The power of electronic purchasing

Transnet is the transport network powering South African industry from mining to agriculture, imports, exports and commuter travel. One of the biggest employers in SA, Transnet co-ordinates planes, trains, ships and road transport in an ever-changing, nationwide grid of goods, people and vehicles.

Although Transnet presents a single set of financial records, in reality the company consist of 23 separate and autonomous business units, including Spoornet, Portnet and SAA, but also lesser-known entities such as Freight Dynamics, Petronet and Transwerk. The national drive towards privatisation has seen each unit constituted as an independent entity, with its own internal IT department and broadly divergent operational systems.

Towards the end of the Internet boom of the late 1990s, several events caused Transnet to re-evaluate its business strategy. The findings of several consulting firms, working independently with various Transnet subsidiaries, converged on a single issue: that the Transnet group could derive significant savings from using its collective purchasing power to get better deals with suppliers.

This view was supported by Transnet`s corporate head office which was actively looking to develop an e-business platform.

"We routinely scan the IT industry for new products and technologies to better enable our business, and e-procurement presented itself as the logical first part of a much broader, strategic e-commerce solution," explains Carel Lubbe of the Transnet Group.

Other factors contributing to the e-procurement momentum involved a number of fraud cases, which made newspaper headlines and centred on weaknesses in the purchasing system, as well as the below average performance and imminent downsizing of Promat, Transnet`s dedicated purchasing division.

According to Neels Botha, procurement specialist of B2BAfrica, only two products proved suitable, although several other software solutions were discarded as inadequate for Transnet`s requirements.

"We considered both Ariba and Commerce One products, and we did our own due diligence, and then we presented the board with a business case highlighting the benefits of e-procurement. Our assessment was that a broad-based e-procurement solution, at the full extent of its implementation, could save the company almost R500 million a year," he says.

With the approval of the board, the Ariba e-procurement solution would not only allow Transnet to consolidate its purchasing power but also give the company a broad view of spending and procurement practices across the entire organisation. The maturity of the Ariba product, which had already been implemented as an e-commerce solution at the majority of Fortune 100 companies, made it a best-of-breed solution.

Ariba also won out ahead of an in-house, home-grown solution since speed of deployment had emerged as a pivotal issue. The transformation of South African commerce had seen a steady influx of new employees to Transnet, most of whom had no knowledge of the older procurement processes, and there was an urgent need to put in place automated, rule-based procurement mechanisms and business logic.

The pilot phase of the project began early in 2001 and consisted of taking on 30 users at each of the 23 separate business units, and capturing product catalogues for three or four contracted suppliers into the system.

"This would enable us to test the technology and apply business rules and levels of customisation within the business units. We then replicated teams and structures between the business units, although the supplier enablement was done centrally," explains Botha.

"We started with the biggest business units and that gave us the opportunity to capture some best practices and standardised business rules for some business units where the cost of development of each process would have exceeded the benefits."

According to Transnet`s business consultants, fraud could be dramatically curtailed by using a more rigorous approval process for purchasing. The new e-procurement rules would require at least two parties to conclude any purchases, although some business units have opted for a much stricter approach.

But in an organisation the size of Transnet, with thousands of procurement staff countrywide handling billions of rands worth of purchases targeting thousands of suppliers, there are bound to be some setbacks.

The Ariba e-procurement system was not a brand new system, such as the ERP systems for example, and it would be replacing older, entrenched purchasing mechanisms. The resistance of employees to transition to the new system has proved to be among the biggest inhibitors for the Transnet e-commerce strategy.

"With the business units having operated autonomously for quite a while, the Ariba system would be the first project in a long time where head office would have to dictate policy," notes Lubbe. "This was the first time we would rely on goodwill for adoption and success, so we had to learn how to win the hearts and minds of the managers and users, and this has been an ongoing process."

As part of this hard sell Trasnet Group not only footed the bill for the entire, company-wide Ariba implementation but would also have to pay for the extensive customisation demanded by each of the 23 business units.

Training would consist of a few hours to create a "superuser" who would then transfer skills within the purchasing department. According to Botha, the system is simple and completely intuitive to learn and understand, with no dramatic learning curves, but that there were other psychological obstacles to be overcome.

The benefits of e-procurement were not immediately obvious to the business units and would appear to benefit Transnet as a whole more than the individual divisions. End-users could not see any direct benefits for themselves from using the new purchasing system, making it far easier for them to simply stay in their "comfort zone".

Through these setbacks, the commitment of the Transnet board has been tested, finally attracting the attention of Group CEO Mafika Mkwanazi. He promptly added e-procurement adoption to the overall "balanced scorecard" by which each business unit is evaluated.

In the six months following e-procurement transactions have picked up considerably, although it is competing for attention with several other topics on the scorecard such as black economic empowerment and, ultimately, financial performance.

Moving beyond simple advocacy, the ever-resourceful B2BAfrica team has ramped up its efforts to draw attention to the project. The documentation for the monthly Transnet board meeting, attended by the heads of each business unit, now contains a comparative chart showing how far each unit has progressed with e-procurement.

"We have decided to adopt a carrot and stick approach with the business units," explains Lubbe. "Here the balanced scorecard is the carrot and the monthly chart, carrying with it an element of professional humiliation, is the stick."

The Ariba system has evolved over the 18-month roll-out period to become a more robust spend management solution, recently incorporating a spend analysis tool, a sourcing component, a contract management module and a payment solution. Altogether the expanded Ariba implementation now presents many more opportunities for cost-cutting and delivering real business value to each business unit.

The system now also integrates with a variety of ERP systems used throughout the organisation, providing the critical messaging and workflow component to give a more detailed view of material purchases, spot orders and fulfilment.

Using the "punch out" facility means that purchasing staff can get seamless access to complex product catalogues hosted and maintained by suppliers. This has proved invaluable for divisions like Transmed, the Transnet medical aid, where the large databases of pharmaceutical products now reside with the suppliers.

In among these upgrades, priority has been given to stabilising the IT infrastructure and hardware subsystems to ensure the e-procurement system remains a zero-downtime business-critical tool.

"We have taken on 2500 users, catalogues from more than 100 contract suppliers compromising nearly 9 000 individual line items," says Botha. "But this is a never-ending process of adding more users and products."

E-procurement now represents a cornerstone of Transnet`s broader e-commerce strategy, which includes a radical shift from only supplying transport to becoming a services company offering an end-to-end e-logistics solution.

E-commerce solutions leading to the delivery of logistical services has been formally written into Transnet`s vision for its future, and B2BAfrica is the delivery vehicle through which this transition will occur.

The broad-based adoption of technology such as the Ariba software solution will increasingly become the differentiator for companies that, like Transnet, take up the challenge to transform their business models and have the tenacity to learn the hard lessons, and eventually reap the rewards of the early adopters.