By now you may have had it up to your lower lip with the Internet and its impact on the way we live, buy and communicate. Dot com-itus, you've decided, sounds epidemic and untreatable. And while you¹re not averse to change, you might still be having trouble getting your brain around the concept of online procurement.
But the era of e-procurement is here. Ignore its impact on your job, company or organization at your peril. Between buy-side systems, online catalogs, aggregator sites and reverse auctions, the Internet provides powerful tools to save money not just on commodity goods but on specialized parts and services.
The Internet is already transforming the way purchasing and supply management professionals think, how they behave and their status in the corporate hierarchy. "With the Internet, purchasing people can eliminate a lot of those silly calls and faxes -- it will all be handled for you at the correct site," says Keven Gray, vice president of procurement and strategy for MaterialNet.com, Lake Success, New York. "e-procurement lets you spend more time on purchasing techniques, streamlining parts or improving certain areas, rather than the administrative baloney that has sucked up purchasing time for years."
Gray, himself a former purchasing manager for his family-run manufacturing concern, agrees with other purchasing managers and industry experts when it comes to the Internet as an agent of change. Impressed with the opportunities in the e-business arena, Gray left his "traditional" purchasing and supply management job and went to work for a dot com leveraging his knowledge to help his new employer. Gray and others making the leap see this new world through a very strategic lens: With the savings and efficiencies derived from online procurement, purchasing and supply managers are free to think more along strategic and holistic lines.
eProcurement is also causing a subtle but unmistakable power shift that favors purchasers over suppliers more than any other market development in memory. That means that purchasing and supply managers can behave more proactively.
Those two e-procurement developments in themselves force a third issue: Through strategic thinking and proactive behavior, purchasing and supply managers are likely to get absorbed in the decision-making nucleus of their organizations, increasingly reporting to the CEO or CFO rather than an administrative figurehead."Ten to 15 years ago, a purchaser's job was more clerical --pushing paper requisitions and P.O.s, phone calling and receiving fax quotes and hard bids," says Kelly Loll, former purchasing manager for Seminole County, Florida, and now strategic alliance manager for DemandStar.com in Maitland, Florida, an online bidding site for state and local governments and their suppliers. "Buyers can now concentrate more on value-added services like strategic planning, analyzing information and making better procurement decisions."
Loll made the same move as Gray, leaving the traditional environment to pursue a career heavily focused on e-business, specifically e-procurement. This career shift should become more common as purchasing and supply management professionals see advancement opportunities in the e-business world. "The economic environment is ripe for evaluating and taking action on your next career move," says Loll.
Savings and Methods
Apocryphal and real-world e-procurement activities have captured the attention of investors, directors and chief executives. Savings can be gleaned from volume purchasing, either inside an organization or across an entire industry, like the planned procurement portal jointly developed by DaimlerChrysler, Ford Motor Co. and General Motors.
Other industrywide portals are being discussed or built in segments such as steel, retail, real estate, aeronautics and chemicals. But so far these online market exchanges that bring together multiple purchasers and sellers have generated more headlines and puzzlement than benefits or savings. In the automotive portal, it's unclear whether the price for a car part will cost GM and Ford the same, if one will pay more than the other or some combination, depending on the piece of equipment or service in question.
The savings from e-procurement can be sizable, according to consultancy Booz Allen & Hamilton Inc, McLean, Virginia. IBM estimates it saved 10 to 15 percent on $12 billion in expenditures in 1999, while Chevron is predicting 15 to 25 percent overall cost reductions on all goods and services purchased online this year.
It's in this new market environment that those in purchasing and supply management find themselves catalysts or roadblocks for change. Most are taking the path to positive change.
Word to the Wise: Strategize
Mentors and high-priced consultants have for years encouraged the ambitious to tie their own goals to those of the organization for which they work. To a large extent, e-procurement forces the purchasing manager's hand on this. The tactical mindset, the week-to-week perspective, the endless schmoozing of suppliers becomes an anachronism with e-procurement. "Forward-thinking purchasing organizations are recognizing that there is no reward or value for purchasing noncritical, commonly found, consumable supplies and parts," said Michael Patton, president and CEO of PurchasingFirst.com Inc., Dublin, Ohio. "So they are putting their resources toward strategic purchasing issues, where they can make a more significant impact on the bottom line."
The strategic-minded concur, suggesting that the profession is finally getting to do what it always wanted, according to one longtime purchasing executive. "e-procurement allows people to do what they thought they were going to do when they became purchasers: source merchandise and supplies and provide employees the tools they need to drive their businesses and be successful," says Beverly Mackey, vice president of procurement services for Charles Schwab & Co. Inc. in San Francisco.
As online procurement penetrates purchasing consciousness, the focus shifts from transactions to ensuring that the goods and services are more available to the employees. "You can offer a small selection or full catalogs defined to a particular group -- the buyer gets to be more of a customer expert. What our branch employees require is somewhat different from the needs in technical departments. It allows targeting specific task-related purchases," Mackey says. "My client is better-served because they can have specific tools they need, and the firm maintains the processes necessary to manage value."
Professionals can then start to focus on the customer, the organization's bottom line and value-added functions such as in-depth supplier sourcing, quality assurance and supplier performance reviews. Perhaps most importantly, online procurement frees up purchasers to tune into customer needs. "Our customers give us fabulous ideas on how we can improve services," Mackey says. Her organization's purchasing and supply team is able to hear the ideas and implement them, in part because e-procurement has begun to free them.
According to C.V. Ramachandran, vice president in the operations practice of Booz Allen & Hamilton in New York, e-procurement permits purchasers to control the market proactively instead of the market inflicting its idiosyncrasies on purchasers. Online purchases tend to encompass a full year's worth of supplies or services, or at least several quarters' worth. But customers may have to encourage their own organizations to be a bit more proactive. Ramachandran offers basic principles to ensure e-procurement's success across the board:
- Eliminate waste or create value. These are the only ways to achieve sustainable benefits.
- Match e-procurement solutions to the characteristics of the spend.
- Decide if, how and when you can become a market maker. € Leverage existing e-procurement products. Don¹t spend the time and money to develop something proprietary.
- Don¹t underestimate the internal changes required to realize benefits.
Proactive thinking should also lead companies and purchasing departments to more fully embrace the system and tenets of supply chain management, according to Thomas Stallkamp, CEO of MSX International, Auburn Hills, Michigan, a global outsourcing services company. "True supply chain management deals with strategic planning, production control and scheduling, inventory management, demand forecasting and warranty or customer follow-up," he said in a speech at this year's International Purchasing Conference in New Orleans. "All these functions in your company can, should and will continue as Web communication accelerates the speed of information flow."
Faster ordering, reduction of maverick spending, bids that are easier to compare -- the benefits of e-procurement accrue quickly. It's inevitable that senior management and the finance department will take an interest in the purchasing and supply chain management function. e-procurement doesn't just save money, it also has the potential to push a company into new market segments and customer groups, as well as generate customer data that convey rich competitive advantages.
"By simplifying and optimizing processes, you can flatten your organizational structure. Pushing the processes down the chain allows for a smaller direct-report organization," said David Lucas, a manager for KPMG Consulting, Dallas, and a former procurement specialist at Raytheon. "You may lose headcount within the purchasing department, but you're increasing purchasing people in your company by enabling controlled user self-service procurement."
While the executive suite may take greater interest and seek more insight from purchasing and supply management professionals, other challenges may arise. Can purchasing staff be counted on to embrace change that pushes their functions closer to end-users? And what happens if longtime suppliers balk at such changes?
"eSourcing bridges the divide between traditional functional silos and distributes purchasing authority across the organization," says Ramachandran. In the process, it empowers purchasers and reduces the record-keeping and administrative aspects of purchasing. That in turn requires purchasing and supply managers to be more expert at strategic negotiation and commodity allocation, he adds.
"The Web can alleviate the clerical functions but it's not going to replace human intelligence for strategic sourcing and supplier relations," says Stallkamp. "You may be able to auction off mops and brooms online, but no one should auction off a company's relationships with its suppliers."
For Gray and Loll, fresh from the brick-and-mortar environment, it was an obvious choice. They wanted to leverage their purchasing and supply management intelligence on behalf of the dot com world. How many will follow is fodder for another e-commerce study. More importantly, their example reflects the exciting opportunities available in the profession.
By embracing online procurement directly, purchasing and supply management professionals can not only participate in change but also use it as a catalyst to reorder their career and its trajectory. Dot com-itus, as it turns out, is rarely fatal and is completely treatable. Like any other acquired skill, it just requires the right training and mindset.