eProcurement :: The Technology of Smart Shopping

• 10/01/06

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Cheaper, more efficient, and altogether easier thanpaper-based methods, electronic purchasing is eliminatinghandwritten requisition forms and long waits for supplies. Sowhy are districts so slow to make the transition?

AS FAMILIAR AS WE ARE with the ease and speed of the computer age, old habits can still prevail. The purchasing trends among K-12 districts are a case in point. Despite the billions of dollars that flow from schools each year in procurement spending, most K-12 districts in the United States, especially smaller ones, persist in using paperbased procurement models in which supplies are identified in print catalogs or online,then purchased by way of handwritten requisition forms.

But expect new technology, as it usually does, to eventually win over the holdouts. The numerous advantages that eProcurement offers make it almost certain to become the standard in K-12 purchasing over the next 10 years. A properly implemented eProcurement system, especially one linked to a school’s back-end financial systems, can cut costs dramatically and improve the visibility of a district’s financial data. It can also reduce staff time and paperwork, enhance tracking of purchased items for accounting and control, and make certain that teachers and staff get materials far more quickly than with paper-based systems.

There is a downside, however, to eProcurement. End-to-end systems often carry high upfront costs and a need for technical expertise to select and run the systems, which can be complex. Typically, a full-fledged eProcurement system also must be tied back to the general ledger through a district’s electronic accounting system. That can take specialized programming from outside consultants.

Defining eProcurement

The term eProcurement, or electronic buying, cuts a wide swath. On the requisition side, whenever a procurement officer, staff member, or teacher simply makes a purchase online, a school is engaging in eProcurement. Since school districts and cooperatives typically use purchase orders (POs) rather than credit cards, the vendor website must have a means for dealing with POs—and most vendors that sell to schools in any volume have such systems in place.

For a purchase to be completed online, however, the school district must also have an electronic means of issuing a purchase order, tracking the resulting order, and tying the purchase back to the general ledger. That’s where most schools miss the bus, and where solutions such as a tailored version of Oracle’s iProcurement module or, for smaller districts, a hosted electronic purchasing solution such as eSchoolMall come into play.

For many school districts, especially smaller ones, large and complex purchasing solutions such as Oracle’s aren’t an option. That’s according to Dave Fajer, director of business services for Multnomah Education Service District in Portland, OR. Fajer says more than half of school districts nationwide simply don’t have the resources to move to an overall eProcurement system. Instead, they depend upon internal resources or on districts they contract with for enterprise application support, including eProcurement abilities. Eventually, Fajer predicts, all schools will migrate to complete e-purchasing models, just as they have moved from paper accounting to online systems. But transitioning to that model, Fajer says, “will take decades to accomplish.”

A primary driver behind a school district’s move to eProcurement is not so much cost savings as it is data management gains, says Rick Grimm. Grimm is CEO of the National Institute of Governmental Purchasing, a national nonprofit organization that supports professionals in making purchases for the public sector. While an eProcurement system may allow a school district to reallocate personnel, he says, the real payoff comes from “being able to know historically where you spent your dollars, and with whom.”

Grimm contradicts Fajer, believing that small and midsize school districts may actually find it easier to implement extensive eProcurement solutions such as those from Oracle and SAP. That’s because smaller districts can spend less for a solution, since their smaller size reduces the overall licensing cost. And Grimm says a small or midsize district may also have more flexibility than a very large district in implementing a new solution.

Once Detroit Public Schools implemented a new eProcurement system, paper purchase orders were completely eliminated—along with pricing errors—and staff received school supplies within days of ordering, instead of weeks.

As is true of any technology, the push for an eProcurement solution typically comes from one or more tech-savvy leaders within a school district. Generally, Grimm says, there needs to be a partnership that includes at least the district’s CIO, purchasing agent, finance manager in charge of accounts payable, major user departments, and budgeting arm. “They [all] need to be thinking strategically about where the best value is,” Grimm says. “When you don’t have that, you find niche systems” in which purchasing becomes an afterthought.

A total eProcurement system includes not just the ability to conduct electronic purchasing, but ties into a district’s enterprise resource planning system. Arthur Hanby rolled out an award-winning eProcurement and ERP system at Detroit Public Schools in 2003 as its deputy chief contracting officer, and is planning to do the same as director for business support services for San Diego City Schools. Hanby, who speaks at conferences about eProcurement, says financial software systems for the public sector have matured considerably over the past several years. Solutions are now available that can fully integrate a school district’s existing financial solution, including eProcurement, with a back-end ERP system.

Under Hanby’s leadership, Detroit Public Schools was an early adopter of Oracle’s PeopleSoft Financials version 8.4. With the new system in place, Hanby says, paper purchase orders were completely eliminated—along with pricing errors—and staff received school supplies within days of ordering, instead of weeks.

The program includes the use of PeopleSoft Direct Connect, a function in the eProcurement module that allows a district to integrate electronically with vendors, which then display pricing and discounts specific to the district on their websites. “That’s where my heart is,” Hanby says about the power of Direct Connect. A link back to the school creates a requisition order and then a purchase order, all done electronically. Once the purchase is made, PO information is transmitted back to the school as an EDX file, a standard form of data exchange. The data can then automatically be integrated into the school’s ERP system for real-time financial reports.

There are several suppliers of ERP software for schools to consider, Hanby says, including SAP, Oracle’s own software along with its PeopleSoft and JD Edwards products, and Lawson.

Multnomah Education Service District’s Dave Fajer transmits purchase orders electronically to any vendor a district school has an account with: “All the purchasing agent does is convert the requisition to a purchase order and press send, and it’s gone.”

Chicago Public Schools

Significant challenges often greet the move to a complex in-house eProcurement system such as Detroit’s. Consider Chicago Public Schools, the third-largest school district in the country, with $1.2 billion in procurement each year. It spent $3 million two years ago to move to an Oracle-based system that includes Oracle Purchasing, iProcurement, and iSupplier modules. Chicago’s procurement system is almost completely paperless, according to Anoop Kumar of the district’s Department of Procurement and Contracts. Authorized users log in and shop for supplies on a special website set up to display catalogs of products with contracted prices specific to the district. “Through the iProcurement solution, I know everything [anyone] has purchased,” Kumar says. To keep costs down, he uses tactics including strategic sourcing, catalog management, and electronic integration with the overall system.

In fact, that $3 million implementation cost may be deceptively low. The district already had a legacy procurement system of sorts in place, making the move easier by saving on the cost and effort of a large-scale implementation. It also had the necessary hardware and a sophisticated network, and had been running other Oracle modules for years. That’s a key reason Kumar wanted to move procurement to Oracle—to be able to produce back-end reports and a spending picture in real-time. As with Detroit’s system, Chicago’s eProcurement setup is also connected to an Oracle ERP solution on the back end.

Oracle’s iProcurement module isn’t specifically suited for education, so Chicago worked with consulting and systems integration firm Solbourne, which specializes in Oracle and education. Over seven months, Solbourne tailored Oracle’s modules appropriately, setting up business rules from the legacy system and from the Oracle modules already in use.

For many districts, the biggest cost savings in the move to an eProcurement system come from the time saved when clerical staff no longer have to manually fill out paperwork and track orders. In contrast, because he was already running a legacy system, Kumar says his biggest cost savings is labor, from no longer having to support the legacy system interfaces, and from freeing up developers for other tasks.

Kumar says that when he speaks to other districts about his experience with eProcurement, interest is high, but challenges abound. Many districts are intrigued, but typically are several years behind the Chicago school district in their eProcurement strategy, at least in part because of the trouble finding capital for what are often large and costly projects. “They’re on the same track as we were three years ago,” he says. “They’re getting to the point where they realize that they need [online] catalogs…[ and] they need to have business processes in place to eliminate as much paper as possible.”

Anne Miller, former executive director of the Association of School Business Officials International, says moving to eProcurement can present obstacles beyond finances. “I won’t say that people are coming to this kicking and screaming,” says Miller, now the director of strategic education initiatives for the American Productivity and Quality Center. “But all kinds of politics surround whether or not a district is going to be able to do something.” Much depends on the school district’s governance structure, she says, and the local board of education’s willingness to allow the district to adopt something as “new” as eProcurement.

Going to the Mall

One solution that is growing in popularity is eSchoolMall, which offers eProcurement as a hosted service. A hosted service model means software is leased rather than sold to customers; the lease agreement generally includes software updates, support, and service. Schools or districts pay a licensing fee to eSchoolMall, which creates a specific solution online for each client. The company sets up and maintains electronic catalogs with its many partners—huge suppliers such as School Specialty and Office Depot — along with thousands of smaller suppliers. The company also delivers reports to the district on purchases. No software changes hands; all access to the product is over the internet. The advantages of the paperless system include freedom from managing and updating software and hardware, and the benefit of lower prices when one school’s purchases are combined with others in bulk purchasing.

One district that uses eSchoolMall is Multnomah Education Service District in Portland, which has 750 employees and primarily serves eight component districts that together educate 16 percent of the students in Oregon. According to Dave Fajer, using eSchoolMall to transmit purchase orders electronically to any vendor a district school has set up an account with“is a huge labor-saving and cost-savingmeasure. Once you set that vendorup, all the purchasing agent doesis convert the requisition to a purchaseorder and press send, and it’sgone. That’s just huge.”

Before he began working in K-12 in 2001, Fajer spent 20 years as a contracts officer with the Navy Supply Corps, a buying arm of the US Navy. There, he saw how eProcurement worked to save time, paperwork, and money. “Usually, the Department of Defense…leverages technology before the commercial sector,” he says. “I’ve had a lot of experience in seeing the benefits of eProcurement and electronic purchasing processes.”

Fajer’s district moved to 100 percent electronic purchasing this past July. Eventually, he predicts, “there will be a major paradigm shift in K-12” in the direction of eProcurement. For now, the challenge is selling the idea to districts that haven’t yet bought into it. “They don’t understand the labor costs involved in doing things manually,” Fajer says. “They’re spending forty dollars to save a buck.” According to Fajer, districts that are using eSchoolMall quickly see the benefits.“They’re stunned by the ability to have an electronic requisitionget through to the PO stage and have the supplier senditems in two or three days.”

Fajer says an electronic purchasing system can bridge the common gaps in school districts among IT, purchasing, and accounting. ESchoolMall does this through an integrated portal that can automatically tie back to the general ledger. In doing so, it replaces the multiple-copy purchase order in which one copy goes to accounting, one stays with the originator, and so on. Despite its disadvantages, Fajer says, “I would say 90 percent [of US districts] still use that system.”

The benefits of eProcurement ultimately arrive at the bottom line. “What we’re finding,” Fajer says, “is that as we contract with vendors electronically, we’re getting the same or better pricing than using a bulk cycle. Vendors want to do business electronically. They don’t want to follow the manual process.

“I keep telling everybody: This is the way K-12 will be doing business carte blanche in 20 years. There’s no doubt about it.”

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Linda L. Briggs is a freelance writer based in San Diego, CA.

This article originally appeared in the 10/01/2006 issue of THE Journal.