Can you afford not to buy into e-procurement?

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Can you afford not to buy into e-procurement?

Managing the purchase of goods electronically must be good for business. Yet the take-up of e-marketplaces is slow. Peter Duschinsky, director of BuyIT's e-Procurement Best Practice Network, explains some fundamentals .

There's real money to be saved - and sales opportunities waiting to be tapped - by organisations investing in e-procurement technologies. Yet, so far, few UK firms have an e-procurement strategy.

Companies need to respond to the dotcom revolution in a number of ways. They should act quickly to keep their market share, perhaps by becoming a dotcom themselves. They must strengthen their strategic relationships and speed up cross-supply chain processes using the power of the Web. And they have to justify their continued place in the value chain by cutting costs and improving their service proposition.

One of the ways they can cut costs is by modernising their buying processes through e-procurement.

What is e-procurement?

The purchasing of all non-strategic goods and services - those that support the business - can be managed electronically on a preferred-supplier basis with companies that are able to provide an end-to-end service. Buying PCs, stationery, printing, travel, even contract staff can be managed in this way.

Employees have desktop access to Web-based catalogues or the company joins an electronic exchange, whether sector-focused (vertical marketplaces) or general (horizontal marketplaces), to buy and sell. Either way, all the budget management, authorisation and goods received paperwork - and even payment - is electronic.

For larger companies, where departments have traditionally been responsible for buying their own support goods and services, e-procurement can provide significant savings by bringing this process back to the centre and reducing duplication. With this information flowing to a single point, firms can buy smarter and negotiate better deals.

The new technologies mean members of staff have direct access to the catalogues: there is no long-winded procedure to get authorisation. Delivery is faster and straight to their desk. And their budget goes further.

For suppliers providing these commodity goods and services, e-procurement is an opportunity to offer a better service at better prices. This is possible because e-procurement reduces the levels of 'maverick' buying - where individuals ignore centrally-agreed arrangements, preferring to use suppliers of their own choice - and so increases turnover. Maverick buying accounts for 80% of support purchasing in some companies and 50% is not unusual.

What is holding firms back?

E-procurement is being discussed at board level in most medium and large companies but, at present, decision-makers are holding back. Purchasing of support goods and services has only recently come under the spotlight, despite the fact that it can add up to more than 70% of external spend.

Many managers do not know what actually happens in their own companies or they may not have systems in place to provide the information they need to manage this area of expenditure. Unfortunately, all the media hype there has been about business-to-business e-commerce has only served to muddy the waters, with a lot of e-service providers offering a wide variety of solutions and no clear guidelines available yet. On the technical front, standards are not yet in place and security is a concern.

Advice service

After close and continuing collaboration with Computer Weekly, the Chartered Institute of Purchasing & Supply (CIPS), the Government and the National Computing Centre, the BuyIT Group has set up the e-Procurement Best Practice Network - a programme of events and activities designed to enable senior managers to share experiences and learn about e-procurement. The Government's e-envoy, Alex Allen, recognises that this is one aspect of making the UK a leader for e-commerce and is giving his backing and many of the UK's leading companies are lending their support.

The network was launched on 14 June at the Millennium Dome with an evening for 100 senior managers from industry and government. The e-Procurement Best Practice Network is being led by BuyIT members including 3Com, CIPS, the Department of Trade & Industry, Infobank, Oracle, Reuters and Shell. As well as meetings, the national programme will include research and guidelines aimed at senior IT and procurement managers in top UK companies.

There will also be an e-Procurement Experience-Sharing Group, designed to support the introduction of e-procurement systems in member organisations. It will provide an independent, informal and confidential exchange for its members. Membership of this group, which is self-funded, is open to private and public sector organisations planning to introduce e-procurement programmes. Representation is typically at senior management level.

Members are particularly interested in exchanging ideas and experiences related to the implementation and roll-out stages of their e-procurement programmes, where difficult issues are being raised that nobody has really solved yet, like overcoming internal corporate culture barriers, e-enabling supplier relationship management and integration with existing enterprise resource planning systems.

For more details about the network's autumn programme, or if you are interested in joining an e-Procurement Experience-Sharing Group, visit buyitnet.org

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This was first published in August 2000

 

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