Spending Money to Make Money.

• Author: Krueger, Mark A.
• Position: Brief Article

At cutting-edge companies around the world, the image of purchasing as a mere corporate "spender" soon will go the way of the typewriter. Electronic procurement is opening the door for purchasing organizations to slash time and expense and focus on strategies that add value.

In fact, data show that implementing e-procurement will save the typical $1-billion company 2 percent or more in purchase costs, and represents a $100-million increase in shareholder value. Companies that cling to more conventional procurement methods never will realize these benefits.

The traditional purchasing organization has become stagnant due to an inability and unwillingness by staff and management to implement new technology. Procurement cost as a percentage of total cost has dropped less than 5 percent since 1996, primarily a result of poor staff utilization. On average, procurement employees spend three-fourths of the workday on basic operational support, and less than 15 percent on strategic, decision-support activities -- a surprising drop from 1996.

Complicating matters, the average company currently has 25 different procurement systems per billion dollars of purchased costs. These Enterprise Resource Planning (ERP) systems -- some as old as six years -- typically are highly customized, complex and poorly integrated with the enterprise's other systems. Even worse, ERP systems normally are capable only of point-to-point communication; for every transaction, data must be entered and routed separately every step of the way.

The Internet holds the promise of reversing these trends. Now procurement -- once strictly an operational issue -- has the potential to become a key strategic initiative. Companies that seize the opportunities e-procurement provides will consistently have an advantage over their competition.

E-procurement creates a virtual "town square" where entry and the exchange of information are easy. Unlike ERP, information provided in e-procurement transactions is accessible to all involved parties, both internal and external. This easy access, combined with the universal language of the Internet, erases the tedious and redundant process of translation and repeat data input.

Expanded Horizons

But eliminating needless paper shuffling isn't e-procurement's only benefit. It also lets companies be more discriminating in choosing suppliers. Before vendors held the power in trading relationships.

Reviewing proposals and price sheets, then mulling over...