E-procurement, the online purchasing of products and services, has promised project managers and other users plenty of benefits, including lower costs, reduced time and fewer errors. E-procurement has not, however, met many of the proponents’ expectations, nor is it appropriate for all projects, experts agree.
“E-procurement hasn't affected the project manager as much as one might think,” says Bruce Moore, national director of the project management practice for RCG Consulting, Edison, N.J., USA. “You still have to plan the thing, then go through all of the other key elements of the project.”
With all of the hype surrounding online capabilities, Moore adds, some senior executives expect project managers to complete their tasks in “Internet speed,” but project managers still go through the same basics that they did long before the Internet was in common use. Though e-procurement vendors promise a rocket ship, companies find out it's more like an ox wagon, he says.
Additionally, it takes time to set up an e-procurement system that satisfies the needs of a particular project. Though e-procurement tends to work well for recurring purchases of commodity-type items (i.e., office supplies), it doesn't work as well for one-time purchases of specific items for specific projects, Moore says.
Toymaker Sees Focused Benefits From E-Procurement
E-procurement saves time in purchasing non-inventory office supplies for Pawtucket, R.I., USA-based toy manufacturer Hasbro Inc. But, like many others, Hasbro has yet to use it in sourcing third-party manufacturers or raw materials for goods that the company manufactures itself. Company officials don't think e-procurement systems have progressed to the point to aid them with their direct or indirect inventory needs.
“It's a workflow automation tool,” says Scott Dever, Hasbro's vice president of worldwide procurement. “But you still have to go out and negotiate agreements with suppliers. E-procurement doesn't help with that.”
For non-inventory purchasing, Hasbro has agreements with approved vendors. For example, when more office supplies are needed, the purchaser goes on the corporate intranet, which has a program that includes various approved suppliers for this type of product. After choosing from among these suppliers, the purchaser enters the order, which is connected with back office financial systems (such as purchasing and accounts payable) to track billing, invoicing, order date, shipping and expected receipt date.
Hasbro also recently started using an e-procurement system to source consultants, freelance artists and other service providers for projects. The system saves time, Dever says, because it already is populated with approved suppliers. The user needs only to enter certain skill sets or other parameters and the software provides a list of potential providers.
This reduces a time-consuming chore of searching for service providers with particular skill sets or being forced to use someone a project manager knows in the service area who may not have the skill sets needed.
Small Steps
Before adding e-procurement, you must first understand supply chain management, according to Moore. Next, you can look at the areas of the supply chain in which e-procurement can be used. From there, look at the e-procurement technology, how it works into the supply chain, and what middleware systems must be added.
After looking at processes, companies can examine how e-procurement fits into those processes. “E-procurement is a tool, it's not a solution,” Moore says.
How valuable that tool is depends on the type of company and the type(s) of projects for which it uses e-procurement. The Internet doesn't necessarily speed buying—simply having the capability to make speedy transactions does not guarantee that transactions will be less complex.
If done properly, e-procurement can automate many repetitive tasks in the purchasing process, saving time and money and improving efficiency. Additionally, some systems automate not only the online ordering, but also inventory tracking, payments, billing, invoicing and other backend systems, reducing paperwork and delays inherent in a paper-based system.
For such efficiencies, however, an e-procurement system must interface with backend systems—which often means adding middleware systems, says Moore.
Speed is Not Guaranteed
A company can use e-procurement to cut significant time out of the ordering and approval process, if the system is set up correctly. By including electronic “sign-offs” as well as tracking of purchase orders and payments, e-procurement can greatly shorten the duration of the procurement process, says Joseph Brucia, vice president of e-procurement for Technology Solutions Company, a Chicago, Ill., USA-based technology management company.
However, any time saved in procurement may be only a small percentage of the time for the entire project, says Tom Petersen, CEO of ThreeCore, a supply chain services company in Danvers, Mass., USA. “There are some universal truths in project management. One is that as a project gets batted about throughout the company, you're always behind.” Petersen cautions that project managers shouldn't try to shorten project deadline times just because e-procurement has been adopted.
By giving suppliers the opportunity to bid electronically on projects, e-procurement can also mean lower costs for supplies, says Sarah Pfaff, executive vice president and co-founder of eBreviate, a Walnut Creek, Calif., USA-based firm that helps sourcing professionals use Internet technology to determine what they are buying and at what commercial terms (Exhibit 1).
Indeed, companies that handle only 5 percent of their transactions electronically have a transaction spend rate of 62 percent, while those that conduct 20 percent of their transactions electronically have a spend rate of 42 percent, according to Richard Roth, managing director for Hackett Benchmarking & Research, a Hudson, Ohio, USA-based best-practices benchmarking firm. “The Web is much more efficient,” he says.
However, adding e-procurement alone isn't enough to cut procurement processing costs, Roth says. The companies with the lower spend rates also tended to follow “best practices” throughout the procurement process, meaning more efficient operations, even without e-procurement.
Supply Issues
It's also important to consider the global factor. E-procurement opens the door for worldwide companies to bid on a project resource. This doesn't mean that the “right” supplier is Web-enabled, and by limiting transactions and bidders to the Internet, you may be severely limiting the supplier pool.
In addition, Brucia cautions that using online resources alone for purchasing means that qualified and unqualified companies could bid—they all look the same on the Internet—which contributes significantly to project risk. With e-procurement, it's extremely important that the acquiring companies conduct due diligence, looking into ISO certifications, percentage of rejects and returns and similar items.
An eSourcing Model
Exhibit 1. Ideally, e-procurement should help a company save money and select suppliers, but the more specific the needs of a project, the less likely that e-procurement will facilitate the process, according to eBreviate consultants.
If the company's system is set up in such a way that the buyer can only work with pre-approved suppliers, e-procurement actually can help ensure the quality of purchased products, says Andrew Watson, president of CoreHarbor, Atlanta, Ga., USA, a company that manages and hosts e-commerce solutions. With electronic checks and balances, the buyer is less likely to use an unapproved supplier, he says.
Some e-procurement systems that include electronic requests for proposals offer this type of capability now, Watson says. These systems offer “more tools to make better decisions about potential vendors,” according to Brent Habig, president of strategic technology consulting firm Tigris Consulting, New York, N.Y., USA. However, Brucia argues that many of these systems for supply chain management have yet to be truly time-tested. It's also important to thoroughly investigate e-procurement vendor offerings, several experts agree. Many vendors promise tremendous return on investments, but companies should check with other users to find out how much of that promise is real and how much is hype.
Even though e-procurement may not now, or ever, be the “silver bullet,” many agree that the online ordering systems are continuing to improve and will become a more integral part of project management in the future.
Technology Provides Tools, Not Solutions
E-procurement, just like the Internet, wireless phones, software and other technologies, is a tool, not a solution in and of itself, says Dave Gully, national service line partner for e-business strategy and technology, Deloitte & Touche, Wilton, Conn., USA.
“It's a cheaper medium, and it results in reduced errors, but technology isn't a big hammer to smash a big set of nails,” Gully says. If procurement and other business processes are poor in the first place, technology only provides a way to accomplish more things quickly—but just as poorly.
So, while automation may speed some mundane, repetitive processes, none of these technologies is a solution in itself. While teleconferencing may save thousands of dollars in travel expenses, for example, it can't replace relationships that can only be established and built through face-to-face meetings.
That's not to say there aren't benefits to technology. By automating routine tasks, more time can be spent with strategic planning. Some technology can help with that as well by alerting business executives to consumer and market trends. However, to get the efficiencies possible from technology, frontend and backend systems must communicate with each other.