School Reports A+ E-Business
By Heather A. Obora
Anyone who manages purchasing for a large organization has heard the claims of software vendors or experienced first hand the often elusive promise of a fully integrated, electronic procurement system. For years, large organizations have been building complex accounting and purchasing systems attempting to “seamlessly” connect vendors and buyers, streamline the process, save millions of dollars, and create greater transparency along the way.
The reality has, in many cases, fallen short of expectations. Particularly in the public sector when taxpayer dollars are at stake, most stories tend to focus on how bureaucracy and mismanagement have prevented e-business advances from achieving real success.
A successful solution was top of mind for the Chicago Public School (CPS) system a few years ago when the decision was made to create a better way to manage procurement. CPS is the third largest public school district in the nation, serving 421,000 students with 45,000 employees and a $4.7 billion annual budget, of which $1.3 billion is spent on purchases ranging from textbooks to computers to janitorial supplies.
With an Oracle ERP system that included the paper-based, labor intensive manual processing of more than 160,000 purchase orders and over 200,000 invoices per year and a vendor list including more than 2,500 suppliers, the opportunities for improvement were significant. Given the volume and nature of the transactions, development of an effective purchasing card system was pursued.
From the beginning, it was clear that the only way the desired efficiencies, cost savings, and process improvements would be realized was if the three key players in the purchasing equation–CPS, suppliers, and the card issuing banking partner–were all invested in and significantly benefited from a successful implementation and ongoing relationship.
Creating such a “Win, Win, Win” system was the key.
Establishing Goals and Seeing Results
To make this happen, in August 2005, CPS deployed a MasterCard purchasing card program established through Harris, a member of BMO Financial Group. BMO was chosen primarily due to their established and focused P-card practice, their relationship with MasterCard, their ability to partner with CPS to develop a truly customized solution, and the fact that BMO has a completely proprietary, end-to-end procurement software solution. Throughout the process, ambitious goals were established for the new program, including:
Simplification of the purchasing process and elimination of activities that add to the costs of goods and services for CPS and suppliers.
Development of a user-friendly, flexible procurement process that simultaneously provides for adequate internal spending controls and protection from fraudulent/unauthorized purchases.
Elimination of purchase order/invoice processes and burdensome receipting procedures at the schools through electronic round-trip transactions.
Development of a new CPS revenue stream through volume incentives covering all purchases.
Over the last year, significant progress has been made on all fronts. Since implementing the purchasing card system, CPS has saved between $2 million and $3 million through the reduction of purchase orders, invoices, and proof of delivery process costs, in addition to savings from cash rebates. CPS has also benefited from an extended 20-day payment cycle resulting from the MasterCard relationship.
Through aggressive roll out and implementation of the new system, the number and dollar amount of transactions utilizing the system spiked dramatically. Spending on the cards increased from about $230,000 in the first month to a total of $127 million in the first 14 months the new system was in place. This included 92,791 transactions at an average of $884 per transaction.
Vendor adoption has also been impressive, with more than 52 vendors signing on to the program. In addition to administrative efficiencies, vendors are eager to participate because they get paid much faster, usually within 48 hours, instead of the 45 to 60 days they had to wait under the old system. Vendors also like the fact that they don’t have to manually produce invoices or deal with purchase orders.
System Reduces Paperwork and Data Entry
The new system has also resulted in a huge reduction in paperwork and manual data entry. Use of the purchasing card has enabled a shift from manual data entry and check requisition to a completely automated, electronic process that virtually eliminates traditional purchase orders, paper invoices, and paper checks for payment. This also enables better payment processes that substantially reduce fulfillment cycles for receipt of and payment for ordered goods.
Beyond Cost Savings–Additional Benefits
As anyone who has gone through a new system implementation can attest, effectively integrating with the existing IT infrastructure is absolutely crucial. CPS worked closely with BMO to customize the back office systems to ensure smooth integration among suppliers, CPS’ Oracle systems, and BMO/MasterCard. This process was eased considerably due to BMO’s end-to-end proprietary solution, which eliminated the need to coordinate among multiple software vendors.
The new system has also allowed internal processes and oversight to improve significantly. For instance, rather than simply establishing rules about payment card usage, program administrators are now able to enforce those rules to ensure that cards are used only at approved types of vendors and do not exceed per-transaction spending limits. With online tracking of card usage, program administrators can also detect and respond to irregular activity in a timely fashion instead of months later when paper reconciliations and audits are performed.
CPS now has a much deeper level of transaction information, moving from Level 1 data to line item detail, allowing greater understanding and management of purchasing data–a huge benefit for managers and auditors that need to track this information. The information also aids in regulatory compliance, a significant and growing issue for all public organizations. In addition, having better information about purchases has enabled CPS to become more aggressive in their sourcing arrangements, ensuring they get the biggest bang for their buck.
After less than a year and a half, the goals of a “win, win, win” solution are beginning to materialize, meaning a better purchasing system and a better use of resources–allowing CPS’ teachers and students to win as well.
About the Author
Heather A. Obora is the Chief Purchasing Officer, City of Chicago, Board of Education. Obora previously served as the Board’s Deputy Chief Financial Officer and Deputy Controller-Disbursements overseeing the Accounts Payable Department. Obora can be reached at [email protected]