North Carolina Ariba-based Procurement Program Tanks: Department of National Defence Deja Vu?

Posted on November 10, 2010


I remember when I did my research of the North Carolina At Your Service procurement platform in 2004 for a white paper that was published in early 2005.

Based upon Ariba technology (is it just me or is Ariba turning-up like the proverbial bad penny of failed initiatives?), what impressed me the most had nothing to do with the platform itself, but more to do with the State’s approach to dealing with resistance on the part of it’s higher education institutions’ compliance with NC’s purchasing strategy at that point in time.  Specifically, the execution of a Memorandum of Understanding “MOU” between the State and its institutions that was signed in November 2004, which provided the institutions with what I had called at the time a collaborative autonomy.

The principle was quite simple . . . allow the Universities etc. to maintain their existing purchasing programs with the understanding that bids would have to be cross referenced with the centrally negotiated contracts from the At Your Service platform.  If the University had a better price to value ratio, then they would be free to procure the goods or services from their existing vendor relationships.  If the University buyer was not able to match what was centrally available through the State’s platform, they would then be required to use the State’s contract to purchase the goods or services.

I thought that this was an incredibly brilliant and innovative approach, as it meant that a blind compliance with a centrally negotiated contract/system was not the primary goal, but instead achieving the best value for the State and its taxpayers through the sharing of information.  A kind of proactive assimilation that would ultimately result in the State’s central system building a dynamic intelligence base that would actually avoid the very problems that North Carolina is facing today.

So what happened . . . what went wrong?  If I were to offer an intelligent guess, the anticipated collaborative process between key stakeholders never materialized, leading to a results abdication in which the realization of targeted savings became more technology driven versus being people driven.

This of course is reminiscent of the Department of National Defence in Canada “DND” where the absence of collaborative intelligence between the main buying group and the bases they were purportedly serving resulted in the Department purchasing MRO Indirect Materials at an average premium of 157% above the going market rate.

Compounding the problem was the fact that delivery of the acquired goods which called for a next day SLA performance of 90% was hovering around the 50% mark and, costs related to staff size and warehousing meant that neither the DND nor taxpayers were coming close to achieving a best value result.

In the case of the DND, I established a number of new parameters based on analyses such as the time of day an order was placed and its impact on both cost and delivery.  Ironically, technology was the last piece of the puzzle to be introduced, and only after the framework for a successful program was already in place and savings patterns firmly established.

This of course avoided one of the biggest problems associated with ERP-centric implementations in that when an organization leads with technology you usually find that the people adapt to how the technology works versus the technology adapting to the way in which people work in the real-world.

The results of my approach were fairly straight forward . . . launched in May 1997, SLA performance improved from 51% to slightly higher than 97% by September 1997.

Costs were also quickly brought under control, with the DND realizing annual savings of 23% each year over the seven years that I had run the program.

Inventory levels that had been built up to compensate for the poor SLA delivery process was ultimately reduced by 90% over an 18 month period and, with it the size of the DND purchasing staff went from 23 people down to 3 within 24 months.

Knowledge is truly power, and in the emerging SaaS world in which a non-consultancy approach compliments a transaction-based revenue model that eschews the heavy, up-front capitalization requirements of the past, the focus of an initiative has shifted from one of expenditure justification to one of achieving best value results.  This concept, which was largely foreign to most organizations just a few short years ago has today motivated end-user clients to find ways to extricate themselves from the burdens of the traditional ERP vendor licensing model.

To be more succinct, and perhaps tantamount to a wolf that will chose to gnaw of the paw that is caught in a trap, more and more clients appear to be willing to take a hit along the lines of what the OECM recently did with Arbia ($20 million), and Marin County did with Deloitte/SAP ($30 million), to free themselves of untenable situations and capitalize on the long overdue paradigm shift to the new, more cost effective on-demand models.

Of course given the fact that 85% of all e-Procurement initiatives have failed to achieve the expected results in both the public and private sectors means that an increasing number of organizations are going to be making the tough decisions to cut their losses and move on.

For those few organizations who have been successful with their e-Procurement initiatives, the task is one of maintaining program relevance through the introduction of new processes and related technologies.

In this regard, I like to use the analogy of a new car, in that a new car requires maintenance and parts over the life of its usage.  If a car isn’t properly maintained, it will eventually fall into disrepair, ultimately ending up on the scrap heap.

Similar to a poorly maintained car, inertia is a successful program’s biggest enemy in terms of ongoing relevancy and the ability to drive continued savings.  As a result, and while it is always better to start with a winning hand, the challenges of transformation is no less daunting for those overseeing a successful program.

In the end, vigilance and adaptability are the keys to success in the here and now, as well as over the long haul.  By having the courage to weigh its options and consider alternative routes, North Carolina is at least pointing in the right direction in terms of eventually implementing a successful program.

Posted in: Commentary