Ed Bevan of epsys
The arrival of e-procurement and the ability to utilise the web as a universal communication tool is having a real impact on buying practices in the cost sector.
We now have a situation where supply chains indulge in lopsided strategies to make themselves more efficient before turning their attention to doing the same for their customers (that’s you, by the way, and you should be doing all you can to get ahead of the game).
The option of ignoring e-procurement/e-trading/P2P (it goes by many names) is actually not an option at all. The question you should be asking is: “When do I switch to e-procurement?” and not “Should I?” Many businesses fear adopting the role of ‘pioneer’ but in the case of e-procurement fear no more - the pioneer stage has well and truly been and gone already.
The options now are centred on whether you want to shape your own system or be presented with a fait accompli by your supply chain. Do you really want to log in 10 times a day to place your orders?
The supply chain already knows that there are greater margins to be had through trading electronically. When the volumes are greater than those traded traditionally, those without the ability to move with the times (and move quickly) will end up paying a premium.
If you find this hard to understand, try to purchase an airline ticket face to face in a travel agency and then compare the price with what’s available online.
Adopting e-procurement now provides the opportunity to install your own system and have your supply chain linked to that unique system, so that ordering is effortless: You simply remain on one platform for every element of procurement.
Waiting means that if you want to avoid paying the premium for trading in the way we now regard as ‘traditional’, you will end up system hopping as you log on to each one of your suppliers’ systems in turn.
What’s more, the chance to gather your activity data to help you become a more effective buyer will be lost. And, since your system will be linked to your specific supply base it could also cost recipes and determine margins dynamically in real time, provide up-to-date stock values and integrate seamlessly into your finance package.
Too good to be true? No, that’s the reality now.
The procurement activity of a 100-bed hotel and conference centre with a 120-cover restaurant was recently recorded and assessed. In one month 350 telephone calls were made between the hotel and its supply chain between 9am and 4pm for the purpose of ordering food.
A total of 1750 minutes [30 hours] were involved, and a 20% call failure occurred. Three hundred pieces of paper were produced which passed through at least four pairs of hands before arriving in the finance department, where the detail was diligently transposed by a member of staff, taking 600 minutes [10 hours] to complete. I could almost rest my case…
But there’s more to it. Carrying out a buying exercise and negotiating final arrangements is an essential procurement activity taking a lot of time and is achieved at considerable cost.
It seems, therefore, an act of lunacy that, in my experience, less than 10% of the time taken to arrange the new deal is afforded to policing it and ensuring what has been negotiated is actually being delivered.
Organisations that deploy a proven e-trading system don’t have to employ people to check invoices and the arithmetic or chase credit notes. They don’t have to do this as the system does it automatically - line by product line. The average value of credits automatically requested by the system equates to just over 1.5% of the invoice values that are raised.
Until you have traded electronically, you won’t appreciate the value of the asset you are giving away after the order has been given and the phone put down.
The DNA of your procurement profile, and your ability to determine exactly what it is you want to buy in the future, based on what you’ve bought in the past, is the asset involved. Very few organisations record this type of information and instead rely on the supply chain to provide the data - which could have made you, its customer, smarter. You can be the judge of where the vested interest lies.
It’s interesting to note that while we strive to know how much we’ve taken during each hour of the day at the front end of the business, we appear happy to find out how much we’ve spent four weeks after we’ve spent it.
E-procurement is not the panacea to every hospitality problem. It still hasn’t learned how to check the goods arriving for quality - and nor should it. There are, however, significant benefits which you could take and ‘bank’, which will ultimately provide the time you need and the funding required to address the challenges ahead.
E-procurement is here, and it isn’t going away. Those who embrace it now and use it to enhance the management of their business will reap the rewards ahead of the day when e-procurement finally becomes the traditional way to trade.