Essex County Council saving £650,000 per year with transformational P2P

"With a general election fast approaching, national politicians of all parties seem to be making headline statements about large-scale cuts in local government.

But they also want to protect front-line services. Reconciling these two objectives isn't always an easy task. If the wrong cuts are made, it could have a huge impact with severe long-term implications on individuals, life chances, the ability of communities to prosper, and the economy of certain areas.

Rather than thinking along the lines of traditional cuts, Councils must look for alternative ways of reducing costs. At Essex County Council, we've worked hard to address this critical issue over the past few years. As a result, we are seeing multi-million pound returns.

As one of the largest councils in the UK, we spend approximately £800m each year on a diverse range of good and services, from construction projects and care provision, through to shepherding services and windmill repairs. This huge supply-chain effort is an expensive process in itself and it is here that we have concentrated much effort.

Primarily, we've focused on taking out costs and processes that don't add value to the front, middle or back office. In particular, we've managed to eliminate the best part of £3m in expenditure over the last two years by automating back-office processes in two areas; procurement and invoice processing, the 'Purchase-to-Pay (P2P)'.

We've achieved these savings by working closely with EGS Group, a company which manages a platform that automates back-office processes. We have automated both our purchasing, and more recently, our invoice processing systems, which saves our accounts payable teams from spending hundreds of hours each week in rekeying, processing and archiving paper-based invoices.

It's a simple concept that delivers insight on an extremely complex issues, along with significant benefits to the Council, and the local suppliers we deal with.

For any Council that purchases goods and services there are two huge hidden areas of cost savings and efficiencies that deserve greater attention – automation of the purchasing process and automation of the payment process. We took a step back and reviewed our internal processes.

We built a business case based on eliminating the hidden costs of processing purchased goods and their associated invoices, and looked at everything that goes through our procurement system.

We started by automating our purchasing. We now procure all our goods electronically (ePurchasing) through an eMarketplace. This not only gives us a granular insight into spend analysis, and better understanding of our contract gaps and supplier negotiations, but it helps create collaboration with other authorities to maximise buying power.

It also gives us desktop access for our budget holders along with the ability to control off-contract or maverick spending, and enforce greater contract compliance to best value goods and services.

Our next step was to ‘close the loop' and automate our invoice processing. During 2007 we worked closely together to provide direct input into the development of an eInvoicing system. They're a flexible partner for us and they have an in-depth understanding of the complexities involved and how to simplify them.

Ultimately, what drives me is gaining the maximum benefit at the minimum cost since everything is accessible via a browser, there was no need for expensive hardware or software.

Today we can order electronically from 97% of our suppliers, and a large percentage of our invoices are received, approved and passed for payment electronically without any paper or human intervention.

By streamlining the eInvoicing process and reducing manual handling of invoices, we are saving £500,000 annually. We currently have around 70,000 invoices per year which are received electronically, scheduled to grow to some 230,000 invoices per year.

We've also been able to pay our suppliers faster and have guaranteed invoice delivery with real-time visibility status. The system is flexible and caters for everyone from our high-volume transactional suppliers with more sophisticated IT systems, to our small, local suppliers who only need a web browser to trade with us. The system also gives us the ability to report centrally on any disputed or unpaid invoices.

We've recently extended the system to include agency employees. This means we can process a further 40,000 invoices and credits electronically, which equate to an annual value of £30m, and have automated receipt of approved timesheets.

Most recently EGS have helped us accelerate the savings (and return on investment) by taking paper invoices from those suppliers who have been slow to embrace eInvoicing. These are scanned and digitised through EGS's enhanced Optical Character Recognition (eOCR).

This means that almost all of our invoices can now be processed electronically. This has saved a further £120,000 centrally through less manual handling, meant a faster turnaround of invoices from receipt to matching, and enabled visibility of scanned images for our users.

In fact, in the financial year of 2008/2009, we met and exceeded our own challenging target of £450m spent electronically using EGS's platform.

Inevitably, people wonder if there's a catch. Not having to invest millions up-front in hardware is a major advantage, and the system uses a subscription model. We've yet to find any hidden costs and the financial benefits for councils are compelling.

Likewise, suppliers are able to reduce their costs and increase their cashflow. We have a commitment to pay our local SME suppliers within 10 days instead of 30 days. There's no way we could have achieved that objective without automating this process. They are getting paid sooner which is a real advantage to smaller businesses in a recession.

If you're looking at reducing internal costs, I'd strongly urge you to take a closer look at your internal procurement and payment processes. As always, transformation needs to be driven from the top by the Chief Executive, but with ownership from IT and strong links to the CFO.

Real innovation means looking at things differently."