e-Procurement: It Takes Time

Benefits are real, but require consistent, persistent approach, consultant argues

Alexandria, VA  September 24, 2002  e-Procurement remains poorly understood in Corporate America, and most companies have not yet made the strategy, program and technology choices needed to achieve the substantial benefits available, according to a new report from a supply chain consulting firm.

But in his report, "e-Procurement: New Dimensions in Electronic Commerce and Supply Chain Management," author Scott Elliff, president of Capital Consulting & Management Inc. (CCMI), argues that the benefits of e-procurement are real and can be achieved given a consistent, persistent application of electronic purchasing processes and technologies.

Elliff writes that many companies remain wary of e-procurement, in part because the very aspects of the Internet that consumers find attractive  the ability to surf the Internet, access a variety of possible vendors and make one-time purchases at a posted price  are exactly what corporations are trying to avoid.

"Companies want to ensure that their processes are reducing the time employees spend purchasing; leveraging their volume with preferred suppliers; [and] limiting choices to only those suppliers, materials and services that they are confident can meet pre-approved levels of price and quality," Elliff writes.

Nevertheless, pressure to obtain e-procurement's benefits is building. Elliff cites a recent survey by Deloitte Consulting that found just 15 percent of major corporations are satisfied with their current level of e-procurement activity.

The potential benefits of e-procurement, CCMI says, fall into four categories: "increasing efficiency in executing purchase orders and other transactions; accessing the capabilities of a broader supply base; leveraging your volume to drive better prices and supplier value-added services; [and] improving the effectiveness of your ongoing procurement process."

But achieving these benefits will not happen overnight, Elliff warns. Rather, the benefits come when companies consistently apply process changes and technologies to address specific objectives. In addition, companies must be aware of the challenges associated with realizing each type of sought-for benefit.

For example, process improvements will only result in savings if the new purchasing techniques, such as strategic sourcing methodologies, are institutionalized and applied continuously. Alternatively, using a reverse auction to drive down prices is only beneficial if a new supplier can meet quality and service-level requirements.

Delta Air Lines' use of e-procurement offers insights for corporations looking to improve supply chain operations and profitability. The company is using Web-based tools to streamline and improve sourcing, procurement execution and material and asset control.

Delta's program includes the standard e-procurement fair: automating purchase order and related transactions with suppliers through the corporate enterprise resource planning (ERP) system, using electronic catalogs with approved items from preferred suppliers, leveraging key vertical marketplaces for aircraft maintenance supply chain processes and deploying software from solution provider B2eMarkets to strategically source and provide ongoing purchasing process improvement.

Delta has over 2,500 users worldwide executing e-procurement transactions, and virtually all of Delta's procurement professionals are trained to utilize e-sourcing for their strategic activities.

"We have been working for nearly four years now to put the key elements in place," said Johnathon Baker, general manager of B2B e-business at Delta. "By systematically matching the 'right' processes and technologies to the unique needs of different supply chain activities and specialized commodity categories, we are now achieving benefits in each of the key areas CCMI has outlined."

"Delta's experience underscores the importance of careful planning when considering solutions for e-procurement, strategic sourcing and related areas," said Elliff. "Companies getting started in e-procurement need to follow a disciplined process, starting with determining the objectives they are trying to meet, establishing the appropriate strategies and then finding and implementing the best e-procurement software, tools and programs for achieving them."

How happy are companies with the results they are achieving through e-procurement? Elliff again cites the Deloitte survey, which found that of those few corporations that had extensively adopted e-procurement, 88 percent were satisfied with the results and were reporting returns in excess of 300 percent.