UCSD Express Order

UCSD Express Order UCSD Business & Financial Services
Procurement Process Coordination Team

EXPRESS ORDER
REENGINEERING THE PROCUREMENT PROCESS AT UCSD ______________________________________________________________________________

Presented to CUMREC '96
College and University Computer Users Association
May 1996
by
Faye Ellen McCullough
Manager, Disbursements Division
9500 Gilman Drive
La Jolla, California 92093-0955
Telephone (619) 534-0743
FAX (619) 534-8177
Email mccullof@ucsd.edu
______________________________________________________________________________

University of California, San Diego
La Jolla, California
Public
Four Year
______________________________________________________________________________

Introduction
Why?
Getting Started...
How...
Surviving the Change...
The Team Process...
In Closing

Introduction

UCSD embraces the vision, mission, and principles for sustaining excellences which focuses on the way in which we do business, from our customer's perspective, and it means challenging long-standing assumptions and creating new approaches for organizing and performing our work. In the past, technology had been utilized in an attempt to balance the need to be visionary in regards to change. Typically, technology had been used to leverage short-term solutions for incremental change and many of our processes had been designed to accommodate the advances in technology rather than technology being used as an enabler to redesign processes. The purpose of the Express Order was to:

implement a procurement process for low unit cost/high volume supplies
dramatically reduce costs
provide quality service to our customers
by pass paper-based control-driven processes
employ technology, not to automate an existing process, but to enable a new one
meet the unique procurement requirements of UCSD

The Express Order brings efficiency to the procurement process by eliminating paper, reducing cycle time, empowering customers, supporting a seamless order through payment, ability to validate transactions, audit of records, and enables the supplier to perform labor for the university without adding to their work effort.
______________________________________________________________________________
Why?

Successive reductions in resources have mandated that we accomplish more with less. This very key fact justified the need for revolutionary change in the way in which our procurement processes were being conducted.

Many of our existing and somewhat complicated procurement practices were directed to imposing controls and date back to when the concentration of resources and effort was on to regulate with little regard to cost in relationship to overall risk. The emphasis was on the management of the perpetual proliferation of paper documents.

To place a perspective on how our procedures were rooted in the past and are still being applied to next generation data, consider this: traditional payment terms for invoices still use the most common term of "net 30 days". This term came from the days of the steam railroad and horse and buggy when it took at least 30 days to deliver the invoice and then to have the payer send payment back to the seller. Now with the transmission of electronic documents within seconds, application of "net 30 days" seems almost nonsensical when you think of the dollars that could be saved by obtaining more advantageous pricing as a result of immediate payment. This is just one example of the traditional but no longer applicable procurement conventions.

This paradigm had become so inherent that despite serious weaknesses, it was difficult to view tasks being accomplished from any other perspective. We were experiencing "historical" tunnel vision. The focus was on the narrow functional "the way in which things had always been done" rather than on the broader goals for the end result of the process, from order to payment, being centered on adding value and ensuring a positive influence and outcome for our customers.

One of the objectives for reengineering the procurement process, was to implement a means for acquiring low unit cost/high volume supplies from vendors under established contracts with the university in order to dramatically reduce costs relative to our mission to provide quality service to both our campus customers and suppliers.

______________________________________________________________________________
Getting Started...

Germane to the project was the initial recognition that a sole solution to all the diverse procurement challenges for the campus - which includes six residential colleges, the School of Medicine, the School of Engineering, the Graduate School of International Relations and Pacific Studies, the Scripps Institution of Oceanography, and the UCSD Medical Center - could not and, in fact, should not be made. However, if principal commodities could be targeted, we could then approach the procurement process enhancements on an incremental basis while leveraging direct process improvements that would have a significant impact for the campus.

A campus survey was performed that showed that 60 percent of all the low-volume transactions at UCSD were for laboratory supplies and chemicals with 92 percent being purchased from a single supplier. This supplier was the obvious choice to initiate a pilot program for the Express Order.

The immediate incentives for the Express Order were to place the decision point where the work was actually being performed, entrust the customer to place orders without paperwork barriers, build control into the process by capturing information once and at the source, and to break away from the conventional constraints of organizational boundaries.

The existing primary process for the targeted commodities was assessed and the following questions were asked:

         What is the purpose of the present process?

         Where is value added in the present process?

         What are the characteristics of the users?
 
         What skill level is required to use the current process?

         What customer support services need to be provided?

         Where are the bottlenecks?

         Where can redundant steps be eliminated?
     
         How can technology be applied and implemented?

Based on a detailed assessment of the current process, the focal point proved to be on moving procurement decisions to lower levels of the organizational hierarchy (generally the ordering of lab supplies and chemicals was most often being initiated by the lab technician via telephone and the paper work was then being bumped up the hierarchy). So there was a priority to subsume processing work into the real work that produces the information. Much of the process that consisted of the matching of invoices to the low value purchase orders (LVPOs) was a perceived control that duplicated the department's performance of the same task by matching packing slips to invoice copies received from accounts payable (AP) and then verifying the charges on financial reports.

These principles are the foundation for what was to become a major departure from the norm that became known as the Express Order. Over the next few years, the remaining processes will be either enhanced or reengineered to complete the picture of a redefined procurement program. The mechanics follow, but to allow for innovation; the above-described dynamics first had to pave the way.

______________________________________________________________________________
How...

The Express Order is an integrated module of UCSD's on-line mainframe-supported financial system that allows for ordering, validating, statement generating, ledger posting, and payment of commodities with high volume/low dollar characteristics. The Express Order streamlined the entire process significantly by the elimination of unnecessary processing steps that generally were in place as perceived controls but did not contribute value to the process. The following chart depicts this and the actual process improvements:

WHO	ELIMINATED NON VALUE ADDED STEPS	PROCESS IMPROVEMENTS
Accounts Payable	receiving, sorting, preparing for scanning, scanning, indexing, mail coding, sending department copy, key entering invoice data	no invoice, improved vendor and departmental relations, ease in correction of invalid data
Purchasing	key entering of low value purchase orders or requisitions blanket orders	better able to utilize resources to perform value added services
Department	issuance, key entry, and follow-up on low value purchase orders	concise detailed statements, ease of ordering, volume discounts
Vendor	receivables, invoices, mailing, postage	no reconciliation of receivables, immediate payment

Another objective was to virtually eliminate the traditional costs associated with the process. Cost analysis is essential to redefining practices and in this case we knew that it was costing too much to support the labor intensive process and that existing technology needed to be exploited. The total indirect and direct costs for issuing a LVPO at UCSD for 1994 was $12.72 and the cost for the corresponding invoices was $.71. These figures represent the standards for these processes as defined by the NACUBO Benchmarking Survey. The same number of transactions can be processed by the Express Order for about 5 percent of the cost (departmental costs have not been factored into these figures). Additionally, better prices and earned volume discounts that accrue savings directly to the departments have been significant. Below are the calculated performance measures and the comparison of the indirect and direct costs relative to the traditional LVPO process and the Express Order.

Low Value Purchase Order Process

1993 - Actual annual costs associated with pilot vendor:
-------10,000 LVPOs @ $127,200 + 15,000 invoices @ $10,650 = $137,850.

Projected Annual Costs based on the actual usage of the Express Order process for the week 12/8/94:
-------15,000 LVPOs @ $198,432 + 20,800 invoices @ $14,768 = $213,200.

Express Order Process

1993 - If Express Order had been in use the annual savings would have been $130,850. (5% of $137,850.).

1995 - Actual annual savings based on pilot Express Order Project will be $202,540. (5% of $213,200.).

How the Express Order works:

Approved vendors accept orders from low value buyer (typically the person requiring the material or a support person) or their designated representative by means of a telephone call. (Orders may also be standing orders and no telephone call is required. )
The vendor records mandatory information pertinent to the order as defined by the agreement into their database and assigns an identifying release number. Order elements entered by the vendor include buyer code, UCSD's account number, release agent (person calling in the order), telephone number, and index number that is the key number in UCSD's financial system that can be extrapolated into all of the accounting information.
The low value buyer then places their order.
On an established periodic basis (daily, weekly, etc.), the vendor transmits an electronic file to UCSD that contains all specified data for the releases generated for the period.
The data is loaded into the Express Order and the index (lowest level of the chart of accounts) is used to default all accounting data that is automatically edited for validity and start and end date appropriateness.
The file is updated with the data assigned to the vendor's specific profile that includes name, address information, allowable commodities, description of commodity, special posting rules, etc.
Releases with invalid data are automatically suspended from the file.
The edited and validated releases automatically are paid via either a check or an Automated Clearing House credit and the payment records are updated in the Express Order Module.
Accounts Payable staff correct suspended releases (if any) on line and the corrected releases are automatically cycled for the next payment process.
Itemized statements are automatically generated and distributed either electronically or via printed output to user departments.
Departmental personnel match packing slips with the statements, secure delegated signature authorization, and become the office of permanent record retention for the transactions.
Vendor's electronic file is updated with the payment information and returned to their accounts receivable for automatic reconciliation.

The process provides control reports describing the data that was loaded to the data base and any errors that resulted from the processing.

______________________________________________________________________________
Surviving the Change...

The method for introducing the Express Order to the campus followed these basic tenets (remember we were asking for departments to "rethink" the way in which business was being conducted):

Education - Individual labs, departments, became knowledgeable of the process and geared for the eventual expansion potential over a period of about nine months by "personal" visits from Business and Financial Services staff.

Plan for Change - The change was orchestrated for the campus by one-on-one discussions with departmental personnel in addition to distributing written materials.

Manage Change - Responsibilities were clearly explained, questions answered, and the future growth and use of the Express Order was addressed.

You do not make progress if you do not assume some risk and make changes. The Express Order, along with the emergence of electronic commerce represents both risk and large- scale change. To avoid a mandatory approach which would not be well accepted and we would probably get action but not commitment, the tactic of focusing on and anticipating potential difficulties was employed. Users learned about the specific change the Express Order would bring and had the opportunity to identify the personnel and organizational issues that the implementation of the Express Order would affect. This helped ease the transition for the departments and Business and Financial Services staff. The Express Order became a mandated program for the pilot commodity in the fall of 1994.

As with other institutions, inherently, UCSD's business processes do not conform to methodical niches and often were not deliberate in their design but evolved around the prevailing technology. Also, the focus had not always been on efficient and responsive service but on the process itself. To break away from the past, new ground rules needed to be established to begin the initiative:

Close gap between service providers - purchasing, receiving, and payment needs to become a seamless process;
Capture data at the source - enter data once at the lowest level;
Eliminate non-decisive tasks - matching and documenting of transactions;
Empower employees - distribute responsibility and decision making commitments;
Re-evaluate core functions - analyze the work flow, what we do and how and why we do it;
Quantum leap required - focus on elimination of wasteful, non-value added "perceived" controls;
Target 80 percent to 95 percent of all transactions - handle exceptions outside the mainstream, accept the premise that "one size does not fit all";
Brainstorm for solutions - break the pattern and seek ways to work smarter.

At the heart of reengineering is the notion of discontinuous thinking to evoke a positive reward. In this process improvement, the reward was the time and resource reduction for initiating an order for lab supplies and chemicals to the final payment. This reward is estimated to be 100 percent for purchasing, 90 percent for accounts payable, and 70 percent for academic and research departments for this type of procurement. The result: Customer and vendor satisfaction, and administrative workload reduced significantly. The bottom line is: The customers are happy, they are being served, and the cost and administrative burden is a fraction of the prior process.

______________________________________________________________________________
The Team Process...

The Express Order was originated, designed, and carried out in-house at UCSD. In November 1992, Vice Chancellor of Business Affairs, Steven Relyea, convened the "Reengineering, Procurement, Receiving, and Payables Process Team." The team's membership included participants from purchasing, disbursements, material support, research and academic departments, central administration, internal audit, and administrative computing services and systems. The primary objective for this team was to initiate innovative methods for UCSD's purchasing and payment activities to include:

all aspects of procurement, receiving, and payment processes;
maximizing staff and financial resources;
reducing costs in both academic and administrative departments;
providing efficient and responsive service to departments;
fostering positive relations with the university's vendors.

The team began its work in January 1993, and worked toward the objective of mirroring the procurement process to the way in which the university's departments obtain supplies and services that included:

implementing new methods for the order, receipt, and invoice payment that would simplify, automate or otherwise expedite the processes;
decentralizing the process where effective;
employing new technologies such as electronic data interchange, document imaging, and on-line vendor catalog ordering;
eliminating redundancy in the processing of data;
converting to electronic paperless processes.

Besides identifying, initiating, and implementing new processes, it was necessary for the team to be sensitive to the natural resistance to change. Fortunately, the team approach eased this process into place because it embraced the three basic tenets for minimizing resistance to change:

Strong support from management.
Early user involvement on behalf of team members/pilot programs.
Well-represented group to effect organizationwide communications and education.

______________________________________________________________________________

In Closing...

Go to Top of Page, or PPCT Home Page
See also the following Home Pages
Disbursements
Material Support Services
Purchasing

Business & Financial Services / Business Affairs / University of California, San Diego
Last updated: November 6, 1997, by David Myers