable (AP) data entry requirements

• streamlined approval and payment process for non purchase order invoices from small suppliers in order to accelerate payment.

The B2B connectivity and the Internet-based catalogue requisition tool were implemented successfully, and the feedback from the users was positive. The Expense Management component was demonstrated in the test system. Overall, the ABC was pleased with the trial, the demonstrated benefits and the future potential of e-procurement within the Corporation.

ABC Purchasing Profile

Currently, the ABC has 4,500 staff across Australia located in every state and territory, and operates a decentralised purchasing environment. In 1998 the ABC implemented SAP R/3 as its Enterprise Resource Planning (ERP) system. Today, the SAP system supports 1,200 named users (accounts) of which 300 are regular users. These users include staff requisitioning products for their departments, managers approving requisitions, and general financial reporting and monitoring of budgets.

Key Facts about the ABC:

• 4,500 staff located across Australia

• 1,200 named SAP accounts

• 70,000 supplier invoices per year

worth $530M

• SAP R/3 ERP system


21Review of E-procurement Demonstration ProjectsAustralian Broadcasting Corporation

Prior to the trial, the ABC had developed a simple internal web-based catalogue tool, providing a subset of the SAP catalogue to assist with raising requisitions. This system supports a limited number of products due to technical constraints.

Most ABC users raise requisitions directly through access to the SAP R/3 Client. Occasional users prefer the simple, web-based tool, however there are some restrictions in its use.

The ABC currently sends all P/Os to suppliers via auto-fax from SAP R/3. Most non P/O items are purchased either on account or via Purchasing Card (P-Card). The ABC has a centralised Accounts Payable department that currently processes around 70,000 supplier invoices per year, with a total value of around $530M.

Overview of ABC E-procurement system

The following diagram outlines the key elements of the ABC e-procurement trial system.

Figure 1

ABC E-procurement System Diagram

Hosted catalogues

mySAP Enterprise

Buyer Professional

SAP

Kaffe Orexi MYOB

iCMS

Newsagency


Business system

Complete Office

Supplies

Sony

SAP

GXS

1

2

3

ÄEnd Users

ÄEnd Users

Data upload

Hosted E-procurement System

RequisitionsPurchase

Orders

Data upload

B2B


The system included the following elements:

1. B2B Connectivity

The ABC utilised the services of Global eXchange Services (GXS), a specialist data exchange provider, to exchange P/O and invoice data electronically between the SAP R/3 system and key suppliers. GXS provided translation services between SAP iDoc format and EDIFACT data documents, as well as facilitating secure connections for simple text files.

B2B connections were established with Sony and Complete Office Supplies (COS) in the production system, and iCMS [Business Information Services’ (BIS) EMS product] in the test system. Instead of the P/O generating an auto-fax to Sony and COS, the P/O data was sent via the B2B connection and loaded directly into the suppliers’ business systems for processing and dispatch.

The B2B connectivity component was used for:

• all inventory P/Os sent to Sony

• catalogue items sent to COS requested by the trial user group.

This process was transparent to the end users.

2. Hosted E-procurement System with Punch out

The ABC also implemented an externally hosted mySAP Enterprise Buyer Professional system that interfaced to the ABC core SAP R/3 system. This external system supported fast start-up, flexible-hosting arrangements and minimal impact on the internal ABC network and SAP infrastructure.

The ABC trial consisted of 12 end users, who logged onto the mySAP Enterprise Buyer system from inside the ABC, browsed catalogues and added items to a shopping basket. The mySAP system supported “punch out” to supplier hosted catalogues. This method was used for COS, and allowed the ABC to minimise catalogue maintenance as the users were accessing the COS catalogue directly.

Once the user created a requisition, it was routed to their manager or supervisor for approval and then processed into the ABC SAP R/3 system. The SAP R/3 system created the P/O and then exported the P/O to the GXS system where it was sent electronically to the supplier.

3. Non Purchase Order Transactions for SME Suppliers

The third part of the trial related to receiving non P/O invoices from suppliers. This process was tested with small suppliers but could be expanded to support large or small suppliers. In order to process these invoices electronically, the ABC used an EMS with workflow capability to receive and approve invoices.

BIS developed an open-ended interface to its iCMS EMS product. This externally hosted system allowed non P/O transaction invoices to be reconciled and approved online in the test system. In production, this would reduce AP data entry and ensure timely payments to small suppliers.

In the Kaffe Orexi example, an electronic invoice was exported from MYOB into iCMS. ABC staff responsible for purchases then reconciled each item online and their managers approved each item online. Next, the data was extracted in SAP format and transmitted in test via GXS to the ABC for upload into the SAP R/3 system and payment.

The newsagency example was expected to be similar except the newsagent would export an electronic invoice from the point of sale system (Tower Systems) to iCMS.

B2B connections were established with Sony

Australia and Complete Office Supplies via the

services of GXS

mySAP Enterprise Buyer Professional was used as

the end user requisitioning tool with catalogue access

Punch out allows end users to access supplier

hosted e-commerce catalogues via the

e-procurement system. This reduces the need for internal catalogue

maintenance.

The EMS iCMS allowed ABC staff to reconcile

and managers to approve non P/O based

invoices quickly and efficiently


Key Learnings

The ABC e-procurement project highlighted key learnings in four areas:

1. Supplier Engagement

Understand supplier needs and connectivity capabilities

From the start of the trial, the ABC realised that suppliers are key stakeholders in the overall supply chain process. Encouraging supplier participation ensured that the ABC understood supplier requirements such as their e-trading strategy and objectives, their B2B transaction formats, their internal integration issues and their catalogue requirements.

Keep suppliers abreast of Agency objectives and strategy

Regular and clear communication between the ABC and its suppliers was a key component in providing a solid base from which suppliers could enjoy a positive trial experience. Delays and time pressures meant the newsagency portion of the trial was not implemented. Despite the delays, the ABC maintained strong relationships with all participants who wanted to continue or expand their relationship with the ABC.

Suppliers have different reasons to support e-procurement

The ABC trial suited Sony’s overall supply chain strategy which already supported B2B and EDI transactions. Sony knew first-hand that electronic P/Os and invoices would reduce their daily Accounts Receivable activities and reduce the manual reconciliation required each year.

COS wanted to expand its electronic trading capabilities. COS was prepared to spend time and money to make their catalogue Open Catalog Interface (OCI) compliant, allowing punch out capability, in order to improve their online services for all of their customers, not only the ABC.

Small suppliers like Kaffe Orexi needed a secure and reliable method of sending invoices to the ABC to assist with obtaining prompt payment.

In each case the supplier had specific business drivers to warrant participation in the e-procurement trial and ensure the trial’s success.

Leverage suppliers’ technical expertise

Large and medium suppliers often have their own IT department and can develop their own catalogues and support punch out, B2B and EDI solutions. The ABC e-procurement trial was COS’s first B2B experience. COS developed their own OCI compliant catalogue with non-dedicated, internal resources. Sony’s previous experience with GXS and a solid IT base ensured a straightforward integration, requiring 50% of one person’s time to integrate their system.

Less sophisticated suppliers need support and guidance

Exporting an electronic invoice from MYOB in an ABC specified format proved difficult. However, the enthusiastic and IT literate cafe owner was motivated to get his invoices paid and configured his MYOB system to support the trial. With assistance from the ABC team the cafe owner persisted and was able to deliver an invoice in the proper format into the test environment.

Suppliers are key stakeholders in e-procurement projects

Communication with suppliers is essential to project success

OCI enables e-procurement systems to access supplier catalogue data via punch out

Don’t assume all small suppliers have the same technical level – some are very sophisticated while others require more guidance


Small suppliers offer unique challenges

The go-live date for the non P/O invoice component was delayed for many reasons: identifying data standards, managing IT security, customising the EMS, and managing business priorities. After these delays, Kaffe Orexi successfully sent one invoice through the e-procurement test system. However, soon after the conclusion of the trial, the cafe owner sold the cafe. The new owners did not utilise the MYOB system.

2. Understanding the End User

PC use at home influences work behaviour

With the uptake of PCs in the home, ABC staff are becoming accustomed to accessing the Internet to browse and shop. They expect the same convenience in the office.

End users prefer a web-based tool

ABC staff prefer the web-based Enterprise Buyer to the generic SAP R/3 interface because it is simple to use and makes the requisition process easy and fast.

Manage change through communication and training

In the ABC’s decentralised purchasing environment it is important that staff understand the supply chain process and how they fit in the chain. The ABC developed various training methods to support different types of users and their needs.

Ongoing training may be required to reinforce business rules and processes. For example, even though ABC P/Os were automatically uploaded into Sony’s SAP system, they were still manually checked to verify order quantity. Further staff training and experience in these business rules and processes will remove the need for this manual step.

3. Data Standards

There is no common data standard in use at this time

The use of multiple data formats can cause frustration when implementing e-procurement. Selecting the right B2B service provider can minimize problems with electronic transaction delivery and integration. GXS provided translation services for a variety of data formats and transmission methods that eased the ABC’s implementation.

4. Project Scoping, Resources and Communication

Proper scoping and planning is critical to project success

The ABC project was ambitious and involved many different areas of e-procurement. Writing a Scoping Study helped to identify and understand the trial requirements. Coordinating the different areas was challenging and the timeline underestimated the effort involved, hence delaying the go live date.

Identify stakeholders and processes

In addition to identifying internal and external stakeholders and communicating the activities, the ABC needed to understand the business processes involved, including identifying transactions volumes and other metrics.

End users prefer web-based requisitioning

tools, as they are easy to use

Data translation services can ease issues with

different data formats and speed up supplier

integration


Need for dedicated resources

The ABC identified dedicated resources to develop and implement their e-procurement system. One full-time resource was allocated from within the Agency, and a contractor was engaged to coordinate and manage the IT components of the project. Other ABC staff reprioritised their workload to support the trial requirements. External consultants were hired to support the Scoping Study. IBM GSA, the ABC’s SAP service provider, supported integration, design and implementation.

Experienced service providers can support diverse requirements

Working with Acumen Business Systems (ABS) and GXS made implementing the complex e-procurement system much easier than expected. The providers were experienced and knowledgeable in their fields.

Conclusion

The ABC e-procurement trial was successful in demonstrating the three integrated projects:

• B2B connectivity between the ABC and three suppliers

• an Internet-based catalogue requisition tool allowing easy access for end users to punch out to one supplier

• a system to approve and process one consolidated, monthly (non P/O) invoice from suppliers using EMS software.

The clear benefits of the B2B connectivity and the ease of use of an Internet-based requisitioning tool were demonstrated, although with a small supplier base. The non P/O invoice component was successfully trialled in the test environment.

The ABC is preparing a business case to justify implementation of e-procurement in the organisation. Implementation details may differ from the trial depending on the business case justification in that some components may be run in-house rather than hosted externally.

It is important to plan for the future when implementing e-procurement products as the effort in configuring and setting up the system can be substantial. Once the system is in place, the opportunity is to grow the supplier and user base in order to deliver an increased return on investment.

Plan for the future of e-procurement when setting up the system to deliver an increased return on investment

Ensure dedicated resources are available to implement and support e-procurement projects

E-procurement at CSIRO

Review of E-procurement Demonstration ProjectCommonwealth Scientific and Industrial Research Organisation

28 Review of E-procurement Demonstration ProjectsCommonwealth Scientific and Industrial Research Organisation

E-procurement at CSIRO

Summary

In 2003, CSIRO initiated an E-procurement Demonstration Project funded by the National Office of the Information Economy (NOIE), now the Australian Government Information Management Office (AGIMO), a business group within the Department of Finance and Administration. This review provides a brief summary of the project and status after project completion, a description of CSIRO’s purchasing profile, an overview of the implemented e-procurement system, and key learnings from this experience.

CSIRO believed that consolidating and improving its procurement processes could reduce costs and deliver savings back to science priorities. To achieve this, CSIRO designed an e-procurement project with three major components:

1. Develop and implement a CSIRO-wide Procurement strategy with e-procurement at its core.

2. Develop and implement a hosted e-procurement system to support business to business (B2B) connectivity with key suppliers within two CSIRO divisions (Plant Industry and Entomology) for exchange of Procure to Pay transaction data. This system could either host the supplier’s catalogue or punch out to a supplier’s website.

3. Test and implement an Expense Management System (EMS) in one business unit (Corporate Finance) to streamline the processing of large (high transaction volume) invoice batches, e.g. the use of purchasing cards (P-cards).

CSIRO decided that if the trial project was successful, it would deploy the e-procurement system across the entire organisation.

The new procurement strategy supported the One CSIRO policy and was implemented on 1 July 2004, with the full support of the CSIRO Executive. CSIRO is currently negotiating national contracts for preferred suppliers in a variety of spend categories using the Australian Government Tender System (AusTender). The policy specifies that national contracted suppliers should be used where possible, and the preferred ordering method is via the e-procurement system.

The hosted e-procurement system was successfully trialled with 15 end users and CSIRO is proceeding with full deployment. Under the terms of the new national contracts, suppliers will connect to the hosted system and support punch out capabilities to their own e-commerce sites. CSIRO intends to deploy this system to approximately 1,000 users across the organisation by the end of 2004.

The EMS component of the trial was also successful and the system is currently being deployed across CSIRO. Over time, CSIRO plans to reduce the number of P-cards in use and tighten the restrictions on which categories they can be used for, in favour of the e-procurement system.

The procurement strategy is aligned with

and supports the overall business strategy

29Review of E-procurement Demonstration ProjectsCommonwealth Scientific and Industrial Research Organisation

CSIRO Purchasing Profile

Today, CSIRO has approximately 6,500 employees in 22 divisions over 58 operating sites. In total, there are approximately 7,000 active P-cards across the organisation. The extensive use of P-cards includes Diners Card for travel and entertainment and ANZ Visa Card for general purchasing.

Historically, CSIRO has operated as a decentralised group of research divisions, with little common procurement processes across the organisation. In CSIRO Plant Industry, for example, staff raised paper requisitions and forwarded them to a centralised purchasing unit. To place an order, purchasing staff either called the supplier or accessed the supplier’s e-commerce site, paying via P-card or via the purchase order (P/O) process. Purchasing staff manually entered transactions into personalised spreadsheets for future reconciliation into UNIBIS, CSIRO’s financial management information system (FMIS).

Staff in CSIRO Entomology, on the other hand, contacted the supplier directly and placed orders on P-cards. Regardless of order method, approximately 90% of suppliers were paid via electronic funds transfer (EFT).

The manual reconciliation process for P-card transactions was time consuming, and the spend details were not always accurate.

In the procurement area the new One CSIRO policy is intended to deliver cost savings through leveraging the full CSIRO spend volume. Overall, CSIRO spends around $300M per annum in day-to-day operating costs.

Currently CSIRO is considering the replacement of UNIBIS with a new Enterprise Resource Planning (ERP) system. The prospective ERP system would be consistent with current requirements.

Key Facts about CSIRO:

• 6,500 staff in 22 divisions across 58 locations

• Diverse purchasing processes amongst divisions

• FMIS – UNIBIS

• 7,000 P-Cards in use

• $300M in operating costs



Overview of CSIRO E-procurement System

The following diagram outlines the key elements of the CSIRO e-procurement trial system.

Figure 1

CSIRO E-procurement System Diagram

Hosted catalogues

iCMS

Conexa Optus


Sigma Aldrich

SAP

Crown Scientific

Business system

1

2

3

ÄEnd Users

ÄEnd Users

XML Data Upload

Hosted E-procurement

System

Requisitions

Key in data

Purchase Orders

FMIS UNIBIS

Expense Management System Procurement

Strategy

The system included the following components:


CSIRO worked with PSI Consultancy to develop a procurement strategy that supports the One CSIRO policy. This strategy is the corner stone for the changes being introduced in the procurement area. CSIRO will build on this strategy as its e-procurement knowledge and experience grows.

2. Hosted E-procurement System

CSIRO worked with Acumen Alliance to write a specification for a hosted e-procurement system that would:

• integrate with UNIBIS

• support punch out capability to supplier catalogues

• host an in-house catalogue for the CSIRO Black Mountain Store.


The tender was awarded to the Optus/Conexa solution, based on Commerce One technology. The Conexa marketplace was selected for its “best of breed” solution and value for money.

End users accessed the secure marketplace from CSIRO’s intranet, browsed catalogues and added items to a shopping basket. The Conexa system supported punch out to supplier-hosted, open catalogue interface (OCI) compliant catalogues. Connecting to Sigma-Aldrich and Crown Scientific catalogues in this way minimised CSIRO’s need to maintain internal catalogues. CSIRO maintained its Black Mountain Store catalogue, which was hosted on Conexa.

Once the user created a requisition, the data was transferred to Conexa where it was approved using preset workflow. In some cases, users were allowed to spend up to a pre-approved limit. In other cases managers were notified to access the system and approve the request. Conexa created the P/O and electronically sent the P/O to the supplier. Orders placed on Sigma-Aldrich were automatically uploaded into its SAP system in the United States of America. Orders placed on Crown Scientific were manually entered into its FMIS.

Invoices from external suppliers were sent to Conexa where they were consolidated by supplier and exported to CSIRO on a monthly or weekly basis. These electronic invoices were uploaded into UNIBIS and paid by EFT.

3. Expense Management System

CSIRO worked with Acumen Alliance to write a specification for an EMS and ran a tender process to select a suitable product. Business Information Systems was selected, and CSIRO purchased the iCMS software and enterprise license. Corporate Finance tested the system, making minor changes to ensure proper integration with UNIBIS.

P-card transaction details were fed electronically from the card issuer to the CSIRO and uploaded into iCMS. CSIRO staff responsible for purchases reconciled their P-card transactions online and their managers approved each item online. The data was then uploaded into UNIBIS.

Key Learnings

The CSIRO E-procurement project highlighted the following key learnings:

1. Order Approvals and Hierarchy

Understand the business rules and maintain accurate workflow

In the CSIRO trial, iCMS was configured to follow business rules supporting hierarchy and approval processes within Corporate Finance. However, these rules vary among divisions. Full implementation across the organisation will require an understanding of each division’s business rules and the assurance that the hierarchy approvals are accurately maintained.

Business processes can vary across divisions within one Agency

CSIRO currently has multiple approaches to procurement across its divisions. In order to ensure traction for the e-procurement system across the organisation, the procurement team identified the need to garner broad support of the project. For this reason, CSIRO has allowed some autonomy in the business rules used to implement the system in each division. For example, each division can select its preferred purchasing environment, whether centralised or decentralised. Each division can identify those end users who will make day-to-day purchases and determine the best method to train those users.

CSIRO chose the Optus/Conexa technology as a hosted e-procurement solution supporting punch out as well as hosted catalogues

B2B connections were established with Sigma-Aldrich and Crown Scientific for exchange of P/O data

CSIRO selected the iCMS software from Business Information Systems for their Expense Management System

In a diverse organisation like CSIRO, business rules and processes can vary across divisions and locations


2. End User Needs

End users may be unfamiliar with the procurement process

Lack of knowledge of the procurement process and the business drivers associated with procurement strategy is typical in a large and diverse organisation. CSIRO recognised that e-procurement represents a change to the purchasing process that requires end user education. Full implementation will include training in the new system, communicating the benefits of the new procurement strategy, encouraging the use of e-procurement at all divisions, and channelling purchasing toward preferred suppliers.

Expanded catalogue list will promote usage

User feedback from CSIRO indicated the importance of engaging as many suppliers as possible to have a comprehensive cross-section of items from which to place orders. A large catalogue base will also maximise the number of transactions moving through the system, thereby improving the return on investment. Users also like price checking against different suppliers, although this may not be possible in a preferred supplier environment.

Computer literacy varies among staff

CSIRO is on the cutting edge of scientific research, but staff computer literacy varies greatly and may be unrelated to age, education or qualifications. Training on the e-procurement system needs to be tailored to support the different needs of the users. Research scientists may also be unwilling to perform purchasing activities that they consider to be the role of support staff.

Usability issues can slow acceptance

Perception by end users that the system is slow can discourage its use, whether this performance is network or business process related. In the CSIRO example, some users returned to their traditional purchasing processes of contacting the supplier via telephone, fax or Internet, and using a P-card or paying on account.

End users prefer a fast and easy procurement process

End users agreed that an e-procurement system could reduce the time and effort involved in the procurement process. They concurred that the CSIRO e-procurement system was easy to use and welcomed its expansion to include more supplier catalogues.

Automated processes need automated workflow

The e-procurement component of the CSIRO trial incorporated some manual workflow that slowed the approval process. As a result, the purchasing process took longer than optimal and some requisitioners were unhappy with the business process.

Optus continued to develop enhancements to the Conexa system that would resolve many of the user issues discussed in this section.


Ensure e-procurement is consistent with procurement strategy

CSIRO developed a new procurement strategy that was built upon the implementation of an e-procurement system and the awarding of national contracts to preferred suppliers. This approach created some delay as the rollout of the e-procurement system was tied to the awarding of the national contracts.

A wide selection of suppliers and items to

choose from will assist with user uptake of the e-procurement system

Reluctance of users to change can be a barrier

to e-procurement uptake


4. Supplier Selection and Communication

Understand supplier connectivity capabilities

In general, large suppliers can be very sophisticated and accommodate B2B connectivity and OCI catalogue support without major effort. Smaller suppliers may be experiencing e-procurement for the first time and require guidance or support. Some suppliers prefer punch out to hosted systems. Suppliers can find it challenging when working with multiple customers, each of whom may have slightly different e-procurement requirements. CSIRO spent time with suppliers to understand their needs and encourage their participation in the trial. Moving forward, CSIRO may include in its tender specification for awarding national contracts the supplier’s ability to connect with the e-procurement system and provide punch out capability.

Suppliers dislike marketplace fees

Suppliers are not interested in expensive connections that deliver little in the way of order volume or commercial benefit, especially if they are supporting multiple e-procurement systems for various customers. If the fees are equal or exceed the margin on a customer account, then suppliers will be unwilling to participate. During the trial, CSIRO encouraged supplier participation by funding those initial costs associated with joining the Conexa marketplace.

Maintain communication throughout the trial

CSIRO communicated well with each supplier during the initial stages of the trial, but communication was inconsistent at later stages. For example, the first live P/O to Sigma-Aldrich was inadvertently sent to its test site because CSIRO did not advise the supplier that the e-procurement system had gone live.

5. Project Scoping and Managing Resources

Thorough project scoping saves time and money

In the initial stages of the trial, CSIRO specified its requirements to Conexa. As the trial progressed, CSIRO identified changes to the original requirements based on end user feedback and organisational knowledge. These enhancements incurred additional costs, limited the trial experience and delayed the full implementation across the organisation. More communication with stakeholders and planning in the initial stages of the project may have reduced the additional costs, and provided a better experience for the users and the project team.

Conclusion

CSIRO’s e-procurement demonstration project was successful and CSIRO is extending the implementation of each component across the entire organisation.

The future of procurement at CSIRO is based on the use of electronic tools and systems. The integration of the e-procurement system into the overall core procurement strategy will promote e-procurement at the senior management level and maximise CSIRO’s opportunity to capitalise on the new system at the end user level.

At the same time, CSIRO is expanding its national contracts to include a variety of commodity spend categories. The long-term goal is to run 80% of these categories through the e-procurement system.

By developing an e-procurement system that is user friendly and easy to access, CSIRO hopes to reduce P-card usage by 90% and ensure users comply with the preferred ordering method. This will allow the organisation to maximise the value delivered through national contracts and improve the efficiency of CSIRO. Recognised savings will be used to fund science priorities.

Punch out allows end users to access supplier hosted e-commerce catalogues via the e-procurement system reducing the need for internal catalogue maintenance

E-procurement at SBS

Review of E-procurement Demonstration ProjectSpecial Broadcasting Service

36 Review of E-procurement Demonstration ProjectsSpecial Broadcasting Service

E-procurement at SBS

Summary

This review provides a brief summary of the E-procurement Demonstration Project at the Special Broadcasting Service (SBS), as funded by the National Office of the Information Economy (NOIE), now the Australian Government Information Management Office (AGIMO), a business group within the Department of Finance and Administration. It includes background on SBS and its purchasing profile, an overview of the technology used and the way it was implemented, the current status of the system and key lessons learned from the demonstration project.

The SBS E-procurement Demonstration Project aimed to implement the Oracle iProcurement product to support a web-based system for creating and approving catalogue requisitions.

The trial involved SBS configuring, testing and rolling out the Oracle iProcurement system to around 50 users in metropolitan Sydney and Melbourne. The iProcurement system is used for day-to-day purchasing of stationery and office supplies, and contains two main catalogues. SBS does not currently have punch out catalogues configured for Oracle iProcurement but did successfully send transactions in a test environment.

SBS also spent considerable time and resources testing and configuring the Oracle Exchange product for Business to Business (B2B) connectivity with suppliers including Complete Office Supplies (COS) and smaller suppliers such as translation service companies and camera crews. Security issues constrained access to the SBS network, and SBS was unable to successfully demonstrate the B2B connectivity component of the project outside a test environment.

SBS continues to use the Oracle iProcurement system for day-to-day purchasing and wants to increase the number of catalogue suppliers and catalogue items available in the system. The end user feedback has been positive and users have requested more suppliers be added to the system.

SBS is also exploring further small and medium enterprise (SME) connectivity through the Bizmail project working with Microsoft Australia. Bizmail is designed to allow small suppliers to send and receive XML Purchase Orders (P/Os) and invoices using the standard Microsoft Office 2003 product suite.

There is strong senior management support for e-procurement at SBS, and there are plans to expand the usage of the system within the organisation.

SBS Purchasing Profile

SBS has 900 staff located in three major sites across Australia – 700 staff in Sydney NSW, 190 in Melbourne VIC, and 10 in Canberra ACT.

SBS has installed the Oracle Financials system as its core Enterprise Resource Planning (ERP) system, and upgraded from version 10.7 to 11i in 2001/2002. This upgrade included access to the Oracle iProcurement e-procurement system module, although SBS did not configure or use iProcurement prior to the NOIE project.

SBS has an annual budget of $180M, of which salaries represent approximately $60M and transmission services over $50M. Key spend areas for SBS include video tapes, video and radio equipment, computers, stationery as well as translation services and outsourced video and radio program production.

Key Facts about SBS:

• 900 staff across Australia

• Oracle Financials




37Review of E-procurement Demonstration ProjectsSpecial Broadcasting Service

SBS typically processes around 2,000 orders through the Oracle system each year, and has implemented an electronic funds transfer (EFT) program with around 60% of suppliers.

There are less than 50 credit cards in use at SBS. Cards are mainly used for travel and entertainment expenses rather than day-to-day purchasing.

The standard procurement process involves staff completing paper-based requisitions that are approved by managers before being sent to a purchasing officer. The purchasing officer will check the approvals and then raise a P/O in the Oracle system, which is printed and faxed manually to the supplier. Due to the relatively low order volume this process works fairly smoothly for the organisation.

Overview of SBS E-procurement System

The following diagram outlines the key elements of the SBS e-procurement trial system.

Figure 1

SBS E-procurement System Diagram

The system included the following elements:

1. Oracle iProcurement Installation

SBS configured and implemented the Oracle iProcurement software that was delivered with the upgrade to Oracle Financials 11i. The SBS system was configured to support around 50 user accounts to purchase stationery and office supplies.

SBS implemented Oracle iProcurement for 50 users, with internal catalogues from Complete Office Supplies and Fuji-Xerox

Hosted catalogues

Oracle Financials

Complete Office

Supplies

Business system

1

2ÄEnd Users

Requisitions

Key in data

Email Purchase Orders

Oracle iProcurement

Oracle Exchange


SBS setup internally hosted catalogues for three suppliers: COS, Fuji-Xerox and Semwood Pty Ltd. The COS catalogue was a subset of the standard COS catalogue and, depending on the item, included either the SBS or government contracted pricing. Altogether there were around 5,000 items in the catalogue.

COS would provide a copy of its catalogue for use within SBS in spreadsheet format, which SBS would then upload into the Oracle iProcurement system. The catalogue includes pictures of the items with these pictures stored on the COS website.

The end users would use the standard Oracle iProcurement software functionality to browse the catalogue, select items and add them to a shopping basket, and then submit the requisition for approval by their manager. The system was configured so that the manager received an email, with a button that could be clicked to approve, reject or forward the request. Once the manager had approved the requisition, the purchasing officer would process it into a P/O. When goods or services were received, the user would go into the system and receipt the purchase order, enabling payment to be made to the supplier.

2. Oracle Exchange

SBS also explored the potential for B2B connectivity between the Oracle Exchange and suppliers. The Oracle Exchange system was tested and configured for this purpose. Due to technical and security constraints, this portion was not successful outside of the Oracle test environment.

Oracle Exchange is a hosted product provided by Oracle Corporation to customers running the Oracle 11i system. It allows for supplier catalogues to be hosted on the Oracle Exchange system, as well as for supplier connectivity functionality.

SBS experienced issues with security constraints when trying to implement direct B2B connectivity with suppliers. The core SBS internal network is used to support the transmission of digital radio and television signals, which means it is vital to protect the network from any failure or security breach. These security requirements took priority over the e-procurement needs, so external suppliers could not access the Oracle system to receive and send P/Os and invoices.

SBS also tested XML format P/Os with suppliers but found there was limited readiness for suppliers to send or receive XML format P/Os. The lack of a clearly recognised XML standard schema hindered progress in this area.

Currently, the P/Os from the SBS Oracle system are sent via email to COS who re-key the order into its own business system for dispatch. The relatively low volume of orders through the system means this simple approach is cost effective and provides a straightforward process for both buyers and the supplier.

Key Learnings

The SBS E-procurement project highlighted the following key learnings.

1. Security Issues are Vital

Ensure the IT security group is aware of the e-procurement project

Initially, the e-procurement team at SBS approached the internal security team about connecting suppliers to the e-procurement system, and were told there should be no problems with integrating suppliers. As the trial progressed, the e-procurement requirements were better understood, and connectivity with suppliers was arranged to comply with network constraints. By including all stakeholders continuously throughout the project, security issues may be resolved early.

SBS tested and configured Oracle

Exchange for B2B connections

with suppliers

Due to security concerns, SBS was

unable to implement full connectivity with suppliers via Oracle


E-procurement requires careful management of security issues

As the trial proceeded, the need for supplier integration to send and receive P/Os and invoices meant that SBS would need to open several ports and channels through the main firewall to allow access to the internal Oracle system. Security required dedicated firewalls and networking connections between SBS and the suppliers which would considerably increase the cost and complexity of the system. As an alternative, SBS utilised Oracle Exchange to enable single point access through the firewall to an unlimited number of suppliers.

Due to these security concerns, SBS was not able to progress the B2B connectivity component of the project further, and for the time being orders are sent via email to suppliers.

2. Catalogue Maintenance

The “off-the-shelf” version of Oracle iProcurement installed at SBS did not support full punch out functionality. This meant that SBS needed to load the supplier catalogue from COS internally in the iProcurement system, and maintain the catalogue on an ongoing basis.

Internal catalogue maintenance requires significant effort

Catalogue maintenance includes ensuring the items are correct, the prices are accurate and the pictures and units of measure are relevant to the catalogue item. Catalogues are typically updated monthly and with 5,000 items in the catalogue, considerable time and effort is required to manage the process smoothly.

Suppliers prefer punch out catalogue access

The Oracle Exchange product provides catalogue hosting functionality, allowing suppliers to maintain their own catalogues on the hosted Oracle Exchange system. While this is an improvement over the internal catalogue maintenance, it still entails managing a duplicate copy of the catalogue. The preferred catalogue model for many suppliers is the punch out approach, whereby the end users access the supplier’s web site from the iProcurement system and directly query the supplier’s catalogue. This punch out approach allows for suppliers to offer inventory information, as well as special or limited-time offers.

Limited usage of UNSPSC Codes in Australia

SBS explored the usage of United Nations Standard Products and Services Code (UNSPSC) for cataloguing the items in the Oracle iProcurement system. SBS asked COS to supply its catalogue items in UNSPSC format to load into the iProcurement system. There was considerable work required on the part of COS to categorise its existing catalogue into the UNSPSC format.

3. Users Have Varying Needs

Some users are very comfortable with e-procurement

SBS found there was a wide range of experience and literacy with computer systems when implementing the e-procurement system. Some users were very comfortable with ordering items via the Internet, and accepted e-procurement with little training or prompting. These users often request more suppliers, more catalogue items, and will ask “why can’t we buy everything on the system?”

Do not underestimate the security implications of direct B2B connectivity with suppliers

Maintaining 5,000 items in the internal SBS catalogue on a monthly basis requires significant effort from the e-procurement team


Some users need significant training and assistance

There were other users at SBS who were less familiar with the purchasing process and online tools in general. These users found it more difficult to use the e-procurement system and required considerable training and assistance.

Tailor training and communication to suit end users experience levels

When implementing e-procurement systems, it is important to tailor a training and communication strategy to the end users that incorporates the variation in computer and procurement literacy. Multiple training methods may be required to cater for different user preferences and learning styles. Training methods can include group training sessions, one-on-one training, electronic self-paced training courses, printed manuals and reference guides as well as the key user approach, using a “train the trainer” technique. Successful e-procurement projects will incorporate these different approaches in a tailored fashion best suited to the particular organisation and user needs.

4. Understand the Full Business Process

Approval hierarchy needs to be tailored to e-procurement

The SBS Human Resources (HR) system contained a hierarchy for use in approving leave, hiring staff, etc. This hierarchy did not relate to the delegated authority limits which specified the spend limits for different approvers and managers within the organisation. As a result, the purchasing hierarchy had to be identified and uploaded into the iProcurement system.

GST issues can complicate implementation

SBS also encountered issues relating to the impact of the GST on the delegation limits. Delegation limits at SBS are GST inclusive while the approvals that are checked in iProcurement are GST exclusive. To resolve this issue, SBS set the delegation approval limit at 10/11ths where GST applies. Delegation approvals were set at the actual limit where there was no GST. SBS loaded extra catalogues to cover all of the GST options.

Receipting orders is an important part of the process

SBS also found that many requisitioners were unfamiliar with the tasks associated with receiving goods and services. Under the SBS e-procurement model, the user needed to receipt the goods online so that the supplier would be paid. Some users required training and reminders to ensure that this step in the process was completed.

5. XML Data Transmission

Limited readiness for XML amongst suppliers to date

SBS found that there was limited readiness amongst suppliers to send and receive P/Os and invoices in XML format. There is a variety of XML schemas or data formats in use, including cXML, xCBL, plus industry standard schemes such as Rosetta.Net. At this time, there is no clear XML standard for sending and receiving P/O data. While large suppliers with sophisticated ERP systems have the ability to exchange data in XML format, the smaller end of the market has limited experience in using XML.

Training techniques that can be used include:

• Group training sessions

• One-on-one training

• Printed manuals & guides

• Electronic self paced courses

• Train the trainer or key user training

End users may be unfamiliar with the

concept of receiving goods in e-procurement

systems


Conclusion

SBS successfully implemented the Oracle iProcurement system and is using e-procurement for day-to-day purchasing of stationery and office supplies. While security constraints limited the progress of the B2B component of the trial, SBS continues to explore opportunities for electronic communications with both large and small suppliers.

The opportunity for SBS is to increase the number of suppliers available on the system, to increase the number of users with access to the system, and to implement streamlined B2B connectivity with key suppliers.

Punch out access to supplier catalogues is another potential area for improvement and would reduce the internal catalogue maintenance requirement.

Overall the SBS experience with e-procurement has been positive and the organisation is planning further activity in this area.

E-procurement at the AAD

Review of E-procurement Demonstration ProjectAustralian Antarctic Division

44 Review of E-procurement Demonstration ProjectsAustralian Antarctic Division

E-procurement at the AAD

Summary

This review describes the Australian Antarctic Division (AAD) E-procurement Demonstration Project as funded by the National Office of the Information Economy (NOIE), now the Australian Government Information Management Office (AGIMO), a business group within the Department of Finance and Administration. It includes insight into the AAD’s purchasing profile, a brief overview of the AAD e-procurement system and key learnings resulting from these experiences.

The AAD proposal identified the need for an electronic trading environment to encourage supplier participation in e-procurement activities, with a specific focus on small to medium enterprises (SMEs) in the local Tasmanian area. The E-procurement Demonstration Project intended to:

• identify the barriers to e-business uptake by SMEs

• design a Business to Business (B2B) gateway to connect the AAD with its suppliers using a variety of data formats.

This project was planned as the first step in a larger e-commerce program that would implement the B2B gateway design and provide an electronic end-to-end system to support multiple agencies and suppliers. It was intended that this gateway would support various supplier types and data formats based on supplier capabilities.

The B2B gateway design project and the research identifying common barriers to SME participation in e-business were both completed successfully. However, due to a lack of funding, the actual B2B gateway was not implemented. The AAD has used the information from the SME barrier project to tailor supplier engagement strategies and determine suitable suppliers for e-commerce uptake.

Overall, the AAD was disappointed that the larger gateway model was not implemented, and the unexpected closure of the service provider left a considerable gap in its e-procurement activities. However, the AAD has now identified other service providers and suppliers and is moving forward with its e-procurement system activities.

AAD Purchasing Profile

The AAD is located in Kingston, Tasmania, just south of Hobart. A total of 200 staff are based at Kingston with additional staff located at the four remote stations in Antarctica and on Macquarie Island.

The procurement cycle for direct spend items at the AAD is unique. Each year, requisitions are prepared and consolidated during a four-month “buying cycle” prior to the December resupply voyage to Antarctica. A resupply vessel delivers food, medical supplies, research equipment, and other supplies, to each station for the seven-month tour. All items brought into Antarctica must be packaged carefully so that they withstand the journey, remain viable until they are needed in the cold weather, and can be removed after use. A second voyage, if required, will replenish stock at each station.

Excluding transportation costs, the AAD’s annual spend is roughly $10M through about 50 suppliers. Four suppliers hold about 75% of the high volume, low value spend.

The AAD has been using a UNIX based package known as Midas as its Financial Management Information System (FMIS) for more than 13 years. Over the years, the local IT department

Key Facts about the AAD:

• 200 staff located in Kingston, Tasmania

• Legacy FMIS system – Midas

• 150 P-Cards in use

• Purchasing spend around $10M with

50 suppliers

• Very low number of P/Os but hundreds of

line items

45Review of E-procurement Demonstration ProjectsAustralian Antarctic Division

has modified Midas to support changing business needs. A popular modification was the web-based front end called Resource Navigator that was developed in-house to allow for a more user-friendly interface to the system.

Purchasing and IT staff access Midas via the generic telnet interface, which is character based and best suited to frequent users. Other staff prefer to use the Resource Navigator to access Midas, in order to place requisitions, approve spend and manage other financial tasks. To support accounting and governance requirements, all orders are placed and tracked through Midas.

During the buying cycle, end users access Resource Navigator, develop a shopping list from the supplier’s catalogue, check the list against existing inventory at the stations, update the requirements and submit a requisition. Purchasing staff access Midas, review and consolidate the request and then auto-fax purchase orders (P/Os) to suppliers.

The P/Os are created and transmitted through Midas in order to track and manage the costs of the AAD, even though emailing a spreadsheet directly to a supplier may sometimes seem faster or easier.

There are 150 purchase cards (P-cards) in use at the AAD. General staff enjoy the convenience of using P-cards, but purchasing staff have difficulty tracking the spend on these cards.

Overview of AAD E-procurement System

Background

In the late 1990’s and early 2000, there was much excitement in Tasmania about the potential for electronic commerce. During this time, Tasmania Business Online (TBO) was established as a regional marketplace/data exchange provider for suppliers across the state. In 2000, TBO approached the AAD with an SME connectivity model to assist the AAD in its e-procurement efforts.

The following diagram outlines the key elements of the AAD’s e-procurement system.

Figure 1

AAD E-procurement System Diagram

End users prefer the web-based front end for purchasing due to ease of use

The AAD utilised Tasmania Business Online as an e-procurement system for several years

MIDAS FMIS

Purdon and Featherstone

MYOB

ÄEnd Users

Requisitions

Data UploadTasmania Business

Online

Resource Navigator

TBO

Catalogue data

Purchase Order


The AAD engaged TBO and commenced work on SME supplier connectivity. The AAD initially focused on electronically sending P/Os from Midas via TBO to Purdon & Featherstone. Purdon & Featherstone is a ship provisioner and a key supplier to the AAD, sourcing and aggregating a large amount of food, consumables and other supplies for the Antarctic stations.

The end users at the AAD used the web-based Resource Navigator system to create requisitions based on catalogue data provided from Purdon & Featherstone and held in the Midas system. The purchasing officer at the AAD reviewed the requisition and created the P/O for sending to Purdon & Featherstone.

The P/Os were transmitted through the TBO to Purdon & Featherstone but often arrived with errors (e.g. incorrect quantity or GST). Each P/O had to be manually reviewed and corrected before it was uploaded into Mind Your Own Business (MYOB), the supplier’s financial system. This manual effort reduced the efficiency and effectiveness of the electronic procurement systems.

NOIE Funded Project Elements

The AAD requested funding from NOIE to conduct two major components:

1. B2B Gateway Project

The AAD engaged the consulting arm of TBO, ECEnable, to design a system to provide B2B connectivity, catalogue access and messaging translations between any FMIS or Enterprise Resource Planning (ERP) system, and supplier systems.

ECEnable delivered a gateway design to the AAD that incorporated a four-tier architecture supporting different supplier types: large, medium, small and micro or sole-operator. The tiers were designed to interface with various FMIS systems and messaging formats. The intention was for the gateway to be used by multiple other suppliers or other Agencies.

2. Identifying Barriers to E-business Uptake by SMEs

The AAD also engaged ECEnable to identify the common barriers that SMEs faced when trading electronically, and recommend actions to overcome these barriers.

ECEnable met with eight suppliers identified by the AAD to understand their issues and concerns. Using its 6 C’s of E-business Barriers (page 49), ECEnable made recommendations that identified the minimum investment required to ensure supplier participation. These included: software functionality analysis, TBO/MYOB integration, catalogue consulting, spreadsheet and catalogue training, business process analysis, e-business training, catalogue administration, and reimbursement of TBO trading fees.

Project Status

The AAD was unable to obtain further funding to implement the B2B Gateway project. Around the same time, TBO and ECEnable shut down. This left the AAD with no service provider, no consulting support and a major gap in its e-procurement project and systems. The AAD followed TBO’s recommendation to engage Global eXchange Services (GXS) as a replacement connectivity partner.

The AAD incorporated the barriers to SME participation in e-business into its subsequent supplier engagement activities. The suppliers who participated in the research were positive in that they learned more about e-procurement.

Purdon & Featherstone is a ship’s provisioner

and are a key supplier to the AAD for voyages to

the Antarctic

The B2B gateway design was delivered to the

AAD and incorporated a four tier architecture

to support different supplier classes

The shutdown of Tasmania Business

Online left the AAD with a major gap in their

e-procurement plans and systems


Current Status of E-procurement at the AAD

Since January 2004, the AAD has expanded its e-procurement activities using GXS to provide connectivity with suppliers. The AAD is utilising software from GXS called EDIS, a single point connectivity system that supports electronic exchange of financial and procurement transactions.

Using the 6 C’s of E-business Barriers, the AAD identified four key suppliers that were suitable for the B2B connectivity through the GXS/EDIS solution. These suppliers are Purdon & Featherstone, Boise Cascade, Computerland and Hospital Suppliers Australia (HSA).

End-to-end testing on the GXS/EDIS system has been undertaken and the system has proven robust and reliable during those tests. The AAD will be doing live e-procurement with its top suppliers (by volume) this Austral Summer.

Key Learnings

The AAD E-Procurement project highlighted the following key learnings:

1. Choose Service Provider Carefully

Conduct due diligence on service provider

The AAD experienced considerable delays and frustrations when its service provider TBO shut down unexpectedly. Like any other supplier selection decision, it is important to conduct appropriate due diligence on service providers and vendors before engagement, particularly when they are a critical link in the overall supply chain.

Select a vendor to suit requirements

In a unique buying environment like the AAD, an e-procurement solution must be flexible and support business needs such as non-catalogue items and integration with small office applications like MYOB. The current service provider supports a variety of formats including .csv files and spreadsheets and integrates into a variety of FMISs.

2. Analyse Spend and Develop Strategy

Analyse spend data

The first step in many procurement projects is to analyse the organisation’s spend. The AAD realised that it had a limited knowledge of its spend prior to embarking on the e-procurement project. This lack of spend data made the process of identifying suitable spend categories and suppliers more difficult. Initially the AAD was intending to e-enable all suppliers but it quickly became clear that this would be difficult, so instead the AAD concentrated on a few key suppliers.

Develop procurement strategy

The AAD learned that implementing an e-procurement system required a solid understanding of its own business environment and a procurement strategy that incorporated e-procurement. The Agency also realised that certain suppliers and categories are more suitable for e-procurement than others, and an e-procurement system does not need to e-enable all suppliers to be successful.

The AAD is now using Global eXchange Services (GXS) to provide B2B connectivity services

Analysing the organisation’s spend data and developing a clear procurement strategy can streamline implementing e-procurement


Aggregate buying can assist with supplier enablement

Even after identifying and understanding the barriers to e-business, a few of the AAD suppliers were still reluctant to participate. The AAD realised that by awarding aggregate supplier contracts it could simplify the supplier enablement challenge, through reducing the total number of suppliers, and streamline its business processes.

Dedicated resources are required

In a small organisation like the AAD, it is common that staff are called upon to do tasks outside their formal job description. When implementing changes to a major business process, it is crucial to have skilled resources dedicated to the task. The costs associated with any dedicated resources should be incorporated into the overall project costs, therefore eliminating any conflict of priorities for the staff involved. The AAD learned that implementing e-procurement requires this type of dedicated resource planning.

3. Communication is Essential

Understand impact of change on purchasing environment

Many staff at the AAD preferred using P-cards because they liked the flexibility and convenience of shopping at local suppliers. They also felt they could purchase more goods than those listed in the Midas system catalogue. By talking to the end users and understanding these preferred purchasing styles, the AAD was able to understand the potential cultural changes required to implement the new e-procurement process.

Address internal communication needs

The AAD knew the importance of communicating with key stakeholders and setting expectations. The e-procurement team developed a plan to communicate the changes in the purchasing process with general staff. Working with ECEnable, the AAD prepared information packs intended to educate general staff on supply chain issues.

Talk to suppliers to understand their concerns

The AAD communicated with suppliers to understand their needs and issues. Some SMEs were not interested in e-procurement because they believed it only added cost to the supply. The AAD understood this and was determined to challenge those misconceptions. The AAD worked with ECEnable, met with suppliers, listened to their concerns, and identified SME barriers to e-business. The suppliers involved learned more about e-procurement and how it can add value to their own processes.

4. Keep It Simple

Use technology effectively

The AAD realised that the best solutions are often the simple ones. For example, if the requisitioner starts the ordering process with a spreadsheet and the supplier completes the process with the same spreadsheet, perhaps the most suitable format for data exchange is a spreadsheet. Translating data into XML might be cutting edge, but if there is no added value, then the transformation is not necessary.

Understand the way users are currently purchasing goods and services and assess the likely

impact of introducing e-procurement on their

buying processes


Conclusion

Overall, the AAD e-procurement project was successful in providing a B2B gateway design and identifying common barriers to SME participation in e-business.

While in theory, a single electronic gateway to support a regional marketplace of suppliers may be a good idea, the current size of the Tasmanian economy meant that Tasmania Business Online was unable to build critical mass.

The closure of the TBO left the AAD with a significant gap in its e-procurement strategy and systems. However, the Agency has been able to identify a new service provider, remain optimistic and move forward to expand its use of e-procurement.

After much effort and hard earned experience, the AAD now plans to build a solid base of e-procurement for expansion into next year’s buying cycle.

6 C’s of eBusiness Barriers©

The components of ECEnable’s 6 C’s of E-business Barriers are as follows:

• Capability

• Competence

• Cultural

• Cost

• Critical Mass

• Commitment

© ECEnable Limited, 2003

51Review of E-procurement Demonstration ProjectsGlossary

Glossary

The following terms are used throughout this report. Some are industry specific terms while others refer to the Agencies, suppliers and service providers mentioned in this report.

AAD Australian Antarctic Division is one of the Agencies participating in the E-procurement Demonstration Projects.

ABC Australian Broadcasting Corporation is one of the Agencies participating in the E-procurement Demonstration Projects.

AGIMO Australian Government Information Management Office is the Australian Government organisation responsible for the E-procurement Demonstration Projects. In November 2004, AGIMO was absorbed into the Department of Finance and Administration.

B2B Business to Business refers to electronic commerce and relationships between two organisations.

BIS Business Information Systems is a provider of expense management systems.

COS Complete Office Supplies is a national stationery supplier.

CSIRO Commonwealth Scientific Industrial Research Organisation is one of the Agencies participating in the E-procurement Demonstration Projects.

CSV Comma Separated Values is a test file format where each line consists of multiple fields, separated by commas to delimit the data points.

E-commerce refers to the application of electronic systems and techniques to traditional commerce activities.

EDI Electronic Data Interchange is a format for sending and receiving data between business partners.

EFT Electronic Funds Transfer is an electronic method of transferring money from one account or business to another.

EMS Expense Management System is a software system that supports expense management in relation to credit and purchasing cards.

E-procurement refers to the application of electronic systems and techniques to traditional Procure-to-Pay processes.

ERP Enterprise Resource Planning is a complex computer software system used to manage and run large organisations.

FMIS Financial Management Information System is a software system used to manage the financial needs of a business.

GXS Global eXchange Services is a provider of translation services using business to business connectivity.

iCMS is an expense management system supported by Business Information Systems.

52 Review of E-procurement Demonstration ProjectsGlossary

Midas is a UNIX-based, legacy financial management information system used by some Agencies.

MYOB Mind Your Own Business is an accounting package for small businesses.

NOIE National Office for the Information Economy was the Australian Government Agency sponsoring the E-procurement Demonstration Projects. In 2003, NOIE reorganised and AGIMO took ownership of the E-procurement Demonstration Projects. In November 2004, AGIMO was absorbed into the Department of Finance and Administration.

OCI Open Catalogue Interface enables e-procurement systems to access supplier catalogue data via punch out.

Oracle Financials 11i is a current software release of Oracle Financials – a financial software module within a suite of enterprise resource planning tools.

Oracle iProcurement is the e-procurement modules within the Oracle suite of software tools.

P-card Purchasing Card is an official company credit card used by an employee to purchase goods and services outside the purchase order process.

P/O Purchase Order is an official company document authorising the purchase of goods or services.

Procure-to-Pay is the purchasing cycle from the requisition of goods to the delivery and onto the final payment.

Punch out is an electronic term for moving out of a company’s IT environment into a supplier’s system, from within one organisation’s e-commerce system to another’s system, in order to browse a catalogue and purchase goods or services electronically.

Requisition is a request to purchase a good or service which has not yet been approved. Requisitions need to be approved before they are turned into Purchase Orders. Internal requisitions can be used to request a good or service from inventory that a company already owns.

SAP R/3 is a current software release of SAP – an enterprise resource planning system.

SBS Special Broadcasting Service is one of the Agencies participating in the E-procurement Demonstration Projects.

TBO Tasmania Business Online is a regional marketplace/data exchange provider.

SME Small to Medium Enterprise refers to businesses with less than 200 employees.

UNIBIS is a financial management information system in use by some Agencies.

XML Extensible Markup Language is a standard way of formatting files for data interchange.

Review of E-procurement Demonstration ProjectsAustralian Broadcasting CorporationCommonwealth Scientific and Industrial Research OrganisationSpecial Broadcasting ServiceDepartment of the Environment and Heritage: Australian Antarctic Division

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