Courtney expects to spend about $700,000 annually to maintain the E-procurement system, particularly on hardware, software, and ongoing services. Purdue will also measure ROI in terms of buyer and supplier satisfaction, cycle-time reduction, and greater control over spending, in addition to cost savings.

To streamline its automated E-procurement system, Purdue will distribute MasterCard-branded purchasing cards that limit the amount individuals can spend. About 1,000 users in four major areas of the university--the chemistry school, aviation technology school, physical facilities maintenance plant, and the North Central campus in Westville, Ind.--will receive the cards at the program's launch.

After successful completion of a three-month pilot, Purdue plans to roll out the cards to 2,000 more users a month. By the time the Purdue system is fully implemented this summer, 15,000 faculty and staff members will be able to use a Web browser for requisition and approval of various commodity items.

"The system implementation is the easy part; the hard part is the culture change, process change, and enhancement of the security foundation," Purdue's Courtney says. "This is the first Web-based administrative system to be implemented by Purdue." The goal: eliminate 80% of paper processes within the first two years.

Since it first developed a strategic sourcing plan three years ago with the help of A.T. Kearney, FedEx Express, a Memphis, Tenn., subsidiary of the $14 billion FedEx Corp., has come to realize that an E-procurement system is crucial to running its business. "We figured we're big, we can aggregate our spending. But we soon realized we didn't have a system to make the model work," says Scott Struminger, managing director of global supply-chain integration at FedEx Express.

One of the first hurdles Struminger faced was making an ROI case to his CIO. "When you don't know how much you'd spend in an online marketplace, how do you predict how much you're going to save?" he says.

Although FedEx had the luxury of IT resources for its E-procurement system implementation, it didn't have the luxury of time. The company hired KPMG about a year ago to help with the implementation work, then moved quickly to bring Ariba on board at KPMG's suggestion. The goal was to launch within 90 days.

KPMG's role was to help FedEx select a software provider, then to assist the courier with systems integration. Having had experience implementing Ariba's ORMS software, KPMG was able to work with FedEx's IT staff to integrate ORMS with a PeopleSoft ERP system running on an HP-UX V-Class server. ORMS runs with an Oracle database on an HP-UX K-Class server.

"KPMG's primary contributions can be measured in terms of knowledge transfer and the creation of documentation," Struminger says. Although Struminger won't disclose how much FedEx paid for KPMG's services, he says his company was charged a fixed hourly rate for the project, which lasted about 250 hours.

FedEx launched its E-procurement system last June involving 5,000 users in the company's IT department. Their job is to test hardware and network performance, as well as connections to FedEx's suppliers, through the purchase of commodity items. FedEx expects its E-procurement system to reduce spending by as much as 30% a year on a number of commodity items and services such as PCs, office supplies, temporary services, and catered meals by linking directly into Ariba's central ORMS interface. With several billion dollars spent on commodity items and services each year, savings are estimated to be in the millions of dollars, Struminger says.

One of the most significant benefits of the project came as soon as the switch was thrown, Struminger says. "We were able to attract new suppliers and create competition for our original suppliers," he says. "When they heard FedEx was implementing E-procurement, they discounted their products by percentages in the double digits."

Long-term, the ability to change employees' spending habits will ensure a healthy return on investment. FedEx's E-procurement system is currently available to all of its 140,000 employees in the United States. The company is planning a European implementation in June, modeled on the U.S. system.

While the benefits of E-procurement services are enticing, companies shouldn't jump in--they should choose their providers with care, says Kevin Costello, digital markets leader at Arthur Andersen, which does consulting work for E-procurement. First and foremost, companies should look for a provider whose consultants understand not only the technology, but specific business requirements. One way to save time and money out of the gate is to avoid building highly customized systems. Says Costello, "Many packaged implementations can be customized later."

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Illustration by Noah Woods
Photo of Struminger by Jack Kenner