1. Centralised Procurement
Lessons Learnt from the Gauteng Shared Service Centre
Government Supply Chain and Procurement Summit
Gallager Estate - 13th & 14th October 2008
Namhla Siqaza: GM - Procurement
Gauteng Shared Service Centre

2. Outline Procurement Environment
Decentralized/Centralised vs. Shared Services
Prior to Shared Services
Gauteng Shared Service Centre
The Next Chapter
Lessons Learnt

3. The Procurement Environment
The role of procurement is to buy quality goods and services at a demonstrably competitive cost to be delivered at the right time and place.
Facilitates efficient service delivery in the public and private sectors
Positioned as a strategic partner with other senior level executives
Procurement is viewed as key business advisor on industry and supply market trends
Compliance to regulatory requirements: Constitution & PFMA
Commitment to Black Economic Empowerment through PPFA practices
Scarce procurement skills
Possible effect of global financial crisis

4. Decentralised/Centralised vs. Shared Services
Decentralization
Centralized
Independence of business
Economies of skill
Lean, flat organization
Enhanced career Progression
Synergies
Recognition of Group functions
Dissemination of best practices
Center of excellence
Dept.
maintain
control of decisions
Responsive to needs
Maintenance
of business units
decisions
Remote from business
Unresponsive
No Dept. control of central overhead
Inflexible to Dept. needs
Common systems &
support
Consistent standards &
controls
Economies
of scale
Variable standards
Different control environments
Higher costs
Duplication of
Effort
Manual intensive & repetitive
GPG SSC will be set up as a public entity with GPG as the only shareholder of the SSC.
The SSC will be customer driven. Unlike in a corporate centralised function, where the corporate function determines the nature and level of service to be provided, the SSC business will be managed through formal agreements which will clearly set out relationship between the customer and the services centre.
Services in a SSC are governed by a Service Level Agreement between the parties.

5. Prior to Shared Services
BASELINE INFORMATION
No. of entities - 58
SLA for RFQ – 19 days
SLA for RFP – 70 days
19,54% spend on P2P process
80.46% Maverick spend
Three IT systems
No pre qualified vendors
Process
Technology
People
Highly manual & paper-based processes
Limited standardisation / consistency
Excessive delays in transactions & communication of information
Poor compliance to regulatory/ legislative requirements
duplication
Lack of integration between systems
Duplicate data entry into multiple systems
Manual processes due to lack of appropriate technologies
Poor spend analysis
Unclear roles & responsibilities
Tasks were associated with people, not processes or departments
Multiple contacts across service tiers
Inadequately skilled staff, “a dumping ground"
Let me pick up on one element – the systems aspect…

6. GSSC Business Mandate
The Gauteng Shared Services Centre was established in 2001 as a key transformational initiative to revitalise service delivery in the public sector
Provides back-office transactional support services in 5 functional areas
Serves 14 Provincial Departments’ geographically spread over 126 physical locations
Serve 160,000 employees
Does business with over 12,000 active suppliers
Business Functions
Procurement
Finance
Human Resources
Audit
Technology Support
14 Provincial
Gov’t Depts
12,000 active suppliers
Business Processes
What we’ve done is to elevate the importance of administrative functions to the highest management levels.
Traditional back-office responsibilities have taken on a front office perspective. These activities have become our core business. They have become strategic.
From the outset, a significant investment was made in a SAP-driven ERP system. This actually has been a key catalyst in the success of our SS.
The rationale behind the SAP decision were: (narrate the above points)
Business problems: 1. A transformational lever; 2. Information and knowledge resources could be made ” available to the “government as a whole” i.e. integrated to enable both internal and public returns.
Business design: The SAP system as a conservative design, based on best practice models, that could be used to impose a high level of structure and conformity in use. It has forced us to work in a way that we were not used to. It has led us us to use unified and best practice based business processes. It has imposed discipline in execution
Systems
Service Depth
People
Organisational
Reach

7. The Operational Mandate
GSSC Procurement –
The Operational Mandate
The aim of GSSC Procurement is to provide procurement related services to GPG departments. It is our intent to be ‘best in class’ organisation in the areas of Sourcing, Contracting and Purchasing whilst proactively contributing to GPG socio-economic objectives
Develop & implement sourcing strategies that will assist GPG Departments purchase goods &services effectively from suppliers, balancing financial efficiency with socio-economic outcomes.
Develop & govern Customer Departments & Supplier business agreements over the lifecycle of the contracts ensuring that the involved parties fully meet their respective obligations in order to deliver the business & operational objectives required from the contracts.
Promote viable working relationships with vendors, specifically BEE / SMME vendors, in support of GPG’s B-BBEE Strategy by focusing on balancing commercial imperatives with social responsibility.
Optimise & support the utilisation of procurement processes & systems, including updating & maintaining the materials catalogue & provide tender administration services.
Beyond the strategic factors that SS impacts, P2P make a significant impact on how our business performs on a daily basis.
Operational Efficiency
Simplify & standardise processes
Automate routine or repetitive tasks
Drive integration of functions & information
REPETITION IS KING!
Compliance Excellence
Reduce risk of contractual and regulatory compliance
Meet social goals
Increase contract utilisation
Supplier Excellence
Optimise supplier base & performance
Promote greater support to small & black business
Obtain full visibility in supplier invoices & payments
Buying Leverage/ Sourcing Efficiency
Leverage Government’s buying power
Value of analysis/insight
Efficient & reliable supply
Cost Discipline
Increase cost savings
Reduce processing costs
Optimise staff productivity

8. GSSC Procurement – The Mandate Continued
The P2P process was envisioned as the official vehicle through which GPG procures goods & services, and subsequently pays suppliers 1.
Identify Need 2.
Source 3.
Contract 4.
Requisition 5.
Order 6.
Receive 7.
Pay
8.Reporting
From the outset, the goal was to drive the creation of public value through tight integration of the end-to-end process
We defined P2P activity ownership, staked out territories, re-examined relationships, shared roles & responsibilities of GSSC vs. Customer Departments
Measure, Measure, Measure performance and compliance through a P2P scorecard (e.g. # of PO per FTE ; % of invoices paid within SLA; etc)
Automate through best of breed system tools (SAP purchasing platform; mySAP SRM; Catalogues (MDM); BI; Workflow; etc)
Attempting to implement A/P improvement initiatives without consideration of Purchasing activities will result in sub-optimal improvement

9. GSSC Procurement – The Mandate Continued1
Department
completes request
and forwards to the
GSSC
Procure Goods and Services
Vendor
Start 2
GSSC receives
/ request
requisition 3
Buyer sources
goods and/or
services 4
GSSC places
order with
vendor on behalf
of Dept
External Process
Vendor Receives
business requirement
from the GSSC
Vendor dispatches
services to the Dept 5
Dept receives goods
and/or services and
acknowledges receipt of
the goods to the GSSC
Vendor submits
invoice to the GSSC 6
acknowledgement
of receipt of goods
and/or services
and invoice 7
GSSC pays
End 8
Contract
amendments

10. GSSC Procurement – Realising the Promise
Reduced turnaround times from req. decision to PO placement by 50% over the previous year.
Exceeded the GPG Preferential Spend target of 50% by achieving a 53.5% spend
Doing business with 12,000 active suppliers
Process an average of 7500 purchase orders per month – an increase of 450% over the last 3 years
Achieved cost savings of between 5% in isolated target areas
60% P2P spend
Of course this is not an exhaustive list. Specifically I want to highlight the fact that:
We have technology-driven productivity improvements
Our cycle times have been reduced
We can also isolate cost savings in targeted areas
GSSC Performance Data as at March 2007

11. Our Challenges Demand planning
High “touch points” still causing the most headaches!
Invoice mismatches & payment delays
Non-acknowledgement of goods & services received
Use of un-registered suppliers
Our processes are still perceived as very complex
The compliance/leakage problem
Maverick spend
P/Orders created for only 40% of purchases
No visibility of 60% of commitments – many of which off-contract
Limited visibility of total spend by supplier/ category requiring much manual effort to compile
No visibility of contract compliance
Ex post analyses show consistently that the negotiated savings can not be fully realized due to leakage. In other words the money is on the table, but not in the pocket. First of all, in our case less than 50 per cent of all procured goods are bought through the P2P process, the rest is not addressable for Strategic Sourcing projects. Second, not all end-users, buyers and vendors act on the policy/frame contract compliant for various reasons. The leakage can add up to more than 30% of all negotiated savings.
The leakage problem can only be addressed if the entire value chain is optimized. Only if every invoice in Accounts Payable can be mapped to the related purchase order (and vice versa), full transparency can be realized. This transparency ensures that all purchases are compliant to the negotiated contract conditions (e.g., the delivered good meets the ordered specifications, the invoice is in line with the negotiated frame contract rates). Only this creates the required transparence needed to ensure that 95 per cent of the spend volume is covered by the procurement organization and that all involved parties act compliant to the procurement policies and negotiated frame contracts.
This optimization of the Source-to-Pay value chain requires (1) a system platform that supports the entire procurement value chain from the initiating the order to the payment of the invoice, (2) the standardization of all procurement processes as well as the integration of these processes into the procurement platform, (3) the restructuring of the entire procurement organization to support the new setup.

12. The Next Chapter – Higher Levels of Maturity
Going forward, we will focus on 4 critical factors to drive full value from our GPG-wide Investments
Automate & integrate further with mySAP ERP; e- registration; e- catalogue; e - auction; e- tendering ; P- Cards; e-Invoicing; etc
End to end P2P process
Establish strategic partnerships
Prequalify; train & develop vendors
Achieve and exceed GPG Annual PP Spend targets
Attract, develop, retain the right cadre of people!
Optimise business processes through further automation & integration
Improve customer & supplier collaboration
Pursue the People Agenda
Sound fiscal management & increased BEE spend
This can be described as a “wave rippling outward” from the epicentre which is at the GSSC
It’s all about relevance really - & we are confident that we’ve embarked on a chapter that is relevant to our stakeholders at this stage of our transformational roadmap.
4 Focal Points: Process; Customer; People; Finance

13. Lessons from the Frontline
This is a Programme NOT a Project!
It’s about more than cost. It’s about service.
Measure performance. Demonstrate achievements.
Importance of stakeholder management.
Engage in an open and frequent opinion exchange with your suppliers.
Need for a solid technology platform.
Do not forget about the PEOPLE!
Having been at the coal face for the last 5 years, we have a great story to share.
Hindsight is a perfect science…if we had to do it again, what would be the key considerations?
For me personally, this has been a very humbling experience.
And honestly, I have now reconciled myself to the fact that this will journey will never end. For those of you interested in undertaking a similar effort, I have this to say: take this on as a programme, not a project with a start & end date.
It’s about more than cost. It’s about service
You win or lose on cost…but service is your ticket to the game.
Execute well, everyday.
Measure performance (if it moves, measure it)
Win early. Win often.
Need for a solid technology platform
We believe the successful move to shared services could not have happened without a solid technology platform. It has enabled simplification, standardization and automation of previously complex, diverse, tedious and duplicated manual tasks.
Do not forget about the PEOPLE! – commit the time, talent and budget
Just do it!
It’s not about sharing – it’s about transforming
the way Government does business! 13

14. Thank you!
Namhla Siqaza General Manager – Procurement