One of the enduring fallacies of modern life is that every much-hyped technical or organisational breakthrough will ‘break the mould’.
The ‘e-revolution’ was no exception. According to the wild-eyed prophets (most too young to shave, let alone aspire to the full Old Testament look), the simple act of sticking a lower-case ‘e’ in front of any business noun would herald the millennium – literally and metaphorically. The lion would lie down with the lamb; business relationships would be characterised by spontaneous acts of information-sharing; the bottom line would enter the land of milk and honey – and all, of course, in real time.
The reality, inevitably, is rather messier. In the esourcing and e-procurement arena, some firms believe they have glimpsed the Promised Land. Many others – especially small suppliers to large customers – are still wandering in the desert and, to push the Biblical analogy as far as it will go, wondering why they left Egypt in the first place, where at least they understood the problems of trying to make bricks without straw.
The history of e-sourcing
In the Promised Land category are RS Components, a major UK and European distributor of electrical, electronic and other parts and components, and many of its customers. RS could probably write the history of e-sourcing and e-procurement back to the days when the terms hadn’t been invented. According to e-commerce sales manager Keith La Roche, development really started in the very early 1990s with the then cutting-edge concept of putting catalogues onto CD-ROM.
‘Demand and uptake were significant and the management saw customers were interested in new ways of getting product information. We explored the then-infantile web in the US, which was a good two years ahead of that in the UK, and came back with a business proposition that said we could build and develop a website in six months to give customers a new way of trading with us.’
These developments were a near-instant success both critically (RS has a shed-full of awards) and more importantly, with customers. La Roche says this success was due to a number of early and fundamental decisions. ‘We created a new team of managers and technical people taken out of the dayto- day business to think outside the box. RS was process-driven, reliable and scaleable, but that could also mean inflexible.
‘Also, we were determined that the system would be integrated into our back-end systems from day one. Unless we could streamline the back-end integration we wouldn’t realise the long-term benefits.
‘And this wasn’t just an additional buying channel. We were, and are still, using the technology to change behaviour. Buyers are entrenched in their behaviour – the website must offer each individual entrant what they need. We’re focused on what the user wants rather than what we want to show them.’
For RS customers, technical guidance is often more important than mere price or ordering convenience and the web-based system rapidly proved hugely successful.
The National Physical Laboratory at Teddington in the UK is a characteristic customer – 500 scientists placing 11,000 orders a year, and typically, says NPL’s procurement manager Sue Gibbons, ‘requirements at NPL are fairly immediate. Scientific projects can be quite organic and it’s impossible to plan for everything so when a part is needed work cannot progress until it arrives.’ NPL was an early user of RS Online when it was launched in 1997. This allowed scientists to place orders direct with RS, with access to contract pricing including discounts, stock availability and order confirmation.
Enforced spend controls
Organisationally, RS Online eliminated paper-based requisitioning (which added several days to the process despite RS’ next-day delivery), the need for stock-holding, and ensured the enforcement of spend controls. The RS system also merged easily as required with an Oracle Financials system supporting the overall central purchasing function.
And RS’ newest development, PurchasingManager, a free online procurement tool, has also been enthusiastically adopted by NPL. Developed around the online offer, this provides comprehensive controls and workflow and again has been integrated at NPL, this time into the latter’s new BT Exchange Oracle-based e-commerce platform using a technique known as PunchOut. The next development at NPL will be to close the loop through e-invoicing.
But the RS story is unusual. Not many firms have successfully managed and developed their own ecommerce offers – and even fewer can then be effectively integrated into the more generic proprietary systems their customers run. For many customers, the driver for e-commerce lies in savings in the procurement execution process rather than – as is the case for the likes of NPL – accessing technically comprehensive e-sourcing. Typically too, the focus is on cost savings on indirect goods expenditure.
A neutral platform
An example is Dairy Crest. This dairy foods producer has an annual spend of around £1.5bn and in 2002 started a project to save five per cent, or £15m, on indirect costs involving 400 users across 16 sites. For this, a neutral platform, the BT Transact e-procurement system, was chosen to control and monitor purchases coupled with Oracle’s Procure to Pay lifecycle system.
Neil Edmonds, BT’s account director for the project, notes that ‘it is a typical approach to look at indirect products first, although Dairy Crest are also looking to bring in their purchase of dairy products as well’.
Payback for Dairy Crest is expected to be less than 12 months. The ROI, says Edmonds, comes from a variety of sources: consolidation of suppliers, improvement of the internal requisition process, better process around the purchase orders themselves, a one-click process for automatic approval of orders below certain limits and proper workflow for orders above that, and automatic matching of invoices to delivered goods.
Implementation was fast-tracked. The first site went live in three months from project approval and the systems were rolled out to the entire organisation in a further 90 days. If this sounds easy, Edmonds points out that it was ‘a hefty process with a lot of consultancy work, a stringent change management process and a lot of culture change required. Fortunately, BT already knew Dairy Crest well, while Oracle is experienced in ensuring culture change. Dairy Crest was quick to effect this but you really do have to drive change through the business – if necessary enforce it on people. There will always be people opposed to change.’
This echoes the RS-NPL experience. NPL early realised that a key was to get users to comply with the new procedures quickly and consistently. Fortunately the scientists were quick to embrace the benefits of the new paperless process, added to which RS ran a comprehensive end-user training programme and provided a dedicated web helpline and site show sessions.
The lessons are clear – e-procurement is not plug and play, however slick and easy the technical integration may appear. ‘e’ hasn’t abolished the normal drivers of people in organisations – they have to be motivated to change or the e-benefits will not come through. Occasionally, as perhaps at NPL, the user community can see tangible benefits – scientists who really do want the component or equipment today rather than tomorrow so that they can get on with the things that interest them.
In most organisations, the motivation to change processes is rather more distant. Of course everyone wants the company to do better, be more efficient, but that doesn’t necessarily equate into a more enjoyable work experience for the users who can make or break the technology and the process. In such organisations, there is no substitute for committed and long-term leadership.
The motivational aspects of e-procurement implementation are not merely internal. For the supplier community and especially for small suppliers e-procurement can appear more of a threat than a promise and it can be hard to put a finger on real benefits accruing. Michael Bennett, managing director of Impaq, understands this only too well. His firm specialises in low-cost internet/XML solutions suitable for smaller companies with few technical resources. But in his view the problems are by no means confined to SMEs.
‘Fundamentally e-procurement, and the vision of e-procurement, hasn’t fully realised the benefits that even major organisations expected. The reason is that fewer than five per cent of organisations have the wherewithal – the knowledge, the money and the IT skills – to trade electronically in business-critical areas. And SME suppliers don’t have anything. They just can’t engage.
‘So organisations buy a purchase-to-pay solution – roll it out to the low-hanging fruit, the major suppliers who have done it all before, and perhaps everyone gets a few incremental benefits. And then it stops. You still have a percentage, perhaps a high percentage, of trading by fax, phone, raw emails – it’s business as usual and there are few perceived benefits or savings.’
Bennett, like most e-procurement vendors at whatever scale, believes there can be true wins for the supplier. ‘If he can integrate directly into the customer’s back-office he can cut out all the manual intervention, the re-keying and time delays. The supplier gets to be more productive and efficient.’
But, he adds: ‘One of the challenges is – who do we sell to? Directly to a big organisation, say in automotive a Tier One supplier, or to all their little suppliers? We need to talk to the majors and help them understand the problems of engaging with that 95 per cent of the supplier base: how you roll it out, how you create supplier forums, how you get involved and engaged. If we can motivate the buying organisations to invest in supplier portals (so that they in turn receive good quality content) then there may be an incentive for suppliers. But in the end, someone has to pay. The buyer must think about all the supplier community.’
But this surely points up the difference. The RS approach is in the end sales driven: e-sourcing/e-procurement is another channel to market even if it is a lot more besides. And the developers have a real interest in making things work – for the National Physical Laboratory or for a geek in his back bedroom. Suppliers understand marketing – e-commerce works if and because it makes it easier for people to buy stuff.
But in the general run of things, it is the buyers that are specifying and dictating e-procurement/esourcing solutions. Buyers (and this is a fact, not a criticism) are not in the business of making it easier to spend money – rather the reverse.
Buyers are not, by and large, interested in making life easier or more profitable for suppliers unless they can retain the lion’s share of the proceeds. And buyers, like the rest of us, have to focus on the big picture – ‘don’t sweat the small stuff’ as they say. e-procurement systems appear to offer a fire and forget solution to the long tail of small suppliers, but fire and forget is too often just what happens.
A user’s tale
One Impaq user is Tim Jevons, managing director of a small company called Paint Protection Systems, a supplier to major car manufacturers (and to a lesser extent the marine and aerospace industries).
Jevons’ firm buys and sells anything that helps people paint vehicles – protective films, maskings, a lot of bespoke solutions. A while ago, a major UKbased Japanese manufacturer implemented the Impaq e-procurement product with a number of selected small suppliers. (Jevons actually argued himself onto the programme. He says: ‘They didn’t think I’d want to do it.’) Upfront costs, even for a small specialist company, were not particularly onerous – say £22,000 including integration with existing systems, and for this there were some clear advantages.
‘There is less paperwork. As soon as I look at an electronic order they know they’ve got order confirmation. I’m linked straight into their accounts side – my goods are only ‘received’ when they are actually booked in but I can instantly see what they are going to pay me.’ This is always a plus for small firms with anxious bankers. ‘And I can check the self-matching bill: it means I can get on top of problems or issues as they arise. Previously, I might only have known there was a problem when I didn’t get paid’.
Says Jevons: ‘When the customer is using the system properly it works nicely and I can see the benefits.’ But it seems the relevant team leader at the customer, whose idea this all was, moved or left and the e-procurement ‘doesn’t appear to be embedded in their systems and procedures’, so many of the benefits to Paint Protection Systems – and presumably to the customer – simply aren’t coming through.
In reality, e-procurement, or e-anything, doesn’t change human or organisational behaviour. The prophets were wrong, and there will be no sudden conversion in business practice. Success depends not so much on technical excellence (the survivors in the market wouldn’t be there if their solutions didn’t function) as on understanding the business drivers and individual motivations of all the users, buyers and suppliers involved – and changing business cultures by demonstrating and championing tangible benefits.
In a fallen world, the metaphysical benefits of ecommerce are not enough. The people who can make e-commerce work have to be convinced of real benefits in real time.