It’s all in the numbers in South Carolina

In 2000, South Carolina began a project to implement the SAP Enterprise Resource Planning Software system for financial, procurement, personnel, budget, inventory control, and grants and project management with fully integrated document management and workflow software. This Master Agreement would be implemented at one state agency as a pilot project with other state agencies to follow, based on the outcome of the pilot.

In 2002, a Business Case Study was prepared by Bearing Point, a consultant hired by SAP to work on the project and focused on five objectives. One of the primary objectives of the project was “[to] determine the costs and benefits associated with implementing a common SAP business infrastructure statewide.” These costs would include software licenses, implementation services, training, network and hardware upgrades, time and expense for agency staff involved in implementation, and ongoing maintenance and support of the installed systems. The anticipated benefits include “more efficient and effective business processes, better cash-management capabilities, stronger integration of business systems and a reduction in the cost of operating and maintaining the state’s many fragmented management information systems.”

One of the benefits of more efficient and effective business processes and better cash management is the standardization of commodity identification through a common numbering system. The state has been using the five-digit NIGP Code in some form since the inception of the Code. In the beginning, as commodity codes needed to be added, the state created its own code using the three-digit class and adding its own two-digit item number if it needed a new commodity code. Over time, the codes did not keep up with the master coding system through NIGP. In 2002, the state entered into a license agreement with Periscope Holdings, Inc., the custodian of the NIGP Code, on behalf of National Institute of Governmental Purchasing (NIGP). The state then required all state agencies to use the NIGP Code for reporting purposes and in its online procurement systems. Some agencies complied while other agencies did not.

During the 2002-2005 timeframe, Bearing Point began the blueprinting of the Finance and Procurement modules of the system. At the time of blueprinting, I was the director of procurement for the SC Department of Transportation, served on the Executive Committee of NIGP as a vice president and had been working in state government for about 30 years (2005). My knowledge of commodity code usage was extensive since I had worked at four state agencies in procurement during my 30 years. I had been involved with many different accounting/finance and procurement systems during this time as well. Each system used some form of the NIGP Code – some were using the 11-digit code, some were using the five-digit code, and some were using the five-digit code with their own four-digit inventory classification system tied to it (SCDOT).

I was involved in the initial conversations about the best way to migrate all agencies into one enterprise resource system using one coding system for procurement, inventory and accounting. At issue was the proper length of the numbers. During initial discussions, Bearing Point favored using the full 11-digit NIGP Commodity Code. After months of discussion with the chief procurement officers for the state and other state agency representatives, it was decided that the state would implement the five-digit code in the new ERP system.

The project officially became South Carolina Enterprise Information System (SCEIS). The project launched Phase 1A on November 5, 2007, and eight agencies went live; the Materials Management Office was one of the first. Phase 1B was implemented on April 7, 2008, bringing on board an additional 11 agencies. On November 3, 2008, the next Phase – Functional Fit – was rolled out, and another 13 agencies went live on the system. There are 36 agencies scheduled to go live on November 2, 2009, and the remaining four agencies – some of the largest agencies in the state – will go live on May 3, 2010.

As data was being collected and more users were coming onto the system, there was talk among the SCEIS team members and consultants they had hired to continue the project about the use of commodity codes. The request was to shorten all commodity codes to the three-digit class only because the perception was that 8,366 codes were too many to manage, that we did not need or use the majority of the numbers and that individuals coming onto the system would not choose the correct commodity codes because there would be too many from which to choose.

There was also a problem with the current users not being able to find statewide term contracts, which are identified in the system by their commodity codes. The perception was that if there were fewer numbers to search through, users would be able to find statewide term contracts more easily. When creating a “shopping cart” (or requisition in the procurement world), the system is set up to automatically pull in the contract items that are on statewide term contracts by correctly identifying and selecting the commodity code number for the commodity being purchased.

The SCEIS Materials Management Team and representatives of the Materials Management Office, from both the State Procurement Office and Information Technology Management Office, met to discuss the issues and try to come up with a solution. In August 2008, I was asked to participate in a four-member task force to determine the best course of action going forward.

The Materials Management Office and all team members realized using only a three-digit code would lose too much descriptive information. We also noted that the current system – because of limitations in the description field (60 characters) – did not pull in enough description to help users identify the correct code to use. We also noted that the description within the two-digit category code (precursor for the five-digit code) was also not being pulled into the description. Without this valuable information in the description, we knew that individuals trying to use the system would find it difficult to determine the appropriate code to use. Another part of the problem was that no one in the state had ever had any commodity code search training.

We first decided we would try to eliminate any five-digit codes we would probably never use. We broke the codes out into like commodity areas and assigned a team member to work with agencies with a common need for a particular group of codes. We began meeting with and identifying agencies we would need to consult prior to eliminating any of the five-digit codes. We soon discovered that it would take about six months for us to work through the process due to our current workloads, which did not seem to be a viable solution.

During its research, the task force had determined that more-detailed spend data could be collected with each commodity code used. A primary reason for purchasing the system was to analyze data to allow greater control over state expenditures to ensure that the citizens were getting the very best cost savings. Knowing the volume of spend for each commodity would allow the state to leverage its buying power to implement more statewide term contracts, ultimately resulting in a greater cost savings for the state.

We also determined that the agencies that had been brought on were smaller agencies, and their procurements were limited to a few commodity codes. As more agencies came on board, especially the larger ones, we expected to see an expanded need and use of a wide variety of commodity codes.

The task force then met with the SCEIS team and MMO management to discuss the least-expensive and quickest options to resolve the dilemma. In the meeting, we discovered that there was functionality built into the SAP system to generate a search function using drop-down boxes to give additional descriptive information for the commodity codes. The functionality had been in the system from the beginning but was never implemented. We agreed it would be the quickest and least-expensive solution to implement and maintain.

On May 22, 2009, the SCEIS Material Management team presented the search function system they had developed – providing even greater functionality than the SAP solution. This system was embedded into the Supplier Relationship Management portion of the existing system. The solution was accepted by all stakeholders and has now been implemented into the system. Part of the recommendation for implementation was that adequate training be given to all SCEIS users for the new commodity code search function.

What was interesting in this entire process was the initial recommendation to use the 11-digit NIGP Commodity Code, the acceptance by the consultants to implement the five-digit code and later their recommendation to use only the three-digit code with a final acceptance of using the five-digit code with additional search capabilities at the 11-digit level to allow a more in-depth definition of the codes to be displayed.

On November 2, 2009, 36 agencies are scheduled to go live, with the remaining four largest state agencies coming on board on May 3, 2010. Once all agencies are on board, we will truly be able to utilize the system for spend analysis, allowing us to make the very best buying decisions statewide for all agencies.

About the author

Norma Hall, CPPO, CPPB, CPM, is Procurement Manager, State Budget and Control Board of South Carolina. This article is based on the winner of the 2009 NIGP Code Essay Contest, sponsored by Periscope Holdings, the custodian and marketer of the NIGP Code on behalf of NIGP. As winner in the third year of the NIGP Code essay contest, Hall receives a paid registration to the 2010 NIGP Forum in San Antonio.