One e-size fits all … not quite yet
by Richard Bray
The goals of electronic procurement are to promote a self-service environment, automate "rules-based" functions and ultimately cut costs. Between the customer placing an order and taking delivery, the process should be automatic, uninterrupted and digital, with a minimum of costly human intervention.
But it costs money to save money. Governments around the world at the federal, provincial and big-city level are installing the various elements of that theoretical e-procurement system. Down-sizing, cutbacks and rising expectations are putting pressure on smaller public sector organizations to achieve the same scale of efficiencies in procurement as the bigger players, without the luxury of high-priced consultants, big budgets and huge, multinational corporations as vendors.
Smaller organizations can start to get in the e-procurement game right away, but so far there is no comprehensive, all-encompassing solution that can streamline everything from ordering to fulfillment. Tim Minahan, a managing director with the Aberdeen Group, specializes in electronic procurement. He says smaller organizations face major challenges."Number one is, they don't have the resources in-house, both financial and technologically, to go out and support a full-scale e-procurement deployment. Our research finds that the average price of these systems is about a million dollars for implementation, licence fees and first year maintenance fees."
The second "pain point" for small organizations is their lack of leverage with suppliers. "They don't have the buying volume to actually go out there and negotiate competitive trading agreements that put them on the same footing as some of their larger, more well-heeled competitors," Minahan says.
For many small institutions, the Internet is levelling the playing field considerably. Communication, both internal and with vendors, is faster and easier. More vendors are accessible, providing greater detail on their websites about their products and services. Most importantly, the Internet opens the door to a range of services from literally dozens of dot-coms, offering sourcing, aggregation services, auctions and electronic marketplaces.
Application Service Providers are companies that host software remotely, so customers do not need to buy, install and maintain programs on their own computers. The Aberdeen Group has identified a subset of those companies it calls "Procurement Service Providers."
"They host several different applications, sometimes from the same vendor. That would include e-procurement, the automation of indirect purchases," Minahan says. "Often, there is some level of auction technology for negotiations and Requests for Proposal."
Institutions that use these services can pay for them on a subscription basis, or by the transaction. Some dot-coms concentrate on negotiating good prices from a select group of companies and may even operate simply as a "front end" to large vendors' catalogue systems.
But the search for an end-to-end e-procurement solution involves internal change as well as access to external services. The Seacat Group of San Francisco, for example, sells add-on e-procurement modules for popular accounting programs like ACCPAC. It is a cheap way for small and medium-sized organizations to get more out of their existing resources.
Dave Haygood, the Seacat Group's vice-president of technology, says, "They're not paying us to sit there and provide a soup-to-nuts solution. All they've done is licensed an inexpensive product to get their workflow handled. Our solution provides them with anywhere from 60 to 90 percent of what they need right away."
More and more managers are realizing that the installation of elements of e-procurement systems is an opportunities to rebuild their business processes. Company president Carl Seacat says customers can underestimate the amount of change that is required. "Often, they find that once they engage us, or a dozen other companies like us," he explains, "they are in that situation whether they like it or not."
Haygood says, "Your biggest efficiencies are going to come with your highest volume, so you want to look first at the vendors. Do they have the incentive to communicate with you, the way you want?" Some smaller public sector organizations may, in fact, have sufficient leverage with suppliers to get them communicating electronically in formats that their accounting and e-procurement systems can deal with. Others will have to adjust to their suppliers.
Despite what major vendors say in their sales pitches, e-procurement is still in its early stages, especially for smaller organizations. The potential market they represent, however, is a powerful lure and sooner or later, more complete solutions will become available.
In the meantime, the little guys will have to be opportunistic, taking best advantage of Internet resources and their existing technology, and waiting patiently, along with everybody else, for true end-to-end electronic procurement.
Richard Bray is an Ottawa-based freelance writer specializing in the IT sector. He has been published in magazines and newspapers in Australia, the United States and Canada and is now editor of Ottawa Computes. Before freelancing, he worked as a producer, reporter and senior writer for CBC in Toronto.