By Karl Schmieder, contributing editor
If your staff is using a manual, paper-based procurement system, they probably search through stacks of catalogs and visit multiple websites for the products they need. They likely fill out paper requisition forms, submit requests for approvals, and wait for procurement to process their order. The entire ordering process can require countless people and drag on for weeks.
In the age of e-commerce websites like Amazon.com and Zappos.com, we’ve gotten used to features like shopping carts, favorites, recommendations, one-click ordering, and overnight shipping. As a result, using a traditional process to order critical supplies is not only less than satisfying, it slows down the discovery process and wastes valuable dollars. In addition, traditional ordering processes give your procurement staff no insight into supply chain weaknesses — you might have surplus inventory or be overpaying preferred vendors without even knowing it.
E-procurement strategies and solutions can accelerate the purchasing process, eliminate supply chain issues, and help you and your employees spend more time creating value for your company.
What is E-procurement?
At its most basic, e-procurement allows buyers and sellers to connect electronically via the Internet and information networking systems such as electronic data interchange (EDI). E-procurement systems are available on-demand or as Software as a Service (SaaS) and can be used in every stage of the buying process, allowing you to direct spending via purchase orders to preferred suppliers, manage catalogs from multiple vendors, and contract prices quickly and accurately with a seamless user experience. Features of e-procurement systems can include purchase orders, purchase order template management for easy reordering, purchase order confirmations with tracking links, advanced ship notices, and comprehensive order management, along with user access across your company.
Benefits of E-Procurement Can Be Significant
For research-intensive companies, there are strategic, opportunity, and operational benefits associated with using an e-procurement solution. Strategically, e-procurement can help consolidate purchasing practices that lead to greater discounts and better service from suppliers, accelerate the flow of important information, and reduce the administrative time necessary for ordering. From an opportunity point of view, e-procurement can help enhance and improve important corporate-to-corporate relationships, improve buyer/seller relationships, and increase the accuracy of orders because orders are less likely to be delayed or the wrong goods delivered because there are fewer transaction errors.
Operationally, e-procurement can improve financial controls, making it easier to match orders, eliminate paperwork that results in greater savings, improve auditing and better security by enabling staff and auditors to more easily verify and track orders. It also can reduce inventory levels and the costs associated with inventory, shorten delivery times by cutting the time associated with waiting for documents in the mail, and eliminate time zone obstacles since e-procurement is 24/7.
“We realized we needed a system that would be more compliant when industry regulations changed,” said Vicki Blankenship, manager, procurement services, e-procurement, Allergan. “Previously, we’d used a keycard or purchasing card system that wasn’t sufficient to meet new industry standards and exposed the company to risk. With an e-procurement system, we were able to meet the compliance standards, and we sent a message to suppliers and partners that we were looking to take some of the risk out of procurement.”
Procurement vs. The Enterprise
Procurement is a largely data-driven function, and the procurement staff benefits from real-time visibility into where dollars are being spent and what supplies are being ordered from which vendors. If procurement is being handled retroactively or on-the-fly, it can be difficult to forecast future spending.
Researchers, on the other hand, prefer to order supplies from their own chosen vendors. They seek systems that are easy to learn and easy to use. In some e-procurement systems, for example, researchers can flag products as favorites, which facilitates reordering, or draw out the chemical structure of a compound instead of having to type its long name.
To help procurement and research staffs meet their individual goals, an organization about to deploy an e-procurement system would do well to introduce the solution gradually, starting perhaps with a meeting between key researchers and procurement staff. “Show researchers that the system being proposed works the way they already work. Let them adopt the tool, embrace it, then advocate it to their peers,” said Max Leisten, market director, SciQuest. “That way, you don’t risk alienating anyone and can accelerate adoption because once the word gets out, other researchers will want to use the system because it gets them back to the bench faster.”
At Allergan, the company first deployed its e-procurement solution at its Irvine, CA, headquarters, initially with the information systems (IS) staff. Corporate managers were introduced to the system next, followed by commercial operations, research and development, and finally manufacturing. Then, the company introduced the solution globally across its 40 commercial locations, 4 research and development facilities, and 6 manufacturing plants.
Today, when an Allergan staffer orders, their shopping cart is converted into a requisition that is routed through the company’s existing SAP supplier relationship management (SRM) system. That system hosts more than 40 catalogs across a broad range of categories including information technology, office supplies, lab materials, and other areas.
Change is the Only Constant
When deploying an e-procurement system, it is essential that staff throughout your organization understand the benefits of moving from their old method of ordering, whether paper- or purchasing card-based, to the new solution that requires purchase orders and up-front approvals. In general, individuals focus on what affects them directly and need to be told how the company will benefit once the e-procurement solution is deployed. Helping staff understand the new system and its benefits to the company and to them individually, in terms of decreasing ordering times, will go a long way to accelerate adoption.
What Gets Measured Gets Managed
Cost-saving with an e-procurement system comes not only from ordering from preferred vendors but also from increased spend visibility. Insight into spending can be very powerful when it comes to negotiating or renegotiating terms and conditions with suppliers.
According to Blankenship, during an eight-month period in 2010, Allergan saved approximately $2M by directing its spending through its e-procurement system. “Integrating all suppliers into an e-procurement solution allows us to manage our suppliers more strategically, reduce our reliance on vendor-managed inventory, and meet corporate compliance goals,” said Blankenship. “In addition, the solution allows Allergan to be more proactive about its indirect spending, and our staff can make smarter buying decisions.”
SciQuest’s Leisten adds, “Sadly, most procurement people have no idea what is being purchased across the enterprise. Many times, they rely on their suppliers to give them information retroactively. Without a clear picture of spending, they can’t negotiate discounts for their organizations.”
Research-intensive companies that streamline their purchasing processes across the enterprise often realize savings in areas outside of research and development spending, including, for example, in administrative, clerical, and even executive management. Administrative time required for purchasing can be significant, but e-procurement accelerates purchasing and decreases time spent on purchasing tasks, which in turn increases the time employees spend creating value for the company. A better understanding of procurement can lead to an understanding of weaknesses and areas for improving efficiencies in supply chain management.
Beyond Procurement: Improving Supply Chains and Mitigating Risk
Over the past two years, supply chains have been disrupted by natural disasters, product contamination in regulated industries, political instability, the continued threat of terrorism, and social unrest in certain countries as a result of economic uncertainty and a loss of jobs. The potential for major supplier failures across many industries has become a real possibility.
Structurally, supply chains are changing, and strategies must be able to flex in the face of weaknesses, uncertainty, and increased risk. Supply chains that once focused on supporting product movement from a lowest-cost manufacturing location to regional distribution hubs based on product availability are giving way to strategies designed with the customer and demand in mind. These innovative strategies synchronize supply-to-demand activities using business processes, technology, and geographic footprints.
Companies that examine their supply chains may find ways to balance risks while increasing efficiencies. To determine the optimal supply-to-demand strategy requires evaluating suppliers, costs, product life cycle, forecast accuracy, logistics, and customer requirements. A high degree of collaboration and an understanding of technology tools will help drive these efforts forward. To create the most cost-efficient and risk-balanced supply chain requires redoubling efforts, collaboration, and hands-on, tech-savvy management.
Given the many and potentially long-lasting effects of the global recession, consumer buying patterns are changing. A Harvard Business Review article by Peter J. Williamson and Ming Zing titled Value-for-Money Strategies for Recessionary Times predicts companies that historically sold premium product offerings to drive profits can no longer rely on this tactic alone. Cost-conscious and value-oriented consumers are no longer willing to pay hefty premiums for innovation when there are other cost-affordable alternatives in the market. A new source of product innovation, suggest the authors, will be current product innovation teams in low-cost regions. The most efficient and dependable supply chains may well beat, or at least be as competitive as, the more costly product innovation value chains.
E-Procurement: A Win-Win for Supply Chain Management
For price conscious research-based organizations looking to increase their operating margins, improving supply chain management using e-procurement tools can be a no-brainer. Executives looking to improve efficiencies and deliver increased value from limited funding would do well to pay more attention to e-procurement solutions and supply chain management. Procurement-driven improvements can have an immediate impact on a company’s bottom line, help budgets go further, and help keep employees focused on critical, value-building functions. Increased spend visibility across an enterprise can give insight into supply chain weaknesses and drive the collaborations needed to mitigate those weaknesses and decrease risk.