Dr. Hudetz, what are the main benefits of electronic procurement for small and midsize companies?
The main issue for small companies is improving their procurement process. This enables order processes to be accelerated and transaction costs reduced. E-procurement solutions provide the purchasing department with greater transparency of the order processes. Unlike large corporations, who are sometimes able to slash purchasing costs using their own purchasing platforms, this savings potential is relatively low for SMBs. SMBs rather see e-procurement as a means of optimizing their supplier relations in the long term.
What technical and organizational preparations should be made, or what technical requirements need to be in place, at SMBs who are seriously thinking about introducing an e-procurement solution?
A fast Internet connection via leased line or DSL is essential to take full advantage of the speed afforded by e-procurement. SMBs also require a contemporary business software solution, such as SAP Business One or industry-specific solutions based on mySAP All-in-One, that have corresponding standard interfaces to external systems.
Noticeable cost savings can only be achieved if as many steps of the order process are automated as possible. Many SMBs lack the capacity to integrate Internet-based order processes into their own IT system. The optimization potential that e-procurement offers is lost as a result of the break in media, that is, printing out Internet orders and entering the data into their own system. Additional costs are incurred, and the risk of mistakes increases.
However, fulfilling the hardware requirements alone is not sufficient to reap the full benefits of e-procurement. You also need well-managed master data. However, this is not the case in many SMBs. Such inadequacies quickly become obvious when exchanging data electronically as records need to be amended manually, which in turn slows processes down. All of this naturally results in higher transaction costs.
Buyers and suppliers require common data standards in order to exchange data. What is the situation regarding supplier integration in e-procurement projects in SMBs?
Electronic data exchange with suppliers often poses considerable problems for SMBs. Alongside the inadequate maintenance of master data already mentioned, the second largest problem is the insufficient standardization of data and transfer formats. Admittedly, some globally approved standards for product classification and data transfer do exist in both the consumer goods sector (for instance EAN 128 and EANCOM) and in the capital goods sector (such as eCl@ss or UNSPSC). However, at the present time these standards are largely used by the large corporations. SMBs, on the other hand, still predominantly use proprietary standards. Switching to true standard solutions represents a large challenge especially for small companies. However, help is at hand in the form of the PROZEUS project, which was initiated by the German Federal Ministry of Economics and Labor, and is running pilot schemes in the implementation of e-business standard business processes in SMBs.
Let’s turn the whole issue around and look at the SMB supplier aspect. What is the state of their e-readiness?
Inadequate data quality and insufficient standards also pose obstacles to suppliers. This has been confirmed by various studies and the results of the PROZEUS project mentioned earlier. The problems of SMB suppliers are thus largely the same as those of SMB buyers. However, it would be wrong to say that suppliers are the main innovators in this area and that the buyers are holding them back. The deciding factor is generally the size of the company: large corporations on the whole have better managed master data and invest much more heavily in standardized solutions than do smaller companies – regardless of whether they are providers or suppliers.
The right software and uniform data standards are central aspects in e-procurement. Is it not the case that projects are often reduced to deploying a software application to reduce material and procurement costs, in the course of which the purchaser, the “human factor,” is forgotten?
The human factor is indeed often neglected. Our experience also shows that the “classical” problems of project management often hinder e-procurement schemes – agreed deadlines not being adhered to, project teams being reorganized, and communication with external partners not working, to mention just a few reasons. In many cases, buyers also fear personal disadvantages for themselves if their company switches to electronic procurement. They therefore need to be persuaded that e-procurement isn’t a replacement solution for existing forms of procurement, but instead it represents an instrument that supports purchasers in improving procurement processes. In order to introduce e-procurement successfully, a high level of commitment is required from all those involved, from management to the purchasing department.
“Classical” e-procurement is perceived to provide advantages on the purchasing side only. Is a collaborative approach, as represented in Supplier Relationship Management (SRM), a viable and future-oriented concept for organizing relationships between buyer and supplier?
The discussion about whether the optimization of the value-added chain offers more benefits to the buyer or supplier is as old as the idea of such joint undertakings itself, regardless whether they are termed Efficient Consumer Response (ECR), Supply Chain Management (SCM), or Supplier Relationship Management (SRM). However, the distribution of optimization potential usually just reflects market power: if we assume that the actual rationalization potential of e-procurement is largely limited to the supplier side, this would lead to lower purchase prices and consequently benefits to the buyer in a ‘buyer’s market.’ The decisive factor here is again the company size, for the optimization potential of e-procurement is naturally greater the more buyer-supplier relationships are included.
A corporation that integrates several hundred suppliers into its order system via a standardized platform thus reduces its purchasing costs more than a small company that operates e-procurement with five suppliers and may also have to cope with various different systems. However, SMBs can, and I don’t mind repeating myself, make considerably greater savings in purchasing than before thanks to high data quality, which can be achieved using a future-proof software solution, and standardized data exchange.