Slow but sure for Defence e-buying

The NZ Defence Force is well along the trail of using IT to assist the procurement of supplies, and has derived advantage from it, but it is being cautious in moving into the full e-procurement model.

The NZ Defence Force is well along the trail of using IT to assist the procurement of supplies, and has derived advantage from it, but it is being cautious in moving into the full e-procurement model.

Electronic invoicing, for example, has already reduced the costs associated with production and routing of paper documentation. But that’s nothing to do with “e-procurement” as that phrase is most commonly used today, says NZDF’s director of logistic development, Group Captain Stewart Baillie. The invoice is a simple flat file sent by email.

Current practice is part of what Baillie calls a “working pilot” on the clothing side. But even in progressing into more complex aspects of e-procurement, NZDF will not be adopting a lot of the “bells and whistles” of the conventional discipline.

For example, a lot of e-procurement systms have as standard a “tracking” module, allowing the customer to monitor the status of delivery of a consignment. This is not seen as necessary, because NZDF has standard 24- or 48-hour terms of delivery. A few consignments are delayed, but when they are, “we just phone [the supplier] and they find it”.

After going live with SAP finance and limited supply functions in 1996, the organisation did a lot of re-engineering of its purchasing organisations and processes, always with an eye to exploiting the current and promised technology of SAP. Business processes are the engine of the change, they insist, and the technology platform is “only an enabler”, to be used when its use makes sense.

E-procurement came into prominence in 1999 and 2000, and was something of a “fad”, says deputy director of supply development David Mackey. “I think it flowed on from the end of work on the Y2K problem. Frankly, I think the consulting industry was looking for something else to do.” And something else in which to interest its customers.

At the time “e-procurement” was a still-evolving idea, and some of the ways it was tending clearly did not jibe with the way NZDF wanted to run its procurement.

Predominant was the marketplace model, Mackey says. “I want a pen. I log on to the system and there are half-a-dozen pen suppliers out there with catalogues and prices, and I pick the lowest-cost pen on the day.

“From that mechanism it was very clear that e-procurement was being pushed as a technology. It’s not a technology, it’s a process.

“The best price on the day is not the right approach for NZDF. We look at purchasing on the basis of the total cost of ownership, including the cost of processes, the life of the goods and other factors.

“Then we looked at relationships with our suppliers. We decided there are three categories.”

Those were determined to be suppliers of weapons systems and support — the core business of Defence; providers of non-core supplies and consumables, like office equipment, with which it wants a closer business relationship; and suppliers of one-off, special-purpose purchases.

The technology of the time was “in a constant state of flux”, says Mackey, as far as what was being offered and what it would do. “There was no one e-procurement solution that would meet all our needs.”

It was crucial to devise a strategy that would work in the NZDF environment and use what was available. A threefold strategy was decided on. The organisation would have direct B2B relationships with high-volume low-value suppliers; it would use marketplaces if and when they became available, “and none have yet”, Mackey says; and it would integrate its systems with suppliers of key weapon systems. This will involve “sharing of information on our predicted usage of goods”.

The clothing supply trial has been “very good as a technology demonstrator”. NZDF has implemented online requisitioning, approval, automatic creation of purchase orders, electronic upload into the supplier’s order-entry system and electronic invoicing. SAP R3 and other software elements have been used, but the system is due to be migrated to SAP’s Enterprise Buyer Professional (EBP), which has become available since the development process at NZDF started.

Office supplies are requisitioned by two of the services from electronic catalogues and will be the first product group that NZDF will go live with in the SAP EBP system. They will be followed by clothing and then consumable items, “like toilet paper and shovels”.

These three commodity groups will account for about 40% of all purchasing transactions.

The marketplace aspect has so far been considered not worth pursuing. New Zealand is not big enough to have evolved the large communities of sellers and buyers that are the necessary requirement for such systems to function effectively and pay their way, says Baillie.

The systems integration plan is “still in the blue-sky stage. It’s a vision”, says Mackey.

The NZDF has a “quite pragmatic” attitude to possible future participation in the whole-of-government GoProcure project, Baillie says. “If GoProcure produced a relationship with a vendor that fitted out strategy, we’d click in.”

The key element of implementing any complex application like e-procurement is change management, Baillie says. “You have to do change management properly. It’s not a given that people will like [the new environment]. Our staff and suppliers have to be convinced of its value. It’s not a parade-ground; everyone doesn’t go left on command.”

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