E-Procurement 101: Getting Started
- By Amy Milshtein
- November 1st, 2002
You have ordered supplies the same way for the last 50 years. Purchase orders are shuffled from desk to desk for stamps of approval, then off to the warehouse for fulfillment, then back to another desk for comparison and then off to a file cabinet. Yes, it’s cumbersome, but it’s comfortable -- and it works.
The flashy new purchasing option available today is called e-procurement. Are you ready to give it a try?
Changing from a proven paper system to an electronic one is undeniably scary. “Fear presents our biggest challenge,” says Jack Allewaert, CEO of Long Beach, Calif.-based online procurement network AcquireX. “Right now, only about five percent of universities and schools use e-procurement. The other 95 percent are sitting back and letting someone else take the arrows.”
The wait-and-see approach seems prudent in an arena tainted by an overabundance of players promising the moon and delivering nothing. “Last year, there were lots of companies offering what I call ‘vaporware,’ meaning hype, pr and fancy presentations about what will be,” says Allewaert. “The products were difficult to use and not tailored to the school environment. Today, many of these companies are gone.”
They did not, however, take the concept of e-procurement with them. The streamlined approach offers much in savings of time and money. “Studies put the cost of processing paper orders between $60 and $120 per order,” says Allewaert. “This includes all the people who actually have to touch the paper and the cost of warehousing.” Add in the week or so waiting time for an order to actually reach its destination and the traditional paper system certainly seems bloated.
E-procurement cuts that fat. By using an electronic network, approved personnel order products from a unified catalog. Budget approval, data entry and invoice matching all happen in an electronic minute, and goods are promptly delivered, often within 24 hours.
Small colleges and universities benefit from the lower prices negotiated by the online network. Large institutions profit from better efficiencies and workflows. And everyone gains in the easy shopping and record keeping. “In three years to five years, most school procurement will be handled online,” predicts Allewaert. “It’s just a matter of time.”
But the cost of building and maintaining custom e-purchasing software can be daunting. For this reason, many administrators will want to sign up with an established, hosted service provider. Established, however, is a relative term for this new market that has seen quite a bit of fallout. What should you look for when investigating a provider?
Free Is a Four-Letter Word
During the go-go days, some providers threw the word “free” around willy-nilly only to go belly up. There are a few ways for the provider to make money. For example, the provider can work as a “super wholesaler” using the power of many clients to negotiate volume agreements with a variety of suppliers. A small markup goes back to the provider while the college realizes monetary savings. Savings however are not the only benefit.
“Side-by-side price comparisons are not enough,” insists Allewaert. “An individual school may negotiate a better deal on say 50 cases of toner for instance, but what about the cost of warehousing and customer satisfaction when you have to wait a week to get it?”
Administrators at a large school district may be happy with the deals that they have negotiated but still want to simplify their system. In this case, a provider will initially charge to Web-enable their system. A monthly hosting fee is also negotiated.
“Look for a company with patient investors,” suggests Allewaert. “The school market is a ‘get rich slow’ endeavor.”
Sit, Stay, Point, Click
A big advantage of a Web-based system is its ease of use. “If you can use Amazon.com, then you can use AquireX,” says Allewaert. However, a company should not expect its users to sign on and then just point and click away. “Training maximizes the value of the product,” he says. “Someone has to set up the workflow and show users the best way around the site.” Although purchases can be placed the day after set up, most cases see a six-month learning curve before the bulk of orders are funneling through the system.
Is There Anybody Out There?
Customer service should also remain paramount in a network shopper’s mind. While nothing is fail-safe, hosting companies should build in a variety of redundancies so problems like power outages, earthquakes and other disasters mean business as usual for the user.
Because part of the appeal of an e-procurement network is one-stop shopping, the one-stop customer service agent should be available and well informed. “We spend a lot of time and effort on the one percent to two percent of times when something goes wrong,” says Allewaert. “A robust customer service department means that you focus on the ‘dark side’ and fix it.”
Perhaps the biggest driver as to whether or not you sign on with an online procurement company any time soon is the presence of a sponsor -- someone who is a champion of the cause and empowered to make it happen. “The business side of the public sector is usually conservative,” says Allewaert. “This is not a place that is prone to quick change.” An e-savvy sponsor can make the transition smoother.
If you’re on the fence about e-procurement and want to learn more about it, Allewaert suggests that you take a system for a test drive. “Try it out for a month,” he says. “Once people get used to using it, they don’t want to go back. In addition, think of all the trees that you’ll save.”