Presented by Procurement, Finance, ASAP, ISD & VMC Finance April 4, 2014

SAP-ARIBA EPROCUREMENT

AUTOMATION PROJECT

Attachment C: SAP-Ariba Automation Project for FGOC 20140416

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PROJECT OVERVIEW

The term eProcurement means conducting all or some of the procurement functions over the internet; it implies that point, click, buy, and ship internet technology is replacing paper-based procurement and supply management business processes.

Benefits are:

Increasing Transparency;

Achieving Value and Promoting Competition;

Expanding the Supplier Base;

Maintaining Financial Controls and Measuring Performance;

Promoting Efficiency in Workflow and Approval Authority.

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BACKGROUND

1. County acquired SAP as the Enterprise Resource Planning (ERP)system and went live in July 2003 by implementing the FinancialManagement (FM) and Materials Management (MM) modules;

2. The plan was to subsequently implement the Supplier ResourceManagement (SRM) Module to automate the entire procurementprocess. Procurement did not opt to implement SRM for businessand technical reasons;

3. VMC acquired McKesson’s Pathway Materials Management(PMM) Module as an ERP system and went live in July 2003;

4. VMC continued to use their financial system and selectivelyutilized SAP for certain purchasing and accounting functions.

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PROBLEM/CHALLENGES

1. Contracts are established in SAP by Procurement and orders areplaced in PMM by VMC for goods and non-professional services.No interface between the two ERP systems for bothpurchasing/contracting and accounting functions;

2. Significant overspend on established contracts;

3. Operational inefficiencies;

4. Loss of both hard and soft cost savings;

5. Non-compliance of laws, policies and procedures;

6. Lack of control of our Object 2 expenditures.

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REFERRALS & AUDITS

1. Overspend on the current contracts resulted in referrals from the Board to address purchasing functions utilizing one system as early as 2008;

2. Pilot project audit of purchases of goods/consumables at VMC uncovered overpayments of negotiated contracts -February 2011;

3. Harvey Rose audit of SCVHHS support services validated the overspend due to system issues – April 2011;

4. Harvey Rose audit of the FPO, Direct Pay and P-Card recommended utilization of one system – March 2013.

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SOLUTION

1. Procurement, ISD, Finance – Controller’s Office, ASAP, HHSFinance, HHS Facilities and HHS Product Management initiateddiscussions with SAP for solutions – September 2013;

2. Initiated SAP/Ariba Purchasing & Contracting Workflow Projectand invited stakeholders from all departments – October 2013;

3. Approx. 300 County staff touching various aspects of thepurchasing, contracting and payment functions attended thesessions to provide their input;

4. SAP provided a procure to pay end-to-end solution to address theCounty’s purchasing/contracting and accounts payable functions.

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STAKEHOLDER CONSENSUS

ENDORSEMENT

1. Procurement staff;

2. Finance Controller’s Office, ASAP team, & ISD

3. VMC Contracts staff, VMC Finance, HHS Facilities;

4. Law & Justice – SHO, DOC, Pretrial, Probation;

5. Health & Human Services Depts.. – DADS, Public Health, Mental Health, SSA, Probation;

6. Roads, FAF, Parks.

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AUTOMATION SOLUTION

BENEFITS BY MODULE

Solution Value Proposition

Ariba Sourcing Save taxpayer dollars: sourcing efficiency, capacity, visibility, grading and approval

Ariba Contracts Management Enforce compliance, visibility, conform to county policies, improve efficiency, central repository

Ariba Procure-to-Pay Drives regulatory compliance, enforces standardization and compliance across the organization

Ariba Product ContentCreates and Maintains Supplier Catalog Content and ensures Up-to-Date Products and Pricing – For McKesson

Ariba PO and Invoice Automation Improve compliance, improve efficiency, improve vendor service, eliminate payment risk and fraud.

Invoice ProfessionalExpedites invoice approval and resolves errors/exceptions for non-PO invoices, facilitates matching of invoices to POs and goods receipt, and enables invoicing off contracts – For McKesson

Ariba Dynamic Discounting Save taxpayer dollars and strengthen supplier base including early payment discount options

Ariba Spend VisibilityAutomated data capture, real time measurement of county and hospital spend, identifies risks and savings opportunities.

Ariba Supplier Performance Management Track supplier performance trends and do business with best performing vendors.

Ariba Supplier Information Management

Reduces cost of administering the supply base by driving supplier self service of profile information. More consistent information over supplier records.

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BENEFITS OF THE

EPROCUREMENT AUTOMATION

1. Automation of Procure-to-Pay Functions in the Cloud;

2. Amazon Like Shopping Experience – Gain Countywide Efficiencyin Purchasing Catalog/Non-Catalog Items;

3. Truly Automate the Service Agreement & Board Contract Processand Reduce Cycle-Time Countywide;

4. Streamline via Electronic Sourcing to Contract Management;

5. Streamline the Payment Process via E-Invoicing & Matching;

6. Reduce Invoice Processing Cycle-Time;

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BENEFITS OF THE

EPROCUREMENT AUTOMATION

CONT.

7. Ability for CBO Vendors to Check PO & Payment Status;

8. Ability to Differentiate Between Contracted & Non-Contracted Items;

9. Auto-Replenishment for PMM to Support VMC;

10. Ability to Conduct Limited Sourcing for Small DollarPurchases;

11. Supplier Information & Performance Measurements;

12. Spend Visibility, Reporting & Transparency.

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SAVINGS

1. Operational Efficiencies via Catalog Ordering in All Departments;

2. Increased Compliance of Bidding/Sourcing Resulting in Increased Cost Savings;

3. Elimination of Shadow Systems such as SAP, PMM and Excel Spreadsheets and utilize PMMonly for auto-replenishment;

4. Efficiency w/ Service Agreement & Board Contract Processing Significantly ReducingRetroactive Agreements ;

5. Paying Negotiated Contract Pricing Consistently;

6. Replace Manual Processes with Automated Process Improvements;

7. Utilize Cash Management through Dynamic Discounting with Early Payment Options foradditional Savings;

8. All Depts.. Should See Reduction in Object 2 (Supplies & Services Budget) after fullimplementation.

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PROJECT DETAILS

1. Recommendation for a five year agreement with an option tocontinue & discussing possibilities & advantages of a 10 yearagreement; (similar to SAP and Office 365)

2. Received proposal for software/implementation services;

3. 5 Year project cost exclusive of internal resources is $30 million;

4. eProcurement Automation team has successfully pre-negotiated afixed price cost of approx. 49% of project cost during thediscovery phase;

5. Internal Resource have been projected at $14 million.

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AS IS – MANUAL

PROCESS

Needs Assessment

Acquisition Planning

Sourcing & Contract

Development

Administration & Contract

ManagementReceiving Invoicing Payment

Overall Procurement & Contracting Process

Each Segment is a Manual & Paper Intensive Process with Ad-hoc Workflow Processes

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AS IS – MANUAL

PROCESS

Contracting Process – Manual At Each Touch Point Between All Parties Involved

Demand & Prioritization

Define Need & Business

Case

Evaluate Proposals

Rollout & Embed

Service Delivery

Performance

Options Appraisal

Plan DesignDevelop Response

Transition Operate Exit

Procurement Planning

Solicitation Strategy &

Preparation

Solicitation Execution

Implementation & Transition

Contract & Supplier

Management

Renewal/Termination

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AS IS – DISPARATE SYSTEMS

(SAP & PMM)

Master/Transaction Data Material Numbers –

8,000 Vendors – 30,000 Contracts – 650 Requisitions & POs –

16,000 Invoice Payments –

190,626

Master/Transaction Data Material Numbers –

48,500 Vendors – 5,000 Contracts – 235 Requisitions & POs –

11,000 Invoice Payments

Processes Contracts CR. POs, Std. POs,

PPOs Inventory Invoicing/Payments

Processes Contracts CR. POs, Std. POs,

PPOs Inventory Invoicing/Payments

Interfaces1. Daily Invoice File2. Daily Payment File

GPO - ContractsBids Posted 250

Insurance

PMM

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A FTER – P ROCURE T O PAY PROCESS IN

AribaP2P

System generates POs from approved reqs

Central and/or end user receiving is performed –sign off on services performed

Suppliers create electronic invoices which are routed via the Ariba Network

Approvals are routed to managers and/or purchasing agents based on business rules

End-users create requisitions for goods & services from electronic catalogs

User

Goods are shipped / Services are performed by the supplier

POs routed to suppliers via the Ariba Network

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Portal

XML

Fax

EDI

AS2

CSV

Email

Suppliers send back acknowledgements and/or Advanced Ship Notices

2, 3, and/or 4-way invoice matching and reconciliation is done using POs, receipts, and contracts - payment is approved by Accounts Payable dept

OK-To-Pay

OK-To-Pay sent to ERP and Suppliers are paid via ERP Accounts Payable system

End User

Payment

User User

SIPM

Sourcing

Contracts

Catalogs

Create contract using sourcing terms from sourcing

UserUser

Pre-filled info in tender

Capture profile from tender

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DEFINITIONS

The National Institute of Governmental Purchasing (NIGP) Dictionary of Terms, references ERP and eProcurement as follows:

An ERP system “may include finance, accounting, human resources, purchasing, inventory control, and other activities” and deploying it is “generally an enterprise wide process, involving analysis, replacement of legacy systems and the development of new work processes and procedures.”

The term eProcurement means conducting all or some of the procurement functions over the internet; it implies that point, click, buy, and ship internet technology is replacing paper-based procurement and supply management business processes.

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APPROVALS

1. Submitted to the BITS Committee for Review and Approvalon March 5, 2014 and April 2, 2014;

2. FGOC Report on April 16, 2014 via the CIO.

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FOR ADDITIONAL

INFORMATION

Please contact one of the following staff:

Jenti Vandertuig, Director of Procurement @ Jenti.Vandertuig@prc.sccgov.org or 408-491-7434

Pomi Amjad, Procurement Systems Manager @ Pomi.Amjad@prc.sccgov.org 408-491-7437

David Indra, Information Systems Manager III @ David.Indra@fin.sccgov.org or 408-918-1907

Ken Yamamoto, Enterprise ITPS Manager @ Ken.Yamamoto@isd.sccgov.org (email only)

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