Multi-State EMall
White Paper
Lessons Learned
In December 1997, Commonwealth of Massachusetts officials proposed a Massachusetts-sponsored, multi-state e-procurement pilot to test the concept of conducting secure Internet-based, cooperative purchasing for public buyers. On October 15, 1998 a Commonwealth buyer sent the first government-to-business transaction over the Internet to a supplier with a statewide contract. For the next year, Massachusetts as well as the four partner states of Idaho, New York, Texas and Utah participated in the EMall pilot project conducting approximately $500,000 in transactions with 11 suppliers.
The Commonwealth expected to realize savings by decreasing transaction-processing costs for both buyers and suppliers. However, they were surprised to see the pilot illustrate up to 72% savings. This supported the promise to provide buyers with more purchasing options while offering suppliers opportunities in larger markets. Additionally, spending rates on EMall cooperative contracts tripled. This result lent support to the potential hard-dollar savings through aggregate volume discounts.
The promise and lure were great. It was the proverbial “offer you can’t refuse.”. The Commonwealth stood to make millions from suppliers that self-enabled their own catalogs. Of course, not only would they self-enable their own catalogs but they would be willing to give up 2.5% of every transaction. Practice turned out to be much different than the promises.
In February 2000, the Commonwealth signed an agreement with a technology provider to move forward with a production system. It would leverage Internet technology by implementing the system in all 154 executive agencies, open the doors to its 351 municipalities, more than 69 public and quasi-public authorities, public institutions of higher education, and even other states.
On June 7th, 2000, the Commonwealth of Massachusetts Multi-State EMall™ initiated a new era in e-government with its first production purchase order for $1,525.07 worth of desktop software was placed from the Massachusetts Operational Services Division (OSD). This made the EMall the first live government e-marketplace in the nation that facilitates direct transactions between buyers and suppliers.
In late July 2000, it became apparent that the supplier enablement process was great theory but poor judgement. Logistically it was a nightmare. This was further compounded by the fact that the EMall provider made fatal management decisions spurred on by the potential of its anticipated IPO. In brief, the provider failed to notify the Commonwealth after determining that their supplier enablement tool required re-engineering. The company’s executive management and project management teams began a course of evasion and delay while the developers worked frantically to re-tool. Eventually, executives acknowledged the solution was ineffectual and the provider was terminated for breech of contract in April of 2001. They filed for and entered bankruptcy in May of 2001.
Ultimately, the provider’s failed gambit caused significant damage because it shook the Commonwealth’s faith in the readiness and ability of eProcurement technology to support the goals of the EMall.
The EMall Executive Committee [1] completed an ad hoc survey and determined that an alternate solution was available but needed to be pieced together. The decision was made to issue an RFR with three separate sections for a new system.
What follows are lessons learned, gleaned from Emall staff whose combined experience over the course of the pilot and subsequent year of production arguably constitutes the most experienced and knowledgeable state eProcurement team in the nation.
EMall has different connotations depending upon participants’ perspectives. For example, an accountant considers all the issues related to encumbrances, payments, reconciliation and integration. Staff from the Information Technology division may focus on application code, security through digital certificates and SSL, web pages, uptime and integration. Buyers consider contract and product availability, ease of use, workflow efficiency and versatility. For a supplier, it is all about convenience and cost.
For purposes of this paper, the EMall in discussion is a public marketplace composed of four primary elements:
I. Foundation: This is software that serves as the platform for shopping, analogous to the actual building, storefronts and shopping carts in a brick and mortar mall.
II. Buyers: An EMall must have a community of willing and able shoppers.
III. Sellers: An EMall must have vendors who provide catalogs of goods for the Buyers.
IV. Integration: It is preferable to have a link to the Buy-side back office system allowing a complete purchase cycle from Purchase Order to Payment, commonly called “Chk to Rec”. This also allows the Buy-side to take advantage of numerous advantages including early payment savings.
Due largely to the recent popularity of the Web, this software is more common than previously anticipated and there are numerous private marketplaces with reliable software.
The differentiating factor between public and private e-marketplaces is that public requires the capability to support potentially complex and/or multi-jurisdictional approval processes. These capabilities are actually fairly easy to add to marketplace software.
In addition, as more state and local participants enter the arena, private marketplace providers are responding to the unique needs of the public sector. This move toward public sector clients has spurred development in Marketplace software to include more sophisticated capabilities such as order aggregation and reporting tied to budget and accounting functionality.
Summary: We are certain there are vendors capable of providing this software and is only considered a problematic area when Supplier Enablement is not appropriately integrated with the Platform.
During our production year, we learned that Buyer implementation in a public marketplace is quite different than a private marketplace. Unlike private sector or retail marketplaces, the public sector is not burdened by efforts to lure customers and provide special promotions or to track recent customers with digital cookies and other market research techniques. Also, as mentioned earlier, unlike the corporate or retail market, public sector purchasing requires an extensive approval process and fund commitments or encumbrances.
Public buyers readily adopted the EMall since a large portion of the bureaucratic process was eliminated resulting in dramatic timesavings while increasing efficiency by providing improved, real-time access to document information. The EMall approach also decentralizes the purchase providing end-users with access to suppliers while retaining operational and fiscal controls through automated, rules-based workflow and user profiles.
Analysis also indicated that by appointing an e-Business manager and a systems administrator for each agency, not only could we decentralize buying activity but also the systems administration. This would allow us to load-level the implementation effort dramatically reducing the required implementation time, allowing for parallel departmental implementations. Analysis also indicated that we could attain 88% of the buying activity with only 20% of the agencies (about 25 agencies).
Other Buyer Implementation lessons learned are:
This is the most frustrating and perplexing issue we faced. At a broad level there were three main concerns:
Unfortunately, our marketplace vendor further complicated this entire process. Their supplier enablement solution was not only ineffectual but was inoperative so they avoided implementation of suppliers until they could finish developing a working product. This created a suspicious and skeptical atmosphere and most members of the EMall management team became concerned that a true marketplace solution did not exist. As a result, EMall representatives spent eight months interviewing and reviewing products in the private and public marketplace. Our analysis indicated that:
It is no coincidence that a lot of the failed endeavors are self-enablement solutions.
Summary
4.1. Order Accuracy Rates: since the PO is computer filled from their catalog there are less errors
4.2. Full Automation: integration to the supplier back office reduces administrative costs for the supplier
4.3. Improved Payment Cycle: integration to state back office so payments are virtually immediate
4.4. New Markets: exposure to an broader buying community without further investment
4.5. Re-Usable Solution: if the catalog is truly open, then the supplier can enter other marketplaces at little or no expense. This is critical since suppliers are being asked to build solutions in multiple marketplaces. If it is an open solution then they just have to build it once.
With the advent of multiple middleware products, integration, although key, is not problematic. It should be noted however, that the middleware product can provide much more than building block integration to your back office. It can effectively be used to embellish the functionality of the base foundation product and can even be used to integrate into the suppliers back office.
Emarketplaces require assistance from the Information Technology division, Purchasing personnel and the Comptrollers office. . The Commonwealth of Massachusetts developed an Executive Committee composed of the CIO, the State Purchasing Agent, the Comptroller and the Director of the EMall. This was a brilliant move on the Commonwealth’s part and insured a smooth implementation and transition.
There are a multitude of tasks that need to be coordinated and controlled at the same time. The Commonwealth of Massachusetts used as multi-tiered management approach with ten different tracks, e.g. legal, buyers. Suppliers, IT, Web services, integration, etc. Each track had a detailed plan and gantt chart to guide through the process. The Emall also mandated weekly status meetings to ensure the information and tasks were appropriately disseminated.
There are numerous fees or charges that can be used. All carry some potential negative impact.
A registration fee to join the EMall
A flat fee on each transaction
A % of each transaction fee
Other potential revenue generators:
This is generally dependent on the implementing state but you should try to keep it simple. It has overwhelmed several implementations in the past. Effective security exists with SSL and ID interrogation and most vendors have it down to a science.
Find a vendor who has done it successfully. Don’t take chances on multi-million dollar implementations without some proof of ability and financial assurances. If at all possible hire an advocate who has done it before.
[1] A committee composed of the state CIO, the state Comptroller, the state Purchasing Agent and the Director of the EMall
[2] Profile Systems is a western Massachusetts organization specializing in supplier enablement.
[3] A basis point is 1/100 of 1%
[4] Critical mass is defined as 80% of the total community spend