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Published in Print: June 9, 2004, as States, Districts Clicking Into Online-Purchasing Systems

States, Districts Clicking Into Online-Purchasing Systems

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Seeking to capitalize on the Internet’s retail and financial-management capabilities, more states and school districts are using online-purchasing systems to buy everything from No. 2 pencils to cleaning supplies.

Arizona, Maryland, North Carolina, and Virginia are among the growing number of states that have moved—some boldly, some cautiously—to so-called e- procurement systems that supporters say save time and money and increase worker productivity. Such online systems may also integrate the state or school district’s purchasing system with its accounting and data systems, creating a seamless financial-management system.

"E-procurement is growing quickly," said Donna Beach, the research director of the National Institute of Governmental Purchasing, a nonprofit group based in Herndon, Va. "With the advent of the Internet, there’s a greater role being played [by e-purchasing] in the budget process."

Imagine the retail savvy of Amazon.com and the auction capability of eBay combined with high-speed online banking and accounting tools and a turnaround time of 24 hours for many purchases. This one-stop-shop scenario is what attracts many districts and states to e- procurement systems.

But the reality can be less dazzling, and some experts caution that e-procurement systems are a work in progress. For instance, vendors in some states, such as North Carolina, must pay "marketing" or other fees to the state or state’s e-purchasing contractor. This makes some vendors less willing to participate.

Experts say it can also take much time and effort for vendors to list their wares in an electronic catalog. And sellers and government agencies may find it difficult to switch from a familiar, if unwieldy, paper-based culture to a streamlined, technology-driven one.

"If [e-procurement] was a clock, then you’re only at 1 a.m.," said Steve Hamill, the general manager of the U.S. Communities Government Purchasing Alliance, a national nonprofit group in Walnut Creek, Calif., that helps local governments and school districts engage in e-purchasing.

"This [technology] is still early."

‘Virtual Ordering’

School purchasing is a multibillion- dollar business. Districts spend 5 to 8 percent of their budgets on supplies and equipment, according to the Association of School Business Officials International. That’s up to $35 billion of the $438.8 billion in public education expenditures in 2003, according to the National Education Association.

Ask Arthur Hanby about e-procurement, and the interim deputy chief contracting officer of 150,000-student Detroit public schools waxes euphoric over what many may consider a dry, technical subject.

But he has reason to be enthusiastic. The country’s 10th-largest school district changed from antiquated financial, warehouse-inventory, and other systems to a powerful e-purchasing system that integrates many of the district’s administrative functions.

"We’re now operating in a virtual-ordering system," Mr. Hanby said. "We went from 1980s legacy systems to cutting-edge technology in one leap."

For instance, a principal who needs to buy inkjet cartridges can log on to the school’s e-purchasing system, click on the icon for Office Depot, and go to the store’s customized home page. The district uses the U.S. Communities Web site to purchase from this supplier.

The principal can fill up an online shopping cart, then click back into the Detroit district’s e-purchasing system to input the funding source and accounting code for the order.

Once that’s done, the system e-mails the official who must approve the order. Then, the system automatically generates a purchase order and sends it electronically to Office Depot. If the administrator places the order by 2:15 p.m., the school will receive it by the next day.

Under the old paper system, there would be more steps, Mr. Hanby said, and it "would take weeks" to receive an order.

The district also saves money by using U.S. Communities’ e-purchasing network. The group leverages the purchasing power of school districts and other local agencies across the country to get lower prices from vendors such as Office Depot than they would individually. Over the past year, the Detroit district has saved $32,000 in office-supply purchases through the U.S. Communities contract, said Mr. Hanby.

"That’s almost the cost of a teacher in a classroom," he pointed out.

Virginia’s Fairfax County government has also saved money through e- purchasing, said Rick Moriarty, the senior procurement and management analyst for this suburb of Washington. The county saved 7 percent in purchases, or $1.4 million, between 2001 and the first quarter of 2003, he said.

The move to integrate online-purchasing systems in schools and states has been far from easy. Indeed, a number of early e-procurement systems failed or were dramatically scaled back, such as those in Colorado, Washington state, and Los Angeles County.

Promise vs. Reality

The herd of e- procurement companies has also thinned considerably since the dot-com bust of a few years ago. Only a few—such as eSchoolMall, based in Horsham, Pa., and School Specialty Inc., of Appleton, Wis., both of which cater directly to schools—have survived.

Four years ago, Mr. Hamill of U.S. Communities tried to put in place an e-procurement system in which users could see and buy the products from various vendors and manage their accounts on the group’s Web site. But after a year of research and negotiations with e-procurement companies, he found that they had limited track records and few if any successful implementations.

So the group continues to rely on the e- procurement systems already in place with its suppliers. Some 87,500 agencies, Mr. Hamill estimates, can access vendors by clicking hyperlinks on the U.S. Communities Web site, which then takes buyers to a customized version of each vendor’s Web site. The group has contracts with 19 suppliers in 12 product categories.

"What we found … was that the promise [of e-procurement systems] was a lot more substantive than the ability to deliver," Mr. Hamill said. "When the market matures, when there are [more] live examples of people doing this well, we’ll look at it again. But for now, the promise of making this system easier on your life isn’t there yet."

Weighing the Costs

Moreover, some vendors, especially small businesses, may not find it profitable to take part in e-purchasing systems, Mr. Hamill said.

North Carolina, for instance, charges a 1.75 percent marketing fee per transaction, though other states and school districts charge vendors a nominal yearly fee instead. The annual fee is $50 in Texas and $30 in Detroit.

Competition is also more fierce in an online world where purchasers have thousands of products from hundreds of vendors at their fingertips. Some vendors offer inducements such as rebates or free shipping, just like Amazon.com, despite operating on razor-thin profit margins.

As a result, "you have to provide the incentive to the suppliers so they can see the benefit for themselves," Mr. Hamill said. "Some vendors sign on, but a lot don’t want to."

One North Carolina government employee, for example, complained in an editorial in the Raleigh’s News & Observer that the cost of a chemical she used rose from $78 to $240 per liter after the state converted to e-procurement.

But Tina McLamb, the project director for North Carolina’s e-procurement system, defended the state online project. The system works, she said, and vendors, "after some initial reluctance," signed on.

So far, more than 30,700 vendors have registered on the state’s e-procurement system. If they don’t register, they can’t do business with the state.

"[Vendors] see the benefits of the system," Ms. McLamb said. "They like being able to market their products without paying for marketing upfront."

The e-procurement system cost New York City-based Accenture Inc., which has a nine-year contract with the state to run the e-purchasing system, $39 million to develop and initially implement.

The cost savings, at least for the state, have been real. North Carolina has saved $162 million so far, Ms. McLamb said.

When North Carolina first rolled out the online system, "there was a little resistance from everybody, from state agencies and schools and the vendors," she said. "But now it seems that everyone understands the process."

Coverage of technology is supported in part by the William and Flora Hewlett Foundation.

Vol. 23, Issue 39, Page 8

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