Steps to Successful E-Procurement

February 1, 2011

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Top-performing organizations today continue to transform procurement by identifying new ways to manage their e-procurement options, according to a recent Aberdeen Group study.

Successful technology management has enabled procurement departments to meet or even exceed established business targets by increasing spend and capturing savings generated through the breakthroughs it provides, according to recent findings from Aberdeen Group.

Drawing on the responses of more than 150 procurement professionals, Aberdeen's Effective eProcurement: Assessing Options for the New "Economic Normal" report explores the strategies companies are using to evaluate procurement technologies, and the choices they make when it comes to improving procurement performance.

Aberdeen found that 40 percent of respondents have had an e-procurement initiative in place for at least five years, and 18 percent have been running one for eight years or more.

However, given the options for enterprise solutions, not to mention the constant changes to technology functionality, organizations find it difficult to get the most out of the technologies already in place while trying to capture the benefits of the latest deployment developments.

"The analogy here is almost like a child in an ice cream shop," Aberdeen explains. Back when vanilla, chocolate and strawberry were the only flavors available, there were three choices to mix and match. With more varieties of flavors today, "the wider selection makes it difficult to focus on the older flavors you know while trying to test new flavors for that perfect combination in your ice cream dish."

"Whether it is capturing and managing spend in a traditional product area such as office supplies, or more complex spend category such as contingent labor or marketing, it is evident that organizations in 2010 still need better ways to solve a fundamental dilemma of purchasing — how do buyers connect with suppliers?" Constantine Limberakis, lead author of the Aberdeen report, writes.

To reflect this collaborative requirement, Aberdeen used three key performance criteria to distinguish top-performers from their peers:

  1. Days to on-board a new goods supplier of goods (2.4 days for top performers; 13 days for industry average);
  2. Days to on-board a new services supplier (3.2 days for top performers; 12.6 days for industry average); and
  3. Percentage of purchase orders compliant with existing contracts (86 percent for top performers; 51 percent for industry average).

With these criteria as a base, the report examines what the top-performing organizations are doing differently from their peers, with an eye toward helping those with lower performance improve their operations.

Top performers share several common characteristics, among them:

  • They are 33 percent more likely than competitors to have consolidated procurement systems under one platform;
  • They are 23 percent more likely to have the ability to track compliance with existing, signed contracts based on available electronic catalogues; and
  • They are 22 percent more likely than others to have workflow enabled for anywhere-access using remote devices such as smart phones.

Based on specific recommendations, Aberdeen advises companies do the following to achieve best-in-class performance:

  • Establish an ongoing communication plan for change management;
  • Improve spend compliance using contract management;
  • Tie together master data and improve data quality;
  • Implement online dashboards for monitoring spend metrics/procurement performance; and
  • Outsource select technology components for managing e-procurement.

For industry-average companies trying to drive their e-procurement performance into the "best in class" range, the following are Aberdeen's suggested steps to success:

  • Establish workflow on mobile devices in e-procurement systems. Leveraging more advanced functionality of e-procurement systems for workflow using mobile devices and smart phones increases access to users on the go. Moreover, given their increasing popularity in business, mobile devices also provide the opportunity to enhance the cost-efficiency of complex workflows by shortening the execution time. Best-in-class companies are 21 percent more likely than the industry average to have workflow enabled for anywhere-access using remote devices such as smart phones.
  • Improve spend compliance with contract management. Contract compliance is a differentiating technology that assists in identifying the most important supplier relationships based on usage of customer catalogues. Best-in-class firms are 23 percent more likely than all other respondents to have the ability to track compliance with existing, signed contracts based on available electronic catalogues. Aberdeen found that 73 percent of top performers have enabled a contract management solution, compared with 45 percent for the industry average.
  • Improve online dashboards for monitoring spend metrics/procurement performance. Firms that have instituted more tools to assist in the visibility of their spend through dashboards may have an advantage in identifying developments and look to this information more frequently. For example, those using online dashboards for monitoring spend metrics/performance rely more on analysis reports for on-boarding suppliers than those that do not. Best-in-class organizations are 11 percent more likely than the industry average to use dashboards.

"To attain procurement goals through technology in 2010, companies may look to expand, update or even replace their current platforms," according to Limberakis, senior research analyst of Global Supply Management at Aberdeen. "Yet to garner executive support for these investments, e-procurement initiatives will need to demonstrate continued measurable benefits."

Resources

Effective eProcurement: Assessing Options for the New "Economic Normal" by Constantine Limberakis Aberdeen Group, November 2010

Supply Chain Matter 2010 Predictions Revisited - Part Two by Bob Ferrari Supply Chain Matters, Dec. 6, 2010

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