E-procurement was touted over the last decade as a system for delivering numerous benefits to organizations, including reduced spending. Now there are questions about its ability to fulfill its promise, unless the business is a very large global company.
— By Sharon Ross
Electronic procurement (e-procurement) is a solution that can deliver an average of 12 percent savings across the board, according to some estimates. Procurement practitioners understand what the system is capable of delivering, but many other organizational leaders believe it was over-hyped by technology providers as something that could provide benefits to every organization of any size.
Instead, large global companies seem to save tens of millions of dollars, but smaller companies are not experiencing proportional benefits. The many reasons for this scenario include too much complexity in terms of requirements and analytics, and the failure to fully implement the system and train users. How can organizations close the gap between the exceptional results multinationals receive and the disappointing results found in many smaller companies?
Blaming the Messenger
E-procurement made sense. It was a new software that could replace the laborious catalogue purchasing process, increase the efficiency of the purchasing process, automate transactions, and most importantly, decrease organizational spending through buying optimization. When e-procurement does not deliver as expected, the finger is usually pointed at procurement technology providers and management consultants who touted the many benefits.
It is true that many mid-sized businesses have not seen e-procurement deliver the hyped benefits. Fortune 500 companies tell a different story. They embraced e-procurement as an important tool a decade ago and quickly realized significant savings. Owens Corning said it documented savings of 10 percent on annual corporate spend of $3.4 billion by implementing e-procurement.
Global companies focused first on utilizing the procurement platform to reduce materials and supplies costs, but other benefits were achieved, too. They included significantly reduced transaction processing time, slashed error rates, streamlined interactions with supplies, and better decision-making by using real-time information. Unilever is another company that reported tens of millions of dollars in savings when it implemented Ariba e-procurement software.
Learning From Mistakes of the Past
Can only giant multinational companies benefit from e-procurement? The answer is “no.”
A few years ago, the general perspective was that e-procurement solutions are primarily beneficial to very large companies that have complex purchasing requirements. Some of that perspective developed because medium-sized companies that implemented e-procurement were trying to use products designed for very large companies with a large number of suppliers around the world. The sourcing solutions implemented in mid-sized businesses seemed to turn a fairly straightforward, simple procuring process into a complex, detailed one that was difficult for users to master. The systems required complicated digital forms to be completed and became too time consuming, plus many of the analytics were overdone and not based on meeting buyer needs. In a CIPS study, half of the inhibitors of e-procurement concerned buyers or suppliers not having the skills or desire to use the new tool.
Levvel Research studied industry trends and business spend management strategies through procurement automation software, reported in “2019 Procurement Insight Report” (sponsored by Coupa). One trend identified indicated a greater number of mid-size companies are considering switching to e-procurement.
One of the reasons for the shift was found to be the increasing organizational requirement that procurement find intangible business products, like contingent labor for IT operations, legal services, and IT systems from an investment focus. Procurement leaders are increasingly expected to assist in financial and operational decisions and to minimize organizational risks.
Another factor contributing to the trend is the growth in international supply chains in small and medium-size enterprises (SMEs). Mid-size companies have many of the same procurement issues as large companies but on a smaller scale.
From Plug-N-Play to Strategic Integration
Smaller companies must understand and meet the requirements of e-procurement implementation and utilization to achieve maximum benefits.
When implementation of an e-procurement system is treated as an end point, its benefits will be limited. By end point is meant the system is implemented without a strategy to fully integrate it into the organization’s processes. It remains more like a standalone buying system.
When used as a starting point for a digitally enabled spend purchase-to-pay and supplier management process, the benefits for procurement and the organization as a whole are more likely to be achieved. Buyers get a better view of their supplier relationships and transparency in spending is achieved, in addition to the automation benefits.
The implication is that e-procurement software is not a plug-n-play event. It must be strategically integrated into the purchasing process, something the global companies did quite well. The full-functioning e-procurement systems provide a buying system, procure-to-pay functionality, strategic sourcing, contract management, and supplier relationship management. The solution can be instrumental in supporting business goals concerning green supply chain activities to increase sustainability performance.
The implication is that e-procurement software is not a plug-n-play event. It must be strategically integrated into the purchasing process, something the global companies did quite well.
Integrating into the purchasing process includes bringing designated organization-wide decision-makers into the process and working with suppliers to ensure they support using the tools. Buyers must have the right skills and a willingness to use the tools they have access to on a day-to-day basis. Mastering the technologies is key to successful e-procurement.
Focus on a Solution That Fits Needs
To experience the advantages, mid-sized companies should focus on first buying an e-procurement solution that fits their particular needs.
BuyerQuest, one of many e-procurement platform providers, suggests the needs of mid-size companies are very different from those of large companies. The smaller companies need systems that can be scaled quickly as the company grows. They also have employees who wear many hats, so e-procurement systems need to be designed for people who are not full-time buyers.
Making the procurement process as easy as possible is important, as is having flexibility. Mid-size companies often do not have supplier management tools, so the e-procurement system can be designed to enable suppliers to engage with the procurement organization through a supplier network and enables payables capabilities that fit the invoicing and payment policies.
Mid-size companies can realize the many advantages of e-procurement with the right software system that grows with the company.