Water Utility’s Purchasing Division Envisions Revisions
Water Utility’s Purchasing Division Envisions Revisions
In an effort to improve service to ratepayers, purchasers at East Bay Municipal Utility District (EBMUD) dove into a plan to create a more proactive procurement process
Like many procurement departments, the Purchasing Division at East Bay Municipal Utility District (EBMUD) in 1995 was a bureaucratic, commodity-focused organization oriented to the task of converting purchase requests into purchase orders. Everyone at the northern California agency understood the purchasing department’s responsibility, and all were satisfied that the organization did a good—even excel-lent—job of meeting expectations. Still, we asked ourselves, “Are our internal performance expectations, as well as those of our customers, too low to benefit our ratepayers fully?”
The Purchasing Division, we knew, could and should be more than an ethical, efficient, and legally compliant paper mill. Rather, it sought to become a key partner in the strategic planning process for district-wide projects and initiatives. Purchasers believed that involving the division in the front-end process would help streamline the overall process and bring measurable economies to the agency’s bottom line.
With these things in mind, we set out to develop a vision for how the Purchasing Division should function and a plan to implement that vision. Following are the ongoing lessons we’ve learned in the process.
Shifting from Commodities to Clients
Like many public purchasing organizations, we found ourselves to be reactive and bureaucratic when it came to dealing with our clients. We didn’t know what they were planning to do until the planning process was complete and the related purchase requests had been submitted for processing. Purchasing had very precise rules, however, as to how forms should be completed, how many copies were necessary, etc. The role of purchasing, it seemed, was to identify client mistakes and withhold involvement in the process until those mistakes could be remedied. In most cases, we knew that clients rarely managed the procurement process accurately and that there was usually no way a client’s requirement for products and services could be met in the desired timelines. When others questioned why projects failed to complete on time and within budget, purchasers almost always provided a perfect “It’s not our fault” argument.
In addition, purchasing was commodity-focused. Clients sometimes had to deal with multiple buyers when purchasing products for one project. Often, they couldn’t figure out which buyer to talk to regarding each respective product. Not being client-focused, buyers sometimes didn’t work with clients to help resolve this dilemma.
Knowing who we were and how we worked helped us describe who we wanted to become. We determined that we should be strategic, proactive, creative facilitators who are client-focused and supplier resource-oriented. In a nutshell, we wanted to be included in the planning end of projects so that we could help anticipate supply and service requirements, as well as use our creativity to facilitate successful, on-time projects.
To do this, we had to shift our focus from commodities to clients. Buyers had to be ready to respond to all, not just some, of the contract/ purchase material requirements for a particular client user group. The purpose here was to make life a little easier for the clients. This way, clients would know the purchasing contact for every project they would ever have to manage. Over time, mutual support relationships would develop and everyone would know what was expected of all involved.
In the past, buyers saw their role as that of paper movers, efficiently converting one kind of paper into another. Today, helping clients succeed means purchasers must view suppliers as necessary resources.
Interestingly, as we put this into practice, we found that the buyer who supported the Information Systems (IS) group bought pretty much within one commodity and one group of suppliers. The same held true for the Fleet Management group, Operations and Maintenance organization, and others. So while we needed to change the way we looked at purchasing issues, often we did not have to make sweeping changes in the way we did a lot of the related tasks. In the end, the only real change for buyers was their perspective.
This transition of thought didn’t just happen though. The purchasing manager made the effort to describe the organizational vision for the future, share that vision with others (not just purchasing personnel), provide training opportunities, and remain personally committed to the desired change over the long haul.
Putting Plans into Action
We had to accept the fact up front that change would not be immediate. To that end, our plan included ideas that could be implemented in the short term without impacting current budgetary restraints. Workflow changes included reducing, where possible, the number of copies of forms, changing form retention and filing requirements, moving to a long-term contracting strategy, and positioning buyers to focus on specific client groups.
Budget-affecting issues take more planning and campaigning for dollars to effect desired changes, including the purchase of an electronic purchasing system and the commitment of the Information Services Department to support it. Still, continuously focusing on changes we ourselves could make helps bring tangible benefits to the Purchasing Division, as well as its client groups, resulting in support from senior management.
New efficiencies yield more time to work on improving service. Implementing multiple-year contracts, for example, saves more time than conducting new bids for the same items every year. Personnel used the resulting time savings to develop an online Purchasing and Contract Opportunities Web site, where vendors may now learn how to do business with the agency.
A new purchase card program eliminates the need to do multiple annual blanket orders. Today, buyers spend more time with clients, helping position themselves to identify and consolidate district-wide requirements into single contracts. For example, more than 50 copier maintenance contracts throughout the district were consolidated into three large contracts, saving the district $100,000 on maintenance costs over a three-year period. Consolidating that purchasing power allowed the buyer to leverage future purchase prices and insure a superior level of service from vendors. This, in turn, relieved the contract administration frustrations of more than 50 different clients, allowing them to engage in other responsibilities.
Communicating is Key
EBMUD’s general manager invited me to speak at a quarterly management meeting. There I shared purchasing’s vision with the district’s 80 most senior managers, including issues important to them: shorter purchase request turnaround time, low-hassle routine and low dollar-value purchases, improved accounting controls and payment possibilities, and more. Beyond this, however, we talked in the offices, hallways, and elevators with anyone who would listen, telling them how our planned changes would benefit purchasing specifically and EBMUD in general.
We continue to keep everyone informed at every point. Subordinates need to know their efforts are not only appreciated but really contributing to improvement. Senior managers need to understand that the plan is reducing costs. Otherwise, they might not be inclined to support the effort with long-term budget commitments.
What forms of communication were effective? EBMUD publishes a monthly newspaper that shares items of interest at the district. Announcements of marriages, births, and special achievements insure that almost every employee at the agency is reading it. The paper featured our depart-ment’s significant purchase of vehicles and highlighted our new contracting strategy, which reduced costs by $500,000 and the procurement process by up to nine months. The article highlighted our partnership with the client group, offering positive press all around.
In addition, the Purchasing Division created a quarterly, electronic newsletter that is broadcast throughout the district.
In recent years we have sought and received National Purchasing Institute (NPI) Achievement of Excellence in Procurement recognition. The Purchasing Division has won these awards in 2000, 2001, and 2002. Our winning status has put purchasing into public board meetings on the receiving end of more award presentations.
All of these communications have raised the district’s awareness of the Purchasing Division’s value—to the point that EBMUD’s general manager has for the last three years included a description of how the Purchasing Division is working to contain ratepayer costs in EBMUD’s annual report.
Racking up Results
So, how did our new vision affect the way EBMUD’s Purchasing Division works? We reduced purchase request volume by 62 percent. Including procurement card (P-Card) transactions, purchasing volume actually increased by 245 percent.
We improved purchase request cycle time. At one time, only 75 percent of purchase requests were processed in seven days. Today, 95 percent are processed in that time. Stores requisitions process within seven days 97 percent of the time. P-Card transactions are processed the same day.
Our Purchasing and Contracting budget in 1995 was $1.6 million. A full 95 percent of that budget was labor-intensive. In spite of labor costs that increased by more than 27 percent from 1996 through 2001, the purchasing budget went up only 6.25 percent. The annual savings in administrative labor costs, therefore, is approximately $315,000 per year.
At the end of 2001, a price survey for stores materials and supplies showed that the Purchasing Division paid 4.9 percent less for the same items in 2001 as in 1996—this in spite of an inflationary period that averaged more than 3 percent per year in the same time period!
Recently, funding for a new electronic procurement system has been made available, so the evolution continues.
Procurement Professional Provides Practical Pointers for Proactive Purchasing
Need help with your own move to strategic, proactive procurement? Start by using the communication process to seek and identify technically oriented people looking for a new challenge. Tell them in detail what you would like to do. Seek their advice regarding the capability of your current system to support your plans for the future. If you’re going to need a new system, it’s better to know early on for several reasons.
First, you’ll want to start gathering information on various systems so that you can determine which systems in the marketplace might support your vision.
Second, you’ll need to figure out how much a new system will cost so you can start assessing whether or not the cost will be outweighed by ongoing benefits. This will be necessary to obtain funding/budget support.
Third, you might find that a team is being or has already been put together to evaluate plans for making other agency-wide system improvements. For example, someone might be interested in a new, fully integrated financial information system. If so, find a way to get yourself on the evaluation team. You may be able to ride that project into a new system for your own department. Be sure you know your requirements so you can help other team members to understand how they’ll benefit by including your enhancements.
When it comes to system basics, understand what your minimum requirements are, and don’t compromise. In today’s world, at a minimum your system should include automated requisition (workflow), vendor catalog, and registration capabilities and support electronic commerce (Internet) activities.
Once you’re ready to implement your plan, it’s critically important to understand that this is not an overnight process.
Even without a purchasing system changeover, you’ll be faced with differing attitudes about how things have always been done—from those outside and even inside the purchasing division. To promote change, you must insure a vehicle is in place to maintain the credibility of the organization. If clients lose your trust, the opportunity to make a significant change in the way business has always been done will be terminally compromised.
People both inside and outside the purchasing group will need to trust you to follow you. They won’t trust you unless they see that you can be successful. For this reason, I believe a plan for change needs three important people:
This could be the purchasing manager or someone else. Either way, the planner must envision the target goal and motivate others to move toward it. The planner should see clearly to the final destination, even if he may fail to recognize and avoid bumps in the road when traveling down the freeway, so to speak. The planner may not be particularly good with details, but he’ll know the group has arrived when it gets there.
A Change Agent
This person is great with detail and generally makes all the “yes, but…” comments. The change agent’s strength should be identifying and dealing with all the bumps in the road, while the visionary steers in the general direction of the objective. The change agent would coordinate all related training and documentation. She would also be the key driver if and when it becomes necessary to implement a new system.
A “Fort Holder”
Someone must be assigned to maintain the success of the current operation. The day-to-day efficiency of the current purchasing operation cannot be compromised. It must remain at least as good as it was when the change process started and actually improve as various changes are implemented. The person who holds the fort would earn credibility for everyone else and to a large degree, carry the success of the entire program on his shoulders. Without such support, the visionary and the change agent wouldn’t get a chance to prove the success of their efforts.
Flexibility and patience are cornerstones to success. Yes, being flexible means you don’t get everything you want, and having patience means you can expect this process to take a long time. If you look at your change initiative as an all-or-nothing issue or one that must be implemented immediately to maximize its positive effects, you can expect the initiative to fail. The probability of managers getting everything they want—in the absence of input of others—is about zero. Budget constraints will also serve to torpedo demands of immediacy.
Unfortunately, it’s true that most senior managers really don’t understand the strategic potential of their purchasing organizations. It’s also true that many of your own purchasing personnel are doing their jobs the way they were taught 20 years ago. The process has always worked for them, so they may see no reason to change now. You’ll need time to educate your staff and help folks understand the value of your proposals.
Frankly, you may not have a lot of credibility, so it helps if you can put people in situations where they discover on their own ideas you’ve been unable to teach them. When they come to you to share their “new” ideas, of course you should gladly let them pursue a new direction.
It won’t take long for you to realize that moving from status quo toward your vision will be a multi-year task. Also, you’ll see that the goal becomes an evolving target. You’ll develop new ideas and thoughts as the team accomplishes more.
The good news is that you don’t have to wait on purchasing staff and senior management to position yourself to start. You can do some of the things that don’t require major expenditures and/or permission right away.
The first thing our agency did was change our proposal from a one-year, fixed-price process to a multi-year contract strategy. Naturally the new strategy had to include a price change mechanism that allowed for best prices in each year of the contract, while providing for appropriate price adjustments (both up and down) throughout the life of the agreement.
By providing successful bidders with the volume advantages of a multi-year contract and reducing their costs to compete— we replaced annual costs of competition with one cost that could be amortized over the life of the agreement—we achieved significant and sustained product price improvements.
Audit for Continuous Improvement
A continuous process of auditing is necessary because it is easy to get side-tracked without even recognizing it. You must show that you continue to remain focused on the issues that will ultimately take you to the completion of your goals.
There will be some rough periods. As time draws out, you may feel that you’re not making progress and accomplishing your goals will appear more and more improbable. When this happens, take the time to look back one, two, even five years and assess your accomplishment to date. Where were you then? Where you are now? You’ll see that you have, in fact, made significant progress against tremendous odds and be encouraged again. From this you’ll draw the motivation to continue to fight the good fight.
As you work through the process of change, the things you learn may stimulate you to envision objectives you never considered when you started out. Take this opportunity to redefine your objectives and refocus your efforts.