E-procurement should deliver savings but measuring these can be difficult. A new guide from user organisation BuyIT shows how to get the best out of it
The first generation of e-procurement projects should now be starting to deliver measurable savings but the extent and value of those savings is still unclear, according to a report published last week by the BuyIT Best Practice Network.
Measuring the benefits
What to measure and how to measure it, sets out to define the costs and benefits of e-procurement and provide guidance about creating a compelling business case for e-procurement in an organisation.
Formulating a strategy to measure ROI is important, particularly in an area where claims can sometimes be fanciful, according to BuyIT.
"Since 1998 many claims and predictions have been made for ROI achievable through e-procurement projects. By mid-2000 these had reached 'between 200% to 400%'," BuyIT's guide says.
"A year later a random survey of purchasing managers using a consistent assessment model indicated a potential average ROI of 8%."
Despite these wildly differing figures there is no disputing that savings can be made from e-procurement, said Frits Janssen, chief executive for BuyIT.
"We asked early adopters whether e-procurement ROI was a reality - and the answer was yes," Janssen said. "Our guideline offers measurables to support this message."
During the dotcom boom many boards were prepared to fund any project with an "e" in front of it, but the current economic climate has made them more cautious.
"ROI is always important but in times like this companies are particularly keen to prove it," Janssen said.
"A guide like this - based on real-life experiences of early adopters - helps people to put their case to the board, with real, defined measurable benefits."
The guide outlines examples of the potential benefits of e-procurement. Some, such as automating the purchase-to-pay process to speed procurement cycle times and facilitate supplier performance improvements, will be familiar to most companies.
However, the guide also focused on areas BuyIT has found are often under assessed or ignored, such as e-invoicing.
"During negotiations the procurement manager can more credibly guarantee the supplier a level of prompt payment, which was not possible prior to e-procurement," the guide says. "A better price can be arranged as a result."
Although e-procurement can bring a number of different benefits to a business, it is important to recognise that not all buying of the organisation is addressable by e-procurement processes, the guide warns.
"Some products by their nature would not be usefully transactable, such as utilities," it says.
"In other cases, certain categories of spend may involve a lack of competition between suppliers - for example a duopoly - and hence an e-auctioning capability would not be applicable."
In addition, global local area network and desktop capabilities likely to affect IT delivery must also be factored into the business case assessment, as speed of rollout is key to the speed at which benefits may be realised, the guide says.
BuyIT group members Cable & Wireless, Guinness and Rolls-Royce were early adopters of e-procurement technologies and have all achieved measurable ROI.
Their input into the guide was important, Janssen said. "Companies like to learn from the experiences of early adopters as it helps them to cut through the hype," he said.
"This is the concept behind the BuyIT Best Practice Network - members like to know exactly what other companies are doing to help guide their own decisions."
However, according to Janssen, only a few companies have committed to large-scale e-procurement projects.
In the meantime, guides such as the one published by BuyIT last week may prove invaluable.
Steps to e-procurement project winners
- Define key performance indicators early. This will enable benefits tracking - what gets measured gets done. The business case should be distilled into measurable indicators which should be monitored throughout the project
- Do not forget "soft" benefits (e.g. individual time freed up through more efficient processes) - make a conscious decision as to whether you want to measure them
- Agree on the measurement process and baseline - visibly measure and visibly report
Get sponsors' buy-in and sign-off
Appoint a third-party (or an externally audited person if from within the organisation) to track and monitor the progress of the project. This will ensure that realisation of benefits is enforced and that the business and project enablers for change are delivered.