On-line order system reduces city’s costs

The pressure was on in Wilson, N.C., to reduce spending in the 1994-95 budget, with all city divisions expected to make cuts. Responding to the pressure, Steve Pagley, superintendent of the water distribution department, began pursuing solutions for reducing the city’s inventory levels, especially in construction materials such as pipe, valves, hydrants and tees.

The water distribution department carried approximately $350,000 in construction and repair material at a time, ordered through a central processing system under which a buyer would monitor order points and react accordingly. Many of the order points were established years ago, making things difficult during seasonal climate changes.

The ordering process was time-consuming and cumbersome. Once an order point was reached, three vendors were solicited for pricing, the lowest price was accepted, and the material was ordered by mail or fax. Occasionally, the vendor would not have the product in stock for immediate shipment. Consequently, the city was losing control of its total purchasing costs by searching for the best price.

Once Wilson defined its problem and goal, a local waterworks supplier suggested an on-line order entry system, a solution that showed potential since Wilson’s warehousing operations were already computerized, with each item assigned its own part number.

The remote order requirements included:

* automated pricing — the ability of a supplier to set prices at fixed levels and ensure that no billing errors could occur without manual intervention;

* stock advisories — vendors’ systems that provide automatic generation of order points and daily notification of low stock levels;

* part number interchange — material identified at point of order, shipping and invoicing by customer’s number, with on-line features that allow the customer to identify material by individual part number coding; and

* on-line order entry — customer electronic access to stock status, order entry, order history, accounts payable, backorder status, pricing, inventory levels and pricing information.

The package was reviewed and turned over to City Attorney Jim Cauley. Meetings were held to discuss what the department was trying to accomplish, and it was decided to bid all the material in the package individually with the low bidder supplying the service.

The bid was awarded for an initial one-year term with the right to extend the contract for up to two succeeding one-year terms with acceptable price escalators or de-escalators.

Davis Water & Waste, Thomasville, Ga., was selected, partly by offering electronic message capability, 24-hour/seven-day-a-week service, emergency delivery with a two-hour guarantee and delivery of all materials directly to the job site.

Meetings were held to discuss minimal inventory levels that the city must carry. Upon completion of the review of material levels, it was found that the city could reduce its water distribution inventory by approximately $160,000 the first year.

With a computer, Wilson was able to move onto the system through a modem operation. Training time took less than two hours with both parties.

The system has been up and running for more than four months without an error in delivery or merchandise. Use of a menu-driven purchasing system that allows Wilson to use all of its own part numbers was key. Since the start of the program, the city’s sewer division has joined the system with an anticipated first-year reduction of $50,000 in inventory.