Three-Year Glitch: Much of the Marketing Froth That Declared the New Millenium as the E-Procurement Era Has Fallen Decidedly Flat. despite This Hiccup, the Party's Not over for Electronic Purchasing. (E-Commerce)
Hayward, Cathy, Financial Management (UK)
E-procurement will revolutionise purchasing. Orders will be handled in a seamless, automated process, freeing finance and purchasing professionals to work on strategic matters. Millions of pounds will be saved.
That was the promise in 2000 when the dotcom boom was at its height. But, three years on, e-procurement has failed to deliver. In 2002 only 14 per cent of firms' indirect expenditure went through an e-procurement system, according to a survey by American Express and Accenture. Enterprise resource planning (ERP) solutions accounted for 25 per cent of indirect spending and purchasing cards accounted for 5 per cent.
"There has been a lot of hype about e-procurement, but the reality of saving money is still fairly elusive," says James Power, Amex's head of corporate purchasing solutions in Europe. "There were high expectations, but if you ask whether it has actually saved any money you get an embarrassed silence."
But Tim Gilchrist, a partner at Accenture, argues that e-procurement remains a valid business process. "There is no question that there will be savings if you use strategic procurement to negotiate with suppliers," he says.
It all fell down where firms expected it to be the panacea to their purchasing problems, Gilchrist argues. "But the electronic bit is very small. It's much more about introducing strategic sourcing and getting culture change in organisations, which all takes time."
Too many people did jump on the bandwagon without considering whether they were ready, agrees Tony Welch, director of global expense management at insurance firm Willis Group. The company introduced a global purchasing card a year ago and reduced its costs by 23 million [pounds sterling]. It is now planning to introduce an e-procurement system.
"Before we do that, we need to know where we spend our money and who our suppliers are. We must also ensure that we have control over our spending. The purchasing card is making that happen and, once we are confident we can get a good return on investment, we will go down the e-procurement route."
Three years ago some amazing figures were bandied about for the savings that would come with e-procurement. A reduction in the average transaction cost from 57 [pounds sterling] to around 6 [pounds sterling] was the most jaw-dropping promise. But the Amex/Accenture survey has found that the average cost of using ERP is 48 [pounds sterling] per transaction, 32 [pounds sterling] per transaction using an e-procurement system and 11 [pounds sterling] per transaction using a purchasing card.
The cost and time required to implement electronic solutions have been a major barrier to their success so far. ERP installations can cost up to 9 million [pounds sterling] and take two to three years to implement, with maintenance charges of around 20 per cent of the installation cost (see "Benefit gigs," page 28). …