Project Management

E-procurement: The link to the c-commerce value chain

E-procurement is an integral part of any collaborative commerce effort. Find out why today's back-end systems can't, and shouldn't, take a backseat when it comes to creating c-commerce platforms.

The concept of collaborative commerce isn't new—at some point, the phone, the fax, and most recently, Internet e-mail and attachments have all been considered the "latest and greatest" in c-commerce advancements.

But today, there's more of an electronic edge to c-commerce, as enterprises are turning to the Internet with e-channels, e-marketplaces, and e-trading, all propelling c-commerce initiatives into wider adoption.

By carefully choosing competent and suitable technologies, companies can enjoy significant savings from c-commerce. E-procurement solutions, for example, enable organizations to process more new contracts with less staff (processing is cut by a third), to capture all purchase orders and submit them to suppliers electronically, and to conduct billing and settlements electronically, which cuts labor costs.

In the initial installments of this six-part series on c-commerce, I focused on front-office applications, including ERP and CRM; how best to hone enterprise data for integration; and how to make applications flexible enough to fit into c-commerce initiatives.

On the back end, the key elements for a successful c-commerce initiative are an organization's supply, sales, and procurement capabilities. In this article, and the following final segments of this series, I'll examine back-office systems, including e-procurement, and the vital role they play in c-commerce efforts.

Supplier participation is a must
Procurement is a critical process within c-commerce strategies. In a sense, the technology used for procuring goods and services ties together the internal organization with its value chain. As the "face" the organization puts forth to the entire supplier community, procurement must perform two vital duties: Reduce risks and improve supplier participation.

One marketplace solution available is Ariba Supplier Network, an e-procurement system that provides users access to a global supplier community through a single connection. Ariba is an online commerce solutions provider based in Sunnyvale, CA.

Suppliers dial in to the network and, after registering, are able to receive purchase orders, upload content, help buyers view the content behind their firewall, and authenticate and send purchase orders in a controlled and secure environment.

The network lets both parties (suppliers and buyers) know if a purchase order was issued and whether it has been received. It also allows participants to make changes to orders, send advanced ship notices, and automate invoicing.

As supplier participation is vital for an organization’s spend-management success, Ariba Supplier Network provides various integration solutions—from zero-cost online tools to a complete system-to-system XML platform—to match suppliers' technology needs. In addition, the network enables suppliers to register and transact business free of charge.

According to Ariba Executive VP Michael Schmitt, suppliers don't have to buy or install software or hardware, or have access to global supplier directories, to benefit from Supplier Network. Ariba has more than 30,000 suppliers currently signed up with the network—suppliers that are already c-commerce ready.

The easy hookup and integration opportunity provided by Ariba and other e-procurement networks lets suppliers bypass the typical "supplier-enablement" issues that quash many vendors' individual efforts, says Schmitt.

“There are two parties [suppliers and buyers] you have to deal with,” he explains. “And then there are problems with trust, disparate data models, and disparate technologies.”

Schmitt provided this scenario: A laboratory supplier's customers—literally thousands of people—want to connect with the lab on an individual basis by implementing a unique connection to do e-business. That means, says Schmitt, that "the [supplier's] IT department would be hammered" trying to integrate and connect with all of the many customer systems and platforms. With the Ariba Supplier Network, that same lab supplier has one technology—one standard—to plug in to. As an added bonus, the customer now has access to nine out of the top 10 pharmaceutical companies, because they’re all listed within the Ariba supplier directory.

Delving into c-commerce, part 4
In the first three parts of our series on collaborative commerce, we examined how enterprises should prepare for this new approach to e-business and the two key front-end applications for any c-commerce: ERP and CRM. In the final two installments, we'll provide a real-life c-commerce case study and a "how to" guide for moving into c-commerce.

XML and the bigger picture
While integration is a common hurdle preventing many suppliers from initiating e-procurement efforts, it is not the only roadblock cutting organizations off from procurement technologies.

First, many organizations fail to consider the entire purchasing process in approaching an e-procurement solution. These businesses tend instead to only focus on the transactional component within procurement technologies—often a costly misstep.

While the transactional component accounts for 30 percent of the overall e-procurement investment, the strategy and sourcing modules—which account for the remaining 70 percent of the overall cost—are responsible for 95 percent of the purchasing process.

In essence, transactional procurement solutions focus on the 5 percent at the expense of the 95 percent. Costs for transactional procurement modules are often high as well, because these modules have to integrate with a company's ERP, content management, and CRM systems.

The second culprit in e-procurement failure is a result of a lack of communication between a buyer’s e-procurement system and the supplier’s e-fulfillment system. For example, one system might use XML while another uses EDI and another still relies on e-mails or faxed documentation.

For enterprises considering c-commerce, XML should be the first choice. It's the preferred technology, as it can encode information in a way that is easy to read, process, and generate.

Productivity and hard-dollar savings
When considering approaches to c-commerce, and the front-end requirements, organizations must realize that unless they are ready to make a full commitment to the chosen e-procurement system, it's likely best to continue conducting business via the phone and fax machine.

An inadequate e-procurement system may not only prohibit collaboration but also could cost the company millions of dollars and bring little reward.

Yet when done right, the payback can be big—and the bigger the enterprise, the bigger the cost savings, according to services providers.

“We've had customers like Dell and GM increase their purchase order requisition time by anywhere from 6 to 70 percent and do it with fewer people,” notes Ariba's Schmitt.

“With our solutions, our average customer has gained a 14 percent direct drop in price for the products and goods they procure,” he adds, noting that last year, Motorola recorded more than $1.2 billion in spending.

"But with spend management, [Motorola] realized a $126 million hard-dollar price-reduction savings. That $126 million would be equal to $2 billion of revenue growth if they had the same dollars at the bottom line,” he explains.

So it's no surprise that e-technologies are luring more enterprises than ever to c-commerce initiatives, and that within just a short time, e-collaboration will quickly move from being a competitive advantage to a prerequisite for doing business. Stay tuned as we continue to examine c-commerce by focusing on one enterprise's effort in the next series installment.

Editor's Picks

Free Newsletters, In your Inbox