On November 20, Elaine Carter, manager of Purchasing and Supply for Tri-City, got off the telephone frustrated. According to the fleet manger from Environmental Services, an out-of-stock wiper blade had idled an expensive snow-removal truck. Carter was concerned that the new integrated procurement system was affecting her department’s service. How many other orders were not being processed by the new system? She knew that the situation required immediate attention and sat down to think of possible solutions.
Background
Tri-City, a Midwestern city of about 350,000, was responsible for an area of 41,250 acres. The city’s responsibilities ranged from police services to management of parks & recreation facilities. The organization of the city’s departments is provided in the Appendix. Environmental Services represented the highest budget allocation due to the nature of its activities.
Annual budgets defined capital works, money set aside for specific projects, like new road construction and operational expenditures for daily expense needs. Every department was allocated a certain amount of capital works and operational budget yearly. At the end of the year, any unused capital budget was withdrawn from the departments, whereas unused operational budget was carried forward to the next year.
The city was accountable to the tax-paying public for its expenditures. It was the responsibility of the city’s government to ensure efficient and appropriate use of the funds.
The Purchasing and Supply Department
Purchasing and Supply was part of the Finance and Administration department of TriCity. IT provided purchasing to all departments of the city, excluding the police department. It also provided warehousing services for supplies that were part of the regular materials inventory, such as stationery and maintenance equipment. Essentially, every service within the city departments was a customer of the Purchasing and Supply Office. The mission statement of the Purchasing and Supply department was
Obtaining the right goods and services when needed at the right price through a fair and competitive process.
The Ordering Process
Individual departments initiated the process to purchase goods and services. The request was sent to Purchasing and Supply, who filled the order from the warehouse, or initiated the process of purchasing from third-party suppliers. Supplier selection was restricted to the lowest-cost bidder and specifications set by the requesting department. Purchasing and Supply staff tracked orders to ensure delivery occurred within an acceptable time frame. Supplier payments were coordinated by the Purchasing and Supply offices as well.
The warehouse, stocked items that had been purchased in bulk and that were part of the operational expenditures. Customers could request an order from inventory, and the Purchasing & Supply staff would ready the items for pick-up. It was the responsibility of the end user to ensure that items they used regularly were in stock. Purchasing & Supply would re-order on request only.
If the order was not in inventory, the office initiated one of the following procedures:
• Bid – for orders over 58,000.00
• Formal Quote – for orders between 15,000.00 and 58,000.00
• Informal Quote – for orders below 15,000.00
The format of supplier selection followed a similar process in all cases (lowest bid for customer-defined specifications) Level of approval authority defined which order process would be used.
Integrated Procurement
A new computer system had been implemented in Purchasing & Supply a month ago. Still in the early stages of implementation, Elaine was faced with several challenges that the new system brought to her department.
Because integrated procurement, as the system was called, was not customized, it limited online ordering to 10 major customers only and relegated the rest to a manual system to order their supplies. The previous system allowed all customers online ordering capabilities. The new system provided limited order management information to the customers placing orders, reducing information on their budget balances. Elaine found her staff disliked the order entry requirements of the new system. Whereas the 0old system allowed for manual input within one screen, the new system required seven screens of input. Most of the staff personnel had been in the department for more than 10 years and were used to the previous system. In their opinion the new system appeared to increase the staff workload, and lower the level of service to the end users.
Integrated procurement was a finance based system. Because it was not customized to the Purchasing and Supply Department, several ordering processes needed revision. For example, for those departments who no longer had online ordering capabilities, faxed requisitions required manual follow-up. Order status checks required telephone contact with the ordering customer. With resource restrictions ever prevalent in the public sector, Elaine was not sure how to adequately staff to handle the increased workload.
However, Elaine knew that the long-term advantages of the new system were potentially great. The new system integrated previously stand-alone systems, with Purchasing, Accounts, Warehousing and payroll being some of the main modules being integrated in the new system. Integrating these systems allowed for superior management control – supplier payments and customer orders could be tracked better, reports on staff productivity were available for the first time, and back-orders were filled automatically through the warehouse. Moreover, integrated procurement allowed supplier performance appraisal on a continuous basis. These tools could ultimately help Elaine improve the efficiency of the entire buying process. The new system also provided the initial step towards Internet-enabled business.
Impact of Change
Many of Elaine’s customers had not been happy with the new system implemented in her office. They felt they had had lost control over some critical parts of the ordering process.
Service issues with major projects could also result in the involvement of elected representatives at City hall in the process. It was not uncommon for elected representatives to ask about purchasing issues with projects in which they had a particular interest. Therefore, any changes that appeared detrimental to these interests were not looked upon favourably.
Couple with the external pressures, Elaine has also faced resistance from her staff. During the training on the new system, her staff voiced concerns about the lower productivity levels. After the launch date of the new system, new issues arose daily. Elaine had thought that the old system could be abandoned soon after the launch of the integrated procurement, but she was not sure now.
The Wiper Blade Stock-out Problem
Elaine reviewed the wiper blade stock out problems. An order entered by the fleet division of Environmental services, one of the customers who had online access, for a wiper blade had failed to transmit through the new system. Because the warehouse had not received a request for the blad, it was not re-ordered. The fleet manager was claiming that the snow-removal truck that had required the blade could not be used because the blade was out of stock, costing the department idle time.
Elaine wondered what could have caused the order not to be processed. Was it human error in data entry – this was a new system? Or were there technical glitches involved? Either way, Elaine had to solve the immediate problem for the fleet department. However, she also was concerned about similar problems i with other orders. What could she do to prevent this from happening again? What safety measures should be implement?