Staying on top of the eprocurement curve

Electronics, to make businesses more efficient through organising sales and record keeping and to reduce the quality of paper used, has been the holy grail of organisations since computers were welcomed into the fold as a business tool. In this article, the author looks at some of the achievements, challenges and pitfalls that a dedicated eprocurement system can bring.

Over the last decade or so, vendors and consultants have extolled the manifold virtues of implementing ebusiness solutions such as eprocurement, eordering and einvoicing.

Cost savings aside, a successful implementation within the organisation eliminates paper-based, manual processes, improves data integrity and visibility and removes unnecessary duplication of activity.

A study commissioned by Aberdeen Consulting as far back as 2007 found that enterprises with eprocurement processes in place displayed a 35% improvement in spend under management, with a 41% reduction in maverick spend.

The study also showed that if implemented well, enterprises can reduce their requisition-to-order costs by 48% and cut transaction cycle time in half.

For some organisations, the internal cost of processing the many low value orders, from product selection through to payment (see Fig 1) can be more than the total value of the goods themselves.

Figure 1.

More recently, Aberdeen Consulting reported that an organisation using eprocurement on average takes 3.8 days to process a single ‘purchase-to-pay’ cycle compared with 9.4 days for those who do not.

At the same time, an Ariba report determines that for buying activities, 2-12% spend savings can be achieved with maverick or ‘off-contract’ spend reduced by 74% and 30-50% process cost savings.

On the cash management side, 60% invoice cost savings can be achieved with a 70% cycle time reduction.

This adds up to compelling reasons why more organisations are looking to e-procurement to drive more cost savings in their businesses.

To this end, many corporations have jumped onto the bandwagon to go paperless, but with varying degrees of success. From the time we set up our ecommerce practice in 1998, RS Components has seen over 1600 implementations covering every market, technology and vendor and, consequently, we have been privy to the good, the bad, and the ugly of eprocurement implementations.

These points encapsulate some of the key elements needed to get optimum return from an eprocurement solution.

Do your homework

Successful implementation involves good planning. There are many significant and tricky barriers to successful implementation but our experience has shown that a strong change management strategy goes a long way.

This includes a complete and detailed discovery process, a clear vision (see See Fig 2) and measurable goals. This may seem a daunting task, especially for the larger, more complex organisation and one may not know where to begin.

Figure 2.

A failsafe method in getting the eprocurement process right is to select solution providers or partners that know what they are doing and are willing to work closely during the early part of the planning and implementation process.

As part of the planning, it pays to have a good understanding of your various stakeholders’ needs in the entire purchase-to-pay process. This includes your system vendor, your suppliers and, not least, your end-user community.

You need to identify all the different types of purchases your organisation engages in, ie: Do you engage in regular or small volume purchases?; Are these unplanned or planned purchases?; Does your company engage in commodity or complex purchases?

It is important to understand this as a single solution may not support all user requirements. Direct and indirect or ad-hoc purchasing may demand different technical solutions.

Additionally, identifying whether your suppliers and end users will be compliant with your new system and vendor reduction before data migration may also remove unnecessary headaches during implementation.

We have seen, with many companies, that employing the 80:20 rule is a good gauge to fine tune your list of suppliers. Around 80% of requirements can probably be covered by the right 20% of suppliers.

Getting a clear picture of your company’s procurement set-up will enable you to better implement a standardised solution that will work with your internal teams and external parties.

With a reduced supplier base, standardised approval processes and formal workflows, can ensure that the correct level of authorisation is applied to each transaction and that spend is directed to draw-off existing contracts.

Compliance with policy is then improved as users can quickly find products and services from preferred suppliers and are unable to create maverick purchases.

Getting Buy In

A fancy, expensive but inflexible eprocurement system will be useless if the users in your company are not sold on the technology and the benefits it can bring.

Before implementation, ensure that you get stakeholder commitment and identify possible barriers to adoption of the system. Maintain familiar user interfaces, key suppliers and functionality, where possible, and remember that new and additional tasks could create end-user resistance.

Most successful implementations occur when there is a clear leader appointed by management. We have seen that a tenacious and effective change manager that oversees the implementation, as well as the appointments of internal champions across the company to drive local ownership and consistently communicate the benefits of the system to users, makes a big difference.

These champions can also regularly train and obtain feedback from users so that kinks in the system may be ironed out quickly. Another tip - use suppliers to help drive the compliance message jointly with your change management team. This enables you to engineer a win/win scenario with these suppliers as well.

Test the waters

Based on our many years of experience, we have found that organisations arrive at full-blown eprocurement solutions in stages, after much trial and error. To make the process easier, corporations should look for supplier solutions that allow learning while providing a blueprint for the specification of a capital investment solution.

Figure 3.

At RS, we provide tools for companies to begin this process by letting them experiment at no cost. The RS purchasing manager tool allows users to take control of spend on the RS website, for multiple users across multiple user sites and departments, and begin to explore the potential of ecommerce with internal users.

The tool also includes the ability to build workflows to approve orders and gain total visibility of all transactions while capturing mandatory purchasing information like cost centres, GL codes and blanket orders.

In summary, there is an easy, low-risk opportunity to explore, learn and develop the required eprocurement system for your organisation by testing other ebusiness solutions, before you make that heavy investment decision.

Time spent here understanding internal barriers and training end-users leads to greater confidence and a fast-track implementation.

Finally, use the knowledge of your key suppliers, after all, they are likely to have done this thousands of times, whereas most procurement professionals only get involved in these types of projects a few times in their professional lives.