On November 20, Ajith Kumar, Manager of Purchasing and Supply for the City of Hamildon, got off the telephone frustrated. According to the Fleet Manager, Zuri Young, from Environmental Services, an out-of-stock wiper blade had idled an expensive snow-removal truck. Kumar was concerned that the new integrated procurement system was affecting the department’s service. How many other orders were not being processed by the new system? The situation required immediate attention.
Background
The City of Hamildon had about 500,000 residents, the corporation was responsible for an area of 41,250 acres. The City’s responsibilities ranged from police services and fire services to the management of parks and recreation facilities. Environmental Services represented the highest budget allocation due to the nature of its activities and size of the deparment.
Annual budgets are determined in a four (4) year budget that identifies capital funds and operational funds. Departments are allocated a certain amount of capital funds for investments like road work and operational funds which are used for annual expenses. At the end of the year, any unused capital budget was withdrawn from the departments, whereas unused operational budget was carried forward to the next year.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 municipality 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 Hamildon. Purchasing was mainly centralized and provided support as needed to branches of the city which included the libraries and the construction board. It also provided warehousing services for supplies that were part of the regular materials inventory, such as paper goods for the City’s facilities such as toilet paper and printer paper, as well as maintenance equipment for the fleet vehicles. Essentially, every service within the city departments was a customer of the Purchasing and Supply.
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 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 Purchasing and Supply through their procurement system.
The warehouse stocked items that had been purchased in bulk, these items were paid for using operational expense accounts. Customers could request an order from inventory and the Purchasing and Supply staff would pick the items and prepare for pick-up. It was the responsibility of the customer to ensure that items they used regularly were in stock. Purchasing and Supply would reorder on request only.
If the order was not in inventory, the office initiated one of the following procedures:
- Request for Tender – for orders over $100,000
- Formal Request for Quotation – for orders between $50,000 and $100,000
- Informal Request for Quotation – for orders below $50,000
Supplier selection was based on the principles of tendering and quoting which was lowest bidder was successful. Level of approval authority defined which order process would be used.
Integrated Procurement
A new computer system had been implemented in Purchasing and Supply a month ago. Still in the early stages of implementation, Kumar was faced with several challenges that the new system brought to the department.
The integrated procurement system was a finance-based system that was not customizable for procurement. A disadvantage was that the tool limited online ordering to ten (10) major customers only; the rest were relegated 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 which decreased information needed for their budget accounts. Kumar found the employees disliked the order entry requirements of the new system, one of the biggest complaints was that the new system required information to be entered on seven (7) screens while the former system only needed manual input on one (1) screen. Many of the Purchasing and Supply team had been in the department for over ten (10) years and were comfortable with the old system. In their opinion, the new system appeared to increase the staff workload which lowered the level of service they could provide to the customers.
Since there were no customization options, several ordering processes needed revision. For example, for those departments who no longer had online ordering capabilities had to fax or email requisitions to the Purchasing and Supply department which required manual follow-up. Order status checks required telephone or email contact with the ordering customer. Kumar was not sure how to adequately staff the department so that the increased workload could be handled.
Despite the issues, Kumar knew that the long-term advantages of the new system were potentially great. The new system integrated previously stand-alone systems into one, areas such as Purchasing, Accounts, Warehousing, and Payroll would all have access to information which reduced duplication. 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 could be filled automatically through the warehouse. Further, the integrated procurement system supported supplier performance management. These tools could ultimately help Kumar improve the efficiency of the entire buying process at the City.
Impact of Change
Many of Purchasing and Supply’s customers had not been happy with the new system; they felt they had had lost control over some critical parts of the ordering process.
During the training on the new system, Kumar’s team voiced concerns about the lower productivity levels and the increase in work. It didn’t make sense that an internet-based tool would require so much additional work. Concerns continued after the launch date, Kumar had intended to abandon the older program but was now unsure.
The Wiper Blade Stock-out Problem
Kumar reviewed the wiper blade stock out problem that Young had brought him. An order entered by Fleet was created by one of the customers who had online access. The requested blade had failed to be accepted through the new system. As a result, the warehouse had not received a request and it was not re-ordered. Young explained that the snow plow that required the blade could not be used as it did not pass Health and Safety’s vehicle safety check. This was costing the department and the residents of the City as snow removal was delayed. Snow removal was important for road safety and to ensure emergency vehicles could reach residents or hospitals in a timely manner.
Kumar wondered what could have caused the order not to be processed? Was there human error in data entry? Errors in learning the new system? Or were there technical glitches involved? Kumar had to solve the immediate problem for the Fleet department and was concerned about similar problems with other orders. What could be done to prevent this from happening again? Could any safety measures be implemented?
