Cost, as every IT director knows, is not the same as price. And one of the invisible components of cost is that of the buying process itself. With their relentless focus on "best value", local authorities are now looking to see how the principle can be applied to procurement. Not surprisingly, the focus is on exploring the contribution e-purchasing can make.
According to the government's newly published Benefits of E-procurement report, local authorities could cut the cost of goods and services by more than £1bn - nearly 3% of total non-pay spending by councils. So can local authority IT have a share in this saving from its own £2.5bn purchase of IT?
"At the commoditised end of IT - the servers, desktop, printers and so on - yes," says Mark Lawrie, public sector partner at Deloitte Consulting, which wrote the report for the National E-procurement Project. "Anything that is well defined lends itself very well to e-procurement."
Two of the recommended purchasing practices are e-tendering and e-auctions. "In e-tendering, all the tender documents are available online, the bidders deal with all the questions online, the information is then collected electronically and the tenders are submitted electronically," says Lawrie. "This takes out all the paperwork and makes it much easier to compare bids."
According to the report, e-tendering can cut the cost of each tender by between 13% and 25%, depending on whether it is subject to European Union tendering regulations.
"In an e-auction, you have a number of suppliers the authority has probably already dealt with, and will already have their terms and conditions. On the day of the auction they all go online and bid," says Lawrie.
Thanks to the competitive nature of auctions, suppliers are likely to start lowering prices. "An e-auction will probably take a potential 10% off a quoted price, though we did an e-auction for one pilot scheme that took 60% off," says Lawrie.
So is it just a question of snapping up the latest e-tendering and e-auction software and getting on with it? Buying point packages should not be the starting point, Lawrie says.
"Sweat your assets and use existing financial systems, from suppliers such as Oracle, PeopleSoft and SAP, more effectively by using their order-to-pay modules. If you have that along with corporate e-mail such as Microsoft Outlook or Lotus Notes, you have got most of the raw material for e-procurement already," he says.
"It will remove all the paper, capture all the order information from across the organisation and so give you quality management information so you can aggregate your buying power and focus on fewer suppliers."
When it comes to adopting e-auctions, these can be run by specialist service providers. "It is a good, low-risk way to demonstrate the business case of e-auctions and getting to understand the technology," says Lawrie.
But fundamentally, technology is only a small component. The picture is much bigger than a software fix or the agenda for e-government.
"This is not a technology solution, it is a business process change - it changes behaviours, roles, job descriptions and cultures," he says. "You put in place smarter, more efficient processes and then use technology to 'hard-code' them. It is a business-driven change, supported and implemented by IT."
Moreover, it is not something that can be done in isolation. "E-procurement needs to be implemented at an organisation-wide level, rather than in an individual department, so if the organisation starts to use it, IT can too," says Lawrie.
To take the cost out of procurement, it needs to be centralised and unified, and the process of buying needs to be streamlined, reducing the time, effort and staffing resources needed. "But that is not to say you centralise the accountability and the decision-making process, but that the procurement becomes a corporate support service," says Lawrie.
A central procurement service can enable you to realise just how much is spent with a single supplier. This information can then be used to leverage better prices.
Aggregated buying can also scale further than just across a single authority. "Clubbing together to form regional buying can generate benefits," Lawrie says. "For example, authorities along the M62 corridor in Yorkshire and Lancashire have formed the Roses Marketplace, which lets them raise orders through a [common] portal.
"Savings are proportional to spending," he says. "I would say about 40% of the savings come from getting better prices from aggregated buying and 60% come from freeing up your staff to do something more useful."
With Gateway reviews now being extended from central to local government, ensuring that the procurement stage of every project has been handled with the greatest efficiency, there is clearly going to be even greater focus on purchasing best practice.
Think laterally to buy IT
Terry Street, principal consultant with Socitm, which runs the "Smarter IT procurement" course, says that making the most economically advantageous purchasing decision is never straightforward.
Each variable has to be evaluated before the overall true cost can be assessed. For example, this can range from recognising that cheap printers can have higher ink cartridge costs, or that PC refreshes are cheaper when done by outsourcers, to avoiding a cheaper software package with high end-user training costs, or that buying accessories in bulk means allocating more storage space.
Local authorities also have to take into account factors that have nothing to do with keeping their own costs low. Employment may be a key economic and therefore political consideration, and the council itself is expected to do its bit to boost employment levels by buying from local suppliers with offices or factories in the area.
"Smart procurement must be a strategic objective," says Street. "It is not about playing pocket-money games, but about achieving the corporate good."
This was first published in May 2004