Gain Purchasing Power the Newfangled Way -- On-Line

Imagine a world with no issuing multiple bids, no waiting for merchandise, no warehouses and no-hassle accounting. It’s not just a dream -- it’s reality for San Diego State University (SDSU), part of the California State University system. They have just developed an on-line, business-to-business buying system that promises to generate substantial savings in time and money.

Ten years ago, management at SDSU was conducting its business-to-business purchases the old-fashioned way. RFPs were written, bids accepted, purchases made and stock warehoused. The system worked well enough until the state of California made some severe budget cuts, forcing management to take a hard look at the process.

Business Services administrators quickly realized that one of the biggest money pits was their warehouse. The 7,500-sq.-ft., university-owned building is valued at $110 per square foot. And with the approximately $650,000 worth of inventory just sitting there, management quickly found a very expensive, very inactive resource. “We realized that we needed to get rid of the warehouse and move to a just-in-time model of purchasing,” says Lawrence Peralez, SDSU’s director of business services.

Purchasing represented another big problem. Administrators were forced to buy as needed from the cheapest available source. This presented two challenges. The first was that the university never built a relationship with a single vendor to leverage its large buying clout. The second was the cheapest source -- usually the state’s own warehouse. Not only were their materials not of the highest quality but SDSU would have to wait for shipment. “It might take 60, 90 or 120 days for a delivery,” says Peralez. “If the delivery crossed into the next fiscal year we would lose that budget money.”

These budget busters forced some severe cuts in staffing. Business Services went from 60 full-time employees and 35 students to a bare-bones 28 full-timers. With their entire budget coming from tax dollars, Peralez knew his department was at the whim of the state. He then began laying the groundwork for a totally self-sustaining, efficient, on-line and on-time operation.

Laying the Electronic Groundwork

Peralez started the process by negotiating a master agreement with a few selected suppliers. By working with just one provider, say Office Depot or Apple Computer, Business Services purchases at guaranteed low prices and receives the customer service they need. Prices come in so low, in fact, that the department sells product to the university’s different colleges at a slight mark-up and still offers competitive prices. “Our customers are free to purchase anywhere,” Peralez. “If we don’t come in with great pricing, we will go out of business.”

It took Peralez five years of cajoling and convincing the powers that be to get to this point. Then Tim Ameredes, IT manager for Business Services, came on board. His job was to create the electronic highway for the business transactions to take place. “E-commerce in the consumer market has been going on for a while, but business-to-business e-commerce is a pretty new idea,” he says.

Not only was the process new, Ameredes also found that Business Services didn’t have the necessary hardware. With no servers or LAN and lots of manual processes in place, it took a full three years to get networked computing systems in and the staff up to speed. “Changing people’s attitudes toward electronic systems took a lot of time and training,” says Ameredes. He also had to make sure that the software programs his department chose would integrate with the rest of the university’s existing and future ERP Systems.

False Starts, Frustration, Then Success

During those three years, Business Services investigated developing and maintaining on-line catalogs for the suppliers. They immediately ran into several roadblocks with suppliers not having the product availability, product numbers or up-to-date prices. Even if the suppliers had that information easily available, when Peralez and Ameredes looked at the mountain of information that would have to be entered and maintained (Office Depot alone has more than 13,000 offerings) they quickly decided not to maintain catalogs themselves.

Luckily, during that time the concept of e-commerce grew into a reality. With John and Jane Q. Public sequestered nightly in their media rooms running up their credit card debt with on-line purchases now a reality, Peralez and Ameredes figured the jump to business-to-business e-commerce was plausible. They just needed a software program that would meet their goals.

After an extensive search, Business Services decided on Intelisys. As of this writing, the system is not fully in place but is projected for production in early November. It will eventually process an average of 30,000 purchase orders per year. To place an order, SDSU’s 300 departments will just have to fill out an on-line requisition and hit “send.” The Intelisys system, which is integrated to Oracle Financials, will do the rest, from requisition to payment and billing. Most products will be delivered to end-users within 24 hours of order placement.

To prepare the 3,000 or so users for the change, Business Services has mailed out promotional pieces announcing that on-line ordering is coming. Formal training is taking place along with a marketing campaign, and Peralez predicts that the transition will be painless. “When we visited one of Intelisys’s customers, their employees told us they couldn’t wait to get on line,” he reports. “I don’t expect anything different for us.”

Does this new model mean the end of Business Service departments everywhere? “Conventional procurement departments will be affected,” admits Peralez. “But we are transforming ourselves into a very necessary function.” While his group is currently mired in start-up data entry and paperwork, soon they will switch to a more proactive customer-service role, increased vendor interaction and contract management as well as continue to troubleshoot problems and handle misshipments and returns.

The department has so far seen significant results. The skeleton-level, 28-member staff has been boosted to 38, plus six students. Central Stores operations, which generated $400,000 10 years ago, pulled in $7 million this fiscal year. These numbers allow the group to meet their payroll, equipment acquisitions and overhead. Peralez reports that the group is 98 percent self-funded. Business Systems, on its own, recently built and moved into its new, $1.6-million, 31,000-sq.-ft. facility.

Business Services spent $25,000 per year on initial training. They expect that number to drop to $15,000 for ongoing instruction. New hardware and software (other than the Intelisys product) ran $375,000. While not inconsequential, the outlay is justified by streamlined processes and satisfied customers and clients.

If you would like to investigate a business-to-business e-commerce solution for your school, Peralez and Ameredes offer the following tips.

1. Take a good look at where you are now in terms of hardware, software, technical support, and policy and procedures. Then plan where you want to be and address that gap. “I’ve seen projects get ahead of themselves and fail,” warns Ameredes. “Then management pulls its support.”

2. Keep communication open between yourself and your customers. People who have been filling out order forms forever or are afraid of the computer may be reluctant to step into the future. Realize that, even with constant training, mindsets take a while to change.

3. Research all of the available software packages, and make sure you choose one that can integrate with your back office (ERP). Also choose one that will grow with your expected future needs.

4. Remember, technology is a tool to help you achieve your business objectives. With this in mind, design, develop and implement your technology systems to meet your business requirements, not the other way around.

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