Paul Donovan discovers that if companies choose the right areas and
are prepared to be patient, e-procurement can offer substantial
savings
Eight out of 10 companies want payback on e-procurement profits
within 12 months, a new survey has found.
The research showed that e-procurement was viewed in a positive
light by board members, with 76% seeing it as the way forward for
competitive businesses.
Dynamic Markets conducted the research among directors and
senior managers involved in purchasing for 10 of the largest
organisations in the UK with turnovers of more than £200m.
The most successful implementations of e-procurement were found
to be where the purchasing professionals drove the process forward,
supported by enthusiastic backing at board level.
The majority of senior managers seem to be embracing the idea of
e-procurement though actual implementation is being done by
purchasing professionals on an incremental basis.
"Some companies are still at the feasibility stage or are
watching and learning from their overseas parent companies before
rolling out solutions in the UK," said the report.
The most common types of directors involved in the e-procurement
strategy are the IT director (89%), the purchasing director (83%)
and the finance director (78%).
The researchers found there were some key drivers, though the
overall priority for introducing e-procurement seemed to be the
desire to install a more efficient process and make savings.
Some 42% considered their purchasing departments to be
understaffed, resulting in a lack of time and resources being
devoted to adding value to the business. And 72% saw cost
leveraging opportunities being lost while maverick purchasing by
staff was another concern.
Reporting lines
While company boards put a high priority on e-procurement, the
management reporting lines did not always reflect those
criteria.
Among purchasing professionals, only 22% report directly to the
board, although 78% suggest that their strategic contribution is
taken seriously by the board.
Seventy per cent of companies mentioned that a special
implementation team had been established. Typically the team would
be made up of a mixed group including senior purchasing
professionals, IT and finance managers. Less commonly it would
include suppliers.
Seven of the ten companies questioned had just one solutions
provider, two firms used two providers and one had three providers.
All the companies remained within budget with the average
investment at about the £1.2m-mark.
The top five categories thought most suitable for e-procurement
solutions are stationery (94%), office furniture (88%), standard
computer hardware (84%), travel (78%) and car hire (72%).
Martha Bennett, chief executive officer at e-business Connect,
is not surprised that these five areas have been found the most
popular for e-procurement strategies. "If you take account of car
hire and travel, procurement is almost exclusively about
maintenance, repair and operation," says Bennett.
She believes that areas like manufacturing are less developed
and that e-procurement will need to push more down the supply chain
in that environment.
Among those senior managers questioned there seemed to be a
broad range of definitions regarding e-procurement. Some 48%
regarded e-procurement as purchasing using the Internet while a
further 28% saw it as electronic trading but not with specific
reference to the Internet. Another 20% consider it as the
automation of processes throughout the supply chain and 2% as the
real-time tracking of orders. A final 2% defined it as all
electronic systems that allow purchasing to carry out its role.
Paul Smithard, joint managing director of PMMS, believes that
there are four basic stages that companies adopt regarding
e-procurement.
At the most basic level e-procurement is viewed as a glorified
e-mail, a second group sees it as an opportunity. A third perceives
the marketplace changing because of the Web.
"The fourth, the most sophisticated, see e-procurement not in
terms of a transitional phase but as the whole purchasing
strategy," says Smithard.
Stumbling block
From a practical viewpoint Smithard says IT departments can
often become a stumbling block regarding the implementation of
e-procurement strategies. "The board of a company may not fully
understand the technical side of e-procurement but support the
strategy due to what they are hearing in the media. But it is when
you come up against the IT departments, charged with
implementation, that the real problems emerge," says Smithard.
This view finds resonance in the TomorrowFirst report. "In only
one company was the initiative proposed by IT, and similarly, only
one saw the CEO initiate and dictate that the company would adopt
e-procurement," says the report.
Bennett has a more sympathetic view as to why IT departments are
not always keen to be in the forefront of e-procurement strategies.
"IT personnel are hesitant because to be optimally effective
e-procurement strategies have to be integrated with existing
systems," says Bennett. "You only have to look at the amount of
manual re-keying of transactions that has to be done even on
e-procurement networks at present to see some of the problems."
No doubt the key to the future success of e-procurement
strategies will be the bottom-line return in terms of efficiency
savings. The scope for savings in some areas is clearly massive.
Bennett recalls a study at Frankfurt airport which found that in
80% of procured items purchased, the cost of the item was less that
the cost of purchase. Among respondents to the survey, the time
frame for achieving a return on investment varied between nine
months and five years with most responses falling between one and
two years. Clearly the large companies are prepared to allow a
reasonable time for what in some areas will be substantive
savings.
Lessons learned
Best practice from the early adopters of e-procurement
include:
- Using a commercially available package (rather than
in-house)
- Involve purchasing professionals
- Don't be afraid to change processes
- Avoid links with legacy IT systems
- Employ external trainers for all staff
- Take an incremental approach
- Learn lessons from an overseas parent company.