E-Purchasing Comes to Canada
Some would say it has already arrived, but the truth is a mere handful of large companies are pioneering this very new way of doing business here. They are trading with a pocketful of vendors that have been drawn online by these big customers. If you are a mere “typical” Canadian company, should you be e-purchasing too?
What is e-purchasing, and why should you care? It has two roots. The first is the indirect buy that has generated the most hype. By channeling all of large companies’ purchase volume in commodities such as office supplies or janitorial supplies, to single vendors:
• preferred terms can be negotiated,
• electronic catalogues can be built where only approved products are offered,
• electronic workflow can be used for approvals and transmission to suppliers.
The user prepares a requisition or purchase order with all the ease of online shopping with a browser, the request is automatically routed for electronic approval up the chain of command, and when the last approval has been given, the order is transmitted directly to the supplier. Online confirmations, ASNs, bill presentment or ERS, Pcard charges can be used to streamline the back-end processes. Such systems claim to reduce the cost to process a Purchase Order from benchmarks of $120 - $180 to a fraction, typically $20-$50. Since these savings are made in “fingernails across the organization” (a small amount of time spent by many different people), the real cash saved through payroll reduction is considerably lower. When you come to count the actual savings, they may have gone home early or used the time you saved them to do something else.
The other e-purchasing root is in direct purchases. These have typically had the attention of purchasing and senior management, with strategic sourcing to preferred vendors. Here, a new branch of e-purchasing called e-sourcing has been invented. These tools allow buyers to host reverse auctions and electronic RFx’s (Requests For Information, Proposals, Quotes, etc.) Potential vendors are pitched against each other in a real time, price based fisticuffs. Early adopters boast price reductions of up to 40 per cent and even more.
Both these types of e-purchasing have a major challenge: Vendor readiness. For these great opportunities to deliver, the supply base must be “on-boarded,” connected electronically to their customers. Just as few Canadian buyers are e-purchase ready, not many Canadian suppliers are online and ready to build online catalogues and accept purchase orders. Like the early users of telephones, faxes, or even e-mail, these systems are not much use until there are enough connections to communicate with. The early adopters praised above are strong-arming their preferred suppliers to onboard, and now even the Provincial and Federal governments are getting into the game. The e-purchasing software vendors are discovering unique Canadian issues such as federal bilingualism and its impact on content and catalogue management, a different dollar, and the delights of GST, PST, QST and HST.
E-Sourcing poses a different set of challenges for suppliers. The tools are easy to learn and to use, but the live ambiance can feel a lot like gambling. Suppliers must understand how far they can go before they get online. Helping your preferred suppliers keep out of trouble may be the best thing you can do to ensure continuity of supply at the quality you expect. Make sure you deal with a reputable host for your e-sourcing events, as technical difficulties will at best destroy the competitive dynamics and could discredit your entire initiative. Take the time to verify that all your participants have received the training (often on-line) and demand that all participants come to a “mock event” where everyone gets to try there hand a fictitious bid to check the technical environment and to see how the software behaves.
For the buyer, you usually get what you seek. If you threw a bundle of products you buy at a bunch of suppliers you may have done business with, you will probably get inconsistent bids for items that you might never want for free. The really successful events are the result of extensive preparation:
• Selecting the commodities that represent real opportunities in your business starts with large spend, poorly leveraged supplier arrangements, easily substitutable products from a large supplier base.
• Competitive intelligence on “benchmark” prices can also highlight where you can expect to save most money, but this information is very difficult to obtain.
• Determining the desired outcome is critical – a bid designed to squeeze better costs out of your incumbent supplier will be designed differently from a bid seeking new global suppliers. Pure price concessions are not obtained in same way that higher supplier value propositions are, such as performance guarantees or collaborative new product development.
An e-sourcing event without a clearly thought out strategy will yield haphazard results that will pose a real challenge to implement effectively and profitably for the buyer.
For the many merely average companies in Canada, the tier 1 solutions used by the pioneers might be too steep an investment and too large a risk. That should spell opportunity for the gaggle of tier 2 e-procurement vendors that have a lower price point for a different value proposition. Sadly, few of them are present and aware of the Canadian market and its specificities. The real issue is “what is your business case for e-procurement?” By analyzing where and how your company will achieve e-purchasing benefits, you will know what “must haves” to take to your solution selection, and how much you can afford to invest. Get help in this phase of your analysis; while e-procurement might be entirely new to your organization, there are many experienced advisors in this space. Consider the integrated suites of e-sourcing and e-purchase order systems, their decision support capabilities will be more readily available to the e-purchasing neophytes. This decision support is the heart of what makes e-sourcing effective – spend consolidation and analysis, commodity selection and bundling, vendor selection and qualification.
So which solution is right for your business? Obviously functionality and solution price point are critical issues. More importantly however, if your favored vendors are not online, then you will have to help bring them into the online family of your chosen solution. Therefore, make sure the effort and expense is not too onerous for a supplier to build and maintain online content (catalogue building and updating charges), to receive and post transactions online (transaction charges), and to stay part of the online community (membership charges). If you can share this effort with other buyers, everyone will benefit, so give consideration to the nascent vendor communities in Canada such as Commerce One’s Global Trading Web, Ariba’s Commerce Services Network, General Electric’s GXS, or BCE Emergis’ budding Order-to-Pay gateway. If you just want to try and see if e-purchasing is for you, you could start with Procuron for office supplies and equipment, travel, and various other corporate services. The experience will make you a smarter eBuyer.
In the final analysis, e-purchasing is a game of “chicken.” Do it to your suppliers, learn how it works and where it hurts, and save some money, before your customers do it to you.