If you’re looking for an example of an e-procurement success story, look no further than the New Zealand Police. In terms of uniform and equipment, the police have over 1600 line items in their procurement catalogue – and prior to moving to electronic procurement, had identified around 410,000 transactions a year that they could manage using an end-to-end e-procurement solution. Stationery, in particular, had always been a big area of spend. “The police spend $6.5 million a year on stationery so it’s a bit of an issue,” says police procurement manager Stan Pope. “We’re accessing 4500 lines of stationery within our catalogues and we’re placing about 35,000 purchase orders to Corporate Express every year.”

The costs of managing the police’s procurement manually were sky high, says Pope. “Under the old systems we determined our costs were $42.15 per procurement transaction,” he says. “The value of the product was irrelevant. It didn’t matter if we ordered one Bic pen or a new car, the process of filling out forms, doing the receipts, making the payment, sending the remittance advice off – all those facets added up to $42.15. Once we moved to a SAP financial system in 1999 that dropped to $5.48.”

But was $42.15 per transaction unusually high? Not according to SupplyNet’s Carl Mitchell-Turner. “In our experience it can cost anything from $40 to $100 to process a transaction manually in New Zealand,” he says. “A good e-procurement solution can bring that down to about $10 or less – it’s all a question of how many processes are involved as a purchase order works its way through an organisation.”

Keen to build on the success of the police’s current e-procurement arrangements with Corporate Express, SPEL and BP, Pope has recently engaged the Tranzsoft document translation and exchange hub to extend its e-procurement to more key suppliers. “It’s possible we’ll have three additional suppliers joining the hub by the end of the year,” he says.

E-procure what?
So what industries or products are good prospects for e-procurement? At e://volution, Denise Donald says most e-procurement roll-outs so far in New Zealand have been in “non-strategic” categories like printing and stationery. “They’re both good categories to start with,” she says, “because they’re not show stoppers. If a company doesn’t get their pens delivered it’s probably not going to close the doors.”

Because of this, Donald observes that categories like printing and stationery have tended to be overlooked in the past when organisations have evaluated their spending. “If you’re the procurement manager of a corporate procuring $30 million worth of product a year,” she says, “probably $25 million of that is strategic things. The other $5 million you’re thinking ‘well I can get to that later’ but we can do a lot in that $5 million space to ensure clients are getting the best deals and the process is automated and transparent.”

4 steps to e-procurement
The first step to e-procurement is establishing whether or not there is a need. Mitchell-Turner says the warning signs should be clear enough. “E-procurement is not about the size of a business,” he says, “it’s about at what stage in the procurement process the business is at. If an organisation believes they have a problem they need to first work out how big their procurement problem is and then decide what they can achieve.”

Step 1: Analyse accounts payable data
Establish how many suppliers you have now, and how many of those suppliers are supplying the same thing. Once again, stationery is a good place to start. How many stationery vendors have invoiced you in the past 12 months? If it’s more than two then you may have a problem – for example some mid-sized organisations in New Zealand have 10 different stationery suppliers. “If you’re buying from 10,” says Mitchell-Turner, “at least eight of them are charging you too much.”

Step 2: Analyse the transaction flow
How many purchase orders are you creating? What is the average purchase order size by category? For example, are you giving your supplier 10,000 purchase orders a year when the optimum is 1000? Could you up the size of your orders and lessen the frequency – reducing overhead costs for both you and your suppliers? “If you can consolidate those requisitions together,” says Oracle’s David Rainbow, “and instead of placing 10 purchase orders for one pen you place one purchase order for 10 pens, you can improve efficiency and also attract price breaks from your suppliers by ordering appropriate quantities.”

What about paper? How many times in the process – from raising a purchase order, to eventual product delivery and invoice payment – does a piece of paper get generated? “The fax is your enemy,” says Mitchell-Turner. “At the point an electronic process gets interrupted by the creation of a piece of paper which uses another transport mechanism to get to the next part of the process, there’s cost. Cost to produce the piece of paper, cost to transmit it and cost on the other side to punch it into another computer.”

Step 3: Analyse your own readiness
All businesses are purchasing all the time. For many however, the area of purchasing is poorly managed. Procurement management is about recognising that procurement is a process and then establishing systems to exert company-wide control over an organisation’s procurement practices.

So establish who in your organisation is actually buying? How are they buy-ing – by fax, email, phone or from a sales representative? If you do have special contracts in place with suppliers, are your staff adhering to your policies and buying from them?

What technology have you already made an investment in that you could use for e-procurement? For example most ERP systems can offer some value to the procurement process – are you making the most use of them?

“Organisations need to be clear about what they mean when they talk about e-procurement,” says Rainbow. “Rather than focusing on the whole marketplace side of things, more and more of our clients are focusing on their own internal processes.” As Rainbow points out, there are still many benefits to be had from installing e-procurement systems in your own business, even if they ultimately dispatch purchase orders by fax, email or even SMS. “You don’t have to buy the entire suite to reap the benefits of an e-procurement system,” he says. “From the Oracle perspective the procurement application is a modular system anyway so you could buy just the procurement system, and integrate it with your other systems.”

Step 4: Analyse the service providers and the ROI
After working through stages one to three you should now have a thorough understanding of how you currently procure – and where potential savings could be made. This knowledge is crucial before taking the step of selecting an e-procurement solution provider or implementation partner, says Mitchell-Turner.

“Drill hard into what people will charge you,” he says. “We have seen a corporate pay six figures for something they could have got from us for $10,000. So make sure you understand what service you’re getting. Although the e-procurement space has settled down, if you walk into it not understanding all the component parts then you might find your journey to e-procurement could be stuffed up by doing a bad job of procuring a service provider. Sure, you will get there in the end, but whether you will make the savings is the issue.”

In return on investment terms Rainbow says both organisation and potential supplier should do the numbers before going forward. “We sit down with clients to evaluate what is their process and what potential benefits do they expect to achieve from the system? Once that’s established we then apply that to a pricing model to see whether it’s cost-effective for them.”

Finally – check references thoroughly. “Once you understand what it is you’re trying to get out of any procurement system,” says Rainbow, “then look at vendors that have those components in their solution and are proven. Look for examples of where those vendors have implemented those systems and see if they have delivered those advantages to their clients.”

For more information on NZ's leading Supply Chain eCommerce solution providers click here

July 2004

To contact the solution providers in this article:

SupplyNet:  09 917 4030

e://volution: 09 623 6891

Tranzsoft: 09 448 2075

Oracle:  09 359 3300

SAP: 0800 300 272