California Readies E-Procurement System

California Readies E-Procurement System

Chuck Grady

By Steve LeSueur, Staff Writer

California's Department of General Services will soon roll out the pilot for a new electronic procurement system that will streamline the way the state buys its goods and services.

With the state's approximately 250 agencies spending $4 billion annually, California's new buying system would not only be the first of its kind for a state government, but also the largest in terms of total volume of business. The pilot system makes its online debut in May.

The California Statewide Procurement Network is being installed by Andersen Consulting of Chicago. It will integrate PeopleSoft's purchasing software with Ariba Technologies Inc.'s electronic procurement software.

The project will cost $14 million, with $6 million going to Andersen Consulting and its industry team, and much of the rest going to the state's procurement division and other agencies to support the project. The target date to have the system fully operational is February 2000.

California's effort is one of two pilot projects many states are watching as they plan their own statewide electronic procurement systems. The other, Massachusetts' Multistate Electronic Mall, will test whether a consortium of states can share suppliers under a system known as Open Buying on the Internet.

"We're definitely a trendsetter," said Chuck Grady, deputy director of California's procurement division. "These are the two programs everyone is watching."

California's pilot program will involve just two agencies and perhaps three to five suppliers. The number of authorized network users from state agencies eventually could swell to about 2,000 along with some 2,500 suppliers, Grady said.

While the pilot is necessary to prove the technology, an equally important aspect will determine which procedures and policies must be changed to allow for electronic procurement.

Tom Carroll, an associate partner with Andersen Consulting, said "change management" is the key to success. "This is larger than the technical problems," he said.

This is because the role of the purchasing organization is being changed fundamentally, affecting both work processes and the way people do their jobs. "One-third of our effort is working through these issues," said Carroll.

Electronic procurement systems in the private sector have saved companies as much as 5 percent in the cost of the goods and services they purchase, said Dave Rome, vice president of marketing for Ariba Technologies of Sunnyvale, Calif. If replicated in the public sector, this would represent $200 million in annual savings to California, a significant return on a $14 million investment.

California procurement officials, however, are hesitant to make an estimate of future savings until they see how the system performs.

Even after the system is operational, each state agency can decide whether to use CSPN or stay with its own purchasing system.

The statewide procurement network "will save money and it will improve the quality of our service, but how much is saved is enormously dependent on how many people get on the system and how soon they start," said Grady.

CSPN will enable the Department of General Services and the agencies it serves to place acquisition orders electronically for California's 250,000 government employees. Using the Internet and departmental intranets, employees will be able to do online comparison shopping and purchase everything from ball point pens to office furniture and computers.

California local governments also will be allowed to use the network, but program officials say they cannot predict at this early date how many governments will tap into the new system.

The network is expected to reap savings in a variety of ways. First, it will speed the purchase process and reduce the associated paperwork. In addition, by putting its employees in a single purchasing system, the state can garner significant price reductions from suppliers because of the larger volume of purchases.

And the system will enable state officials to track purchases and measure the performance of contractors, as well as reduce "maverick" buying by employees who go to suppliers charging higher prices.

One of the key technical issues is whether the network will be able to handle a large number of suppliers and concurrent users.

But Ariba's Rome said his company's software, which facilitates electronic procurement for such large firms as Cisco Systems, Lucent Technologies and Chevron Corp., should be able to handle easily these numbers.

"A user population of 2,000 would be trivial," he said.

California officials hope to use the rollout of CSPN as an opportunity to showcase its advantages to both suppliers and potential users.

When the full system is completed next year, procurement officials expect to bring on agencies gradually over a period of about five years, Grady said.

The CSPN unveiling will occur just a few months before Massachusetts officials wrap up their Multistate E-Mall pilot. Begun last April with $400,000 in funding from the Massachusetts legislature, their pilot will continue through June 1999.

The six-state E-Mall, which also includes Idaho, New York, South Dakota, Texas and Utah, has 20 suppliers and is expected to ramp up to 200 transactions a week by the end of this month.

Like CSPN, the E-Mall is expected to reduce costs through bulk purchasing. In addition, individual states can reduce their infrastructure costs by sharing network servers and other technology, as well as share among themselves the administrative costs associated with procurement.

But there are also obstacles to cooperative buying, the most significant being the myriad of conflicting regulations and laws that govern procurement in each state.

Many industry and state officials question whether the E-Mall's anticipated benefits will be sufficient to push the states toward standardized procurement rules.

Gary Lambert, deputy state purchasing agent and co-manager of the Massachusetts project, acknowledged these questions exist, but said they are less pronounced for some states than for others.

"You have to look at it state by state," he said. "In some states there might be legitimate concerns, but not in others."

Lambert suggested that the E-Mall is not an all-or-nothing proposition.

A state, for example, might use the E-Mall to make some purchases, perhaps to buy simple products such as pencils or paper, but buy other goods through its own purchasing systems.

Government and industry officials say there is considerable interest in electronic procurement among the states, which are watching closely the E-Mall and CSPN pilots and waiting to see whether they achieve their desired goals.

"I think they'll be able to take lessons learned and make more informed decisions about whether to step into E-Mall or CSPN or something different," said Lambert.

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