The article below is written by Torbjörn Thorsén on July 21, 2011
For the past 15 or so years e-procurement has been touted as the one-stop-shop for Indirect Material and Services spend; the perfect way to manage all the non-core off-the-shelf stuff that organizations need to operate.
But is this really the case.
Is e-procurement as we know it the most suitable solution for all IM&S spend? And seen from the other perspective – is really all IM&S spend suitable for e-procurement as it is implemented today.
Today, the barriers of goods and services has been broken – more than one business model has shifted from a strictly goods only model to a packaged outcome based goods- as-a-service model with a subscription type fee structure. And as we – as consumers – get the taste of the speed of delivery, ease of access and the flexibility inherit in these models we swallow the bait; hook, line and sinker.
At the same time, the ever-increasing speed of business has strained procurement moving spend away from traditionally recurring predictable models towards a middle ground where a large volume of spend is non-recurring, yet carries great strategic value. Sometimes this chunk is attempted to be managed through tactical buying channels, but in many cases it is out of control of procurement, leaving potential savings on the table.
In a recent study, Pierre Mitchell of The Hackett Group noted that nearly 30 percent of all IM&S spend fall into this unmanaged category, while only 10 to 15 percent are suitable for e-procurement and the remaining 55 to 60 percent is often both strategic and recurring and is hence managed by procurement through other procurement channels such as Telecom Expense Management and Facilities Expense Management solutions.
With this in mind, is it really any wonder that many organizations struggle with their e-procurement implementations?
The Capgemini Global CPO Survey 2010 (download available here: http://www.capgemini.com/insights-and-resources/by-publication/global-chief-procurement-officer-survey-2010, registration required) highlighted this challenge citing that nearly 60 percent of the respondents channel less than 20 percent of their spend through e-procurement with little improvement apparent over the past few years.
My reaction is that this number actually reflects the limitations of e-procurement rather than the capabilities of the organizations implementing the solution.
As more and more spend become non-recurring owing to the necessity for change and flexibility; procurement functions need to re-evaluate their tools as well as their strategies in order to support the needs of the business. Rudimentary e-procurement solutions are essential for capturing and automating many low-value off-the shelf transactions, but this needs to be complemented by modules that support more complex procurement transactions such as services procurement, three-bids-and-buy RFx-engines, blanket orders that call-off on set budgets. To meet today’s challenges procurement functions tools more powerful than the standard fare provided by the ERP-solutions, without getting themselves entangled in a best-of-breed landscape.
Finding the ultimate balance between the solidity of an ERP-based solution enhanced with modules that can capture as much spend as possible will prove to be the maker or breaker of e-procurement implementations. Yet organizations need to manage the expectations of what e-procurement actually is good for.
It’s not the one-stop-shop for IM&S by far; it’s just one of the many tools that need to be in the procurement toolbox.
Capgemini procurement Services