Why epurchasing can save you millions

While the giants of the automotive and retail industries spent last week putting in place global trading hubs, smaller-scale firms met at the ePurchasing Europe conference in Amsterdam to discuss the merits and the future of eprocurement.

Speakers from companies such as Royal & Sun Alliance and Lloyds TSB joined with consultants from Andersen Consulting and the Warwick Business School.

Simon Croom, lecturer in operations management at Warwick Business School, told delegates there was no shame attached to working in the corporate purchasing department. "Procurement has always been seen as a cost centre and as a nuisance," he said. "We've had 25 years of people apologising for being buyers. But that's all changing."

Trouble at the top
Last year, research by Warwick Business School concluded that a staggering 60 per cent of UK corporate spend was either uncontrolled or considered too process-intensive, with high levels of dissatisfaction among finance directors.

Croom identified the main benefits of eprocurement as reducing the cost of goods by 20 per cent or more, cutting purchasing cycle times to hours rather than days, and reducing or even eliminating the need to maintain inventory.

His conclusions were supported by David Winton, group purchasing and supply management director at Lloyds TSB, who said that since the formation of the merged company in 1996, the role of purchasing in producing bottom-line efficiencies had increased in importance.

"Three years ago there were no purchasing systems at all," he said. "We were not leveraging our considerable buying power in the way that we could. Our suppliers were able to divide and rule. In effect, we've used eprocurement as a Trojan horse for radical business process change."

Lloyds TSB's eprocurement implementation programme is still at an early stage. It kicked off in October last year with the intention of including catalogues from eight suppliers. In the event, this plan was scaled down to one or two suppliers. "It was too ambitious," said Winton.

The slimmed down system is scheduled to go live in June with a user base of 100 to 200 users, increasing to 8500 by January 2001. A communications programme will promote the benefits of eprocurement and tackle user resistance.

"Users need to know how this is going to affect their lives," said Moira Wellesley Crabtree, head of UK purchasing at Royal & Sun Alliance. "This will affect every desktop throughout the organisation."

She advised anyone embarking on an eprocurement project to make sure that purchasing is positioned politically within the organisation.

"If you don't do that, then it'll just be an IT issue or a finance issue when it needs to be a purchasing issue," she said. "Is it a board issue? Well, do you have a purchasing director in your company? You need to have one who can position the whole thing politically."

"A global eprocurement system could cost you around £10m. No one is going to give you that kind of money without a proven business case. You need to be able to show where your eprocurement strategy fits in with the overall business strategy. You won't get the money by waving the latest Forrester Research report in front of [the board]."

The size of it
Putting together an effective business case for the board involves examining the size of the problem that faces an organisation and assessing the amount of money that is currently being wasted on purchasing.

"This is the grunt work," said Wellesley Crabtree. "You need to know what you purchase in terms of commodities and you need to know how many suppliers you have for each commodity. You need to know what's going out the door. I don't like the answer, but I do know."

Her final advice is stark and may have made uncomfortable listening for some less enthusiastic followers of the erevolution: there is no going back and no stopping the eprocurement movement. "If you're not interested in estrategy, I strongly suggest that you leave your company," she said.