Any Model you want as long as it is eProcurement

By: Rob Rousou, Product Manager - ProcServe, Jan 2011

Up to now, if you wanted an eProcurement system, you would buy an application, often installed within your firewall or hosted on your behalf by the software provider.

However, the recent surge in ‘cloud computing' and the advancement of ‘on-demand' procurement tools is providing more choice, but is also confusing the picture. So, what models should you consider when choosing your eProcurement solution?

There are now arguably four models to choose from:

• Procurement module of your finance or ERP system. This is simply an upgrade or add-on to your existing back office financial management system (FMS). The system is maintained and administered in-house.
• Provides an ultimate degree of control and customisation, but user licences can be costly and the system is often difficult to administer, particularly to on-board suppliers.
• Hosted 3rd party eProcurement system. This is a traditional software package, but hosted by a 3rd party (usually the software vendor or their hosting partner). The system is maintained by the vendor but administered in-house.
• Much simpler technical deployment, as software does not need to be installed in-house. However, integration will be more complex as systems need to link through external firewalls and administration effort will also be high.
• In-house eProcurement module connected to a trading / supplier network. This is the same as (1) but this time an Internet-based trading / supplier network is added to manage the connectivity to suppliers, such as electronic transactions and catalogues.
• As with (1) this involves potentially a high cost but good flexibility and control. Administration will be eased by suppliers maintaining their own data via a 3rd party network.
• Integrated procurement solution provided on-demand. This is a set of shared procurement tools and services accessed over the Internet and available via subscription.
• Very good for ‘quick start projects' as there is no capital outlay or technical installation required. Maybe too restrictive for some enterprises as software is shared and there is limited scope for customisation.The system will be upgraded when the software provider chooses.

You may notice one type of solution missing from this list: the bespoke, in-house, home-grown solution. It is generally accepted that, in a procurement context, this is a model that should be avoided. A solution that is difficult to mange in-house and impossible for a supplier to communicate with is the worst of all worlds. Indeed a recent Aberdeen Group report illustrated that although 19% of companies (from a survey of 156) currently have this type of procurement infrastructure, only 1% cite it as their ‘preferred' solution.

So, which of the four options above would suit you? A guideline to making this decision is to define what degree of integration you will need (a) with existing back office / finance systems and (b) the outside world (i.e. suppliers). These factors have a major impact on the complexity, cost, time to implement and ultimately the success of any eProcurement initiative. A model to follow is illustrated below:

For example, if you need real-time availability of budget and commitment data during the requisition approval cycle, you should look to use an integrated procurement module of your financial management system. Such data is difficult to extract and update in a hosted eProcurement system, so look to use options (1) or (3).

Are you looking to implement electronic invoicing, or wish to increase your catalogue-based ordering? If so, you will need many of your suppliers connected to the eProcurement system to send and receive electronic transactions. Such connections are very difficult to maintain in-house and costly for the supplier (who may have to maintain hundreds of similar connections with other customers). A much better solution would be to use a 3rd party supplier network which allows a supplier to maintain their own data / preferences and also use the network as a ‘hub' to connect their own systems once and then connect with many eProcurement-enabled customers. If you wish to enjoy the benefits of electronic trading with suppliers, look to use options (3) or (4).

If you only need a simple solution (for example as a demand capture tool for end users) that does not require any advanced back office integration or connections to the outside world, then option (2) may be desirable.

Whichever option you choose, the most important thing is to begin the journey. According to the Aberdeen Group:

"Organisations currently using eProcurement technology on average take 3.8 days to process a single requisition-to-order cycle compared to 9.4 days for those that do not."

Over time, your requirements may change, and along with them your preferred solution. That is fine; there is nothing to say that, as your procurement processes evolve and technology advances, you cannot start in one quadrant then move to another. So pick your model and start your journey now.