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THREE KEYS TO E-PROCUREMENTWhen launching an e-procurement strategy, there are certain key points that need to be taken into consideration before it can be rolled out. William Smart, from Marconi Software Solutions, explains why companies should make the switch to e-procurement and how to implement it successfully. E-procurement is about much more than just buying online – it is also about improving the purchasing process and reducing costs. And this holds true in any line of business, whether one is procuring office supplies, maintenance, repair and operation products, or IT equipment, software and services. According to a study from Zona Research, the current costs of traditional procurement are running at anything between $50 to $250 per transaction. But when this is moved onto the web, the situation can change dramatically. By using internet technologies to manage and streamline procurement processes, costs can be cut dramatically to between $5 and $20 per online transaction. Think of the impact that such significant reductions could have on the UK Government’s annual spend of £38 billion on bought-in goods and services! Considering these immense savings, it is quite understandable that more companies are turning to the web to revolutionise their buying routines. Effective e-procurement initiatives provide three distinct advantages. In IT departments, for example, it gives control over the IT environment, control over IT spending and reduces total buying process costs. But the foundation for effective procurement, be it paper-based or electronic, is a synthesis of people, processes and technology. The most significant opportunities to achieve cost and time savings lie in refining and adapting existing procurement strategies as well as business processes. E-procurement can help organisations to achieve much greater efficiency, but they have to be prepared to change the way they do business. As if all this isn’t challenging enough, there is also the administrative side of the IT assets to be considered. Buying IT products not only involves purchasing applications, it might encompass leasing and support, as well as fulfilment of service level agreements. These must be managed throughout the asset’s life cycle, from identifying the business need until the disposal. Therefore, effective e-procurement processes involve consideration of life cycle costs and are not purely limited to the purchase price. Having considered the ‘theoretical’ issues, what is e-procurement all about? Basically, the processes are the same as in traditional procurement but instead of being manual or paper-based they are now processed electronically. By introducing e-procurement, time consuming and repetitive routines can be reduced and businesses can control ‘maverick buying’ outside of negotiated contracts or ‘preferred supplier’ agreements. E-procurement is not as simple as just providing a catalogue on the internet. As with every business decision, a sound strategy has to be in place to ensure needs are met and the best possible processes are in place. Three pre-requisites need to be fulfilled before implementing any e-procurement solution. These are:
Technological maturity Traditionally, procurement professionals have too often been focused on processing and administrative tasks rather than ‘strategic’ procurement activities. With e-procurement in place, organisations have a chance to integrate these systems with other back-office systems to ensure that activities are no longer duplicated and that processes run more smoothly, achieving an overall improved efficiency – meeting the objective of saving time and money. Looking at the advantages of implementing e-procurement systems, one wonders why every organisation is not switching over. There is one very easy explanation – technological and business maturity. Many suppliers are not ready to trade electronically, as their IT infrastructure is not yet well developed enough. Although web-based trading is becoming more common, not every business seems to have realised the enormous potential. Business adoption It is important to appreciate that e-procurement is not an end in itself, but should form part of an overall procurement strategy. If an organisation makes the decision to introduce e-procurement, it is not enough to just implement a new system. It should be part of an organisation-wide change programme. It is an opportunity to focus the whole organisation – and procurement professionals – away from purchasing administration and onto adding value and core activities. Customer/supplier buy-in In order to make e-procurement initiatives work, organisations need buy-in from their suppliers. Suppliers need to see a value proposition and, at the moment, too many companies only focus on commodity cost, ignoring quality and services. E-procurement should enable suppliers, where possible, to use their existing e-commerce infrastructure, not requiring them to invest in a new one solely to support an organisation’s e-procurement initiative. Key suppliers must be involved from a very early stage of the project. Without their acceptance and involvement, the project will most certainly fail. Another crucial factor is which business model to choose. There are several e-procurement models available, such as buy-side applications and e-marketplaces. The model chosen must fit the business’ procurement strategy and objectives. It is therefore essential to conduct research into the company’s individual needs to avoid duplication of efforts or the project ending in failure. There are a large number of system vendors on the market, so checking their track record and experience is critical. As e-procurement is a relatively new area, businesses are advised to examine vendor’s reference sites. Has the application been fully rolled out, or are the projects still in pilot phase? Content management is another crucial factor, encompassing more than just uploading spreadsheet data, and is key to a successful e-procurement project. Even the best e-procurement platform will be compromised if the catalogue content is not properly cleaned, structured and maintained. Items must be easily found by the end-user and the system must enable the searching of items across suppliers in a consistent way. A further consideration is how the e-procurement application will handle product name synonyms and variations between different suppliers. However, taking all these factors into account will enable an organisation to successfully plan and implement an e-procurement solution to meet its needs. These guidelines are valid for both the private and the public sector, as both sectors need to consider the same pre-requisites when implementing e-procurement solutions and very often face the same problems. There are, though, a few very important differences. While private businesses are not bound to any policies but their own, public organisations have to comply with the government’s guidelines. For example, there may be policies regarding sourcing, where possible, from local or small businesses. Another major distinction between the public and the private sector is a range of statutory and legal rules, such as the EU procurement law, which says that all high value procurement must go to tender via the Official Journal of the European Community (OJEC), including aggregated expenditure within commodities such as paper and office supplies. Much of the UK public sector is anxious to introduce e-procurement facilities, but is struggling to understand the most appropriate model. Therefore, a number of e-pilot projects have been set up to assess and demonstrate effectiveness and benefits from e-procurement within government departments and agencies. There are huge benefits to be reaped from investing in a carefully planned,
well-chosen, and wisely implemented e-procurement solution, whatever the
organisation’s business area. However, the e-procurement initiative must form
part of a considered e-business strategy, taking into account the entire
company’s processes and procedures, as well as supplier and customer
relationships. |
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Last modified: September 01, 2003 |
