Business trouble shooter Sir John Harvey-Jones tells E-Business
Review how board directors should get wise to the benefits of
e-procurement. Lindsay Nicolle reports
Respected industry trouble-shooter Sir John Harvey-Jones has
delivered a broadside to today's business hotshots for holding back
on e-procurement.
Harvey-Jones, a procurement manager of materials, repairs, and
operations (MRO) back in the days when it took 100 staff to stock
an enterprise for action, is appalled that such a time-consuming
practice has not been automated by many businesses today.
"I'm absolutely amazed at how few board directors are interested
in e-procurement despite the fact that bought-in goods and services
can amount to over half of corporate costs," he says. "If you have
inefficient corporate procurement it's almost impossible to compete
effectively in your market."
The stark warning shows that this industry sage is still in tune
with the latest business strategies and technologies that can make
or break a business. E-procurement is one of life's safer
investments with an almost guaranteed return, according to a report
just out by Butler Group, called "E-Procurement - Purchasing for
the Internet-Based Economy". It argues that e-procurement brings
purchasing into the new age of business, where working smarter and
not harder is the order of the day. It gives greater control and
flexibility along with cost savings that are readily
identifiable.
Above all, when e-procurement is considered, planned, and
implemented smartly, as an inherent part of the business strategy,
it can generate tremendous business benefits for both the purchaser
and supplier.
Sir John has been convinced of this for many a year and is on a
mission to bring home the message. He's concerned that if UK firms
don't catch on to e-procurement quickly enough, they will cease to
be competitive in new world markets and will spend generations
trying to make up lost ground.
He says, "It is very, very seldom that you can make a
fundamental change to a neglected business process and be sure that
it will pay off, but you can with e-procurement of MRO. It's an
opportunity to automate what has long been an inefficiently managed
and expensive corporate chore. To compete today you must
concentrate on the key things that bring home the bacon, your core
expertise. This is the only way that companies will survive
globalisation."
This old school corporate procurement manager still remembers
the time and money wasted 50 years ago on paper-based purchasing
practices for business products and services. Even in those days
maverick departments did their own thing, buying goods in from
unauthorised suppliers, with boards turning a blind eye.
"There were no measurements of our effectiveness and we were all
very undervalued," says Harvey-Jones. "The problem appears to be no
different today. Most companies simply don't know how inefficient
their procurement systems are, and, of course, there are plenty of
people in every organisation who make sure you don't bloody know! I
know, because I was one of them!"
Research into potential savings from purchasing standard
corporate supplies online bears out Harvey-Jones' view. US research
firm the Aberdeen Group estimates that MRO supplies account for up
to 60% of total corporate expenditure. Some companies needlessly
pay up to 27% more because staff buy goods and services
off-contract, further hampering the ability to keep track of
corporate expenditure.
In contrast, early implementations of automated Internet
procurement applications have reduced average order processing
costs for office supplies from $107 to $30, and realised more than
a 300% return on investment within the first year of
deployment.
Fortune 1000 organisations have been quick to invest in such
systems because of the savings they present - an average of $1.4m
across enterprise sites surveyed by Aberdeen. However, the upfront
cost of setting up the systems has to date been too great for most
to afford.
The recent announcement of an application service provider (ASP)
approach to online procurement by a trusted third party is a much
more affordable option to many. Such hosted digital marketplaces
are tailored to reflect the contracts, purchasing rules and
business workflow of the user.
Sir John is convinced that e-marketplaces will prove key to UK
PLC's survival and that e-procurement of MRO supplies will show the
way. They will automate many mundane aspects of business commerce
and free up staff for more interesting jobs that generate income,
enabling the company to compete more effectively in its core
expertise.
"The only way to compete on costs is to make absolutely sure
that brainpower is working in areas where it adds value," he says.
"That means moving people away from bread and butter bureaucratic
jobs, like manual MRO procurement, to doing something that actually
hits the bottom line, and differentiates the business from others.
But companies must act quickly. Those that don't seize the
opportunity fast won't get a second chance."
The ASP approach can save up to 80% of corporate expenditure
spent on back-office goods and services. You just combine your
purchase orders online with those from like-minded companies and
then secure block deals on highly favourable terms with a wide
range of authenticated suppliers. The strategy also saves money on
hardware costs, systems management, software upgrades, and
maintenance, and can reveal where corporate expenditure can be
rationalised. All this is especially attractive to SME's as it
means they can compete on a level playing field against bigger
rivals.
"The average medium-sized company deals with 1,000-1,500
suppliers of back-office equipment and services and many don't know
what they're buying and who from," says Michael Templeman, managing
director of Elcom.com, which recently launched an ASP approach to
e-procurement in Europe. "We're working with one company that's
looking to reduce the number of suppliers it deals with from 1,400
to 500 and we know it can do that."
E-marketplaces for business commerce are set to explode in the
coming months.
Forrester's "eMarketplaces Boost B2B Trade" report predicts,
"Over the next two years, e-marketplaces will spring up within most
industries, attacking outdated business practices and inefficient
trading relationships. As firms hook into e-marketplaces and adopt
more dynamic trading practices, existing business practices and
supply chain relationships will get pulled apart. In place of
today's sequential industry connections, the exploding number of
new interconnections will create a new market structure -
e-business networks - in which partners can switch allegiances
without cost, information and best practices spread like wildfire,
and market feedback flows in real time."
Ultimately, e-marketplaces will account for between 45% and 74%
of ecommerce in a supply chain. The largest impact will be in the
computing and electronics, shipping and warehousing, and utilities
industries, where more than 70% of online trade will go through
e-marketplaces. In contrast, heavy industries and aerospace and
defence will find less than 50% of their ecommerce flowing through
e-marketplaces.