UCTs postimplementation process audit Our CBI Business improvement BPR project

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UCTs post-implementation process audit(Our CBI
/ Business improvement / BPR project)
HERUG Presentation
Lisa Seymour Systems Procedures Office
University of Cape Town March 2002
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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
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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
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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

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UCTs background

• Purchasing 1996
• Other Financials 1997
• HR Payroll 1998
• Assets Plant Maintenance 1998

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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 SP consultant and other staff from
  the process area.
• BPR streams were supported by a
  micro-organisation design team from HR and a
  communications stream

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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

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The BPR / CBI methodology
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Step 1 Data gathering

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

• Process with boundaries

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Step 1 contd 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.

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Step 1 contd 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.

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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

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Step 2 contd 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 cant measure it, you cant manage it!
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Step 2 contd 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
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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
• Manage the decentralised purchasing
• Reduce the number of low-value purchase orders
• Update the purchasing data and reduce One Time
  Vendor spend
• Micro-organisation design in Purchasing and
  Creditors

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Step 3 contd 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.

Requester
Fund holders
HOD / Faculty Office
Purchaser

• Identifies need
• Is responsible for clarifying the purchase
• Should complete e-mail, paper or electronic
  requisition

• 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

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

• Checks authorisation on requisition
• Identifies vendor
• Creates purchase order
• Informs requester of order
• Runs purchase order reports

This will reduce rework across UCT and facilitate
timeous payment.
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Step 3 contd 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

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Step 3 contd Intervention 3 Update the
purchasing data and reduce One Time Vendor spend
Use the travel management module to create and
update vendor masters for all categories of staff
that receive advances or reimbursements
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Step 3 contd Intervention 4 Creation of new
Purchasing Payment Services Department (PPS)
MASTER DATA AND CENTRAL PROCESSING
VENDOR MANAGEMENT

• 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.)

MANAGEMENT ADMIN SUPPORT
PURCHASING LIAISON

• Training Communication
• Systems support
• Purchaser liaison authorisation
• Emergency POs

CREDITORS
BPR Phase 2
FOREIGN PURCHASING PAYMENTS
BPR Phase 2
This will ensure end-to-end accountability for
the purchasing and payment process.
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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!
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Step 4 contdPilot 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

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Step 4 contdConsolidated purchasing pilot
SignedWaybills
Courier Process
This process could reduce order volumes by /- 25
000 p.a.
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Step 4 contdPurchasing 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.
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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

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Step 5 contdImplement 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

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Step 5 contdFinance 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
10 reduction 28 do 40 do
8400 per month
Sep 2000 Dec 2000 June 2001

• Order Reduction
• OTV order volume
• Spend through contractual relationships
• Product of contractual discount and volume
• Settlement discount
• Contracts negotiated

June 2001
5
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June 2001
55
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Year 2001
R4,5m
R0K
Year 2001
R1.1m
R0K

June 2001
R200m
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Step 6 Sustainability

• Perform implementation audits until the area
  passes a sustainability audit

• SP Office consultants perform audits
• Operational Management Group comprising the
  Executive Directors reviews implementation audits

How to ensure process owners take ownership
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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
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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
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Thank You

• Questions?

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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