eProcurement: the catalyst for savings

In 1997 the Department for Work & Pensions dipped its toe into the world of eProcurement with the introduction of online ordering of forms and leaflets.

Work began to examine how orders from the Department’s 700 locations could be improved. At that time the Department operated a contract for a large store that held over 10,000 product lines and three months’ reserve stock.

On average only 75% of all orders were met. The highest fulfilment rate during the life of the contract was 86%.

Stock was re-ordered clerically using contract printers producing high volumes, usually three months’ usage, which was delivered to the store. The re-ordering process was long and cumbersome and based wholly on clerical, paper-based processes. Consequently re-stocking was problematic.

Orders were placed using the individual codes for each item. An order was hand written and passed to a local co-ordinator who raised a consolidated order for a single location. Due to transcription errors, over 200 order lines per month contained incorrect product codes. As a result of concerns regarding supply, up to nine months’ stock was held. Regional and local stores mushroomed. In a department, which for operational reasons regularly replaced 80% of its product line annually, the wastage rates were immense. Some £14 million on an annual spend of over £40 million was wasted each year.

The ultimate objective was to streamline the supply chain to a minimum of three processing points; the end user- our internal customer, the print supplier and the distributor. Considerable work was needed to modify the print supply requirements. Printers were required to hold products ready for dispatch on a certain day. The choice of either holding stock or printing on demand was left to them. A speedy, accurate order process can only be achieved by a speedy accurate transmission of orders; hence the electronic solution.

The Solution

At the outset we did not wish to be innovative with the solution. One of the main criteria was that the system we intended to use should already exist, and be providing the nature of service we needed elsewhere. We wanted a system that worked, from day one. Following competitive tender, several solutions made the short list but the final choice was to enter into an agreement with Belmin Group Ltd, who provided the EROS eProcurement system.

A whole new cultural and procedural change is not effected without initial problems. However, within six months the system was firmly ‘bedded in’ and by the end of the first financial year expenditure on the print chain had been reduced by 50%. Targets achieved, a job well done, move on to the next project? Well no, because we had only just begun to see the real potential of eProcurement.

For the first time, we held a wealth of information on all aspects of the supply chain e.g. demand, expenditure, fulfilment etc. This information allowed the DWP to critically analyse its purchasing activities and identify further opportunities to enhance its practices.

Products are collected at the printer by the Department’s contracted carrier, who use electronic tracking as a core facility of its business. By downloading this information into the eProcurement system we can develop online checking of progress. Where a delivery fails then the system can establish the last known handover. This allows the customer support section to focus on the problem area.

Suppliers found that they could receive order information from the EROS eProcurement system into their internal sales order processing system. By monitoring this order information, they could then optimise their production output, by being better able to predict demand and manage supply. This resulted in efficiencies that were shared with the Department and used to reduce the cost of print at the time when material prices were rising.

It is also possible to use the system to effect payment. The order and supply information is transparent. We introduced electronic invoicing, automated the payment stream and change of product information. This has given us significant organisational advantages.

Managers at every level are now able to look at consumption rates and examine the usage of forms and leaflets against activities. Furthermore, they are able to benchmark consumption against comparable sites.

It was found that in a product range of 10,000 items, only 6,000 were regularly used. Of the rest, some products were seasonal while others were not ordered at all. This raised questions about need and level of relevance.

If seasonal, we could predict usage and the supplier could print products at the appropriate time. As confidence in the supply chain has improved we have found that regional and local stocks have been reduced. For the most part we are now down to two weeks in the supply chain, as opposed to nine months previously. This has produced a windfall saving as the supply chain has emptied. Additionally this released space and free resources for more core areas of our business.

We took the opportunity to review the local supply chain. The new system started with local operational areas consolidating orders. Supplies of print were delivered to a location, where it was broken down and delivered to the internal customer by the local messenger service.

So the adoption of eProcurement allowed us to re-engineer the supply chain, speed up internal fulfilment and provided a significant insight into ordering profiles. In the first year we discovered that, on an annual spend of £48 million, we were down to £16 million, doing the same amount of business we did before. In other words, as a result of implementing EROS eProcurement, we were saving in excess of £30 million a year.

Re-engineering our supply chain through EROS has been responsible for reducing the printed materials bills by 75% over five years. We learned a great deal during the early years not only about the technology but about our business as well.

In 2000 work began on new arrangements for desktop stationery, computer consumables and copier paper. We decided that the new arrangements should be e-Enabled and we ended up with a rolling electronic auction.

The concept is that there are a number of framework suppliers who have access to our internal market. The system gives the customer a range of prices for the same product, arranged in price order. The customer may pick the best value product on offer at that time. The supplier is able to amend their prices every month, should they so wish. We provide volume sales information and tell them their percentage of available business. They are able to take a business decision on whether or not they want to chase market share. It’s early days, but first indications are that there is an 8% reduction in our stationery bill, excluding general price variations in the market place. In a way it has also given us an insight into future trading in the virtual high street, a theme that is beginning to feature in government thinking via OGC.