Every business is a purchaser as well as a supplier, with many routinely processing hundreds of buying activities daily. Typically, purchases represent 50 to 90% of a company's cost structure - making procurement strategy and execution a critical lever for effective supply chain operations and superior business profitability.
Electronic commerce offers exciting new possibilities for businesses to improve their performance on this important "upstream" supply chain activity, both for indirect or support items and, increasingly, for materials that are direct components of the products and services that businesses make and sell.
As in many areas of e-commerce, the wide variety of alternatives can be confusing. This article outlines some of the major recent developments in e-procurement and the important strategic and tactical choices that companies need to make in order to answer these questions and to take full advantage of new "buy" side e-commerce developments.
This section deals with how e-procurement can lead to Process Improvement and How to Get Started.
Every business is a purchaser as well as a supplier, with many routinely processing hundreds of buying activities daily. Typically, purchases represent 50 to 90% of a company's cost structure - making procurement strategy and execution a critical lever for effective supply chain operations and superior business profitability.
Electronic commerce offers exciting new possibilities for businesses to improve their performance on this important "upstream" supply chain activity, both for indirect or support items and, increasingly, for materials that are direct components of the products and services that businesses make and sell.
As in many areas of e-commerce, the wide variety of alternatives can be confusing. This article outlines some of the major recent developments in e-procurement and the important strategic and tactical choices that companies need to make in order to answer these questions and to take full advantage of new "buy" side e-commerce developments.
This section deals with how e-procurement can lead to Process Improvement and How to Get Started.
* New e-procurement providers can help you apply a full range of strategic sourcing "best practices" through the Internet
* Most comprehensive approach, but also requires greatest discipline and management support
* Does not replace working with suppliers the old fashioned way on continuous improvement and other key aspects of relationship
Process Improvement Discussion
While outsourcing is a broad business trend today and can be used effectively for procurement, as discussed in Part 4, many companies continue to be interested in improving their own internal capabilities to strategically manage their supply base and execute programs that drive down costs and increase service and quality levels. For them, the relationships with suppliers are considered to be an important element of their overall business success, and they are reluctant to hand them over to a third party - even if doing so would help them leverage volume or otherwise reduce costs.
Historically, companies have turned extensively to management consulting firms to help them understand and apply best practices within their purchasing departments. Normally, the consulting team begins by assessing the company's situation and improvement potential, and develops a set of customized strategies and action plans. Subsequently, the consultants work jointly with purchasing staff on a set of "pilot" spending categories to execute the improvements and provide training in new techniques, which the client is expected to use on an ongoing basis without additional consulting support.
While it sounds good in theory, and has often provided a strong short-term payback, many companies are finding that institutionalizing these improved strategies and purchasing techniques is a major challenge. Achieving the benefits typically involves applying a disciplined and complex methodology that includes substantial internal data gathering and external market research, extensive use of analytical and scenario modeling tools, in-depth strategy development and planning, and disciplined execution by a staff team that is devoted exclusively to the effort - what is typically called a "strategic sourcing" program.
Since the level of effort and discipline required by strategic sourcing is often difficult to sustain once the consultants are gone, purchasing procedures sometimes revert back to traditional ways of doing business and the bottom line gains are not maintained, both reducing value to the client and undermining the reputation of the consultants.
New players in e-procurement have emerged to address this situation as well, offering Internet-based tools and processes that give users the ability to access and apply best practices tailored to their specific situations and that allow users to remain fully in control of their own procurement activities.
For example, B2eMarkets, Inc., offers users a Strategic eSourcing Management solution that walks online users through each step of a consulting-type procurement methodology, including gathering data, analyzing requirements, and setting strategy, as well as executing e-procurement through shopping e-marketplaces, conducting reverse auctions, and using other methods that are built into the application. Based largely on the strategic sourcing approach used by Accenture (formerly Andersen Consulting), one of the largest firms in procurement consulting and an investor in the company, the subscription-based service includes industry and commodity templates, evaluation tools, "coaching" and related on-line support.
Initial results from using this approach to e-procurement have been impressive. Across about $400 million in spending volume, B2eMarkets' customers have achieved cost reductions averaging 25%, and have achieved them in about half the time of traditional strategic sourcing processes.
Electronic commerce offers exciting new possibilities for businesses to improve their performance on this important "upstream" supply chain activity, both for indirect or support items and, increasingly, for materials that are direct components of the products and services that businesses make and sell.
As in many areas of e-commerce, the wide variety of alternatives can be confusing. This article outlines some of the major recent developments in e-procurement and the important strategic and tactical choices that companies need to make in order to answer these questions and to take full advantage of new "buy" side e-commerce developments.
This section deals with how e-procurement can lead to Process Improvement and How to Get Started.
Every business is a purchaser as well as a supplier, with many routinely processing hundreds of buying activities daily. Typically, purchases represent 50 to 90% of a company's cost structure - making procurement strategy and execution a critical lever for effective supply chain operations and superior business profitability.
Electronic commerce offers exciting new possibilities for businesses to improve their performance on this important "upstream" supply chain activity, both for indirect or support items and, increasingly, for materials that are direct components of the products and services that businesses make and sell.
As in many areas of e-commerce, the wide variety of alternatives can be confusing. This article outlines some of the major recent developments in e-procurement and the important strategic and tactical choices that companies need to make in order to answer these questions and to take full advantage of new "buy" side e-commerce developments.
This section deals with how e-procurement can lead to Process Improvement and How to Get Started.
* New e-procurement providers can help you apply a full range of strategic sourcing "best practices" through the Internet
* Most comprehensive approach, but also requires greatest discipline and management support
* Does not replace working with suppliers the old fashioned way on continuous improvement and other key aspects of relationship
Process Improvement Discussion
While outsourcing is a broad business trend today and can be used effectively for procurement, as discussed in Part 4, many companies continue to be interested in improving their own internal capabilities to strategically manage their supply base and execute programs that drive down costs and increase service and quality levels. For them, the relationships with suppliers are considered to be an important element of their overall business success, and they are reluctant to hand them over to a third party - even if doing so would help them leverage volume or otherwise reduce costs.
Historically, companies have turned extensively to management consulting firms to help them understand and apply best practices within their purchasing departments. Normally, the consulting team begins by assessing the company's situation and improvement potential, and develops a set of customized strategies and action plans. Subsequently, the consultants work jointly with purchasing staff on a set of "pilot" spending categories to execute the improvements and provide training in new techniques, which the client is expected to use on an ongoing basis without additional consulting support.
While it sounds good in theory, and has often provided a strong short-term payback, many companies are finding that institutionalizing these improved strategies and purchasing techniques is a major challenge. Achieving the benefits typically involves applying a disciplined and complex methodology that includes substantial internal data gathering and external market research, extensive use of analytical and scenario modeling tools, in-depth strategy development and planning, and disciplined execution by a staff team that is devoted exclusively to the effort - what is typically called a "strategic sourcing" program.
Since the level of effort and discipline required by strategic sourcing is often difficult to sustain once the consultants are gone, purchasing procedures sometimes revert back to traditional ways of doing business and the bottom line gains are not maintained, both reducing value to the client and undermining the reputation of the consultants.
New players in e-procurement have emerged to address this situation as well, offering Internet-based tools and processes that give users the ability to access and apply best practices tailored to their specific situations and that allow users to remain fully in control of their own procurement activities.
For example, B2eMarkets, Inc., offers users a Strategic eSourcing Management solution that walks online users through each step of a consulting-type procurement methodology, including gathering data, analyzing requirements, and setting strategy, as well as executing e-procurement through shopping e-marketplaces, conducting reverse auctions, and using other methods that are built into the application. Based largely on the strategic sourcing approach used by Accenture (formerly Andersen Consulting), one of the largest firms in procurement consulting and an investor in the company, the subscription-based service includes industry and commodity templates, evaluation tools, "coaching" and related on-line support.
Initial results from using this approach to e-procurement have been impressive. Across about $400 million in spending volume, B2eMarkets' customers have achieved cost reductions averaging 25%, and have achieved them in about half the time of traditional strategic sourcing processes.
No comments:
Post a Comment