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.