e-Procurement
e-Procurement uses the Internet and the Web in particular to replace traditional purchasing processes with online ones. As now often implemented, it’s a little bit more than that. It is best defined as:
the purchasing of all non-strategic goods and services; those that support the business; on a preferred-supplier basis from companies that are able to provide an end-to-end service.
Typical supplies purchased via e-Procurement are PCs, stationery, printing, travel, and even contract staff.
The UK government’s e-envoy Alex Allen, said in May 2000 that
“The potential e-procurement has for impacting positively on UK plc is huge. In the context of the profound effect the new online world is having on the way we all work, the efficiency advantages business to business e-commerce offers are revolutionising the procurement industry. The openness it brings to the market, and the flexibility it brings to the supply chain, means that time to market is reduced; the capability to build to order extended; costs cut; and efficiency massively increased.”
So e-Procurement is “a good thing” yet the take-up within UK industry is remarkably slow.
e-Procurement should be able to deliver real cost savings by reducing both the prices paid for goods and the administrative costs of the purchasing operation. Yet, the cautious approach to dotcom issues seems to have extended into the e-Procurement arena. This is part of the culture that still seems to perceive the web as something extremely new-fangled and strange, best left to those upstart dotcoms who understand it, rather than simply as another tool to be used to raise productivity and effectiveness.
e-Procurement normally provides employees with desktop access to either Web-based catalogues or electronic exchanges which may be sector-focused vertical marketplaces or general horizontal marketplaces, see b2b exchanges. In either case, all the budget management, authorisation and goods received paperwork and often payment are handled electronically.
For larger companies, where departments have traditionally been responsible for buying their own support goods and services and have sometimes acted in ad hoc or irrational ways, e-Procurement can provide significant savings by bringing this process back to the centre and reducing duplication.
One significant advantage is that all purchasing information flows to or through a single point and firms can use this information to start buying harder and smarter. What really helps is that the buying department also benefits by getting faster delivery of cheaper goods.
Useful information on the art of the possible and the advantages of e-Procurement are available by reference to BuyIT. BuyIT was established in June 2000 as a best-practice network of organisations interested in the e-Procurement of IT goods and services. Membership is open to all organisations, including trade & professional bodies, private companies and public sector organisations.
The forum provides:
- Network meetings
- Supplier briefing seminars
- Best principle workshops
- ‘Inner circle’ evenings.
This latter sub-network is an e-Procurement Experience-Sharing Group, designed to support the introduction of e-procurement systems in member organisations. It provides an independent, informal and confidential exchange for its members. Membership of this self-funded group is open to private and public sector organisations planning to introduce e-Procurement programmes. Representation is typically at senior management level.
Members are particularly interested in exchanging ideas and experiences related to the implementation and roll-out stages of their e-procurement programmes, where difficult issues are being raised that nobody has really solved yet, like overcoming internal corporate culture barriers, e-enabling supplier relationship management and integration with existing enterprise resource planning systems.
Computer Weekly is also publishing a series of articles/case studies. The series aims to help readers emulate the achievements of firms that have been particularly successful in implementing and exploiting the latest information and communication technologies. Case studies are published on a regular fortnightly basis, with expert commentaries from BuyIT members.
September 2000
KPMG principal consultant Peter Loughlin recently warned that organisations should be wary of simply automating a part of the purchasing chain. This simplistic approach to eProcurement may just transfer a set of costs from one department to another. This seems to be echoed by a recent survey by Saville Rossiter-Base which suggests that many organisations are using the Internet to make purchases; most commonly office supplies and computers, but that most of them had little idea of whether it was saving them any money, and quite a few even suggested they KNEW they weren’t saving money.
November 2000
At a ‘nuts and bolts’ level, once the principle has been accepted, eProcurement should be approached on a commodity-by-commodity basis, rathen than on a departmental basis. This is the fastest way of reducing the number of suppliers – and the costs involved in processing orders to each of those many suppliers.
Paul Thomas, IBM principal for eProcurement April 2001
Pharmaceutical company AstraZeneca expects to save at least $600m each year by using web-based purchasing. The company is implementing software from Ariba across its global operation and will go live at its first location by the end of 2002. The eprocurement system will be used for purchasing indirect goods: these account for approximately $6bn of spending. AstraZeneca considered establishing an exchange or marketplace but, after examination, considered a simple solution implemented alongside internal business transformation offered a greater chance of long-term succes and mininised risk.
May 2002
The Consortium for Purchasing & Distribution claims to be the first major national supply organisation to offer local authorities and large corporate organisations viable end-to-end e-procurement.
The consortium was formed in 1971 and has grown to cover a large number of public and private sector organisations in the South West of England, and in Wales. It offers approximately 30,000 products from office supplies to motor vehicles.
The organisation was an early adopter of EDI and buoyed by success in electronic trading, it extended its existing ERP software, system 21 from Geac, rather than buying a separate e-procurement application.
Order values placed through the site are already £5,000 per day but this is expected to rise quickly with government pressure on local authorities to move into e-commerce.
The organisation claims that the efficiency and improved information available from the system has driven stock turnover from six times to twenty times per month, and stock fill up from 70% to 99%.
June 2002
Credit Suisse First Boston (CSFB) bank is on target to achieve savings of $35m in the first 3 years (from July 2001) of using the PeopleSoft global online purchasing system. The bank is using the software across 850 business units with a combined budget of more than $2.8bn. The cost per transaction has fallen from $250 to $50.
June 2002
BAA claims that it will save £0.5m per year from a new electronic trading system that is revolutionising its supply chain. 90% of BAA’s suppliers are already connected and the system, when complete, will process about £1bn worth of goods and services annually. The system uses technology from Burns Business Exchange (beX). Predetermined catalogues are used to ensure standardisation. Purchase requirements based on items in one of the catalogues are sent using beX to a supplier’s electronic mailbox and the latest phase of development allows invoices to be sent back via the same gateway. It is expected that the cost per transaction will fall from £90 using the old paper-based system to £20.
July 2002
UK retail giant Tesco claims to be the only profitable online grocer and the biggest with 85,000 customer orders per week. Alongside this success, it is extending its business-to-business (B2B) strategy by linking its use of online auctions to movements in base commodity markets to generate savings by changing the way it purchases. Tesco is already using auctions in a disciplined way, for example it has a rigid 20-day tendering process. The company is a founder member of the Worldwide Retail Exchange, an online B2B exchange for retailers. Tesco is working with other retailers, including arch rival Sainsbury’s, on a standardised cataloguing project. Shortly most of the items on Tesco’s 40,000 product file will be updated by the people who know best about the products; the suppliers themselves. Tesco places its use of online auctions in the ‘complementary’ category, recognising it as another channel, another way of doing business; useful but not to be oversold.