Online business degree programme

Whatever happened to e-procurement? It wasn't so long ago that online purchasing was being touted by consultancies and software vendors as a great way for companies to reduce costs and increase productivity, but the economic benefits simply haven't materialised. Anecdotal evidence from the early adopters of e-procurement reveals no return of investment (ROI), and that's after more than 12 months of using web-based purchasing. Why has e-procurement, for the vast majority of its users, foiled to live up to expectations?

Experiences from the market

An evaluation of the early adopters has identified some common themes, regardless of industry or software package used. Firstly, there have been a number of high profile failures. Some multinational businesses have suspended or even abandoned their e-procurement projects after failing to secure buy-ins or generate any discernible benefit. On occasions, schemes have even failed to progress beyond the purchase of stationery or easily catalogable commodity groups.

There has also been significant internal resistance within organisations who claim that there are no demonstrable buy-side e-procurement business benefits, while there are hostile suppliers that are refusing to adopt e-procurement into their business model. It is also fair to say that there is no strategy of what individual projects are trying to achieve for organisations, with many companies complaining that solutions are technology led, rather than benefits driven.

The problems can in part be explained by the dotcom phenomenon because so much traditional business judgement was ignored during this period. But the real reason is that the vast majority of e-procurement early adopters have simply missed the point of what buy-side e-procurement is all about. This can be illustrated (and lessons can be learnt) by looking at the present state of play of the e-procurement business case and adoption, technology and process, supplier take-up and programme management.

Business case

Many of the problems besetting early adopters can be found in the original business cases that were put together. This is because they were over-hyped to a high degree. The key areas put forward for e-procurement were based on process cost savings, delivering compliance to corporate contracts and the generation of management information (MI) to drive improved arrangements.

The process argument has been heavily used by many organisations to justify their investment. According to this school of thought, e-procurement reduces the cost to proceed with an order from around US$100 ([epsilon] 12) to between US$5 ([epsilon]6) and US$30 ([epsilon]34) respectfully. Simply multiply the amount of orders a company places by a cost saving of between US$70 ([epsilon]79) and US$95 ([epsilon]107), and the organisation ends up with a very big saving. The problem, of course, is demonstrating bottom line impact. After all, most procurement in a production environment is either automated already through master production schedules (MPS) or is a 'bits and pieces' procurement process involving small amounts of time across a number of employees. As a consequence, it is not about headcount that can be removed from he business, but rather 'arms and legs' savings. And what is also to stop employees spending the ten minutes that has been saved a their end of the procurement cycle from looking out of the window?

The compliance argument is more compelling. It is based on the premise that if the organisation could get all of its expenditure to be bought against consolidated contracts, then it could unlock the power of its purchasing through economies of scale. The problem here is twofold. Firstly, to reduce cost one needs to improve the arrangements of a purchase, which is an activity that is not delivered by the e-procurement system but rather by procurement activities that surround it. Secondly, it does not cover all the necessary expenditure. This leaves alternative routes to purchase that can continue to mask 'maverick' behaviour. Perversely, simply driving compliance to existing arrangements may actually drive up cost if extreme behaviour is driven by a lack of confidence in the existing corporate arrangements.

A similar story exists for the MI opportunity. Although e-procurement generates MI, the problem is that the buyer needs to see all of the expenditure and not just the amount going through the e-procurement system.

Business adoption

It's a sad fact that many e-procurement projects continue to have a small number of users. This is despite considerable effort and expenditure that has been made over the last 12 months. There are two primary reasons for this, The first is the failure to build the business case for change. Due to the lightweight and uncertain nature of many of the business cases put together, buy-ins have proven increasingly difficult. What this translates into is a clear understanding of the cost but not of the benefits for adopters. The second problem is that employees see the system as supplanting freedom of choice and ease of procuring. While online procurement may seem a more efficient route in central office, it might not be seen as such for someone who is used to picking up the phone without firstly needing authorisation.

Technology and process

Technology is often the area where organisations become fixated when undertaking e-procurement. The reality is that e-procurement 'strugglers' have rarely had problems with getting the system up and running. However, the agenda is often IT-led as opposed to business-focussed. So the orientation of the project is driven towards how to integrate, upgrade paths and so forth, without ever stopping to ask the question 'why?'

But even more importantly, the significance of process design is often either ignored or under-emphasised. Process is a critical component of successful e-procurement. It determines what the purchase procedure should look like, which the system then in turn embeds. This covers such sensitive issues as the authorisation hierarchies and reporting processes for workflow. Equally, it contends with problems such as whether approval should be signed-off by the line manager or budget holder, or a combination of both. The problems of what a process should look like and how it supports both the sourcing strategy (if one has been developed), coupled with the practicalities of purchasing the commodity group within the business, are prime reasons why organisations often struggle to get much beyond stationery and furniture. The complexity of commodity groups who are service based (such as travel, temporary labour and maintenance contracts) has meant that they have often been left to 'later stages' of implementation. The irony beyond this is that these commodity formations are often the higher spending areas that provide liquidity to a system. On the same level, the failure to deal with these parties causes user adoption problems as employees resist the e-procurement system because of its lack of coverage.

Supplier adoption

An e-procurement system without suppliers is unimaginable. Despite this, many early adopters have struggled to form a coherent strategy towards supplier take-up. Often too technically focused, company projects have made the assumption that existing suppliers will simply migrate onto an organisation's system. But they do this without considering the costs to the supplier or their relative sophistication to be able to do this. The reality is that often no incentive is built for the supplier and there is little support in the transition process from the adopting company. Indeed, feedback from the market suggests that many suppliers have had enough of the whole e-procurement episode as different customers have asked them to do the same thing in a multitude of ways.

Programme management

The problem with programme management is that success or failure has been demonstrated to ultimately depend upon the level of insight within the interdependencies at play within the various streams. For example, the process team requires a clear definition of the sourcing strategy from which to design a robust procedure that is specific to a particular commodity group. In turn, the technical team has to have a course of action by which to design the look and feel within the system. The change team, which is responsible for gaining acceptance and use of the set-up by the organisation, also needs both the process design and the sourcing strategy to engage with the business. This is because they have to map what's going to change, why, and what the benefit to the company is in quantifiable terms. Typically, programme management has been positioned as being something that concentrates on hitting the technical milestones, while other critical activities are undertaken (if at all) in isolation by line functions, s uch as finance, procurement, human resources, manufacturing and marketing.