Preparing for an E-Procurement Initiative

Comprehensive preparation maximizes chances for success by establishing clear goals and identifying risks.

1. Supplier Analysis
   Conversations with existing suppliers who would participate in the program will reveal their readiness and intent to participate in electronic procurement processing. Such conversations should also address pricing, billing and cataloging options. It is not essential to discuss electronic interfacing in preliminary discussions.
   
   
2. Authorization Policy Analysis
   Determine the extent to which the finance function is willing and able to support changes that will enable automated approval and authorization of commitments. Discussions should also address audit support and exception handling requirements.
   
   
3. Product Catalog Analysis
   Create an inventory of products that have been purchased in the recent past and establish the inventory of those that will be included in the catalog. Identify who consumes what.
   
   
4. Contract Procurement Analysis
   Create an inventory of Procurement Contracts and identify numbers and types of contracts that are currently managed within the organization. An e-procurement initiative is a good opportunity to bring order to this kind of work. Procurement Cards, Travel Agencies, Legal Services, Marketing Collateral Suppliers, Service Contracts and other 'Open PO' arrangements fall into this category.
   
   
5. Multi-Bid Procurement Analysis
   Create an inventory of Request for Information, Request for Proposal, Request for Quotation and other bidding instruments. E-procurement systems can automate many aspects of this function. Standardization before design is worthwhile.
   
   
6. Exception Handling Analysis
   Estimate the number of transactions at each point in the total procurement system process (see E-Procurement Architecture in Part II of this note) that will require human intervention. This includes 'one-off' products, 'one-off suppliers' and individuals or projects that often require 'special handling.'
   
   
7. Document the Current Procurement Process
   Map out the process and document volumes including exception handling and waste.
   
   
8. Design the Future Process
   (not an information technology design step) Design without consideration of available products but with the assistance of someone who is familiar with e-procurement systems. The new process should have the following characteristics:
   
   
   • 'one-off' product requisitions are minimized
     
     
   • inherent delays are minimized
     
     
   • human intervention is minimized
     
     
   • automation opportunities are maximized
     
     
   • parallel paths for data are utilized wherever possible
     
     
   • required approval & authorization limits are clear
     
     
   • roles and responsibilities are clear.
     
     
9. Build the Business Case
   Identify the potential time and cost savings of the future model. Include anticipated transaction changes and be aware that by reducing transaction counts these systems sometimes reduce direct cost savings but increase indirect savings. Focus on measurable costs and delays to make the Investment Analysis more meaningful. E-procurement systems do not reduce head count other than in exceptional situations. Rather, they allow people to be re-assigned to value-adding tasks. E-procurement systems must reduce cycle-time to be cost-effective.
   
   
10. Create a Call to Action
    Build a coalition of lead users and executives around the new process. Lead users include the 'mavericks' mentioned above and those who will benefit most from the new process directly.
    
    
11. Design the Future System
    In conjunction with the information technology department, create a detailed design of the future system. Again, do not allow the existence of an ideal product to impact the design. At this stage, the design must be idealized so that essential criteria for solution selection will be revealed. This design effort serves two purposes: first, to identify internal requirements for interfaces and technology capabilities; and second, to incorporate information technology management into the process.
    
    
12. Identify and Select Suppliers
    Using the Business Case and Future System Design to establish selection criteria and a model for the ideal product, map contending solutions to the model and select a product configuration and supplier(s). Include Application Service Providers as well as product vendors and systems integrators to maximize the leverage of resources and to minimize project risk.
    
    
13. Scope the Project and Risk The gap between the idealized system and the one that will result from the selection process will impact investment return. The gap between existing technology capabilities and those required to deliver the solution contribute to project risk. E-procurement programs acquire much of their risk from the degree of required change to policies, procedures, organization, skills, jobs and behaviors. When all of these are factored into the scope / risk equation, a final check of return on investment can be made and a decision to move forward and on what can be made.

E-Procurement Myths and Reality

E-procurement is an integrated system of services and technologies that provides a seamless bridge between buying and selling businesses. The e-procurement process begins at the planning stages within the buying company and extends through to the delivery and collections services of the selling company and the receipt and payment services of the buying company. E-procurement shatters walls, enhances controls, and eliminates time delays in the requisition to receipt process.

Myth	Reality
It is a Purchasing Function	It impacts every function in the enterprise. It extends to suppliers and may introduce new suppliers and / or new roles for existing suppliers such as banks and logistics companies. In most cases, financial control procedures and commitment policies will have to be adjusted. In many cases, project management and departmental procedures will have to be adjusted. Failure to adjust policies, procedures, and processes; and to create a new operating model for procurement will negatively impact investment payback.
Everyone can use the Web interface	Finding a product in a catalog is not as simple as finding one through a person. Buyers translate written requests into supplier-speak and suppliers then translate these requests into their products. Catalogs lack this intelligence, demanding careful attention to create an intuitive catalog.
Catalogs are easy to build	Each supplier will provide data and images in different formats. Some of them will not have the material readily available for use. Some suppliers will use different product numbers in their electronic gateway from those used in printed catalogs. Pricing negotiations will be required to maximize catalog stability. Suppliers that serve multiple industries will use different terms for the same product.
Systems can be purchased	Only some components can be purchased. The remainder of the system must be cobbled together from tools provided with the purchased product and additional products that are necessary to interface with existing systems. Failure to create essential interfaces will bog down the e-procurement process or it will create new work for people who must manually transport or transcribe data.
Suppliers are ready	Many suppliers are not equipped to participate in an electronic procurement process. They will have to make custom interfaces and in some cases will simply decline to participate. Some suppliers will prefer to work only through marketplaces that they either currently or plan to belong to. Those relationships may use interfaces that are incompatible.
Purchasing surrenders control	The business rules and catalog capabilities of e-procurement provide procurement professionals with capabilities that they never had before. By focusing attention on rules, product selection, and supplier management, the procurement function can achieve unprecedented control with far less imposition than could be achieved with manual systems. It is critical that this control be phased-in to allow the 'one-off' transactions to flow faster than before and to allow the 'maverick buyers' to show up on the exception reports and be dealt with through management intervention. This is important to avoid having the 'imposition' be interpreted as a system fault.
Purchase price will go down	Optimizing the end-to-end process will often lead to higher prices for some items due to supplier selection criteria that maximizes total procurement cost at the sacrifice of individual product cost. Reducing the number of invoices, negotiations, payments, receipts, and system interfaces will offset higher individual product costs in a well implemented system.
Total supplier count will be reduced	This is not necessarily the case. When Request for Information and Request for Proposal processing is automated, more suppliers can be canvassed and employed with lower total cost. This is due to the transfer of non-value adding work done by procurement professionals to value adding work.

E-Procurement Is Not Electronic Purchasing - Part I

Buyers of e-procurement are looking forward to reduced inventories, lower procurement costs, lower product costs, shorter procurement cycle-time, higher (internal) customer satisfaction and higher value-add from procurement professionals. Suppliers of systems and services promise those benefits plus secondary cost reductions and efficiency improvements in enabling organizations as Finance and Inventory Control. Following is a compilation of benefits derived from case studies and supplier references.

Accounts Payable: obtained increased efficiency through reduced matching work, automated payment vouching and reduced invoice errors.

Treasury: reduced cash requirements through increase predictability.

Project Accounting: efficiency improved through automated posting of purchases and costs.

General Accounting: improved performance from automated invoice remittance, reduced use of general journal entries and more efficient audit and control activities.

Budget Performance: improved by including committed costs as they are recorded.

Receiving Department: efficiency improved as a result of less frequent matching problems and automated recipient locations as well as from being able to predict future workloads.

Inventory and Production Control: obtained higher accuracy and increased yield through more efficient inventory handling and production capacity.

Every business function that is involved in the procurement process from budgeting to requisition to receipt and payment must be engineered into a seamless system with an absolute minimum of inherent delays and maximum use of automated transaction handling.

New Partnerships Add to Remedy's E-Procurement Strengths

Each of these partnerships is an incremental addition to Remedy's total offering in the e-procurement arena. Neither provides a unique capability but the combination adds polish to Remedy's relatively new e-procurement product. Of the two, the partnership with FutureNext will probably be more important as it will bring Purchasing@Work into more product selections and turnkey implementations.

An important extra for both programs is that they will help Remedy support its Guaranteed@Remedy rapid implementation program; FutureNext will contribute as an implementation vendor, while Requisite, by offering access to its eLeader collection of pre-configured catalogs and suppliers, will make it easier for Remedy to bring customers to the point where they can make their first meaningful use of their new product.