My beloved Sweden (of
Volvos, Ericsson and Bjorn Borg) has always wanted to be "Big and
Beautiful." We may be only eight million people, but we have many
big ideas. Remember the Vikings? Or Olof Palme, the outspoken
advocate for the Third World? And Carl Bildt, the piece negotiator
in Bosnia?
They're among the better known Swedes. But the fact is, not very
many people know much about Sweden. What they know is our "welfare
system" and high taxes (income and sales taxes here are among the
highest in the world), the result of many years of Social Democratic
governments.
"Redistribution" of resources via taxes to provide welfare
services for all is the Social Democrat's way. It supports health
care, public transport, daycare and all the other public services.
The public sector has swallowed most of the female labor and just
about 60% of the GNP.
As a result, Sweden ended up with fewer and fewer private
initiatives and a gigantic public administration. The Liberal
government coalition during the early '90s attacked the high taxes
through privatization and stimulating private initiatives, achieving
notable gains.
THE VISION
In
1994, a new Social Democratic government with Goran Persson as Prime
Minister introduced IT as the main tool to cut costs. And at the
time, the government declared: "Initiatives will be taken to speed
up the transfer to electronic procurement in both Authorities and
companies..."
Remember, this was way before electronic went mainstream. Many
Swedes thought, 'Yet another government declaration not to be
realized.' Little did they know that in a few years, 70% to 90% of
the entire Swedish public sector would be actively working to
improve their government procurement routines via electronic
commerce!
|
| Sweden is the most "Fortune 1,000-dense" country in the
world, with more than Fortune 1,000 companies here, per
capita, than elsewhere. |
The operative arm
to oversee the government's initiative was the "Top Manager's
Forum" or Swedish Toppledarforum. Chaired by the Minister of
Finance Erik Asbrink, members were the strategic director generals
of the Swedish public sector.
The forum's operative arms were the projects, including one
covering electronic commerce. The core of the electronic commerce
project proposal was: "...in a shrinking economy, it becomes more
and more imperative that available resources are used in core
business. And core business in the public sector is not
administering; it is, rather, nursing and teaching..." (See full text
of this proposal.)
The project had lofty ambitions: "By the year 2000, 95% of all
the frequent public buying is to be done electronically." These
included operations resources management (ORM) products -- such as
office supplies, food, healthcare, electric, IT and cleaning
supplies -- and external services, such as travel and consulting.
The potential savings were estimated at $30 billion SEK (almost
$4 billion U.S. dollars) per year. The savings were to come mainly
from improved and simplified administrative routines, reducing much
of the manual labor involved and by automating the handling of
purchase orders, invoices, delivery receipts and the like.
The 24 "County Councils" (or, in Swedish, "Landsting") that
handle health care and local public transport together spend $112
billion SEK in expenditures — which is about $14 billion in U.S.
dollars. That is a lot of money in Sweden. And their ORM
procurements are about 20% of that. Shaving these figures even a
little would make anybody interested!
Staffan Sundstrom, the project manager, described his vision: "We
had high security ambitions as well as high savings goals for the
organizations. And it was all to be done in just a few years. We had
to set these goals so high in order to start the change wheels
rolling."
REMAKING
ROUTINES
Most of the organizations had thorny and
complicated purchasing routines requiring a lot of tedious manual
work, checking, cross-checking, filing documents, etc. -- surely a
universal problem for many big organizations throughout the world
today. Through easier and better processes, roughly 80% to 90% of
the potential savings could be obtained, the project group found.
This way, you could save a lot of money to pay for the IT
investments.
"The Swedish method is simple — you just have to work together
with your staff" said Sven Mikaelsson of the Local Authority of
Skelleftea (Skelleftea Kommun). With a 7,000-person workforce, of
which 700 are requisitioners, purchasing about $600 million SEK ($80
million in U.S. dollars) in ORM goods per year, Skelleftea was
elected to be an electronic commerce "path-finder" (Vägvisare) for
the other 288 Local Authorities. A "Local Authority" (Sw Kommun)
handles the district's local services like schools, daycare,
healthcare and elderly care centers.
THE
GOALS
The Skelleftea test group chose dairy products as
the target test area. They found that the purchasing costs for dairy
products were as high as the cost of the products themselves. For
instance, a news headline at the time read: "In Skelleftea, the milk
costs $2 dollars" (the list price is only one dollar). Every
morning, the dairy rang the kitchens of the Authority asking for the
order specs, just when the cooks were most busy preparing lunch for
the daycare centers and the other distribution places. Sven
Mikaelsson worked together with the kitchen staffs, using a business
process re-engineering method to evaluate the time each part of the
purchasing process took. Looking at the results, together they
specified the targets:
Reduce the number of:
- Deliveries by 50%
- Invoices by 90%
- Internal distribution by 50%
- Paying occasions by 80%
Resulting in:
- Administrative process cost reduction of 50%, which is 18% of
the sum of the external invoices.
Today's headline might read: "The milk in Skelleftea now only
costs $1.50: The Skelleftea people have found that all their targets
were reached in the dairy project.
|
| The Web is very strong in Sweden. In fact, Swedes are just
about the most Web-minded people in the world, with only
Iceland (264,000 people) more tuned-in. According to FSI Sweden, the Internet is used by 27% of all
people 15 to 65 years old — compared with U.S. usage, which is
24%, according to ACNielsen. |
Mikaelsson is
convinced most large organizations and private enterprises
throughout the world can reduce their costs accordingly. "The closer
you look at the routines, the more saving possibilities you find,"
he said. "The trick is to work together with the staff. You both
learn from each other. That way, you will reach the best overall
results."
PERFECTING THE PROCUREMENT
PROCESS
The checking, cross-checking and filing of dairy
purchasing documents behind the orders have been drastically reduced
by simplifying the routines. "After our dairy tests, we've got green
lights for a full-scale implementation," Mikaelsson concluded.
Skelleftea will begin implementing across the other grocery
products. Then follows all the other ORM products of the Authority.
To streamline the purchasing methods, IT procurement tools were
needed. The project group looked around for experts. And what did
they find? As this was in 1994 — 1995, the experts they found were
EDI people, advocating the transfer of business documents such as
purchase orders, shipping documents, delivery receipts and the like
over value-added networks or VANs.
The solution specified works like this: Requisitioners entered
their order on a PC-based purchasing program. The order was then
transmitted via an established link to a contracted VAN. To send the
document, the program transformed it into an EDI message. The EDI
standard used was the EDIFACT standard, widely used throughout the
world except in the U.S. (The U.S. government, however, has recently
decided to use it.) The computer link between the local network and
the VAN used TCP/IP via dial up, direct or X.400 connections. The
VAN would acknowledge shipment the same way.
EDI systems like these are complicated and costly — but secure,
once you get all the kinks out. They are not used much for
"indirect" ORM procurements — goods like groceries and office
supplies that are bought infrequently and often in small amounts.
Problem is, too, not all suppliers will hook up to the VAN.
The project group contracted three Swedish VAN consortiums —
systems integrator WM-data; the Pebs -- a joint venture between the national Post
Office and Enator, the biggest systems integrator in Sweden; and
Tradebase, which is a venture between the Swedish telephone company
and another systems integrator.
OBSTACLES
But what would happen if you
used one VAN and sent an order to a supplier that used another? To
solve this, the group specified the SFTI standard, or Single Face To
Industry. It is meant to work like traffic rules, written for the
solution developers. It has gained some interest among EDI users in
Sweden, such as ABB Cables, which has decided to use it. It covers
business documents, security and product specifications. Using this
standard, you can communicate with all the other organizations that
also use it.
However, the group's IT solutions are pretty complex and costly,
since they rely on older technologies. And they do not provide some
of the functions and the flexibility of some of the best
Internet-based procurement systems of today, such as one
easy-to-find product catalog at your own computer, adaptable
workflow routines, standard adapters to your ERP systems and more
|
| Sweden is the most computerized country in the world, with
Windows-based PCs accounting for more than 90% of all PCs. And
to top it off, the Parliament in October 1997 passed a new law, letting employers sell or lease
computers to their employees with the benefit tax deduction.
That's quite a rebate -- up to 70% depending on your income.
The move is meant to further spread IT education and Internet
usage among the Swedes. |
And the response
from the would-be customers was not so hot. When the Local Authority
of Sollentuna (Sollentuna Kommun) did its investment calculations,
the costs proved too high. Said Sollentuna's Carl-Eric Lindh:
"Should we invest in EC now, we wouldn't make any savings at all in
the coming five or six years. Instead, we would get increased costs
equal to the costs of hiring about 15 full-time staff. We have
decided to wait and see."
Instead Sollentuna makes use of the method by improving the
invoice management routines and reducing the number of suppliers.
The Swedish electronic commerce project ended June 30, 1998. Now
the County Councils, the Authorities and the government offices
continue the work themselves. In a last
report, a survey done by the project group stated that over 90%
of the County Councils and 70% of the Local Authorities and
Government Agencies are actively working toward improving their
purchasing routines with electronic commerce.
CONCLUSIONS
The high goals of the
Toppledarforum's Project Group will not be achieved. They might have
something to do with our old Swedish dream to be Big and Beautiful.
And the IT solutions presented are not up to standard -- there are
much better systems today. But if you look at the overall results,
the work of the group is quite successful: Most of the entire
Swedish public sector has started improving their purchasing
routines with EC. The group's project manager Staffan Sundstrom can
be proud: The Swedish Method has proved it has something to tell.
Says Sven Mikaelsson of Skelleftea: "If you don't set high goals
like these, everybody will sit around and wait until later. And then
nothing happens. We humans are like that — even here in Sweden".
