E Procurement - Challenges and Opportunities

E procurement is an automation tool for corporate purchasing process. The core definition is a business to business sale using the internet as the medium for order processing. E procurement is more than the simple shortening of the supply chain with the Internet closing time and distance obstacles between suppliers and users of products.

Instead, it is a comprehensive integrated IT network that encourages purchasing discipline and leverages group buying power for all procurement responsible people in an organization.

E procurement systems consist of a number of different tools. These include automation of internal ordering processes, online catalogs from approved vendors, and an electronic Request for Proposal (e-RFP) process that leverages online auctions (e-auctions) to accumulate bids on providing goods and services for a specific project.

The reasons for implementing e procurement systems all boil down to one critical metric: ROI. According to the Aberdeen Group study in 20041, companies that move to electronic procurement experience the following benefits:

  • * Reduced off contract spend by 64%.
  • * Reduced prices by 7.3% for spend brought back onto contract.
  • * Reduced requisition-to-order cycles by 66%.
  • * Reduced requisition-to-order costs by 58%.
  • * Increased total spend under management of procurement group by 20%

What all these statistics boil down to is that where visibility exists, controls on spending are easier to implement. The term most commonly used is that e procurement reduces maverick spending. These systems consistently lower the total cost of acquisition.

The challenge is that in a capital-tight environment, the cost of acquisition and fielding of an e procurement system can seem prohibitive. For pure-play systems, software licensing and enterprise fielding costs can run from $200,000 to $4,000,000 depending on the size of your organization.

Other challenges to implementation include, as with any other new system fielding, push-back from users. Both internal users and even some vendors can create friction and resist the change. For leaders in organizations, it is critical to prepare both internal customers and actively communicate with vendors to ensure they are on-board with the program.

In addition, electronic procurement is still growing and changing. Hosted solutions are coming into being, referred to as Procurement Service Providers (PSP) that provide externally hosted procurement systems.2

Like any 3PL or software service provider, for a lower up-front investment, a company can implement the service, though overtime it may prove more expensive.

(1) http://www.aberdeen.com/Aberdeen-Library/3401/RA_eProc_AB_VC_3401.aspx

(2) http://searchcio.techtarget.com/tip/0,289483,sid182_gci876420,00.html

 

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