Long considered the poster application of the Internet bust, e-procurement is quietly making inroads in enterprises large and small, helping them reduce operating costs and save money on indirect materials, while improving compliance with negotiated contracts and increasing the total spend under management.
Those are the key findings of the recent "Eprocurement Benchmark Report", produced by market researcher Aberdeen Group (Boston). The 147 primarily North American companies participating in the 2004 benchmark, on average, said e-procurement systems helped them to:
- reduce off-contract or maverick spending by 64 percent;
- cut costs by 7.3 percent for spend that was brought back onto contract;
- accelerate the cycle of requisition-to-order by 66 percent, and;
- slash costs in that same area by 58 percent.
Even better: The report found that the amount of total spend under management of the procurement group was bolstered by 20 percent; the research shows that each new dollar brought under management can yield savings of between 5 percent and 20 percent.
"Companies achieving the best benefits from e-procurement are incorporating the technology as part of a holistic supply management strategy," notes Tim Minahan, senior vice president of supply research at Aberdeen, and author of the report.
Minahan attributes the category's newfound success to a number of factors. New pricing and delivery models have made the tools accessible to smaller companies. According to Aberdeen research, license fees for e-procurement tools have decreased nearly 75 percent since 1998 and consulting charges for implementation are now typically less than the initial fee.
Supplier networks and catalog hubs have also gained traction and helped to minimize the burden of getting suppliers up and running on the systems. While early e-procurement implementations (in the 2001 timeframe) had on average around 30 suppliers enabled, today, that number has increased nearly 10-fold to 250, Aberdeen found.
Those companies enjoying success with e-procurement have also embraced some common tactics. Most have successfully engaged senior executive support, and thus invoked companywide policy changes to drive acceptance of the systems throughout the user community. They've also seen the benefits of elevating e-procurement from a tactical activity to a strategic initiative. Broadening e-procurement with other, complementary solutions and services such as e-sourcing also helps promote the technology and assists in building the business case and securing budget support.
Finally, Aberdeen found that top performers were also taking the time and effort to clearly define and reinforce cost, process, and performance metrics for e-procurement, measuring things such as adoption and usage rates, requisitions issued each month, and requests for off-catalog items.
Challenges Remain
While e-procurement has clearly gained headway over the last few years, the category still has its share of hurdles. There's been tremendous consolidation among vendors, including the highly-publicized bankruptcy of CommerceOne. And the market will remain flat, according to a recent study by Forrester Research Inc. (Cambridge, MA), which showed that only 17 percent of enterprises surveyed planned to upgrade or purchase new versions of the software in 2004, well below the number eying licenses for business intelligence software (35 percent) or financial software (31 percent), for that matter.
Supplier enablement is still a sore spot, especially for those companies that have yet to embrace catalog hubs or networks. "Supplier enablement continues to be the 'Achilles heel'," Aberdeen's Minahan admits, although getting vendors online has been made a lot easier. Another area that warrants improvement: Expanding e-procurement from requisition to order -- the process of automating order taking -- to back-end processes like invoice reconciliation and payment. "Today many companies are issuing the order electronically, but issuing the invoice manually," outside of the system," he explains. By leveraging the system for the complete cycle, companies can expect a number of benefits, including improved cash flow, reduced overhead costs, and better supplier relations.
As those remaining areas get resolved, Minahan sees even more gains to be made, especially as companies extend e-procurement tools into new categories such as services -- for example, advertising, legal assistance or IT outsourcing.
Who knows. In time, the buyer may no longer need to beware.