InformationWeek
Defining The Business Value Of Technology
April 3, 2000
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As online marketplaces proliferate, businesses need to move fast to get E-procurement systems up and running. Software and services vendors can help speed the process.
hen Purdue University flips the switch on its $4 million E-procurement system this month, the school will begin closing the book on three decades of manual procurement procedures on paper. But Purdue didn't graduate to the world of online purchasing without help. Only through a collaborative effort with Deloitte Consulting and Ariba Inc. will the university's thousands of faculty and staff throughout the state of Indiana have the power to procure goods and services with the swipe of a card."We didn't have the technical resources to do this alone," says Mike Courtney, manager of the procurement-redesign project at Purdue--which, he emphasizes, is an educational institution, not an E-business. Deloitte's planning and implementation services, coupled with Ariba's Operating Resource Management System (ORMS) software, played an important role in bringing the system up in nine months.
As online business-to-business marketplaces become more accessible, there's an advantage to scrapping manual procurement methods in favor of Web applications that allow access to Net trading communities and lower purchasing costs through the aggregation of spending power. But it's not easy. Many companies lack the resources, technology skills, or time to get an E-procurement system off the ground.
To get in on the action, companies such as Cargill, FedEx Express, Great-West Life and Annuity Insurance, and Sabre are turning to software vendors, systems integrators, and Internet marketplace creators for help. These companies automate the requisition, purchase-order creation, and payment processes and help clients develop plans for managing sourcing and logistics. Sourcing is the process through which companies determine which suppliers best meet their procurement needs.
"From an end-user perspective, it's very difficult to implement an E-procurement system without the help of a services company," says Lisa Williams, program manager for business-to-business E-commerce at the Yankee Group. "Relationships between seller and buyer, between buyer and market, and between buyer and technology are complicated, not just in terms of implementation but in terms of sourcing strategy."
E-procurement services also help deliver a return on investment by ensuring that the software is properly installed and integrated with a company's back-end systems, negotiating supplier contracts, and providing an interface that lets buyer systems communicate with their suppliers' systems. Another perk: Many providers of E-procurement services offer training and education in the systems they help implement.
"Rapid return on investment includes training in the areas of how new business processes will work and how to use the new software," says Robin Palmer, senior VP of supply-chain management at KPMG Consulting, which trains its consultants and clients on Ariba's ORMS, SAP's Business-to-Business Procurement, Oracle's Internet Procurement, and, by the fourth quarter, Intelisys Electronic Commerce's products. "The market is critically short of skills to perform the services work necessary to get an E-procurement system up and running," Palmer says. KPMG has more than 300 consulting professionals dedicated to E-procurement.
CEOs are demanding more in terms of procurement, but IT is tapped out when it comes to strategy, says Lawrence Kohn, president and CEO of EDS CoNext, a wholly owned EDS subsidiary. CoNext, which includes supply-chain management specialists from EDS's A.T. Kearney subsidiary, works with companies to establish E-procurement strategies, including supplier selection and implementation. "In the end, the customer should be able to take advantage of new supplier relationships and new, lower pricing models," Kohn says.
Companies appear to be buying into the services model. Services revenue associated with E-business software, including E-procurement, is projected to reach $5 billion by 2003, up from $441 million last year, according to Forrester Research. Revenue for the total U.S. E-commerce services market, which includes strategy, marketing, design, and technical services, is projected to reach $64.8 billion by 2003, up from $10.6 billion last year, according to the research firm.
Still, not all companies are convinced that E-procurement services are the way to go. Some, including financial-services firm Chase Manhattan Corp. and semiconductor maker Texas Instruments Inc., say E-procurement is best handled in-house (see sidebar story, "In-House E-Procurement Projects Can Be A Good Fit").
E-procurement is a broad area that incorporates the automation of traditional procurement processes such as electronic data interchange as well as Web-enabled capabilities, says John Ferreira, co-leader of Deloitte Consulting's E-business buy-side procurement practice. A Deloitte study published last year indicates that more than 90% of companies have already incorporated E-procurement into their business plans.
Return on investment is realized in three primary areas: reducing the expense of procuring items because they're less expensive when purchased through Internet marketplaces; reducing the cost of processing transactions by eliminating the need for paper documentation; and improving organizational effectiveness, because a company has more control over what's ordered and who's doing the ordering.
Purdue's Courtney says it's hard to project E-procurement's ROI, and it's difficult at the outset to compare the cost of hiring a services firm vs. implementing a software package in-house.
continued...page 2, 3, 4
Illustration by Noah Woods
Photo of Courtney by Greg Whitaker
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