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.

About This Note

This Technology Note covering the e-procurement is presented in two parts. The first part covers:

1. The Promise of E-Procurement

2. E-Procurement Myths and Reality

3. Preparing for an E-Procurement Initiative

The second part covers:

4. E-Procurement Architecture

5. Selecting an E-Procurement Partner(s)

6. Implementing E-Procurement
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.