Navigating the E-procurement Maze

A version of this article first appeared in Computers & Finance, a magazine published 10 times a year in London by TBC Research. Through its comprehensive portfolio of magazines, events and research, TBC Research is dedicated to helping senior business professionals make more informed technology decisions.

The development of e-procurement systems is ushering in a major change in the dynamics between customer and supplier. Joanne Collins talks to some of those who are transforming the supply chain.

The panellists
John Bamber, manager of Supply Chain Systems, strategy and Transformation at British Telecom, manages its supply chain strategy and supply chain e-business transformation, allowing each division within BT to look at its own internal processes and examine the areas in which it can transform itself into using the Internet.

Banner Business Supplies is a supplier of office products to the public sector and increasingly to the private sector. Its chief executive, Mark Cashman, and its IS director, John Wilson, use Infobank's InTrade product to increase its use of electronic media and gain greater interchange with its clients. It currently trades about 40 percent of orders electronically.

Making the First Move
Customers are fed up. The concept of e-procurement is being pummelled into them every day by software vendors and commodity suppliers and, frankly, it's getting tiring. Both sides seem to be doing very little apart from selling their newest digital exchange or catalogue, yet the onus always seems to come back to customers to make the first move. Why, they cry with despair, can't our suppliers make it easier for us to do business with them--after all we're paying their bills?

To look at the issues behind e-procurement from both sides of the fence, we brought together a forward-thinking customer and a ground-breaking supplier. Their conclusions are that, whatever the complexities, the benefits for each camp mean neither side can afford to stand still while rivals are making moves into the e-procurement maze.

John Bamber, manager of Supply Chain Systems, strategy and Transformation at BT, says: "There's always an excuse for saying we can't move on this [e-procurement] because we don't have the right processes in place but if you demonstrate the principles and extol its virtues people can be persuaded."

John Wilson, IS Director of Banner Business Supplies, agrees: "The only reason a company won't implement a new product is because it has all its money and resources tied up in implementing something like an ERP (enterprise resource planning) package. IT tends to overlook what it's got and what is reusable. Companies need to take a quantum leap sometimes, but it can be on an incremental basis and a good infrastructure will support that."

While still in its embryonic stages, e-procurement is generally perceived by analysts to be the quick-win solution to reducing the costs of basic office supplies, but often little regard is paid to direct procurement in the supply chain. Forward-thinking organisations like BT are already moving beyond this early phase and reassessing their total procurement processes in the end-to-end supply chain.

At each point within the supply chain where a company and its many suppliers interact, these organisations are looking to improve the communication and relationship with suppliers by exploiting the Internet and exploring other areas that could be procurable. BT is even going to the trouble of setting up portals for e-procurement and interactive Websites with its suppliers, and creating scenarios similar to reverse auctions - anything to make purchasing easier for the end user while maintaining central control.

BT, an early adopter, has been using its e-procurement system, Marketsite, internally for about six months and is now rapidly pressing on with its belief in sharing information with suppliers and collaborating as much as possible to put the 'e' in its supply chain. Its vendor supply chain strategy identifies each interactive touchpoint between BT and its suppliers, and looks at ways in which the interaction can be improved and whether the Internet can be exploited to make the services even more efficient.

It has even launched a Website called Selling2BT, which allows any current or prospective supplier to log on and learn how it can do business with the telecoms giant. The site delineates what products and services it buys, how it buys and its generic terms and conditions. As the site is interactive, BT can actually launch tenders on it, too. Bamber says: "Collaborative planning is definitely a main area of focus for us and this is a communication portal with the outside world enabling us to connect with our approved and prospective suppliers." Another BT endeavour, its online billing tool, is on trial at the moment and will enable the company to perform reverse auctions. BT will identify the product it wants to buy, give some specific criteria, and the information will go out to the Internet for any interested suppliers.

Trading Information
Bamber is adamant that giving suppliers as much information as possible, such as forward demands and forecasts to suppliers, is the way forward. In return, suppliers give BT their manufacturing plans, so it is able to match them together to see where there are any issues. In some cases suppliers have actually taken over the whole management and ownership of BT's stock in a vendor-managed inventory scenario. The planning system electronically shares the information between the two companies, and the supplier uses the BT forecast for manufacturing to enable replenishment of stock at the right time. The demand still comes into BT systems but it passes the planning requirements onto the supplier who builds that into its own manufacturing system and then takes ownership of the stock.

In its own way, Banner has a similar set-up with its suppliers and customers. Its vision is to use e-commerce as the centrepoint for all its trade and it too is working towards an Internet portal where all of its suppliers can come. It has to work out its relationship with each supplier and decide if the supplier is suitable, as not all are willing to delve into e-procurement.

For its customers, mostly large, corporate buyers, it has designed an electronic interchange, based on InfoBank's InTrade system. It worked with customers to define how their internal systems would fit with Banner's, while enabling customers to keep control. It now has 15 live on the system with more ready to join and another 20 in the pipeline. Using Banner's system, customers can push out purchasing to users' desktops while setting and monitoring purchasing limits of departments so it can control what and where people are spending. Customised reporting can also be part of the deal.

Banner has three other electronic trading systems alongside InTrade, including traditional EDI (electronic data interchange) and proprietary catalogue ordering systems, but they are all interfaced with a business switch that deals with any transaction. This interface enables the transformation process of shunting orders along to the back office or suppliers, but the business data going through needs to be constantly updated. Wilson says: "To make the data much more directly customer relevant, we had to go through a process of sanitising, cleansing and reformatting product descriptions."

For e-procurement to work successfully, controls need to be put in place over the levels of functionality on a user's screen and the back-office payments process. Having such controls ensures the key goal in e-procurement of reducing maverick buying. Our panellists agree that maintaining a single portal or Website is the first step in maintaining that basic control. "The whole point of the catalogue and portal is that you have control of where the users go and you only send them to places where you have approved relationships with suppliers. If they could log onto any supplier's Website they wouldn't get the best price and BT wouldn't have total control over what they are spending," comments Bamber.

Cashman believes that a supplier must make things so easy for a customer that they will always want to log onto one preferred point of call in some form or other. Some of Banner's customers don't use its front-end tool but prefer to have the catalogue on their own Website. Banner gives them an electronic download that they then incorporate onto their own portal with other multiple suppliers. But in general, its customers log on to a common Banner system and are presented with their core products such as their top 15 items. They can still look at the generic catalogue but with preferred purchases in place, they can quickly and easily order essential items.

"From a user perspective, we have to think of everyone who may want to order an office product--or they may even want to bring someone in from an agency. If we provide a simple look and feel and, to make things easy, give a single point of contact--the portal--we can maintain control. The portal will give them all the types of services and products they need and we can make sure they are the correct person by the validation checks when they log on," says Bamber.

Wilson, however, cites the British government's shopping mall initiative, (which aims to bring together all purchasing in one system with a single look and a single interface), as forward-looking, but extremely difficult to put into practice.

Presentation of the catalogue is also vital to ensure that customers return again and again to the same portal, and from Banner's point of view it must also offer a search engine that is not limited and has hyperlinks to other suppliers. Banner must present its information in a basic, colourful and easy-to-understand way when end users log on, so that customers can search for items and know immediately if they are authorised to spend a certain amount of money. The promise of next day delivery also reduces straying customers.

The Approvals Process
However, providing the authorisation for a certain amount of spend is a very tricky part of the e-procurement process. Each individual user in any company could have a different approval process to go through, depending upon the agreed spend of each user. Approvals can be built at the front end so the user knows upfront whether they have exceeded their budget, or it can be built at the back end. The latter will enable the order to go through but management reporting information will pick up that a user has overspent or bought an unusual amount of expensive items.

Banner has implemented controls around the financials process workflow for this, with customers allowed to set their own budgets for a certain period. If a user is getting near the top limit a message is sent to the authoriser of the budget. A person might have a budget of £10,000 but can only place an order for £500. Banner is implementing catalogue controls at a customer level to deal with this problem.

Reporting facilities are a big bonus when procurement becomes electronic, enabling companies to easily work out what money is being spent where. Reporting tools can determine what an individual spends and what purchases have been made. It can even report individual purchase orders by summary and by actual items. Reporting can also pick up on maverick buying, which our panel insisted would only happen when users find it difficult to find something in a paper catalogue and do not have the time to fill out various forms. BT encourages its users to use the proper channels by pressing a button on their screen that should result in a delivery of goods the following day.