posted 22 Jul 2008 in Volume 11 Issue 10
Delivering visibility, control and innovation
Basware's general manager, Europe and the Americas, looks at the growing trend towards eProcurement, and how public sector bodies have led the way in moving online to make corporate spending go further.
By Esa Tihila
After a rocky start 10 years ago, eProcurement is now starting to deliver on its long-standing promise of more streamlined supply chains, better relationships with the right suppliers, and significant savings on spending.
The latest generation of advanced eProcurement technology is enabling a whole new level of visibility and control within organisations, and its positive effects are being felt throughout the financial value chain.
Surprisingly, one of the key sectors at the forefront of this innovation is the public sector. Results from department-wide – and in some cases, city-wide – public sector deployments have been impressive, driving significant financial savings with new and more efficient operational models.
Why is the public sector leading the way in innovation? Local and central government bodies are often tasked with improving efficiency and raising service standards, such as the 2004 Gershon Review in the UK, which set cost-reduction targets of 2.5 per cent for every government body by the year, 2008. Furthermore, public sector bodies are more constrained by external policies and procedures covering these activities. This drives the need to show a clear, auditable record of what has been spent, by whom, and on what.
So what can private sector organisations – and indeed other public sector bodies – learn from these examples? And how can they add more control and transparency in their operations and supply chain?
Overcoming the obstacles
If you can’t see what your organisation is spending money on, you simply do not have effective control over your procurement processes. Better management of corporate spending has to start with visibility of the problem.
At the zenith of the dot.com boom, when the concept of eProcurement and the associated benefits of cost savings and efficiency gains were initially developed, there were four major obstacles – time, money and the lack of skills in using such systems as well as the technology itself.
Software licences were very expensive and there was a significant cost and time implication involved in integrating the software with back-end systems. Things have, however, moved on for the better and internal systems are now better equipped to deal with eProcurement, and the economics have swung definitely in favour of automation.
Electronic procurement solutions enable you to automate time-consuming and error-prone manual procurement processes, which often result in poor spending visibility, lack of process control and wasted opportunities for optimising corporate spending and supplier relationships.
The eProcurement software has been specifically developed to optimise procurement processes. An easy-to-use front-end interface, coupled with advanced software functionality that supports a high level of automation and overall compliance with corporate policies and contracts, ensures full control and transparency, from sourcing to purchasing.
Economics of eProcurement
Put simply, eProcurement has the ability to deliver significant cost savings. By identifying preferred suppliers that can offer the best pricing or volume discounts, you will be able to lower the cost of goods and services. This is particularly key for organisations with an indirect procurement model that deals with a wide range of suppliers and buys a wide range of goods and services. Another core benefit of the eProcurement model is that it removes the need to have goods in store ‘just in case’, freeing up capital and making the overall purchasing process more efficient and effective.
Public sector organisations – and many private sector counterparts – deal with tens of thousands of suppliers, with anything from nuts and bolts to toilet supplies to electricians or plumbing services. Ensuring an effective supplier relationship when dealing with a large number of those suppliers reinforces the business case for eProcurement and e-sourcing applications as it helps to deliver greater visibility and control.
The alternative, decentralised approach to procurement will often lead to ad-hoc purchasing – driving costs up as a result of multiple smaller purchases and the time involved with many employees purchasing the same items for individual office or departmental use.
Imagine a scenario where each department or office head spends an hour approving and signing off a specific purchase – the time and cost involved in this, multiplied across a public body or large organisation, soon adds up.
Now consider the alternative approach of an automated, centralised procurement solution, which not only delivers significant time and cost savings, but also ensures the most competitive pricing possible, through optimal leverage of existing supplier contracts. A reduction of just a few per cent makes a huge impact on overall spend across the company.
Making real strides in efficiency
But eProcurement can deliver far more than just lower prices. The net impact of other key deliverables – such as better productivity, faster planning, greater visibility and the elimination of unplanned, ad-hoc buying, will result in a considerably higher overall ROI.
Manual processes including approval logging and classifying act as a drag on efficiency, driving up costs and resulting in an inefficient use of corporate spend. A key focus of eProcurement is on making internal processes more efficient through the paperless processing of orders, receipts and invoices.
Organisations still have the reassurance they have the budgetary control, visibility of spend and process transparency needed, but automation brings with it the additional benefit of freeing up time and resources and enabling staff to focus on other more strategic areas of the business, such as optimising supplier relationships.
eProcurement as a platform for OD
eProcurement can also be effectively harnessed as a business tool, in order to further refine and improve internal purchasing processes; and in turn deliver sustained and continued ROI. A solution that can adapt and evolve in line with the company’s purchasing policies can be used to identify and help design improved business and procurement-led processes, leading to efficiency gains and increased transparency.
Companies can start this process by analysing existing procurement processes one-by-one, and looking to streamline them. It’s crucial to consider the end user in all systems that are implemented. Involving system-users in the design stage will help create a highly automated and easy-to-use solution that meets their needs, and most importantly, ensures they actually use the system. It’s impossible to manage spending or eliminate maverick spending without the buy-in of the entire procurement team.
Designing and implementing the right eProcurement solution creates, in effect, a virtuous circle, providing qualitative data on spending patterns, which can then be used to further improve procurement practices, and then to implement new processes, guaranteeing continual business improvement.
The public sector has been a pioneer of eProcurement, and it is a business model already well-proven in
With 5,000 employees and 50 professional buyers across 30 offices, the City of
The city has an annual purchasing volume of £2bn, and deals with more than 10,000 suppliers. It therefore looked to an automated eProcurement solution to approve, manage and control procurement across the entire organisation effectively.
After a rigorous selection process, the City of
End-users can easily access and search online supplier catalogues, and then create a purchase request and place an order for the relevant goods or services. This approach has also enabled efficiency gains in internal processes, delivering significant financial savings to the city of Helsinki by supporting the automatic matching of purchase invoices with purchase orders and removing the need for further invoice approval.
All purchases are automatically captured in the system, ensuring the necessary visibility, control and comprehensive reporting to effectively manage and optimise procurement across the organisation – by automating these functions and processes, the City of Helsinki has been able to focus on core activities and developing a more effective and strategic approach to procurement.
The eProcurement solution in place has enabled the city to achieve a matching success rate of more than 80 per cent for invoices relating to existing orders, saving time and eliminating inefficiencies in the procurement process.
The city of
The case of the City of
Furthermore, the drive towards eProcurement is set to accelerate with the new Pan-European Public Procurement On-Line (PEPPOL) initiative. This is a consortium of experts, with the objective of making it easier for European economic operators to respond to public sector procurement opportunities from awarding entities in any other country by using EU-wide implemented interoperable eProcurement solutions.
The latest generation of eProcurement solutions is playing a crucial role in transforming the financial value chain, giving procurement managers greater control over corporate spending. Better visibility over business processes not only ensures cost-effective use of resources and budget, but also supports continued innovation and improvement of core processes. ?
Top tips for eProcurement Success
Here are some top tips to ensure you make the most of eProcurement technology:
Ask yourself these questions. Is the value of what we buy high or low? Are the products or materials we buy unique, or are substitutes easily found? Is the market for those goods competitive (in other words, can we squeeze the suppliers)? And finally, how streamlined or efficient are our internal buying processes?
If you’re mainly buying direct goods that will be made into different products, you may want a more collaborative approach with links to a range of suppliers, so you can shop around more effectively.
If the goods you buy are unique, from a single supplier, using eProcurement may not benefit you much in terms of price, but it could make a tremendous difference in terms of documentation, efficiency, and reduced paperwork.
Opening up the silos
If the eProcurement system can link into your corporate ERP system or your accounts/financial system, it helps to break down data silos and enables better information flow –meaning better productivity and the ability to support a broader range of reporting possibilities.
Integration with other enterprise systems removes the need to raise paper invoices – which, in turn, reduces administration, and enables procurement staff to do their job better; working and haggling with suppliers and partners. Staff can work at a higher level and be more efficient – allowing expansion without an increase in headcount.
An effective partnership
The right links with suppliers will make procurement easier for both parties. eProcurement can add value to partner relationships, and bring vendor and customer closer together.
It’s not just about economies; it’s about being easier to do business with. If your deployment can reduce paperwork and shorten the purchase to fulfilment time, both parties can benefit and work more closely. So it’s worth outlining your eProcurement plans to your key partners. Tell them what you’re doing. Involve them; ask them to participate; spell out the benefits. This way, you can align your needs with those of your partners, and get a better match – helping to make the partnership truly valuable.
Esa Tihilä is Basware general manager, Europe and the