The goal of Procurement is to give employees a better shopping experience to do their job: That is to identify and request the right goods and services they need, at the best possible price, in the right quality and quantity, and at the right time; and also ensure its always approved and against budget.
The ‘e’ makes that process a whole lot quicker, slicker and auditable.
But you also need to think about the things behind the scenes that make purchasing not just effortless but more controlled and effective e.g.:
- What is bought, by whom, from where?
- Are purchases being made on-contract or off-contract?
- Are there any opportunities for consolidation?
- Can you challenge existing contracts?
- How can you measure supplier performance?
The “shopping experience” is only really as good as the underlying processes that support it.
eProcurement is a range of technologies to support just that; offering decision support and streamlined transaction processing.
What are the ROI drivers?
There are guaranteed savings to be made. This includes reducing costs and eliminating waste and error in making purchases that are necessary to keep an organisation “up and running” i.e. non-payroll spend.
We often see customers achieve ROI in less than 6 months and achieve savings of up to 75%.
In absence of a system you will typically find a range of issues in an organisation:
- Employees struggle to make the purchases they need.
- Often they are from non-preferred sources. No authorisation. No visibility of purchase commitments.
- Costs are attributed to the wrong accounts or departments.
- No one really knows what’s being bought over time.
Then you have the buyers:
- They don’t know how many suppliers they have, who they are, or what categories.
- The finance system is littered with single suppliers made up on the spot. This leaves the company exposed to colossal risk.
- Also the value of contracts aren’t being realised. Review dates are being missed.
- ...That alone can justify a system.
- The first time the company knows about a purchase being made is when the invoice arrives.
- In Accounts Payable, they spend 60% of their time processing inbound invoices, with a long paper trail, delays, inefficiency and cost.
So, the drivers are easy to identify.
Is it a good idea to get as much spending as possible into the solution?
Absolutely. Executives today are increasingly challenged to do more with less. This requires greater control over spending.
In our experience, If you analyse how much spend is under control by procurement. It is likely to be 20-40% of total expenditure. Often most procurement departments are focused in spend categories over a certain threshold e.g. £50k... why? Because they only have finite resources in the department.
So, how do you move that figure to 80-90%? You will need to do a few things.
You will want to:
- Ensure everyone is spending through the same gate without abuse; to maximise the opportunity of bringing spend under control.
- Allow shopping choices and probably distribute the work of sourcing throughout the workforce.
- Reduce your supply bases to a few strategic ones for specific categories so that you can reduce pricing.
- Streamline Accounts Payable processes by documenting spend on purchase orders and ensuring coding and approvals are made upfront.
All of this must be made easier than what you are replacing. It has to be simple, easy to understand and employees must want to use the system.
Is it good to deploy a single instance of an eProcurement solution across a global organisation?
If you are asking is it technically possible to deploy a single instance, absolutely! We have customers that have done just this. Is it desirable? Probably not in all cases.
Why? Because the argument suffers from the same hang-ups that ERP vendors are accused of – you do not want to impose a single system and process across country territories and language boundaries.
Global businesses want to act global but think local and technology should not be a barrier to conducting sound business.
In the past 5-10 years, many companies have grown through merger and acquisition (M&A). With each M&A comes a finance system that deviates from the corporate standard. Unifying disparate divisions and ERPs is costly and time extensive.
What is required is a Spend Control “umbrella” that can sit on top and integrate with anything. That means supporting multiple instances of finance systems, chart of accounts and local workflow requirements etc.
What you are probably looking for is a configurable and modular design for maximum flexibility that can be deployed in a phased step-by-step approach.
Do you need a purchasing application and an eProcurement application?
Almost certainly, and the scale of the opportunity is enormous. According to analysts, up to one-third of large enterprises have yet to buy any kind of eProcurement system and a quarter of them are not using any kind of eProcurement tools.
It really doesn’t matter what your drivers are – whether its goods for resale, or you what to bring the cost of your indirect goods and services under control – you will want to be the fittest on the planet.
Your COO might tell you that there are eProcurement capabilities available in your existing infrastructure, but being a slave to a mandate for a single global IT provider probably won’t cut it.
The alternative is to turn to specialists, like PROACTIS, who eat, sleep and breathe Spend Control and eProcurement and offer systems that leverage the value of your existing ERP investment.
Let’s face it. Do you really want to compromise when it comes to your cost containment agenda?
How hard is it to integrate best-in-class with ERP?
As a best-of-breed supplier of eProcurement, we have integrated to all flavours of systems. Typically it takes under five days to implement. In fact, with the well-known ERPs it can take just three days.
So our competence is also integration specialists. This means proven integration to Finance and ERP systems, plus a whole lot more: document management, business intelligence, stock systems etc.
We would argue that a best-in-class system is better integrated than the eProcurement module that comes native with the ERP package. That is no surprise when often the ERP plain old procurement systems are written 20 years after the target platform.
What you also need to consider is the total cost of ownership (TCO). This means ensuring that the integration is version independent so as you upgrade to the latest ERP version, and procurement version, it doesn’t keep your IT department awake at night.
Should organisations mandate eProcurement to drive compliance?
Yes. Corporate governance is a given these days. What is required is a tool that can monitor and audit compliance. You also need built-in controls throughout the procure-to-pay process:
- Financial controls such as account coding, commitment checking, purchase authorisation and audit trails.
- Buying controls such as catalogue access, sourcing rules and transaction templates etc.
The system must be practical for everyone to understand, so that complying with policies and procedures becomes second nature.
Catalogue content – can organisations rely on punch-out?
Punch-out is one of the many great tools to interact with suppliers and manage content.
However, managing supplier content should be like playing golf. You need different clubs to do different jobs. That means looking at a strategy to balance supplier type, capability and category type.
Sure, the Holy Grail is to ensure you do not suffer cost for maintaining catalogues and punch-out fulfils that objective.
Through punch-out, users have access to the supplier’s product catalogue and once items are selected, they are then routed through the established requisition, approval and order processes.
In fact you can go one step further with punch-through by loading catalogues on your own buying portal. Or even combine punch-out and punch-through with purchase order flip, enabling you to reduce supplier costs and therefore open up the opportunity to renegotiate prices.
To successfully manage supplier content, a mix of techniques is required: punch-out, punch-through, internal catalogues, contract based, quick quotes etc. and all of this has to be easily accessible to the end user.
Should eProcurement be rolled out to end users?
Yes. Otherwise you are layering in inefficiencies. The procurement process must be effortless for the entire organisation.
- For employees that means inductive buying. Having visibility of requests. Also ensuring a sense of ownership.
- For department managers, they want easy budget checking, one-click approvals and full visibility of costs.
- For Purchasing, there needs to be sourcing controls, centralised supplier and contract data and self-service buying for employees and self-service capabilities for suppliers.
eProcurement is about supporting people’s day jobs and delivering contribution to the bottom line.