In a move of great interest to many Ottawa businesses, both the federal and Ontario governments recently announced plans to proceed with centralized procurement systems.
On the surface, this seems like good news. Similar projects elsewhere in the world are saving the equivalent of $10 to $22 per invoice – costs that are typically incurred when converting information in a supplier’s invoice into a format required by the customer’s procurement system.
Certainly, there are major cost savings for the likes of the federal and provincial governments, which process millions of invoices from thousands of suppliers. But the impact on suppliers will depend a great deal on how these new procurement systems are implemented.
Passing the burden to suppliers?
Based on the available public information, it would seem that both Canadian projects have not learned from the experience of other governments around the world that are implementing procurement systems with open and decentralized standards-based “access points.”
An essay published on LinkedIn by Ken Holman, the chief technology officer of Crane Softwrights, provides an in-depth analysis of the situation facing suppliers.
The federal and provincial governments appear to be implementing what is called a “three-corner” model. The supplier will typically have some system that generates the invoice (corner one). An invoice generated by this system has to be converted to a form acceptable by the government systems and presented to some sort of common portal (corner two). The portal then presents the invoice to the government procurement system (corner three).
Essentially, the government has improved its performance by passing the conversion burden to its suppliers. If the supplier has both the provincial and federal governments as customers, they might be saddled with the hassle of creating and maintaining two conversion routines. Indeed, if more customers adopt this approach, each supplier is saddled with a whole host of conversion software – one for each customer.
Clearly, this would be unacceptable for most suppliers. At this point, many vendors are likely asking: Is there some way of avoiding this mess?
Open standards, open marketplaces
One needs to implement a system where both suppliers and customers require no knowledge of the technology that others are using in their procurement systems.
Most successful e-procurement systems that are being implemented across the planet use a four-corner model:
The supplier uses their own e-procurement system to generate an invoice;
They send the invoice in its native format to an access point;
This access point converts the invoice, expressing it in an internationally standard way, before passing it to the customer’s access point; and
The customer’s access point converts the invoice in standard form to the native form required by the customer and is passed into the customer’s e-procurement system without having to change the customer’s system.
How are these access points developed?
Basically, anyone can develop an access point, provided they can meet the required technical standards, commit to a Service Level Agreement (SLA) regarding up-time, and use pre-defined cryptographic methods.
Open source software is available for the access point, and a global standard Universal Business Language [UBL - ISO/IEC 19845] can be used for communication between access points.
By embracing open standards and specifications – as the European Commission has successfully done – rather than adopting a single software solution from a single provider, large purchasers such as governments can create an open marketplace where entrepreneurs can innovate and compete by developing an access point that services the needs of a wide array of customers with diverse needs. Ken Holman’s essay on LinkedIn “Open specifications open marketplaces” details this concept.
Closer to home, the U.S. Federal Reserve is facilitating the Business Payments Coalition (BPC) to help the U.S. to develop its own platform based on the four-corner model with industry partners.
Here in Canada, government procurement officials should consider becoming actively involved with the BPC to ensure Canadian requirements are reflected in the U.S. specification. Indeed, the federal government should go a step further and play a leadership role in specifying and deploying the infrastructure to be used across Canada.
Hugh Chatfield is the president of CyberSpace Industries 2000 Inc.