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Why e-procurement makes sense: enhanced control, savings and efficiency all make electronic procurement a compelling idea, yet research shows that usage, if anything, is down. (Purchasing).

Five years ago, corporate technology budgets were J focused on supporting the revenue side of the balance sheet. But with the bursting of the dot-corn bubble in 2001, IT projects aimed at reducing labor, maintenance and support costs, including the automation of various administrative tasks like expense reporting, are now top IT budget priorities.

The collapse of many Internet firms appears to have taken something of a toll on e-procurement efforts, too. Executives reported that they were purchasing only 8.3 percent of indirect materials over the Internet during the first quarter of this year, down from 9.5 percent in the fourth quarter of 2001, according to a recent poll of 350 organizations by Forrester Research and the Institute for Supply Management[TM].

Likewise, Internet research firm Aberdeen Group has found that fewer than 10 percent of corporations are using expense management automation, despite the studies that show it can save companies 80 percent of the costs of settling an expense voucher.

These are disturbing developments, because numerous products and services are available to assist purchasers and C-level executives in quickly achieving significant savings and bringing other benefits to their organizations. Adapting to the new cost-consciousness, many solution vendors have developed Web-based services, offering companies an alternative to licensing and installing customized software packages internally.

Aberdeen Group estimates that purchases of non-production materials like office supplies, computer equipment and maintenance, repair and operating (MRO) provisions, can account for 30-60 percent of a company's operating expenses. But, typically, these purchases are "poorly controlled and costly to process," Aberdeen says. By implementing online purchasing, corporations can:

* Quickly produce substantial savings.

* Enhance service to their internal customers and suppliers.

* Refocus their finance and purchasing department resources to more value-added, strategic programs.

Driving savings to the bottom line

Aberdeen forecasts that automating procurement at a company spending approximately $50 million on indirect expenses could achieve nearly $2 million in annual savings from lower prices paid for goods and services, as well as by paring administrative costs.

A number of e-procurement solutions on the market today enable companies to source, buy, and track delivery of indirect materials. Not all of them require a hefty upfront investment in software and customization -- new, much more affordable options include hosted solutions designed for mid-sized companies. For example, Ketera Technologies, a company co-founded by American Express, has a supplier network covering more than 95 percent of the standard products in indirect spending categories. Used in conjunction with the American Express corporate card, Ketera can be deployed in 30 days and can quickly add client-requested suppliers.

Employees and managers can also use the Internet to monitor spending and capture data in a readily accessible manner. Tecumseh Products Co., a manufacturer of compressors, engines and pumps with $1.5 billion in annual sales, now uses the Internet instead of paper to enroll new employees in its corporate card program, cancel cards for departing employees and allow employees to view and pay card bills more conveniently. By accessing corporate card reports online, Tecumseh Products reviews spending data on a real-time basis and creates customized reports that help it better manage expenses and negotiate better deals.

E-procurement tools also help move companies away from paper and labor-intensive processes to uncover the hidden costs of purchasing. Aberdeen research shows that Companies spend an average of more than $100 processing purchase orders manually, but only $33 when operating through an e-procurement system. E-procurement also can cut acquisition cycles and provide employees with better tracking of purchase orders and goods delivery. According to Aberdeen, e-purchasing can cut requisition processing time from about 10 days to 2.5 days.

Automation can deliver additional savings through the reduction of administrative errors common with manual purchasing systems. These errors often result in duplicate checks being cut, unnecessary product returns or companies being hit with late payment penalties.

Enhancing service for "internal" customers

Accounting and purchasing departments are often the subject of employee ire because of opaque acquisition processes and lengthy cycle times. By leveraging on-line, self-servicing tools, corporations can give employees more information and make the purchasing processes and policies clearer.

Expense management automation has now moved to the Web, making it easier to deploy and easier for employees to access, compared with internal software installations. Research by Aberdeen Group shows that companies can reduce the amount of time employees spend on the task of filing T&E expenses by as much as 60 percent, and speed the reimbursement time by 90 percent.

With minimal start-up costs and a low monthly usage fee, new expense reporting tools give finance executives better control over employee expenses and an easy way to import expense information into financial systems, avoiding the long and costly systems integration projects associated with early generations of these tools. With the automated pre-population of data from corporate cards, most receipts can be stored electronically, reducing paper storage costs as well.

Online travel booking engines are a great example of how the Internet can do this. There are a host of online reservations programs specifically designed for mid-sized companies looking to better control travel expenses while enhancing service to traveling employees. Typically, use of these sites does not require the installation of any special software on the company's computer network.

So, while in years past, a traveling employee could book a trip only during a travel agent's work hours, today they can use an online travel site designed for their company and supported by their agency of record, which is accessible around the clock. Requests for itineraries and pricing are nearly instantaneous, and travelers have more purchasing information in their hands, providing them with more control over their decisions.

Moreover, automated trip tem plates can be produced for frequently priced itineraries so travelers spend even less time making reservations. While the traveler benefits from better service, preferred vendors and negotiated rates can be automatically configured into their travel options, helping ensure that contracted supplier discounts are maximized.

Moving from transaction processor to strategic consultant

A switch to e-procurement also allows finance departments and corporate purchasing professionals to free up people and other resources to perform more strategic services for their organization. At a time when corporations are struggling to produce profits and grow their businesses, purchasing professionals and C-level executives need to automate commodity transactions and shift their resources to consult on more strategic initiatives.

Moving to an Internet-based procurement platform allowed Tecumseh Products to reposition a full-time accountant at its headquarters office, once dedicated solely to processing more than a million dollars a year in cash advances, to more value-added work. And Internet service providers are constantly working with partners and customers to design upgrades that will help companies better automate procurement processes.

Finance and purchasing departments that have slowed their implementation of online programs need to reconsider their decision. With IT budgets currently focused on lowering expenses, C-level executives and purchasing professionals need to direct some of this momentum to procurement. This will help elevate the role of finance and procurement departments even higher in their organizations and enable top executives to lead their companies through what will hopefully be the next stage of prolonged corporate profits.

Anre Williams is a Senior Vice President and General Manager, Middle Market, with American Express Corporate Services. He can be reached at 212.640.5060.
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Author:Williams, Anre
Publication:Financial Executive
Date:Oct 1, 2002
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