Many companies are now using so-called e-procurement implementations to facilitate catalogue-based buying of indirect materials, such as office supplies. This is fine, but the savings on these types of deployments are rarely substantial. Shaving pennies from the price of office supplies isn’t going to set your world on fire, nor will it unduly flatter your bottom line.
So how do you move beyond this catalogue-buying stage? This is where true e-procurement deployments can really deliver – and on more than just lower prices. They can bring better productivity, faster processing, greater visibility of purchasing and supply chains, and they can provide controls around your unplanned, ad-hoc buying. Combined, these factors have a much higher ROI than simply saving a couple of points from the list price.
To ensure that your investment in e-procurement truly delivers, there are three key basic elements you need to get right – a mix of policies, technology and supplier links that have to be in place to ensure success. The trick is to use this e-procurement “Trinity” model to look at your business and approach, then follow its simple guidelines.
The starting point for any e-procurement project should be to evaluate your own situation: your spending patterns, what you buy, and how you buy it.
Ask yourself these questions. Is the value of what we buy high, or low? Are the products or materials we buy unique, or are substitutes easily found? Is the market for those goods competitive (in other words, can we squeeze the suppliers)? And finally, how streamlined or efficient are our internal buying processes?
The answers to these questions will guide you towards the implementation that works best for you. If you’re buying mostly direct goods that will be made into different products, then you may want a more collaborative approach with links to a range of suppliers, so you can shop around more effectively.
If the goods you buy are unique, from a single supplier, then using e-procurement may not benefit you much in terms of price but could make a tremendous difference in terms of documentation, efficiency, and reduced paperwork.
The other point to note is, who would use the e-procurement system? Is it exclusively for specified purchasing staff, do you want to give limited purchasing power to other staff grades, or are you looking to ‘push’ much of your tactical purchasing to the end user?
Here is where you can start to plan in purchasing policies – because e-procurement can give you the means to drive and enforce those policies. A recent Aberdeen Group report on e-procurement deployments found that “maverick spending” – i.e. purchases by people not authorised or empowered to make them – decreases by 51 per cent per cent for the average company. That’s a substantial saving.
By working through these simple questions, you can set a clear agenda and expectations for your deployment – and establish exactly where and what you will be saving. This will also strengthen the way in which policies and procedures are supported in your organisation.
The second part of the trinity is having the right technology to deliver effective e-procurement. Does the solution you’re planning integrate with your corporate ERP system, or your accounts/financial system? If the e-procurement system can link into these and other business systems, it helps to break down data silos and enables better information flow – and better productivity. How well it links to these systems will help provide functionality that is easier to use and support a broader range of reporting possibilities.
For example, your buyers in the buying department are there to get you a good deal, not to generate paperwork. If the e-procurement system can integrate with other enterprise systems, then staff can feed their procurement and purchase details directly into these other systems and invoicing details can be seen by purchasing as soon as the information is available.
This cuts the tiresome raising and chasing of paper invoices, reduces administration and enables them to do their job better: working and haggling with suppliers and partners. This is where another measurable ROI can come in, as staff can work at a higher level, and be more efficient – allowing expansion without an increase in head count. True automation requires that your systems have a good mechanism for communicating information to each other. Integration is the key, as long as it’s done in an efficient and supportable manner.
In addition, another consideration here would be to deploy the e-procurement system as a service or in an ASP environment, rather than buying and installing software. This removes the need for installation and management time, can reduce your overall maintenance resource requirements, and cut your upfront costs – which in turn can drastically shorten your time to ROI.
The final part of the trinity is in having the right links with suppliers that will make procurement easier not just for you, but for both parties. e-procurement can add real value to partner relationships, and bring the vendor and customer closer together, if the process can be streamlined and made more collaborative.
It’s not just about economies, it’s about being easier to do business with. If your deployment can reduce paperwork and shorten the purchase to fulfilment time, both parties can benefit and work more closely. So it’s worth outlining your e-procurement plans to your key partners. Tell them what you’re doing. Involve them, ask them to participate, spell out the benefits. This way, you can align your needs with those of your partners, and get a better match – helping to make the partnership truly valuable.
By adopting this approach when developing and implementing your e-procurement strategy, you’ll ensure your organisation is best positioned to get real value and tangible business benefit from the technology.
Evaluating spending patterns, ensuring you have the right technology in place to work with corporate systems across the business, and getting the buy-in of partners and suppliers will deliver enhanced productivity, faster processing and greater visibility (and control) of the overall purchasing process.