Enterprise Resource Planning (ERP) systems are not the only aspects of the enterprise to face the challenge of change in the new `e-economy`. Procurement systems and procedures are also being reinvented electronically, and new generation e-procurement can dramatically improve bottomline, not to mention overall ERP within organisations.
Sara Ross, Procurement Business Unit Manager at Destiny e-commerce, examines the issues facing organisations that are considering whether to adopt an `e-Procurement` solution :
Online procurement makes `cents`
Online procurement has the potential to make an enormous impact on the enterprise. According to the latest research, expenditure for indirect goods and services typically represents between 20 and 40 % of an organisation`s cost base.
A South African example
Taking the South African mining industry as an example of this, where total spend in one of the larger mining groups, including core product and MRO goods, is in the region of R500 m rand per month (R 6 billion per annum) : One third of indirect purchasing is done by employees acting outside blanket agreements and paying premiums of between 15 to 27% for the privilege. The rand value implication in this particular example could amount to as much as R135 m per month (27 % of R500 m).
Enormous potential savings
So, for obvious financial reasons, procurement is the latest activity attracting the attention of organisational planners and businesspeople - including those trading online - all over the world. Online procurement promises efficiencies, cost savings and even positive contributions to the bottom line. In the UK, for example, government procurement accounts for 0.5% of GDP. Consider the savings the above-mentioned South African mining group could enjoy by indulging in a little more `e-Procurement` - possibly as much as 15 % of its total R500 m per month spend, or R75 m per month. Can it all be so straight forward? It is not as easy as that, of course. Inevitably, the technology itself is only part of the story, and identifying addressing the organisational and cultural paradigms and challenges within the enterprise is the key.
Procurement and the enterprise : where we are today
Where are we today? Many companies have made significant efforts to lower their cost base for purchases, such as vehicles, via improved negotiation and supplier selection. However, they have not extended that diligence across the very wide range of indirect goods and services that are typically bought in by staff at all levels of the organisation.
Practical thinking at boardroom level
Our own practical external experience suggests that there are a number of issues that board directors should understand, before they commit investment to online procurement solutions involving indirect goods and services. A lot of `bottomline` thinking must be done at board level if the enterprise is to reap the expected benefits.
Directors` attitude vs ERP - and procurement
Issue number one is the attitude of board directors themselves, and the impact this has on ERP. The reality is that procurement suffers from a lack of management attention. Very few directors see it as beneficial to the healthy and profitable functioning of the entire enterprise, with the result that responsibility is parcelled out between divisions of the company.
No-one assumes responsibility for the entire purchasing process.
Purchasing viewed as a cost rather than a revenue
With purchasing viewed as a cost rather than a revenue issue, surprisingly few companies have access to management information on what they are spending, the quality of services they buy, whether supplier contract terms are met and so on.
Procurement strategic to the enterprise
In many ways, procurement is in the `step-sister` position once held by the supply chain. It is not considered strategic to the business and rarely present at the boardroom table. Only in the last ten years or so, has the supply chain director assumed a seat at the board, but there is still no single person on the board responsible for indirect goods and services.
This is ironic considering the huge impact and contribution which procurement can, and indeed should, have on the enterprise, its financial and organisational health and prosperity.
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