Lesson 1: Save Money

Newsmaker Lamar Alexander, who for the past two decades has donned many esteemed hats, including U.S. education secretary, governor of Tennessee, and president of the University of Tennessee, made headlines earlier this year with the creation of Simplexis.com, an e-procurement service and one-stop shopping mall for school districts. While Alexander's bids for the U.S. presidency fell on deaf ears in 1996 and 2000, news of his latest venture, which he co-founded and chairs, caught the attention of school business officials nationwide.

With the battle cry of saving schools $10 billion in procurement costs by 2005, the San Francisco start-up announced on April 11 its first online purchase between Glendale (California) Unified School District, comprised of 31 schools and 30,000 students, and office-supply giant Boise-Cascade, based in Itasca, Illinois.

Simplexis was hardly the first to explore public-sector e-procurement opportunities, but its high-profile leadership will undoubtedly create even more interest and competition in the often-overlooked kindergarten through 12th grade e-commerce marketplace.

Alexander's goal of $10 billion in procurement savings is hardly pie-in-the-sky rhetoric. Private-sector companies have tallied up to 30 percent savings via Net-based purchasing, says management consulting firm A.T. Kearney of Chicago. B2B Internet purchases are expected to reach the trillion-dollar mark by 2002, adds Deloitte Consulting of New York. Boston Consulting Group predicts an even loftier $2 trillion by 2003.

Though figures don't exist for the public sector, Alexander's savings estimates are actually conservative, anticipating 25 million requisitions per year for the combined school districts and a savings of about $100 per requisition by moving the order online. Most purchasers peg the costs to walk a purchase order/requisition through traditional approval routes at $125, whether buying a $5 hammer or a $1,000 computer.

While e-procurement helps purchasers and suppliers more effectively manage transactionsturning 10 to 20 percent of procurement expenses directly into pretax profit in the private sector, according to A.T. Kearney researchin the education sector, pretax profit takes a more philanthropic slant. Saving money on the supplies schools buy means more money for kids in classrooms, says Alexander.

The Merits of Middlemen

All of the country's 91,000-plus public schools spread among more than 16,400 school districts need everything from pencils to buses to wastebasket liners to food service. How wonderful it would be if their collective $85 billion in annual purchases could be aggregated to secure volume discounts from suppliers. How wonderful it would be if these schools could save incalculable time by transacting purchases electronically instead of on paper.

What if this scenario required no upfront technology investment? What if it didn't cost schools a penny? This is in fact the case. And the only question on school purchasers' minds should be, Which e-procurement package is right for us? says Glendale Unified Director of Purchasing Patrick Kennedy. Test-driving multiple products is practical with a zero price tag, says Kennedy, who not only partners with Simplexis but is also in fruitful dialog with the dot com's arch rival, 11ΒΌ2-year-old Epylon.com, also based in San Francisco.

While there are numerous district-run buying consortiums, one of whichthe Texas Cooperative Purchasing Networkwas purchased by Epylon in March of this year, as well as supplier-initiated electronic linkages, Epylon and Simplexis hope to make inroads in distributor or middleman territory.

Naysayers claim the Internet spells the end of middlemen because suppliers can establish direct electronic linkages with their customers. But school business officials don't necessarily want to deal with suppliers on an individual basis. Most don't have the funds to establish buyer-managed linkages.

Sites such as Epylon, a supplier-neutral marketplace, allow buyers to shop for all school products and supplies at a single online location, says Kim McNair, the company's senior director of marketing and communications.

Co-founded in April 1999 by Stephen J. George, a former Goldman, Sachs & Co. vice president, Epylon continues to beta test its tailor-made offering with 55 school districts and 1,200 suppliers. Another 1,000 school districts and government agencies have signed on for its national rollout this summer. Newcomer Simplexis, which launched in February 2000, currently facilitates online transactions between 24 school districts and 1,200 suppliers, though 200 additional school districts are expected to come aboard shortly. At both companies, the numbers of involved districts and suppliers are growing substantially each month, as are their employee bases, which as of June totaled 150 at Epylon and 85 at Simplexis.

End-to-End in Mind

While the companies approach e-procurement from distinct platforms Epylon's original, Simplexis' borrowedboth profess long-term goals of end-to-end automation, from purchase order creation to supplier payment. Currently, however, their electronic linkages short-circuit at the back end.

Complete e-procurement solutions for the public sector will not materialize overnight, tempers Amar Singh, Simplexis co-founder and CEO. The adoption rate will be evolutionary rather than revolutionary, Alexander concurs.

School procurement professionals, however, can still realize improvements from current and front-end capabilities, the steps that precede purchase order transmittal to the supplier.

Simplexis Up Close

From the purchaser's perspective, the Simplexis product is a zero-cost, third party-hosted online purchasing system. Specifically, it's a customized version of Commerce One's BuySite software, with installation, setup and maintenance handled by application service provider Corio.