The City of Cape Town used technology to transform its procurement processes and systems. It implemented an SAP system integrated across the city's departments to standardize processes and increase efficiency. This consolidated purchasing, inventory, and payment functions into a strategic shared service. The new system helped the city comply with regulations, realize cost savings, and analyze spending through automated procurement workflows and data analytics. It processed over 1.2 million invoices per month to support the city's operations.

1. How the City of Cape Town used technology
to enable its procurement processes
Nirvesh Sooful
Hetu Consulting

2. Introduction
About me About Hetu Consulting
Hetu Consulting is a strategic
consultancy helping governments to
accelerate the benefits of IT enabled
change - through transformation of
the public sector and the wider
economy.
Hetu Consulting brings together
people with a track record of
success delivering social, economic
and public sector transformation.
At the heart of Hetu Consulting is a
team that has worked at top global
organisations and who led some of
the country’s most ambitious and
successful programmes of e-
transformation.
Hetu Consulting is 100% Black
owned and works in both the public
and private sector, but is focussed
on the public sector.

3. Agenda
City of Cape Town Context
ICT Enabled Procurement context
ICT enablement of City of Cape Town procurement processes

4. Demographics of Cape Town
Population: 3.2 million
Share of National GDP: 10.5 %
Share of Provincial GDP: 75 %
Area: 215 900 ha
Rateable Properties: 800 000
Employees: 23 579
City of Cape Town annual budget 2007/08:
Operating: 13,45 billion ZAR
Capital: 4,316 billion ZAR
City of Cape Town annual Income 2007/08:
From Utility Services: 4,205 billion ZAR
From Property Tax: 5,425 billiion ZAR

5. Local Government – the delivery arm of
Government
 Electricity
 Water and Sanitation
 Solid Waster
 Roads, Stormwater and transport
 Public Housing
 Local Economic Development
 Social - and primary health services
 Emergency Services
 Municipal Policing
 Urban Planning and Environment
 Sport and Recreation
 City Administration

6. Transforming Cape Town
Merging autonomous Organisations is complex even
though enabling legislation was in place:
 “Lack of standardised financial
policies and procedures”
 “IT systems entrench the „old
order‟”
 “Back-office systems were deemed
to be outdated, functionally
inadequate and not properly
integrated”
 “Difficulty in merging these
systems was in fact hindering the
merger of the administrations and
undermining the objectives which
motivated the creation of the
Unicity”

7. Address by Dr Ivy Matsepe-
Casaburri, Minister of
Cape Town in Context Communications at Nedlac ICT
Annual Forum Meeting, 25
January 2005
City of Cape Town has positioned itself to become one of our most
technologically advanced cities, through successful IT sector intervention.
By implementing its visionary transformation strategy, Cape Town is now a
frontrunner in South Africa’s National IT Strategy.
The benefits for all have been enormous. E-government services have been
developed; the service to its citizens has been improved. All city
employees have access to mainstream banking giving low-income
employees a measure of economic empowerment. The cherry on top of
the cake for this project, is that they have instituted the largest IT training
programme in our history, boosting the IT skills of the city by training
thousands of employees.
IT businesses owned by the formerly dispossessed are also benefiting
through this partnership. In order for Cape Town to establish itself as a
municipal services leader there had to be a partnership between,
business, labour and the community.
I am sharing this success story with you because I want to see more of such
initiatives. 7

8. Developmental local government
8

9. Agenda
City of Cape Town Context
ICT Enabled Procurement context
ICT enablement of City of Cape Town procurement processes

10. Defining Procurement
Procurement refers to the overall process of acquiring a
product or service. Depending on the circumstances, it may
include some or all of the following:
identifying a need,
specifying the requirements to fulfill the need,
identifying potential suppliers,
soliciting bids and proposals,
evaluating bids and proposals,
awarding contracts or purchase orders,
tracking progress and ensuring compliance,
taking delivery, inspecting and inventorying the deliverable, and
paying the supplier.

11. Public Sector Procurement Trends
The U.S. federal government is the single largest purchasing entity in the world
The U.S. General Accounting Office (GAO) reports that the federal government alone is wasting
billions of tax dollars owing to underleveraged spend and underperforming procurement and
supply management operations
Procurement is key to reducing the cost structures of government agencies, improving operating
performance and service levels, and satisfying policies and regulations
The need to do more with less and increased scrutiny of legislators and watchdog groups will
force government agencies to improve their cost management operations
Public sector procurement initiatives are primarily driven by requirements to comply with
contracting regulations and mandates, such as full and-open competition, minority and small
business goals, and the spend-to-appropriation culture of government
Most governments have a procurement process that was drafted into law by its legislators,
interpreted by judicial branch judges, and carried out by executive branch leaders and their staff
members
Government procurement culture maintains a strong belief that competition (manifested via the
RFx process) limits cronyism and corruption, and leads to higher performance and lower costs
More than ever, governments across all industries view procurement as a catalyst not only for
supply cost reduction and assurance but also for compliance
Sources: RAND Corporation, “High Performance Government”, 2005; NASPO Research Brief, May 2005; Aberdeen Group
& GCN, “Supply Management in the Public Sector,” May 2004; Aberdeen Group, “Center-Led Procurement”, Nov. 2005

12. Government Procurement Drivers
Source: Aberdeen Group & GCN, “Supply Management in the Public Sector”, May 2004

13. Procurement Reform: Asia Pacific / ANZ
“E-procurement has been identified as an instrument in public sector
reform. It enables government to monitor the efficiency and
effectiveness of procurement and provides more transparency and
accountability.”
“In many government organizations, the tools necessary to complete
the procurement transactions (e.g., search, requisition and payment)
often reside in different departments or agencies. Related policies and
procedures may also reside outside the procurement organization.
Therefore, the full integration of the complete end-to-end process and
the deployment of usable policies and procedures to support this
process remain a key challenge.”
http://www.agimo.gov.au/publications/2005/may/e-procurement_research_reports/Case_Studies_on_E-
procurement_Implementations.pdf#search=%22Case%20Studies%20on%20E-
procurement%20Implementations%22

14. Procurement Reform: European Commission
Brussels, 25 April 2006
eGovernment: Commission calls for ambitious objectives in the EU for 2010
Hundreds of billions of euros could be saved for European taxpayers every year as a result of
administrative modernisation in the 25 EU Member States, outlined today in the European
Commission’s eGovernment Action Plan. Information and communication technology is the key to
modernising government services: making them more efficient and more responsive. 100% take-up
of electronic invoicing and electronic public procurement is predicted to save 300billion euros every
year. All Member States already signed up to an ambitious agenda to achieve these goals in
Manchester last year
The new eGovernment action plan adopted today by the European Commission addresses five
priority areas for 2010 and underlines the commitment of the European Commission to delivering
tangible benefits to all Europeans, in cooperation with the Member States:
Implementing e-Procurement: Government procurement represents 15% of GDP or about €1.500
billion a year. The Member States have committed to achieving 100% availability and at least 50%
take-up of procurement online by 2010, with an estimated annual saving of €40billion. The action
plan will lay out a road map for achieving these goals as well as the practical steps required for such
large-scale cross-border procurement pilots and full electronic handling of company documents (the
“Electronic Company Dossier”).

15. Procurement Reform: Developing Countries
”…procurement is often one of the top three types of spending (besides salaries and debt
payments) [in government]. Public procurement spending is estimated to account for 15% of the
world’s GDP.
The influence of good procurement on the effectiveness of public spending is mirrored by its
impact on development of the private sector. A government‟s most direct impact on the private
sector is through its procurement behaviour. The government is often the largest investor in and
purchaser of services, especially in poorer nations. The way it manages its commercial relations
with the business community has a profound influence on whether acceptable business practices
will evolve or not, and on the dynamism of the private sector. Procurement systems can promote
competitiveness and improve the local market‟s ability to survive in international markets by
awarding contracts on an economic basis, just as they can promote inefficiency and corruption by
awarding contracts on the basis of personal relations or private negotiations. In this manner, a
country‟s procurement system has a significant impact on national investment rates, as well as
long-term growth rates.
Strengthening procurement can potentially generate enormous savings, especially in developing
countries. Improving the performance of a national procurement system even slightly could, in
many cases generate enough savings to more than pay for the cost of the reform programme itself
and leave a significant amount of money left over to increase e.g. social spending. Strengthening
procurement efficiency and increasing transparency might equally increase the confidence and
trust of the civil society in its government, in particular in government‟s credibility honesty and
commitment to development.”

16. EIU 2005 Global Survey
• “What role do software tools […] play in ensuring the
overall success of your purchasing strategies and
initiatives?”
Automate and Accelerate Processes
Vital Role Very Important
 E-procurement is widely appreciated Electronic
Procurement
19 31
 Supplier connectivity equally important Supplier 16 34
Connectivity
RFx and 9 17
Auctions
Optimize and Reduce Cost
Spend
 Spend analysis at top of agenda Analysis
26 31
 Collaboration valued higher than auctions Supplier 17 34
Collaboration
Category 12 32
Management
Improve Strategy and Compliance
Performance 26 36
 High demand for performance management Management
 Contract management is seen as key Contract
Management
17 31
Source: Economist Intelligence Unit, April 2005

17. General Procurement Trends
Moving From Tactical To Strategic Purchasing
Tactical Strategic
Purchasing Purchasing
Generate savings Generate value
Manage compliance Manage contribution
Extend processes
Expedite processes
Analyze supply
Analyze spend strategy
history Continuous
One-off initiatives improvement
TRADITIONAL VALUE ADDING
ACTIVITIES ACTIVITIES

18. Agenda
City of Cape Town Context
ICT Enabled Procurement context
ICT enablement of City of Cape Town procurement processes

19. Procurement in the City of Cape Town
In terms of Section 217 of the Constitution of the Republic of SA, the City
of Cape Town is required to implement a procurement system that is fair,
equitable, transparent, cost effective and economical. It is further required
by Section 14 of the Municipal Supply Chain Management Regulations to
keep a list of accredited prospective providers of goods and services that
must be used for the procurement requirements of the municipality though
quotations and formal bids.
Fundamental to the city’s supply chain management strategy is the fact
that procurement is a Strategic Function within Local Government –
through which it is able to influence economic development, give action to
its developmental objectives and exhibit good governance. In the private
sector the supply chain is predominantly a transactional overhead – best
suited to transactional outsourcing and where only those procurement
items which provide a competitive advantage is retain in-house.
Been an evolution
Two platforms underpin the strategy
SAP and Internet

20. SAP-R3 & ISU Foot Print
- Billing to sundry
- Financial Accounting
debtors SD
Sales &
SAP Fact FI
Sheet
Financial
Distribution Accounting
MM  420 end-to-end Business
CO - Management
- Procurement & SCADA*
Materials
Mgmt. Processes Controlling
Accounting
Inventory PP R/3 and AM
 Cost:
Production Fixed Assets
IS-U/CCS R354mil (2000-2002)
Management Planning Mgmt
EDI
QM  Single Instance – 8 terabyte db
PS
- Plant Maintenance Quality Project
- Asset
Management
PM  7 500 Users
WF
System
Management
Plant
Field Workflow
 580 SAP Sites City Wide
Maintenance
Service
Support HR IS IS-RE - Project
Work Industry
Human
Solutions
Accounting
 3,2 mil ISU contracts
Clearance* Resources
IS-U /
SM GIS FERC
CAD
- Human Resources & Service
Mgmt  1,2 mil consolidated invoices per
AM/FM
IS-U/
- Real Estate
Management
Payroll
month
CCS
 2 mil equipment items. Solution for
- Industry
Utilities
- Customer Care &
Revenue Management

21. The ERP and Process Based Organisation Design
(Business Processes – eg. “Procure to Pay”)
Render PO
Requisition
Receipt to
Match PO
Purchase
Authorize
Authorize
Authorize
to Goods
Payment
Expedite
Receipt
Receipt
Source
Invoice
Invoice
Create
Create
Goods
Order
Order
Make
Each Dept has its own Procurement and Accounts Payable responsibilities.
Render PO
Requisition
Receipt to
Match PO
Purchase
Authorize
Authorize
Authorize
to Goods
Payment
Expedite
Receipt
Receipt
Source
Invoice
Invoice
Create
Create
Goods
Order
Order
Make
Accounts Accounts added and payingcentrally – but each Line Dept. performs own approve.
Procurement nowservices provided provided but Shared Servicefeels the need to buying.
HighPayable buying asservices of vendors centralised stillcontrol and efficiency.
volume Payable a Shared Service by Line Dept for Organization.
Performed by Line Dept
Performed by Supply Chain Specialists

22. Key System Statistics
The SAP transactional environment :
 23 000 payroll members.
 1 200 000 invoices every month
 22 592 Purchase Order Line Items per month
 2309 Cost and 1550 Profit Centres
 25 Business Areas
 7 500 named system users (12 500 user licenses)
 554 SAP sites in the City
 19 977 254 online transactions per month
 + 50 overnight batch jobs
 Prod 24x7, 99.85% availability for 2006 (includes planned down time)
 Average online response = 0,7 sec / transaction (1.5 sec design)
 Database = 8TB, growing at 60-80GB per month
 130 calls per day logged with our SAP Support Desk

23. MM : Procurement and Inventory Management
• Standardised and structured Procurement process
implemented.
• Single master record of all vendors created
(21 000 vendors reduced to 8 000)
Implemented • Compliance with procurement policy (SMME‟s)
30 December 2002 • Consolidated inventory management through
standard material codes across 100 stores.
• Real time postings and reconciliation of store
ledger to main ledger.
MM : Creating Financial Value through:
• On-line authorisation of expenditure with full audit trail.
• Improved financial control through visibility of financial commitments and the
lowest level of detail relating to all expenditure.
• Stock holdings optimization through maximising stock turns, visibility across all
stores and facility rationalisation.
• Procuring against contracts and use of Electronic Bulletin Board for quotations.
MM : Opportunities
• Better use of Supply Chain Management functionality and E-procurement.

24. Financial benefit realisation:
Inventory Optimisation
How is this benefit realised?
• Inventory holdings to be kept to a minimum, while ensuring adequate availability.
• Stock visibility across all stores is the primary driver of this benefit.
• Stores Consolidation will be a function of Organisational Restructuring.
• Reducing the cost of holding inventory by, e.g. disposal of redundant stock and improving stock turns; and
• Optimising the Stores infrastructure based on optimal stock holding.
Inventory Benefit: Calculation:
Discounted Value of Stock Holdings - month on month comparison.
• The year on year value of stock holdings was compared.
Stock Value discounted to March 2003
R 170,000,000.00 • Value of stock compared to March 2003
R 150,000,000.00 • Monthly Stock value discounted by CPIX back to baseline
R 130,000,000.00
date.
• Interest saving calculated and allocated to
R 110,000,000.00
R 90,000,000.00
Financial Benefits (R millions)
R 70,000,000.00
R 50,000,000.00 • Inventory Optimisation
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
• Stock Value reduction = R 55mil
July 2003 to June 2004 July 2004 to June 2005
• Recurring Interest saving = R 6.6mil pa (@ prime = 12%)

25. Financial benefit realisation:
Procurement: Price Standardisation, Inventory
Optimisation
• Procurement will be done in a consolidated and standardised fashion with the
maximum use of tenders and in accordance with City’s procurement policy.
• Inventory holdings to be kept to a minimum, while ensuring adequate availability.
• Eliminating price discrepancies between administrations and vendors on the same commodity – goods &
services;
• Reducing the cost of holding inventory by, e.g. disposal of redundant stock and improving stock turns; and
• Optimising the Stores infrastructure based on optimal stock holding.
Financial Benefits (R millions) Calculation:
• Price Standardisation • Minimum prices across all commodities were compared to the
• Low Road = R 60mil pa (@ 5pm) prices paid over the period that SAP has been live for Store
• High Road = R 96mil pa (@ 8pm) purchases only;
• Inventory Optimisation • The top 20 stores were assessed for their stock value and turn.
• Stock Value reduction = R 55mil • Total stock holding = R 141mil (ideal = R 86mil);
• Recurring Interest saving = R • Ave ST = 2.4 (best case = 4);
6.6mil pa (@ prime = 12%) • Total materials = 52 000 (34 000 active); and
• 3500 materials contribute to 97% of all stock movement in
stores.

26. No Txns per Day
E-Fuel 8 000
7 000
Average Daily Value R744,201 6 000
Average Daily No. of Txns 1140 5 000
4 000
“Another interesting area has been the 3 000
automation of fuel payments through e-fuel 2 000
system and interface into SAP. Through this 1 000
we pay approximately R750 000 per day for 0
fuel to the respective suppliers without any
human intervention......
3 500 000 Inv Value per Day Sum of No Txns
3 000 000
2 500 000 ......What makes things even
2 000 000 better is that the price is checked
against contract pricing and
1 500 000
payment is optimised to ensure
1 000 000
that we only pay on due date. In
500 000 the past we had the fuel supply
0 cut to the city due to late
payment, now nobody worries
about it.”
Sum of Inv Value Andre Stelzner, ESC Manager, City of CT

27. In conclusion – it is a process of evolution
Moving From Tactical To Strategic Purchasing
Tactical Strategic
Purchasing Purchasing
Generate savings Generate value
Manage compliance Manage contribution
Extend processes
Expedite processes
Analyze supply
Analyze spend strategy
history Continuous
One-off initiatives improvement
TRADITIONAL VALUE ADDING
ACTIVITIES ACTIVITIES

28. Hetu Consulting is your full service
supply chain and procurement partner
Hetu Consulting’s experience spans across both strategic and operational
aspects of supply chain and procurement optimisation.
Our experience includes but is not limited to:
The development of an overarching strategy that optimises procurement processes
and drives value from procurement and supply chain management activities
The development of procurement policies in line with national and other applicable
legislation. This includes the integration of local economic development (LED)
imperatives.
The review and overhaul of existing policies to deal with issues like fronting. Also to
make the policies compliant with BBBEE legislation and new codes.
The implementation of new procurement and supply chain systems and processes.
The ongoing improvement of procurement and supply chain processes on existing
systems eg. SAP
The creation and ongoing management of internet based tender management
systems which include advertising and publishing of tenders, publishing results,
providing tender support, etc.
The development of a fair, transparent and defendable tender scoring model that can
be used for tender development and scoring.

29. Thank You
Questions/ Discussion
Nirvesh Sooful
nirvesh@hetuconsulting.com
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