UCT’s post-implementation process audit

(Our CBI / Business improvement / BPR project)

HERUG Presentation

Lisa SeymourSystems & Procedures Office University of Cape Town

March 2002

Contrary to much advice many business process changes can only happen after SAP

R/3 has been implemented and has been running for a while

In many cases we found that we could not implement process changes with the initial implementation

• Resistance to change is often great• There is not enough time• There is not enough SAP R/3 knowledge• The project team does not have a strong enough mandate• Moving administration from data capturers to knowledge workers

takes time and effort• Moving middle managers in Administration to business process

owners/managers takes time and effort

However implementing process changes after implementation is also hard for “process owners”

The consequence of not revisiting business processes after implementation can be dire.

• Administration blames SAP R/3 for poor service levels• Data owners blame the system for bad data and lack of checks

and controls• Management becomes sceptical of system reports• Post implementation reviews start questioning the system and its

implementation for lack of ROI and questioning whether all objectives were met

• SAP R/3 becomes the favorite scapegoat

UCT’s background

• Purchasing 1996

• Other Financials 1997

• HR & Payroll 1998

• Assets & Plant Maintenance 1998

Our approach to revisit processes

• At the end of 1999 we embarked on an ambitious project called the AIMS project http://www.uct.ac.za/depts/aims2/Index.htm

• One of the core objectives of this project was to ensure appropriate quality and efficiency in the provision of university services.

• Business process re-engineering (BPR) methodology was followed to analyse many major processes, or process areas.

• The processes that were analysed were selected either because the University community had expressed significant dissatisfaction with them or where the department concerned had indicated the need for major process improvement or change.

• Initial BPR streams comprised a team leader (normally from the process area), a Gemini consultant, a S&P consultant and other staff from the process area.

• BPR streams were supported by a micro-organisation design team from HR and a communications stream

The purchase to payment case-study

This business process was selected as one of the first processes needing reengineering:

• At meetings held with HODs and Deans, dissatisfaction was voiced with administrative processes across the board. Purchasing was highlighted because of process problems, poor service from line and poor training and support

• The Finance and Purchasing Departments were concerned with the cost of the purchasing process and of supporting the many unskilled purchasers but felt powerless to change this

The BPR / CBI methodology

Step 1 Data gathering:

Define the process and establish its boundaries, do initial data gathering; develop high-level problem hypotheses.

Process with boundaries

Needs definition

Requisition Process

Order Placement

Process

Receipt of Goods

Invoice Processing

Supplier Payment

Step 1 cont’d: Do initial data gathering

• Brown paper fairs

• DILOs and MILOs– “Day in the life of”; “Morning in the life of”

• Purchaser questionnaire – The questionaire was sent to 440 purchasers (purchasers who placed more than 2

purchase orders in May 2000). We got a 50% return rate.

Step 1 cont’d: Develop high-level problem hypotheses

• Prior to the introduction of SAP R/3, the University had a completely decentralised paper-based purchasing system that had few controls. This system was convenient for departments and there was strong pressure to continue with such a decentralised process when R/3 was being implemented.

• “Empowering the end user” had driven UCT towards commercially unsound practices. The decentralised purchasing was not being managed and a clear purchasing policy had not been implemented.

Step 2 As-is analysis:

Document the "as-is" process, refine the problem hypotheses, establish Key Performance Indicators (KPIs), measure baseline KPIs, draw-up opportunity charts for benefits

Problem Hypotheses:• Too many purchasers and high backlogs• Too many low value orders• Misuse of One-time vendors (OTVs)• Inappropriate purchasing data

Step 2 cont’d: Base line KPIs (1999 data)

• Too many purchasers and high backlogs– 1600 users were authorised to purchase. Backlog KPIs were not measured.

• Too many low value orders– 100,000 orders were placed p.a., 55% for purchases totalling less than R500.

• Misuse of One-time vendors (OTVs)– Vendor information not available for 34% of the total expenditure on purchased

goods and services (R400m). OTV orders to effect reimbursement or travel advances to staff accounted for 60%.

• Inappropriate purchasing data– 1800 vendors, 10 000 materials, 2% of vendors constituted 80% of value, 52% of

vendors were used less than 10 times p.a.

If you can’t measure it, you can’t manage it!

Step 2 cont’d: Opportunity charts for benefits

• Too many purchasers and high backlogs– Through the end-to-end management of the procurement process, we can achieve

settlement discounts of at least R2.5m per annum

• Too many low value orders– Improved productivity and saving by reduction of orders by 40%

• Misuse of One-time vendors (OTVs) & inappropriate purchasing data– Significant savings approximated to R6.8 million can be realised from contract

negotiation of High Value Purchases

Quantifiable benefits are a strong motivator for change

Step 3 To-be Design:

Design the "to-be" process, revise the process flows and define any additional interventions required, establish benefits targets, carry out gap analysis (skills, costs), do micro-organisation design, define roles and responsibilities (RACI).

Four interventions

1. Manage the decentralised purchasing

2. Reduce the number of low-value purchase orders

3. Update the purchasing data and reduce “One Time Vendor” spend

4. Micro-organisation design in Purchasing and Creditors

Step 3 cont’d: Intervention 1: Manage the decentralised purchasing

• The faculties through their finance managers to be held accountable for KPIs, such as Goods receipt backlog, payment backlog and number of purchasers.

• This can only be achieved through centralising the purchasing function with a few core purchasers and implementing a requisition process.

This will reduce rework across UCT and facilitate timeous payment.

Requester

• Identifies need

• Is responsible for clarifying the purchase

• Should complete e-mail, paper or electronic requisition

Fund holders

• Need to formalise with purchaser, who is authorised to request goods / services against their funds

• Needs to specifically authorise requests from any other staff / students

HOD / Faculty Office

• Faculties need to define what authorisation is needed after a fund holder or designate authorises a requisition

Purchaser

• Checks authorisation on requisition

• Identifies vendor

• Creates purchase order

• Informs requester of order

• Runs purchase order reports

Step 3 cont’d: Intervention 2: Reduce the number of low-value purchase orders

• Centralised processing of orders where the final price is difficult to determine at time of ordering (e.g. courier, printing etc)

– This eliminates the need to adjust order prices when accurate costs are established and ensure a match of order to invoice

• Procurement card method to deal with high volume, low value supplies (e.g. stationery, lab supplies, computer consumables) and other identified uses

– This will eliminate many SAP R/3 orders from the system and the manual processing of associated invoices, and effect single payment to multiple vendors

Step 3 cont’d: Intervention 3: Update the purchasing data and reduce “One Time Vendor” spend

Vendor Rationalisation

Establish Master

Data Team

Establish Purchasing

Forums

Contract negotiation

with vendors and update catalogues

Vendor and

Catalogue Clean-up

Create staff as vendors

Use the travel management module to create and update vendor masters for all categories of staff that receive advances or reimbursements

Step 3 cont’d: Intervention 4: Creation of new Purchasing & Payment Services Department (PPS)

This will ensure end-to-end accountability for the purchasing and payment process.

VENDOR MANAGEMENT

MASTER DATA AND CENTRAL PROCESSING

FOREIGN PURCHASING & PAYMENTS

CREDITORSBPR Phase 2

MANAGEMENT & ADMIN

SUPPORTPURCHASING LIAISON

• Training & Communication

• Systems support• Purchaser liaison &

authorisation• Emergency POs

• Contract management• Selection,

authorisation and assessment

• Tenders,SMMEs & RFPs

• Asset procurement

• Maintain accurate and timeous Master Data

• Central PO processing• Technical interface with

vendors (e.g. Procurement cards, etc.)

BPR Phase 2

Step 4 Pilot:

Run a pilot implementation where there are significant uncertainties about aspects of the new process or the organisational design, use this to adjust process flows, validate benefits, and develop implementation plans.

• Pilot of Faculty-Managed purchasing• Consolidated order pilot• Purchasing card pilot

It is better to sell a success that a concept!

Step 4 cont’dPilot of Faculty-Managed purchasing

The streams recommendations on Faculty-Managed purchasing were piloted in the Commerce Faculty

– The purchasing function was centralised from 53 purchasers to 3

– Weekly meetings were held with the Faculty and the BPR stream members

– Recommendations were refined

– Clear roles and responsibilities were established

Step 4 cont’dConsolidated purchasing pilot

#

#

#

#

#

Daily schedulefrom Courier

vendor

Single orderper day

Weekly invoice

Monthly payment

This process could reduce order volumes by +/- 25 000 p.a.

Courier ProcessCourier Process

SignedSignedWaybillsWaybills

Month Courier ordersNov-99 778Nov-00 27

% change -96.50%

Step 4 cont’dPurchasing card pilot

UCT is the pilot site for purchasing card software developed in ABAP by Secure Payment Solutions (SPS).

Purchasing using the card removes the need for R/3 purchase orders and the manual processing of associated invoices, and effects single payment to multiple vendors.

Transactions are uploaded onto R/3 from Master Card and then validated

Monthly statement from Master Card are matched to transactions and then posted to FI

Estimated that purchasing cards could reduce order volumes by an additional 16 000 p.a.

Step 5 Implement:

Implement. Put new organisational design in place, carry out training, establish performance measurements (KPIs, benefits tracking), set up Service Level Agreements (SLAs), hand over to line management.

• Faculty managed interventions• Centrally managed interventions

Step 5 cont’dImplement faculty managed purchasing

• Commerce pilot: Posts were made permanent, hand-over to line

• Met with Faculty Finance Managers & Deans

• Presentations, Brown-paper fairs

• Monthly Finance meetings KPIs:

Purchasers GR backlog Payment backlog

Baseline 1600 8356 (April 2001) 9701 (April 2001)

Feb 2002 373 4071 7225

Target 110 0 0

Step 5 cont’dFinance Department implementation and KPIs

• Organisational redesign in PPS• Reduce low value by extending both

pilots

• Reduce OTV spend• Update purchasing data

KPIs Baseline Target Time

• Order Reduction

• % OTV order volume

• % Spend through

contractual relationships

• Product of contractual

discount and volume

• Settlement discount

• Contracts negotiated

10% reduction28% do40% do

5%

55%

R4,5m

R1.1m

R200m

8400 per

month

20%

23%

R0K

R0K

…

Sep 2000Dec 2000June 2001

June 2001

June 2001

Year 2001

Year 2001

June 2001

Step 6 Sustainability:

Perform implementation audits until the area passes a sustainability audit

• S&P Office consultants perform audits• Operational Management Group comprising the Executive Directors reviews

implementation audits

How to ensure process owners take

ownership

BPRLessons learnt

• When faced with a BPR request, organisational redesign opportunities need to be identified early and addressed first.– In some cases BPR is not needed– Organisational re-design and subsequent training always takes much longer than anticipated– To reduce the operational impact, the period between advertising internally for positions and the filling of the positions as short as possible – The staff with long-term responsible for key interventions need to be involved with the interventions up-front

• As with all university implementations selling concepts and changing business processes in academic areas requires time and resource

• Ensure knowledge transfer from external consultants occurs and occurs to the correct internal staff

People changes take much longer than system changes

Post-implementation BPR or CBI projects..

• Show the real causes of inefficiencies and data problems and allow the institution to address them using a partnership of central administration, internal customers and systems support.

• Allow for piloting and refining before selling and implementing

• Re-establish communication between central administration and internal customers

• Empower process owners

Inefficient processes become the scape-goat rather than the IT systems

Thank You

Questions?

Purchasing card details

A Purchasing Card enables the holder to order goods direct from pre-selected suppliers, within strict financial limits

– No order is required in SAP

– Lost, stolen or ‘compromised’ cards can be blocked with immediate effect

– Each transaction is verified by the vendor with the Bank prior to processing

– The vendor must supply details of transactions to the Bank for payment

– Individual transactions will be verified by UCT prior to final processing in SAP

– Each card will carry a default ‘Cost Assignment’ for processing, BUT

– The ‘Cost Assignment’ may be changed as part of the verification process

– Cards will only be issued on receipt of a signed card-user agreement

– Individual cards can have unique financial limits and vendor restrictions