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The Current Challenges of eProcurement

PwC’s Bernadette Margel Discusses the Process

In the current real world of eProcurement, linking the computer systems of buyer and suppliers is just one of the challenges facing eProcurement. Getting employees to use the procurement tools already in place is another. And reengineering the process is a third. Overcoming these difficulties “which are widely agreed upon as inhibiting the ongoing development of eProcurement – is the focus of a dedicated procurement outsourcing team at PricewaterhouseCoopers (PwC)’s Business Process Outsourcing group. Led by Bernadette Margel, global partner in charge of procurement outsourcing, this team has spent two years identifying key components of the process and its major inhibitors. The Web is the centerpiece of the BPO plan. “I am interested in using the Web to make the procurement process more efficient, effective, controllable and predictable,” says Margel. More than any other tool except the telephone, the Web “has the promise to allow ubiquitous access to the procurement process,” she says. Margel defines procurement as an “end-to-end” process. It starts with a buyer clearly defining its product needs and ends with payment. EProcurement tools allow the purchasing organization to set up buying parameters so that everyone follows the same rules.

Why Employees Currently Circumvent Procurement Processes

The PwC executive says most companies have done a good job of strategic sourcing – finding their preferred procurement partners who deliver superior products at a good price with caring customer service. The problem is getting the end users at the company – from people at headquarters to those working in the provinces – to utilize the current procurement tools. One problem, Margel says, is that buyers don’t have access to the company’s procurement tool. Another is that the procurement process is so cumbersome it’s just easier to do business in other ways.

For example, a company is headquartered in New York City but has offices in every major U.S. city. The copier breaks in its Chicago office. The purchasing officer there considers following the corporate procurement rules. This is a serpentine process that requires multiple approvals. The paper work can be massive. The Windy City executive thinks, “How long is this going to take?”

He knows that the company around the corner that has been servicing the old copier also sells new models. So he calls the local vendor and buys. “People circumvent the procurement process because it’s easier,” says Margel.

Reengineering Streamlines the Process

She says the way to fix this is to reengineer the procurement process to streamline it. Margel says reengineering removes the approval cycle from the process. Now only the exceptions require approval. After the reengineering, PwC installs a simple procurement tool. Now it’s just as easy to use the tool as it is to call the supplier around the corner. “The tool has quick service and quick answers,” she says. The goal is to have 95 percent of the buying transactions go through the procurement tool automatically, adding efficiency to the process. The procurement manager loads the procurement tool with the contracts and the prices for all the goods and all the vendors the company has selected through its strategic sourcing agreements. If the company purchases a lot of laptops, the manager embeds all the buying parameters for these machines in the software. The end user anywhere in the company just has to click and go. “The only approval necessary is whether this individual is exceeding his or her budget authority,” says Margel. The PwC executive says the reengineering process brings together the purchasing department, the corporate finance group and the company divisions who together must agree on “what the exception rules will look like,” continues Margel. She says this is a key area where a BPO outsourcing provider like PwC can gain process efficiency for its buyers. Sometimes this thinking requires a 180 shift in the corporate culture. “If the management is used to closely scrutinizing every purchase, they will feel very uneasy about this,” observes Margel.

Linking With Suppliers

The other piece of the eProcurement process which has not been completed yet is connecting these corporate buying procurement tools to their supplier base using the Web. Margel calls this “the other half of the eProcurement battle.” The trick is to get communication between all the players. Currently there are five front running eProcurement packages; each has its own unique architecture and coding. Suppliers interested in using these packages to set up Web-based catalogues may have to do the same configuration work five times. This is an unlikely scenario. Margel predicts Darwin’s law will apply and only the fittest will survive, shrinking the number of eProcurement software players. And, the industry will develop standards for supplier catalogue coding, much like the standardization of EDI transactions. “Over time it won’t be that difficult for suppliers to link up,” she predicts.

Enter the eMarketplace

Intermediaries may step in to simplify the communication process. Margel suggests a niche service organization may appear to provide a switchboard-like link to all the current eProcurement packages. Another intermediary solution is the eMarketplace. Joining an eMarketplace simplifies the communications problem because the supplier only has to build one bridge to the eMarketplace. “The value of the eMarketplace is it aggregates communities of buyers and sellers who can use the same tool,” says Margel. What can be done today? BPO providers can install eProcurement tools, linking them to the company’s enterprise resource planning (ERP) and accounts payable system. They can begin the reengineering process. On the connectivity side, PwC has built a private eMarketplace using its client base. All its outsourcing clients have access to both its eProcurement tool and the suppliers already linked to its eMarketplace. Even though Margel discounts much of the hype around eProcurement, she still believes it “has huge promise,” especially for those companies that can face and meet the challenges of linkage, employee acceptance and reengineering.

Lessons from the Outsourcing Primer:

  • Reengineering is crucial to the eProcurement process because companies must remove their cumbersome approval processes to enjoy the process improvement benefits.
  • The goal is to have the eProcurement tool handle 95 percent of the transactions. Only the exceptions need corporate approval.
  • Suppliers are dealing with connectivity issues. Each of the major eProcurement tools has a different architecture and requires different coding.
  • Joining an eMarketplace only requires one connection.
  • In response to client and market needs, PwC has created an eMarketplace for its clients.

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