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Waverley Borough Council Committee System - Committee Document

Meeting of the Executive held on 12/07/2005
Purchase Ordering Process Overview and Consideration of Business Case



Annexe 2
WAVERLEY BOROUGH COUNCIL - EXECUTIVE – 12TH JULY 2005
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PURCHASE ORDER PROCESSING

OVERVIEW AND CONSIDERATION OF BUSINESS CASE


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1 Introduction

1.1 The purpose of this Annexe is to undertake a cost/benefit analysis of implementing a Purchase Order Processing (POP) system.

1.2 This paper assumes the implementation of the solution proposed by Agresso Ltd, the suppliers of the Council’s Financial Ledgers software, on the assumption that many of the benefits of a POP system are derived from its seamless integration with the Accounts Payable and General Ledger systems. Document Image Processing (DIP) and workflow are integral parts of Agresso’s POP system, providing the potential to support e-Invoicing (internet-based secure electronic invoicing).

1.3 This paper includes the costs of the current manual purchase ordering procedures, for comparative purposes, plus a consideration of the benefits and disadvantages of our current practices.

1.4 It should be noted that all volumetric information is based upon historical data and includes purchases made by Housing department.

2 Current Procedures

2.1 Benefits

2.1.1 The advantages of the existing procedures include:

The current system is perceived as flexible and “user friendly”.

No IT costs over and above the core Accounts Payable system.

2.2 Disadvantages

2.2.1 Problems identified with the current procedures include:

Inconsistent procedures and controls in raising orders.

Currently, corporately, there is no management information on how many purchase orders are raised. As well as paper orders there are at least two computerised ordering systems used in different departments (E&L and Housing).

No commitment to expenditure recorded in the Ledgers.

Inconsistent (possibly non-existent) procedures and controls in matching goods/services received with original order.

Delay (possibly weeks) in capturing invoice information on corporate system. Exchequer Services consequently unable to answer supplier queries re payment progress. Invoices get “lost” in the departments.

Unnecessary work in Exchequer Services chasing location of invoices, requesting copy invoices, handling court summonses for non-payment.

Inconsistent procedures in registering invoices (some in Departments, majority in Exchequer Services at the end of the process).

Delays in authorisation of invoices for payment – adverse effect on BVPI 8.

Storage space taken up by invoices and requisition slips.

Scanning of invoices (currently costs in excess of 4,000 p.a.)

Need to go down to Exchequer Services to view the invoice if there is a query about the entry on the Ledgers etc.

3 Proposed Procedures

3.1 Benefits

3.1.1 The benefits identified for the introduction of a POP system include:

Better service to our suppliers – faster payment (improved BVPI 8) and better information when enquiring about payment of an invoice.

Opportunity to bring consistency and controls to the raising of orders.

Authorisation of expenditure introduced at the very beginning of the process thereby assuring existence of budgetary provision, coded correctly etc

Key data (supplier details, expenditure code) captured at the very beginning of the process. As well as reducing data input workload in Exchequer Services it can also check that order being placed with approved supplier and against an existing budget.

Commitment recorded on G/L. Improved budgetary control.

Formalised procedures and controls in checking goods/services received against original order.

Less paper handling.

Automatic creation of archive of invoice images thereby freeing up of storage space over time and ease of access to invoice details corporately.

The Purchase Order Processing system proposed by Agresso includes an internet browser front-end which would significantly improve the user-friendliness and availability (home/remote working, Locality Offices, additional users) of the Financial Ledger systems.

Workflow will deliver greater control of the process and better management information.

Satisfies one of the ODPM’s e-Government priority outcomes.

3.2 Disadvantages

3.2.1 Potential problems with the introduction of POP include:

Expensive in terms of application software and hardware (see para.4.2 below).

The introduction of requisitioning will require the creation of an “in-house catalogue of goods and services”

As much of the data capture (supplier details, expenditure codes etc.) and authorisation takes place at the beginning of the process the raising of an order could be perceived as considerably more onerous under POP and therefore possible user resistance.

The introduction of procedures not currently carried out at Waverley (requisitioning, registering goods received note [GRN]) will have impact on service department resources.

Success of POP hinges on the recording of goods received, the responsibility for which lies within the user departments. This has been identified as a significant issue within other Local Authorities.

The new system might be perceived as inflexible, complex and/or cumbersome.

Procedures will have to be developed to deal with goods received and invoices that do not match the value of goods initially ordered.

Procedures will have to be developed to deal with goods received and invoices for which there is no initial order. (This might well be legitimate, e.g. telephone bills, annual licenses etc.)

In order for DIP image of invoice to be linked to AP records then it will be necessary for Exchequer Services to register all invoices upon receipt of image from the post room. This might prove onerous as the expenditure code details will not be known in the case of invoices with no corresponding order/GRN.

3.3 Other Issues

3.3.1 The introduction of POP will see a shift in data capture (and therefore staff time required) from Exchequer Services to other sections and departments.

3.3.2 The Agresso proposal will see the replacement of the current paper-based authorisation procedures with electronic authorisation built in to the workflow.

3.3.3 The introduction of POP would require the introduction of knowledge of and responsibility for the new application system. This resource would have to be found from within either Exchequer Services or Accountancy. It would also require the “switching on” of user group control which will have implication also for Accounts Payable (Creditors) and the database administrator function.

3.3.4 The POP system would have to be “bought into” corporately and, eventually, all departments would have to sign up for it. Partial observance (e.g. continued use of order pads in some circumstances or areas) will complicate procedures and prevent full realisation of benefits.

3.3.5 The implementation of POP would offer the opportunity to “punch out” to e-Marketplaces (at additional cost re IT).

4 Comparision of Costs

4.1 A comparison of costs, in respect of staff time, is set out at Tables 1 (POP) and 2 (current procedures).

4.2 A significant cost not included in the appendices is that of purchasing and implementing Agresso’s POP system. The latest estimated costs (capital expenditure) provided by Agresso are:

Software
16,500
Training
5,600
Project Management
5,500
Support Services
3,000
Consultancy Services
11,500
Web server
4,000
Total
46,100

4.3 A number of assumptions have been made in arriving at the figures given in the Tables. These are stated in the appendices but the following deserves explanation:

Detailed analysis of payments made by Waverley during 2004/05 suggests that approximately 60% of purchases would not relate to a purchase order (e.g. refunds, grants, professional fees, reimbursements, utilities and telephones and payments made under the terms of a contract). The figures in Table 1 assume that only 40% of invoices would relate to a purchase order and that one quarter of these would not match exactly (e.g. variation in price).

N.B. The 60% of “non-purchase-order” payments include the vast majority of payments made on behalf of Housing since their corresponding orders are, and would continue to be, made via the Housing Repairs (Orchard) system.

4.4 The following potential savings in costs have not been included in the figures as they are difficult to quantify or are marginal:

Reduction in peripheral activity such as chasing location of invoices, requesting copy invoices, handling court summonses for non-payment, investigating supplier enquiries etc.

Reduction in storage space.

Reduction in time spent by staff coming down to Exchequer Services to look at original invoices when seeking further information on a payment.

4.5 The following potential additional costs have not been included in the figures as they are difficult to quantify or are marginal:

Project management.

Staff time required for the initial creation of an “in-house catalogue of goods and services”.

Staff time involved in administering and supporting the POP system.

User training

4.6 The figures at Tables 1 and 2 suggest that the introduction of a POP system would require an additional 450 staff days p.a. to run (at an estimated additional cost of 13,500 p.a.).

4.7 Nearly 400 of these additional days would have to be found from within the user departments. This is largely due to the introduction of the computerised production of purchase orders and the additional task of recording the receipt of goods. The additional resource required within Exchequer Services (approximately 50 days p.a.) is largely due to the introduction of DIP.

5 Summary and Conclusion

5.1 The implementation of a Purchase Order Processing system would significantly improve controls regarding purchasing within the Council. The integral implementation of Document Image Processing (DIP) and workflow would also address a number of problems encountered with the current procedures and provide the potential to support e-Invoicing.

5.2 A spin-off of the Purchase Order Processing system proposed by Agresso would be the introduction of document image processing (DIP) and workflow and an internet browser front-end which would significantly improve the usability of the Financial Ledger systems.

5.3 However the costs of implementation are considerable (at least 45,000 capital, a minimum additional 2,800 p.a. revenue and the need to address the requirement for at least 13,500 worth of additional staff time p.a.).

5.4 In the event of housing stock transfer the capital and revenue costs would remain the same and there would not be a significant reduction in staff time to administer the system as the majority of Housing purchases (orders) are made via the Housing Repairs (Orchard) system and have not, therefore, been included in the estimates of staff time with respect to POP.

Comms/Executive/2005-06