Automating procurement processes puts states at the head of the class

We all want efficient government. Efficiency prevents waste and ultimately prevents needless spending of our tax dollars. So when a report card measuring the quality of government in all 50 states doles out only three A’s, it’simportant to explore why so many states are not excelling.

The PEW Center on the States recently graded the states based on the quality of their programs in four areas: money, people, infrastructure and information. Only 13 states scored better than a B minus, and only three states scored the highest grade: an A minus. The three top states were Virginia, Utah and Washington.

All three top-ranked states have something in common: They all were very early proponents and investors in systems to enforce and automate their procurement processes. These systems are often referred to as e-procurement systems, which have replaced traditional paper-based methods with a streamlined electronic process.

It makes sense that states that invested in e-procurement got the best grades. Every state must buy huge volumes of goods and services just to keep the government – and all the services it provides to its citizens – running normally. If it is not handled properly, all of this procurement can wreak havoc on the government’s budget. Like any for-profit business, governments need a way to ensure that all of their workers who have purchasing power are adhering to budget while also following procurement protocols. Such procurement protocols may specify a list of preferred vendors, outline an approval process that is required before the purchase is finalized or require detailed recordkeeping to avoid confusion over inventories on hand.

All of this can become a recordkeeping nightmare, and a responsibility that your average government worker may not consider a priority. But when you turn all of these tasks over to an electronic system that centralizes all of the government’s buying from a multitude of different vendors, it becomes a whole lot easier.

A clear edge

States that manage procurement electronically have a clear edge over those that use decentralized, paper-based systems. E-procurement systems enforce proper budgetary oversight while generating an audit trail of how buying decisions are reached. They also automate communications with suppliers and generally streamline the logistics and invoicing process.

Utah began its first e-procurement implementation in 2000, while Virginia and Washington started their programs in 2001. Virginia has become the poster child for e-procurement success in the United States, increasing throughput of the system from 1 percent of its $3.5 billion spend in 2001 to 80 percent in 2007. Utah has been ranked as the second best state for e-Commerce by the Progressive Policy Institute, and the PEW 2008 report card states that “no state in the nation is better at developing and sharing information than Washington.”

A good test of the added value a technology provides is to consider how difficult it would be to go back to the old way of doing things. For the aforementioned states, going back to the ways things used to be would mean bringing back paper forms to fill out in triplicate and then circulating them around the office for weeks just to obtain all the needed signatures. It would mean maintaining a veritable stack of memos outlining what employees could and could not purchase and listing the vendors from which they could buy products and services. It would mean a lot more telephone and fax communication.

Take notice

So why aren’t e-procurement systems more prevalent in government organizations? One possibility is that governments still do not understand how much time and money this technology can save them – especially now that Software-as-a-Service (SaaS) makes it easier than ever for the budget-conscious businesses and government organizations to quickly adopt e-procurement.

Another possibility is that many organizations were turned off by some of the earlier e-procurement systems, which were expensive to deploy and rather clunky to use, imposing such a time burden on the end user that it was a challenge to get individuals within an organization to adopt it.

Dekalb County, Ga., highlights both of those early challenges as well as the later benefits of e-procurement. The county switched from paper-based purchasing to e-procurement in late 2004, paying some $8 million – today a shockingly high price for a local government – to install the system. Even so, the system paid for itself in three years. Present-day SaaS e-procurement solutions are about five to 10 times cheaper than those traditional installed applications and typically have a shorter implementation cycle – under three months in most cases.

Newer e-procurement platforms made available via SaaS eliminate the need to buy computer hardware or install and configure software, and usually can go live with minimal or no work from the in-house IT staff. That means most of the risk that comes from a steep upfront investment in money and time is eliminated. There are no more $8 million bets to make.

Pay as you go

SaaS e-procurement systems have proven that they can translate their many advantages into business value. This is because when software is delivered “as a service,” procurement teams are free to focus on change management and organizational policy instead of having to become IT experts.

By using an SaaS versus licensed e-procurement software, an Aberdeen Group study found that companies could accelerate the amount of spend under management by 28 percent in the first year. For organizations with $1 billion in spending, the incremental savings alone runs from $321,000 to $1 million, or more.

The vast majority of SaaS e-procurement platforms are pay-as-you-go, with license fees paid by the month or year. Instead of spending hundreds of thousands or even millions of dollars up front, you pay a fixed, relatively small fee, which allows users to reach break-even and see an ROI much faster than traditional systems. Plus, SaaS systems are deployed pretty much instantly. In most cases, it’s simply a matter of the provider creating a user account, which gives workers in the organization immediate access to the technology. And since the e-procurement provider wants customers to renew their orders, it is working all the time to update and improve the system.

Taxpayers today have grown accustomed to all the ways that the Internet and other technologies have made it faster and easier to perform a variety of tasks, from communicating with co-workers to checking bank accounts to buying airline tickets. These same taxpayers expect their government to use technology to become more efficient and accountable.

Fortunately, these types of efficiencies can be achieved by using newer SaaS e-procurement solutions. As the recent PEW ratings show, Washington, Utah and Virginia already are reaping these benefits.

About the author

Dave Stephens is the CEO and co-founder of Coupa Software, an on-demand e-procurement vendor for organizations of all sizes. Contact him at [email protected].

Sidebar

E-procurement around the globe

Outside the United States, there are numerous e-procurement success stories that make a compelling case for automating procurement processes.

In the United Kingdom, Scotland was an early adopter and was putting £62 million through its e-procurement system in 2004. The average invoice processing cost was reduced 88 percent for invoices that required manual review and/or payment, and 99 percent for invoices that could be paid automatically. Savings were as high as 25 percent in other categories.

Italy, another early adopter, saw an average savings of 19 percent on the 40 percent of spend eligible for e-procurement that it put through its system in 2004.

The Indian state of Andhra Pradesh, an early adopter that started on the e-procurement path in 2000, put 70 percent of its total expenditures through e-procurement last year and saw its average cycle time decrease 80 percent. In South Korea, 93 percent of all government contracts went through e-procurement last year and saved South Korea an estimated $4.5 billion on $25 billion worth of spend.