Seamless Purchase to Pay Processes

Introduction

The Scottish Executive (SE) is the devolved government for Scotland. It is responsible for most of the issues of day-to-day concern to the people of Scotland, including education, health, justice, transport and rural affairs. The Executive is led by a First Minister who is nominated by the Parliament and in turn appoints the other Scottish Ministers who make up the Cabinet. Executive civil servants are accountable to Scottish Ministers, who are themselves accountable to the Scottish Parliament.

eProcurement Scotl@nd

The SE’s eProcurement Scotl@nd Service (ePS) is enabling the entire Scottish public sector, including central government, local government and the NHS to win the cost savings and efficiencies of eProcurement. ePSis a fully hosted and managed 24×7 eProcurement service which provides a range of additional services including e-sourcing (electronic tendering and reverse auctions) and transactional purchase to pay solutions. It was bought by the Scottish Executive as a common, technical platform for all Scottish public sector organisations to use. The service provider is CapGemini who with a national eProcurement team are tasked with coordinating and supporting the service roll out.

Through ePS, Scotland is leading the way in e-commerce with real advanced connections with suppliers for purchase order placement (more than 25,000 purchase orders have been placed through electronic links direct to suppliers’ back-office systems). Each order placed in this way provides savings in processing time, speed and accuracy and opens up opportunities for further savings through automating payments.

There are a selection of payment options through eProcurement Scotl@nd – not a “one size fits all” approach. ePS works alongside all the main financial enterprise resource planning (ERP) systems and supports online billing and payment mechanisms such as the VISA Government Procurement Card (GPC), electronic invoicing and payment on receipt (also known as evaluated receipt settlement). Using this wide range of payment options has delivered significant improvement in payment performance across Scottish central government departments over the last 12 months.

Seamless Purchase-to-Pay

The SE has a number of best of breed purchase and payment tools. However if the end-to-end purchase to pay process is a poor process you will not realise potential savings. The experience of applying IT in government suggests that the greatest benefits do not arise from replicating existing paper based processes electronically, but rather from using the potential of technology to re-engineer processes (workflows) and structures (e.g. distribution of authority, functions or tasks). According to the report “Reorganisation of Government Back Offices for better Electronic Public Services” typically technology accounts for 20 per cent of a given saving arising from an ICT project, while the remaining 80 per cent results from the redesign of organisational processes.

In July 2003, the Scottish Executive established a multi-functional team comprising of finance, audit, procurement, accounts payable and the internal customer departments, plus an education department to review, benchmark and re-engineer the existing purchase to pay processes. A creditors’ analysis was conducted to review the volume of transactions by suppliers and to profile invoice/payment trends.

Following the review the number of purchase-to-pay processes was reduced from 45 to just four. These are illustrated within the Scottish Executive Purchase to Pay Solutions model.

Diagram 1: Illustration of eProcurement Scotl@nd Purchase to Pay Solutions Model

The preliminary groundwork required for seamless purchase to pay processes and automated purchase to pay solutions include the following:

• Conduct a creditors’ analysis to determine the nature volume and value of paper invoices received from suppliers;.
• Review, re-engineer and rationalise purchase to pay processes to establish standard processes. Document the standard processes through process flow diagrams.
• Review the capability of the finance system to upload electronic consolidated invoices through file format.
• Align commodities and services to the most appropriate purchase to pay solution.

Creditors’ Analysis: How to address ad-hoc low value purchases

The creditors’ analysis highlighted 60,000 low value ad-hoc purchase and payments less than £1,000. The physical VISA Government Procurement Card (VISA GPC) is an effective and efficient method to eliminate the high administrative costs of setting up ad-hoc providers onto the ERP system (Oracle 11i) and the cost of manually processing paper invoices.

The SE imports procurement card statements into Oracle Payables to allow automatic payment for the transactions, the objective being to streamline the process by minimising the manual intervention required and reduce the number of low value paper invoices.

The Scottish Executive determined that there were basic business needs to implement Oracle Procurement Card functionality as follows:

1. To receive p-card invoice/statement details electronically;
2. To allow the invoice/statement lines to be electronically coded individually to one or more accounts;
3. To pay the invoice without requiring manual entry of the invoice/statement details; and
4. To drill down from Oracle General Ledger to invoice details.

Diagram 2 and process flow diagram 3 explain the set up of the physical p-cards on Oracle 11i and the automated payment.

Diagram 2: Physical p-cards assigned to cost centre codes Process Overview

Diagram 3: Oracle 11i physical p-card payment process

Physical procurement cards are being rolled out in a phased manner across the core SE Departments. The growth in usage of the physical p-card is as follows:

The Financial Year is 1 April to 31 March.

The projected cost savings through eliminating supplier set up and manual invoice processing and reconciliation for 2005/06 is £200,000. See Annex A for the SE purchase to pay process cost analysis.

The Benefits

The SE opted for a “best of breed” e-procurement solution choosing CapGemini as the service provider partnering with Elcom, as the e-Procurement system provider and Reqio as the electronic catalogue management company. Key features include:

• electronic catalogues for core/standard items;
• punch out to suppliers’ websites for dynamic/diverse products;
• recurring requisitions;
• business approval rule groups;
• electronic purchase orders dispatched through an internet network to suppliers; and
• line item reporting capabilities

Working closely with Barclaycard Business, the SE came up with the idea of using a single VISA Government Procurement Card with its card number embedded in the system software as a settlement mechanism (Pecos software has encrypted e-mail functionality). Through combining e-procurement and the procurement card we now have an end-to-end automated “paperless” solution for high volume/low value purchases and payments. The embedded p-card is used as the payment option for: stationery, IT consumable, paper and car-hire.

Suppliers have now offered and applied discounts due to the fact that purchase orders are entered directly into their back-office sales systems and payment is made in three to four days. There are no associated factoring charges through this solution.

Diagram 4 highlights the mechanics of combining a best of breed e-procurement solution with a single embedded p-card.

Diagram 4

1,400 users have now been trained on the easy to use web-based solution and are placing orders from various locations across Scotland from Peterhead, Inverness, Edinburgh and Glasgow from all SE locations.

In terms of savings, the SE estimates that it saves £10 per transaction on processing costs by using ePS with the embedded Government Procurement Card rather than Oracle i-Procurement and BACS settlement.

Electronic Consolidated Invoicing – Supplier Capability is the key

Where suppliers have the capability the SE will receive electronic consolidated invoices and upload onto Oracle 11i. A number of key suppliers are submitting electronic consolidated invoices for business travel and temporary labour. The electronic consolidated invoices are submitted by the suppliers on a weekly basis.

High volume/low value and low value ad-hoc but what about the rest?

Low value invoices account for the great majority of invoices received by the SE (90 per cent). However the cost of paying a paper invoice valued at £15 is the same as a Programme expenditure invoice for £1,500,000. Payment on receipt is the payment option used for high value goods and services. Payment is only issued when the goods or services have been received.

e-Procurement in Scotland combined with p-cards – a model for the future

As Tom Wilson at the SE comments: “Scotland is a small country, we have a population of 5 million people, 32 local authorities, 16 health boards, 60 plus other government departments. The last thing we need is 100 plus e-Procurement systems. Settlement solutions are a key component of any purchase to pay solution. We have found that the VISA GPC and embedded p-card through Barclaycard provide security and simplicity and delivers the synergies and benefits of e-procurement and automated settlement”