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Tool kit for e-procurement

By Maria Varmazis -- Purchasing, 7/14/2007 6:00:00 AM

E-procurement software can be a worthwhile investment to automate and streamline the minutiae of procurement. Companies that adopt e-procurement software are looking for a tool to make their jobs easier so they don’t have to focus on day-to-day paperwork. Time that buyers once spent hand-holding purchase orders from the onset can be spent elsewhere; however, buyers using e-procurement software need to be fully aware of what their systems can and cannot do in order to get the most of their software buy.

Often “compliance” comes up as the main reason for buyers to move to an e-procurement system. In some cases, this means compliance with Sarbanes-Oxley, so a top priority is building transparency into all internal buying processes. One example that Pravin Kumar, vice president of products and services at Santa Clara, Calif.-based Ketera cites is tracking price updates in an online catalog. For Sarbanes-Oxley compliance, buyers should be able to identify when a price changes in a catalog and exactly who updated it. Through most e-procurement systems, suppliers input price changes automatically, minimizing buyers’ need to monitor prices for every individual commodity.

In the even bigger picture, compliance with catalogs themselves is enough reason to choose e-procurement. For some buyers, especially those who oversee purchasing for many smaller scattered divisions, catalog compliance means enforcing one standard for buying a certain kind of product across the board. Jeff Fisk, controller for Milwaukee-based Marcus Hotels and Resorts, rolled out the Birch Street e-procurement suite across all 18 of the Marcus Hotels.

“If we’ve established a standard for staplers, we can tell all of our business units, and each department, that this is the stapler that you are allowed to buy,” he says. Since the suppliers now update their prices automatically through the system, there’s an eliminated step for buyers but the end result for purchasing internally is compliance and time savings.

For Neil Aitken, head of central procurement at London-based First Choice Holidays and Flights, the need to better monitor contracts gave his department the main push to move to e-procurement. “There is a risk of not realizing when contracts were automatically extending or running out,” Aitken says. “And then we would not be taking full benefit of the position that we were in.”

While First Choice’s ultimate goal was to save money, executive approval for Aitken and his team to buy SAP’s on-demand e-procurement software stemmed from promises of improved contract management.

No single benefit from e-procurement software is isolated from another: As compliance and transparency improves internally, procurement sees process cycle time improvements, which leads to greater time and cost savings overall.

Time to ROI: a valuable metric

The cost savings that buyers seek from e-procurement systems come from the software’s process improvements throughout the entire procure-to-pay process. One of a buyer’s goals while looking at potential e-procurement systems is to determine how quickly they can see ROI, as the results can pay for the initial cost of implementation. Mitch Plaat, CPO at San Mateo, Calif.-based Con-way, says the e-procurement system Con-way chose achieved complete payback within nine months of implementation. Having used Ketera’s on-demand e-procurement now for about five years, beyond the initial payback, he says that “the rest is just gravy.”

Ketera’s Kumar says this payback or time-to-value is even more important with smaller companies that can’t afford to wait on long implementation cycles. His tip for fast implementation and ROI is to get the system up and running in a simple form from the onset and make refinements from that point. “You won’t get feedback from users until you have something up and real,” Kumar says. “You don’t want to function on the hypothetical—you want to validate assumptions as well as generate value.” He says that this gradual implementation process is safer, allows procurement to work out the bugs and make changes over time while also generating savings to fund later improvements.

But not everyone chooses to work this way. First Choice Holidays and Flights decided to forgo gradual implementation for an all-at-once approach, but this method is not a good idea for everyone. The functions that are often implemented first in a gradual process—RFX and auctions—weren’t what Aitken and his team needed most—it was contract management, which Aitken says usually comes later in implementations. “We were almost dealt the hand for reasons that were beyond our control,” he says.

You don't want to function on the hypothetical — you want to validate assumptions as well as generate value.” –Pravin Kumar Talk to department heads, people that actually do the work and find out how they do it.” –Jeff Fisk “You need to decide if you want something you can’t play with too much... or whether you want something to tailor to your requirements.” –Neil Aitken

By rolling out e-procurement all at once, Aitken says it motivated people into action to immediately fix things in the system that weren’t working instead of procrastinating; however, one of the factors contributing to this method’s success was First Choice’s already-centralized procurement operation.

“Whereas other companies may have procurement in separate countries, trying to roll all that massive functionality in one go across multiple procurement locations, we’re primarily in two locations so it was a lot easier to control,” says Aitken. “If you have that control over your department and have that communication throughout your departments it’s a worthwhile risk to take.” He adds that it took about six months for First Choice to get its SAP implementation fully up and processing the data required.

Set clear goals and expectations

When evaluating e-procurement software products, buyers emphasize the importance of looking well beyond price and ROI promises. If you’re moving towards an e-procurement system, especially if you’re starting from a largely manual or paper-based system, specifically identify what you really need your e-procurement suite to do. At Louisville, Kentucky-based Humana, CPO Deborah Beavin says the company implemented Oracle’s software in order to “capture upfront approval for purchases, provide transparency to financial obligations, and reduce financial risk associated with poor purchasing practices.” One of Con-way’s goals, says Plaat, was to get maverick spend under control and drive down processing time. Have specific goals in mind to use as a selling point for executive buy-in as well as a benchmark to track ROI.

The goals you have in mind can also affect what kind of software deployment you use—licensed or on-demand. A licensed installation is something you host behind your company’s firewall, on your own equipment, managed by your own IT staff. This gives a company a lot of leeway to control and tailor the e-procurement software for their own requirements; however, such maintenance requires more IT support to tweak and maintain. Both Aitken and Fisk chose on-demand e-procurement software, citing user-friendliness and ease of implementation across multiple sites as reasons for their choices.

E-procurement software optimizes a procurement department’s daily processes, but if the software is simply painted over an already faulty process, users might not see the efficiencies and savings they expect. Before diving into an e-procurement system, it’s important to ask what exactly is being optimized, says Beavin.

“Focus on the process first—similar to the old adage garbage-in, garbage-out, if you e-enable a flawed process, you will simply increase your efficiency in doing things poorly,” she says. “Clarifying today’s process flow, defining the ideal, and addressing the gaps while automating, will reap the greatest business benefit.”

Fisk agrees and says process outlining is one of the best ways to maximize e-procurement efficiency as well as adoption with suppliers and employees. “Talk to department heads, people that actually do the work and find out how they do it,” he says. “You’re making a change in their life, and right now their lives are hard enough. You want to be seen as someone who is giving them something, not somebody who’s imposing something on them.”  

E-procurement software can save money and help boost compliance. That makes it an important tool. We surveyed software suppliers to see what e-procurement products they offer. Here is the list, based on survey responses.

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