[From iSource Business, February 2001] What's the buzz? It's e-Biz. Purchasing execs, CIOs, CEOs and all the EIOs are calling, faxing and e-mailing their purchasing departments with the same frenzied demand: "Get us into e-business!" They want what they read and speak in sound-bites, electronic malls, preferred suppliers at a click, online bidding, paperless purchasing and payment, but most of all they want what they have always wanted: cost savings.
As in most reactionary impulses, no one really knows what e-business is. Is it transmitting orders across the Internet? Is it electronically linking payment and ordering systems with suppliers? Is it replacing current systems and software? No one has stepped back to scope out what it would take to achieve those systems and savings. Nor do they usually want to hear about the investment costs in systems, consulting fees, assessment of current resources and skill sets, licensing fees, the number of users, training, or defining business requirements. The belief that accompanies these "buzz" initiatives says that if you wish for it and hire the right consultant, then e-business and savings will just happen.
They don't want to hear the statistics: Purdue University spent $4 million on its e-procurement system, and they expect to spend $700,000 annually to maintain it.
FedEx has already developed a strategy: They use a fixed hourly rate for 250 hours with external consultants; they have existing IT resources; and 5,000 employees in their corporate IT department were their first set of users. Their executives realize that the only way they will ensure a healthy, long-term ROI is through the same foundation of all successful savings initiatives: changing employee's spending habits.
They also don't want to hear about the cases of low bid purchases where the quality of the product immortalized the phrase "you get what you pay for;" and where purchasing had to go back to original suppliers to mend the relationship bridges.
They want to hear the savings: FedEx expects 30 percent savings a year on a number of commodity items and services. And as soon as they turned on their system, they were able to attract new suppliers and create competition resulting in double-digit discounts from their existing suppliers simply based on their suppliers' fear of being outbid.
Caution: Consulting firms and service providers everywhere have sniffed the profit potential and are jumping on the e-bandwagon. Forrester Research is projecting that U.S. revenue from e-commerce and e-procurement services meaning the providers of those services, not the end-users are going to grow from $441 million in 1999 to $5 billion in 2003. These firms are rapidly reprinting their brochures to have those catchwords in their list of specialties. But, it's not all hype and reprinting where they are willing to spend. Big names like SAP, IBM and others will be banking on ROI on "e." SAP alone is spending up to one billion dollars in software partners this year to incorporate their products into mySAP.com.
So what's a purchasing professional to do? It's actually easy because basics are always the basics. Keep out of the frenzy mentality. Know your business requirements and executive's expectations. What do the executives really want? What are your business requirements? What commodity groups do you plan to target? What is the level of technology and e-capability of your supplier base? Do you have the internal resources to complete an e-procurement implementation? How many users will access the system? How will you measure the savings or ROI? Know the proposed consultant's track record and level of expertise and make sure they bring those resources to the project and not just to the sales presentation. According to researchers, e-biz is still in the primordial stages, not totally "e"-volved," if you will. Until there's a bit more honey behind the buzz, focus on a phased strategy and you won't get stung.
Sara Vinas is an attorney who has been involved in procurement, negotiation and management for over 10 years.
As in most reactionary impulses, no one really knows what e-business is. Is it transmitting orders across the Internet? Is it electronically linking payment and ordering systems with suppliers? Is it replacing current systems and software? No one has stepped back to scope out what it would take to achieve those systems and savings. Nor do they usually want to hear about the investment costs in systems, consulting fees, assessment of current resources and skill sets, licensing fees, the number of users, training, or defining business requirements. The belief that accompanies these "buzz" initiatives says that if you wish for it and hire the right consultant, then e-business and savings will just happen.
They don't want to hear the statistics: Purdue University spent $4 million on its e-procurement system, and they expect to spend $700,000 annually to maintain it.
FedEx has already developed a strategy: They use a fixed hourly rate for 250 hours with external consultants; they have existing IT resources; and 5,000 employees in their corporate IT department were their first set of users. Their executives realize that the only way they will ensure a healthy, long-term ROI is through the same foundation of all successful savings initiatives: changing employee's spending habits.
They also don't want to hear about the cases of low bid purchases where the quality of the product immortalized the phrase "you get what you pay for;" and where purchasing had to go back to original suppliers to mend the relationship bridges.
They want to hear the savings: FedEx expects 30 percent savings a year on a number of commodity items and services. And as soon as they turned on their system, they were able to attract new suppliers and create competition resulting in double-digit discounts from their existing suppliers simply based on their suppliers' fear of being outbid.
Caution: Consulting firms and service providers everywhere have sniffed the profit potential and are jumping on the e-bandwagon. Forrester Research is projecting that U.S. revenue from e-commerce and e-procurement services meaning the providers of those services, not the end-users are going to grow from $441 million in 1999 to $5 billion in 2003. These firms are rapidly reprinting their brochures to have those catchwords in their list of specialties. But, it's not all hype and reprinting where they are willing to spend. Big names like SAP, IBM and others will be banking on ROI on "e." SAP alone is spending up to one billion dollars in software partners this year to incorporate their products into mySAP.com.
So what's a purchasing professional to do? It's actually easy because basics are always the basics. Keep out of the frenzy mentality. Know your business requirements and executive's expectations. What do the executives really want? What are your business requirements? What commodity groups do you plan to target? What is the level of technology and e-capability of your supplier base? Do you have the internal resources to complete an e-procurement implementation? How many users will access the system? How will you measure the savings or ROI? Know the proposed consultant's track record and level of expertise and make sure they bring those resources to the project and not just to the sales presentation. According to researchers, e-biz is still in the primordial stages, not totally "e"-volved," if you will. Until there's a bit more honey behind the buzz, focus on a phased strategy and you won't get stung.
Sara Vinas is an attorney who has been involved in procurement, negotiation and management for over 10 years.
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