Other Key Issues to Consider Before Starting
Integration Issues
Because of the time, resources, and money associated with the effort, opinion varies as to whether back-end systems integration should take place before or after the initial e-procurement implementation. Some suggest that a company should start by achieving cost savings and supplier consolidation first.
“There is a need for ERP integration if you are a big company and you want to pass that purchase order from the ERP system to the e-procurement system,” contends Mikko Talsi, ICL’s director of B2B e-commerce. “But the reason for doing e-procurement in the first place is for cost savings from supplier consolidation and managing maverick buying.”
“Don’t start by hooking up ERP,” he advises. “Start by using it as an ordering channel; and then move on to considering how you can integrate it into your back-end system. If you start with a big ERP integration, you might not see the return on investment, because your company and needs may change before you achieve it.”[4]
A contrary school of thought contends that true business efficiency only comes from seamless interconnectivity with back-end systems, and therefore the first phase of an e-procurement project may be—particularly for mission-critical direct inventory and supply chain—to create the internal links with the ERP systems. As we have seen too often, leaving behind the business benefit changes may mean they are never achieved, because starting up a new project after an exhausting effort can be risky. Whichever strategy is best for your company, it is important to get agreement early among your executive sponsors, and guidance on project scope should be clearly captured in your guiding principles.
Involving Suppliers and Vendors
“Supplier participation is no less critical to the successful implementation of any e-procurement solution,” notes John Corini of Deloitte Consulting. “Without this participation, the software is useless. Few experiences are more disheartening than to finally overcome your own company’s fear of electronic commerce only to run into resistance on the supplier side.”[5]
One problem is that very often, small or medium-sized vendors simply have little IT functionality or expertise. Remember that the vast majority of suppliers still typically have little more than an Internet Web page, describing themselves and their basic services or product lines. Even large suppliers often do not see this type of IT as a core competency and lack the resources to do sophisticated, time-consuming, and often costly electronic catalog maintenance. E-procurement for them may seem to involve enormous investment and disruption with little visible return.
There are many examples of the dangers of overestimating a supplier’s willingness and ability to make these dramatic leaps onto the Internet. “We tremendously underestimated the effort involved in getting catalogs online,” explained one major oil company executive. “Our plan had been to get 40 to 50 implemented within the first six months. By the end of that period, all we had gotten online were two.”[6]
After all, there is no point forcing your valued suppliers to overcommit and ultimately risk under-delivery, simply because expectations were missed or badly communicated at the outset of the project. Many suppliers express fears of an impersonal e-procurement process that strips them of their competitive advantage. And, after all, as the head of one of the largest online trading communities recently confessed, one of the unstated aims of any exchange is to “beat the hell out of suppliers.”
Accordingly, although this will probably not be the case for the large ORM distributors, for small or niche materials suppliers it can be important to involve them in your deliberations from the outset, sharing with them the fundamentals of the business case. For those suppliers outside of the spot-market or auction strategy, vendors that remain as your preferred partners need to appreciate that you are not simply trying to reduce costs internally at their expense, but are willing to respond to added value or trusted vendor status from them. Including these suppliers in early justification and design meetings can help, as can a willingness to subsidize them during the transition with resources or implementation support. Equally, because you cannot involve all your suppliers in the e-procurement planning process, it may be necessary to identify only key supplier partnerships early on. This again argues the case for completing your purchasing and vendor analyses first.
The lesson seems to be clear: Decide who your key suppliers should be and include them as an integral part of your e-procurement project, tying them into clear and attainable milestones and building them directly into your change management plan.
Bringing in Consultants
One of the most important decisions for the steering committee and project leaders will be deciding what sort of help your organization will need from outside partners, and to whom you should turn, and when. Because of the enormous cost and disruption of ERP implementations, some larger companies have moved toward using consultants only when absolutely necessary—for niche areas such as security or XML support and of course for the software implementation itself. Consider, however, the advice and expertise that will be necessary—wherever obtained—for an e-procurement project:
Leading-practice procurement strategies
Outsourcing versus in-house strategy advice
Leading operational-level e-procurement practices
Process mapping and redesign
Change management
Program and project management
Financial and payment services support for integration with in-house financials, for payment processing, and for third-party financial services support
Assessment of and participation in auctions, exchanges, and trading communities
Technical architecture and design
Data management
Security
Specialist services such as catalog content management and buyer and supplier systems administration
Advisory and help desk support for desktop requisitioning
Technical and new business process training
Knowledge management, data mining, and decision support systems and processes
Supply chain management, supplier management, and strategic sourcing
Expertise in XML, Extended Application Integration (EAI), and system-to-system integration
Business case justification and performance measurement
These types of skills, unfortunately, are not always going to be available from within a company’s employee ranks. Some organizations have been able to utilize the internal project management skills of project leaders and team members who have dedicated the past several years to implementing their ERP systems, but in reality, very few companies have the internal expertise, confidence, or capacity to venture into this type of project without the help of consultants. Despite the shortcomings of many consultancies, there are still sound reasons for turning to outside help.
First of all, of course, there is expertise needed for e-procurement software implementation, but also for strategy, procurement, leading practices, business process redesign, project management, legacy systems integration, and change management. In fact, these areas are just as important as the technical capacity to implement or integrate. Too often, companies believe that they can use their own people to reengineer processes and implement organizational change but although their input is valuable, it is essential to get new ideas, and these almost invariably come from benchmarking or lessons learned brought in by a third-party specialist. It is important to keep in mind that this type of procurement process and business transformation expertise is usually not found in the software vendor, technical support, or IT staff.
The second reason for turning externally for help is simply the toll of such projects on internal resources. Companies need to keep their procurement and IT departments running, and even strong levels of participation on the core team alone will stretch good employees to their limits. Quite apart from the design work itself, these e-procurement projects will require extensive discussions with suppliers and time-consuming hours spent in content management and data administration (developing and taking down business policies, supplier profiles, end-user information, and so on).
The third reason for turning to outside support is to take advantage of a strong third party’s relative political independence. Although you will often still need to grapple with the “not invented here” syndrome, and many company executives will balk at the idea of consultancies doing more than simply fulfilling basic “staff augmentation” services, if you can find a strong management consultancy with one or two experienced consultants who will help to advise and guide the project and the executives in key nontechnical areas (business change and project management is seldom a concern to the software vendors themselves), they can be well worth the cost.