What began as a drive to automate internal purchasing led credit card supplier Capital One bank to set up its Buy One e-procurement system run by application service provider (ASP) Elcom. The system is now central to the bank's information-based strategy.
A major factor in the decision to opt for an ASP system was cost, explains Colin Davis, head of purchasing at Capital One UK. "The Elcom product is remotely hosted, which is why we chose it. We realised costs would be lower," he says.
The final cost - including all internal and consulting costs plus training - was less than £150,000. Apparently, other providers wanted £500,000 to set up systems that were internally hosted and required a large investment in equipment.
"We didn't want a big risk financially and I think the benefits were level," Davis explains.
He also emphasises the importance of the support that an ASP provides. Capital One has a service level agreement with Elcom and the helpdesk there sorts most technical problems. Only small problems like resetting passwords need to be dealt with by the onsite technical support team at Capital One.
Developing a strong relationship between the client and provider is a fundamental part of setting up a successful e-procurement system, says Elcom technical consultant Gary Thompson, who worked on the Capital One project.
"What is important is that businesses change," Thompson says, "and you must keep up. It has been successful because we got the right co-operation and support. I feel like I'm part of the team."
To justify investment, Capital One focused on contract compliance and improved contract formulation.
"These were important areas for us to leverage spending," explains Davis.
The new system has brought benefits, including better cost control and time savings. It has also improved the company's negotiation leverage. Davis says the company invested in the new system due to the lack of efficiency and visibility in the old one and is saving 1%-20%, depending on the contract.
Davis believes that the system will provide a platform for the bank's future development. "It frees us to get on with the strategic purchasing that we should be doing. And it frees us to leverage company spend," he says.
The company rolled out a pilot scheme last June. This month, it will move to the second phase and will roll out the system to another 25 catalogue suppliers. This represents 50% of the company's IT spend. The roll-out has also resulted in changes for staff. "We haven't got rid of anybody, but roles have changed rapidly," says Davis, adding that the system has been well received. "The purchasing team [members] were keen because they could develop their careers from shuffling paper," he continues, but admits that they have not got everyone on board yet.
To train staff, Davis says it takes "a minimum of five minutes - half an hour tops".
But some of the company's small local suppliers did struggle to adapt. It stuck by them and the situation has been resolved.
Considering Capital One's initial reservations, putting the system on its new intranet was bold.
"We were encouraged to put it there by the intranet development team," Davis explains. "They said unless there was information people wanted to use, they wouldn't visit it." But staff "just needed encouragement".
"We didn't know much about the market, but we grasped the nettle," Davis says. "Now 50% of our spend will be going through the system."
He believes the figure is as high as it will get. "I don't think that we'll ever get more than 60%," Davis adds. "The other 40% would be contracts you would not want to go through the system."
Capital One is now on the third version of Buy One. It has added functionality, but the interface has remained constant. The system first used a proxy server based in the US so response times were lower. Now there is a server in the UK which is five times quicker.
Thompson says most companies should be looking at e-procurement. Any firm that wants to understand its cost base can use these systems across the board.
"You can have visibility spend," Thompson says. "Once you see this, you can aggregate and reduce it."
Elcom claims a client can be running in three months. Most time is spent getting suppliers up-to-speed and Capital One was no exception. Investing in an e-procurement system is not just choosing between internal or remote hosting and addressing cost issues.
For Capital One, it was a case of "lead or be led".
Choosing an ASP e-procurement system
- Cost - ASPs can be cheaper than internally hosted systems
- You don't need to invest in expensive equipment
- ASP firms can give on-going support
- Technical support issues can be handled by the ASP.