UCT’s post-implementation process audit (Our CBI / Business improvement / BPR project)

1. UCT’s post-implementation process audit(Our CBI / Business improvement / BPR project) HERUG Presentation Lisa Seymour Systems & Procedures Office University of Cape Town March 2002

2. 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

3. 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”

4. 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

5. UCT’s background • Purchasing 1996 • Other Financials 1997 • HR & Payroll 1998 • Assets & Plant Maintenance 1998

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

7. 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

8. The BPR / CBI methodology

9. Order Placement Process Needs definition Requisition Process Receipt of Goods Invoice Processing Supplier Payment Step 1 Data gathering: Define the process and establish its boundaries, do initial data gathering; develop high-level problem hypotheses. Process with boundaries

10. Step 1 cont’d: 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.

11. Step 1 cont’d: 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.

12. 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

13. Step 2 cont’d: 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 can’t measure it, you can’t manage it!

14. Step 2 cont’d: 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

15. 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

16. Step 3 cont’d: 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. Fund holders Requester HOD / Faculty Office Purchaser • 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 • Identifies need • Is responsible for clarifying the purchase • Should complete e-mail, paper or electronic requisition • Checks authorisation on requisition • Identifies vendor • Creates purchase order • Informs requester of order • Runs purchase order reports • Faculties need to define what authorisation is needed after a fund holder or designate authorises a requisition This will reduce rework across UCT and facilitate timeous payment.

17. Step 3 cont’d: 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

18. Contract negotiation with vendors and update catalogues Vendor and Catalogue Clean-up Establish Master Data Team Create staff as vendors Establish Purchasing Forums Vendor Rationalisation Step 3 cont’d: 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

19. Step 3 cont’d: 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.

20. 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!

21. Step 4 cont’dPilot 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

22. # # Daily schedulefrom Courier vendor Single orderper day Weekly invoice Monthly payment # # # Step 4 cont’dConsolidated purchasing pilot SignedWaybills Courier Process This process could reduce order volumes by +/- 25 000 p.a.

23. Step 4 cont’dPurchasing 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.

24. 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

25. Step 5 cont’dImplement 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:

26. Organisational redesign in PPS Reduce low value by extending both pilots Reduce OTV spend Update purchasing data Step 5 cont’dFinance Department implementation and KPIs 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 20% 5% June 2001 55% 23% Year 2001 R4,5m R0K Year 2001 R1.1m R0K … June 2001 R200m

27. Step 6 Sustainability: Perform implementation audits until the area passes a sustainability audit • S&P Office consultants perform audits • Operational Management Group comprising the Executive Directors reviews implementation audits How to ensure process owners take ownership

28. 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

29. 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

30. Thank You Questions?

31. 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