Technology Is Not Enough

Forrester: Greater supplier collaboration, internal process changes drive success in e-procurement implementations

Tempe, AZ  February 27, 2002  Companies that promote collaboration with their suppliers and change their internal processes are achieving the best results from e-procurement initiatives, according to a new report from Forrester Research.

In the report, "What Drives e-Procurement Success?", Forrester analyst Bruce Temkim highlights collaboration and process innovation as key factors in generating results from e-procurement implementations. Temkin concludes that companies leading in these two areas are capturing the greatest savings from e-procurement.

Based on the results of a survey conducted in conjunction with the latest Report on e-Business, a joint project of Forrester and the Institute for Supply Management (ISM, formerly the National Association of Purchasing Management), Temkin and co-author Katharine Gardiner segmented companies into four categories, based on their level of supplier collaboration and internal process improvements.

"Renovators" who were both collaborating with their suppliers and changing processes were buying the most online and also benefiting most from cost savings. These companies, about one-third of all those surveyed for the ISM/Forrester report, were buying 13.3 percent of their indirect materials and 8.8 percent of their direct materials online, and they were also using online auctions and e-marketplaces to a greater extent than companies falling into other categories. Not surprisingly, 60 percent of these buying organizations viewed the Internet as very important or critical, and 40 percent of them reported cost savings from using the Internet.

"Re-engineers" included those organizations that were changing their internal purchasing processes but not collaborating with partners. These companies, about 21 percent of all organizations surveyed for the ISM/Forrester report, were buying 11.4 percent of their indirect materials and 5.4 percent of their direct materials online, and 38 percent reported savings from using the Internet for procurement.

"Missionaries," constituting about 17 percent of surveyed organizations, were collaborating with suppliers but not changing processes. But while they were doing a fair portion of their spending online  buying 10.3 percent of their indirect and 7.3 percent of their direct materials through the Internet  just 26 percent reported cost savings from doing so.

Those organizations that were neither collaborating online with suppliers nor changing processes are buying less than 3 percent of both indirect and direct materials online. Just 13 percent of such organizations, which Forrester dubs "monoliths," reported cost savings from buying online, and only 21 percent of them viewed the Internet as being critical or very important. Only 15 percent of these companies had bought through an e-marketplace (versus 49 percent for the renovators), and just 40 percent had used the Internet as part of a request-for-proposal (RFP) process (versus 76 percent for renovators).

Based on its survey results, Forrester concludes that the higher the degree of collaboration and process innovation, the better chance of success in an e-procurement implementation. "Based on the success of extreme renovators  purchasing organizations that significantly changes their procurement processes and also increased their collaborative activities with suppliers  more is better," Temkin writes.

To back up this assertion, Forrester notes that 56 percent of the extreme renovators reported cost savings from buying online, versus 40 percent for all renovators and 29 percent for all buying organizations.