E-readiness Optimizes Purchasing

July 14, 2003 by admin

The realization that e-procurement – in other words using software to purchase goods and creating an electronic link between the buyer and the supplier (B2B integration) – also holds huge potential for SMBs is now firmly established. Pricewaterhouse Coopers actually considers e-procurement to be the most important route to reducing costs within a company. There has therefore been growing interest in this area among SMBs.
The Internet has opened up a whole range of new opportunities in the field of procurement. Changes have been particularly great in the provision of standard materials, so-called “Maintenance, Repair & Operation” (MRO) materials. The main aim of e-procurement applications is to reduce the time required for ordering those materials that are not used directly in production and are generally of low value. However, to achieve this, SMBs must be ready to deal with electronic business transactions. According to an “e-readiness” survey of some 130 SMBs in the supplier industry carried out by researchers at Stuttgart University’s Institute for Capital Goods Marketing and Procurement Management, around 75 percent of all orders are still being received by traditional methods, such as post, fax or telephone. The remaining 25 percent are transmitted electronically – a disillusioning conclusion that is supported by the findings of the Berlecon study commissioned by the German Federal Ministry of Economics (BMWI). A poll of over 800 businesses showed that just 39 percent of SMBs (in this case, between 100 and 499 employees) exchange data electronically.
According to the study “E-Procurement in Small and Mid-Size Businesses”, 17 percent of SMBs are currently using an e-procurement system, and 13 percent are in the process of implementing one, with the majority opting for Desktop Purchasing systems. Although the study indicates that only 30 percent of SMBs have introduced these systems, it has come up with a range of interesting findings. The main reasons in favor of e-procurement stated by the respondents are the expected benefits (50 percent) and cost pressures (37 percent). When asked about the main barrier to using an e-procurement system, the SMBs surveyed referred to their specific needs and the absence of the (technical) requirements to support this kind of system.

E-procurement promotes savings

The “Catalog Management Signpost” survey carried out by PricewaterhouseCoopers reaches the conclusion that online catalogs are the key to electronic procurement as well as being a decisive success factor for all parties involved in the procurement process. For SMBs that have introduced an e-procurement system, an important factor behind this decision is the fact that they have access to an inexpensive standard software solution based on mature technologies. Using standard formats such as BMECat or Open Catalog Interface (OCI) developed by SAP, this software allows companies to easily exchange and compare data.
However, it’s not just technical aspects and technological requirements that are decisive in introducing e-procurement. It is often the case that, in their procurement processes, SMBs scarcely make any distinction between C items and the strategically more important A and B items. The purchase of a strategically important product is far more complex than simply ordering a pencil. C items, such as office supplies, computer hardware or services, are goods that do not have any strategic importance for a company’s production process and which are not used in the end product. Although their value is relatively low, process costs for their procurement are particularly high, as they account for between 50 and 70 percent of all procurement transactions within a company. C items are generally purchased from standardized online catalogs. Not only do these catalogs provide a central location for storing all information on products and services, they also make procuring standardized products, such as office supplies, computer hardware and even services (cleaning of windows and buildings or computer support services) considerably more efficient and cost-effective than in the case of printed catalogs.
Therefore this reorganization of purchasing and approval processes still offers huge potential savings for SMBs. In addition to this, when desktop purchasing systems are introduced, the associated reorganization of purchasing processes and switchover to e-procurement means that responsibility for orders is transferred directly to individual employees, which in turn brings further cost savings. Most companies that wish to introduce e-procurement begin by using a desktop purchasing system to process C parts. Companies that are already successfully using desktop purchasing plan to extend their systems and add further functionalities.

E-ready with ASP

Their limited resources mean that SMBs in particular need inexpensive software to make introducing standard classifications worthwhile for them. To significantly improve e-readiness in SMBs, inexpensive software solutions are being offered on a lease basis (Application Service Providing, ASP) along with a portfolio of associated services aimed at making the introduction of e-procurement interesting. There have already been some encouraging signs in this area. IPS, a business unit of PSG Procurement Services GmbH, and a SAP Business Partner (up to now Channel Partner) in the area of ASP, has therefore developed a mySAP All-in-One procurement solution based on mySAP Supplier Relationship Management (mySAP SRM).

Further information:

www.aberdeen.com
www.desk-studie.de (on the e-readiness of German suppliers)
www.pwc.com

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