Back in the late 1990s, when he was a senior supply management executive at United Technologies Corporation (UTC), Shelley Stewart, Jr. says he was an early skeptic of the potential benefits of e-procurement. In fact, when the founders of FreeMarkets (later acquired by Ariba) showed up to speak with him about their pioneering e-sourcing solution, Stewart says, "Basically I wasn't going to give them the time of day."
However, UTC's top supply management executive at the time, Kent Brittan, was an early enthusiast for applying technology to address the challenges of procurement. Brittan tapped Stewart to be the point person for UTC's relationship with FreeMarkets, which helped produce $1 billion in savings over the course of four years. That experience, along with his work with IBM on an electronic req-to-check payment system for UTC, changed Stewart's attitude about using technology to enable supply management processes.
"I really learned how technology can help bring value to the procurement process," says Stewart, who subsequently did stints as vice president of supply chain management for Raytheon Company and senior vice president of supply chain management at Invensys before joining Tyco International (US) Inc., where he currently is senior vice president for operational excellence and chief procurement officer.
e-Procurement Gains Acceptance
Stewart's experience with e-procurement — initial skepticism giving way to acceptance and then a measured enthusiasm — mirrors the changes in the broader marketplaces' attitude toward electronic procurement technologies over the past six years. The hype about e-procurement peaked shortly before the tech bubble burst around 2000-2001, and in the post-bust environment solution providers in this niche had difficulty living up to the high expectations they had been built up for their applications. For example, an April 2004 survey by Forrester Research found 35 percent of respondents reporting that procurement or sourcing software was not meeting expectations for anticipated benefits. Reasons cited for the disappointment included "organizational and process changes, the expanding set of applications required for success and resistant suppliers."
Still, none of the business challenges that prompted companies to look at e-procurement in the first place have vanished. Organizations are still looking to cut administrative overhead and reduce their direct and indirect spend; improve compliance with procurement contracts and purchasing policies; drive procurement savings into new categories; and reduce — or at least better manage — their supply base.
Moreover, evidence has begun to appear suggesting that investments in e-procurement technology can produce significant payoffs. Research released by business process advisory firm The Hackett Group in its 2005 Book of Numbers indicates that "world-class" procurement organizations (those in the top quartile in both efficiency and effectiveness) spend more than their peers on technology (21 percent of their spending, versus 13 percent for typical companies) but 20 percent less than typical companies on total procurement operations. The effective use of technology allowed world-class procurement executives to improve efficiency, helping them reduce their cost per purchase order to $8.48, while typical companies spend 153 percent more, Hackett found. In addition, world- class procurement executives operated with 50 percent fewer staff than typical companies and showed dramatically improved cycle times and reduced error rates.
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