eProcurement >> ONE STOP SHOPPING

• By Matt Villano
• 05/27/05

ONE STOP SHOPPING

With budgets slimmer than ever, schools are turning to eProcurement systems as a way to cut costs.

Move over MasterCard; for purchasing officials at the University of Pennsylvania, the convenience of managing all campus purchases through one fluid system has proven to be priceless. In 2003, fresh off the acquisition of a new enterprise resource planning (ERP) system from Oracle, officials were looking for a way to convert product orders made on the school’s Web-based Penn Marketplace into the ERP system—without the reentry of data. In the past, this process had presented problems: Incorrect product SKUs resulted in erroneous orders, and typographical mistakes in delivery addresses left others unfulfilled. After years of snafus, Penn wanted a comprehensive eProcurement system that would collect order information automatically, and manage the purchasing process electronically from requisition to ordering and payment.

Officials found their answer in a software solution from eProcurement vendor SciQuest (www.sciquest.com). Because the process generated purchase orders automatically and immediately after users ordered from contract supplier catalogs online, Penn officials were able to virtually eradicate errors during input, and reassign data entry personnel to other, more pressing jobs. What’s more, because the system proved to be so successful, the school expanded the initiative to direct two-thirds of internal purchases through the Penn Marketplace portal, a move that inspired all 107 participating suppliers to drop prices in favor of rights to that new business. Finally, thanks to the lower product prices, Penn realized $2.3 million in documented cost savings in the first 100 days following implementation, and has experienced an undetermined amount of savings on top of that, since.

“It’s amazing to say, but eProcurement has changed everything about the way we handle purchasing here at Pennsylvania,” says Vira Homick, associate director of e-Business at the Ivy. “By channeling our spending [through eProcurement] and streamlining the system, we’re getting better discounts and saving money.”

The Next Big Thing

Penn isn’t the only school opting for a better way to manage purchases. The recent 2004 eProcurement Benchmark Report from market research firm Aberdeen Group (www.aberdeen.com) indicates that colleges and universities today use eProcurement to manage more requisitions, spend categories, and suppliers than ever before. As universities and colleges operate in the face of continued financial strain, finding new ways to save money has become critical, and one of the most overlooked areas of savings is the purchase of everyday goods. To achieve these savings, more and more institutions are adopting eProcurement technology—systems that put Internet shopping on the desktops of end users and automate the requisition-to-payment process behind the scenes.

DID YOU KNOW?
Each dollar brought under eProcurement can yield savings of 5% to 20% annually. Even a conservative 2% to 4% can mean big money to university systems—up to $5 or $10 million per year.

These moves can pay huge dividends. Aberdeen reports that, on average, among 147 primarily North American companies participating in the 2004 benchmark study, eProcurement systems helped them reduce off-contract or maverick spending by 64 percent annually (see box, “Saving through eProcurement”), and that each new dollar brought under management can yield savings of between 5 percent to 20 percent per year. While these figures represent a broad swath of both higher education and corporate customers, recent statistics from SciQuest indicate that in higher ed specifically, even a conservative 2 to 4 percent annual savings on everyday goods and services can mean big money to university systems—up to $5 or $10 million per year.

eProcurement 101

On the surface, eProcurement technology is pretty easy to understand. It enables an institution to leverage the Internet as a true communication tool with participating suppliers and with each other. It’s all about centralizing control with decentralized execution over purchasing—a perfect model for the higher education setting. On the front end, end users such as department heads, administrative assistants, and professors feel as if they have the freedom to choose the products and prices that appeal to them most. On the back end, however, all of the options have been subjected to a rigorous review process by the institution itself; all of the items represent contracts that school officials have negotiated previously.

DID YOU KNOW?
To help institutions with their “baby steps” toward total eProcurement, some providers are blending eProcurement with asset management, to help institutions manage software license expirations.

The goal of eProcurement is to promote pre-negotiated contracts to achieve the best possible prices for the organization: The more sales a school can notch at these pre-negotiated rates, the bigger the savings. But the savings don’t stop there: The best eProcurement systems sync up with ERP systems such as those from PeopleSoft (www.peoplesoft.com), Datatel (www.datatel.com), SAP (www.sap.com), and SunGard SCT (www.sct.com) to automate every aspect of the purchasing process—from requisitioning and ordering, to payment. In this scenario, much like the solution at Penn, when an end user completes an order in the eProcurement interface, the system automatically sends the information to the ERP system, eliminating human middlemen completely. “Companies achieving the best benefits from eProcurement are incorporating the technology as part of a holistic supply management strategy,” notes Tim Minahan, senior VP of Supply Research at Aberdeen, and author of the recent benchmarking report.

Potential Pitfalls

With this in mind, undoubtedly the biggest challenge to mastering the technology is making sure that eProcurement amounts to a lot more than just an eCommerce Web page. According to Minahan, many universities are issuing the purchase order electronically, but issuing the invoice manually, outside of the system. Yet, deploying a purchasing portal without covering end-to-end eProcurement processes is just one of a variety of ways to enable end user shopping, and it d'es little to ensure that prenegotiated contracts are utilized, and savings are actually taking place. By leveraging the system for the complete cycle, however, companies can expect a number of benefits, including improved cash flow, reduced overhead costs, and better supplier relations, Minahan says.

There are other pitfalls, too. The Aberdeen report indicates that supplier enablement (the process of suppliers making their online catalogs ready to interface with eProcurement systems) continues to be a sore spot, especially for those supplier companies that have yet to embrace catalog hubs or networks. To resolve this issue, a handful of industry organizations such as the not-for-profit National Association of Educational Buyers (NAEB; www.naeb.org) and the Educational and Institutional Cooperative Services company (www.eandi.org) have come into existence to present colleges and universities with online eProcurement catalogs that have been created in conjunction with suppliers—catalogs that are ready and waiting for integration with campus ERP (see box, “Another Approach”). And to help institutions even more, suppliers themselves are investing in technologies that straddle eProcurement and asset management: At CDW-G (www.cdwg.com), for instance, Chris Rother, VP of Education Sales, touts the company’s new eProcurementenabled “license tracker” software, which helps academic customers manage their software license expirations.

DID YOU KNOW?
eProcurement is all about centralizing control with decentralized execution over purchasing—a perfect model for higher education.

“It’s very intimidating for a university to look at eProcurement as one big launch and be able to tackle everything at the same time,” she says. “We’re seeing a lot of baby steps, and we’re just trying to help schools get their arms around eProcurement as a whole.”

Real-Life Successes

Regardless of the stumbling blocks, a number of schools have accomplished huge savings through eProcurement. At Purdue University (IN), for example, officials selected a system from Ariba (www.ariba.com) in 2000, then later added software from ePlus (www.eplus.com) to drive more spending through catalogs and realize greater savings offered through negotiated contract pricing. The software consisted of Content+, a catalog enablement tool, and Intellicat, a catalog search tool. Doug Sabel, director of Procurement Operations, says that the Ariba software programs provide technology that drives a Web-based catalog and interfaces with various financial systems for immediate and automatic reporting.

DID YOU KNOW?
A better understanding of spending patterns can help an institution negotiate more favorable pricing agreements with vendors: In one case, school officials negotiated an unprecedented 15% discount with a computer supplier.

And at the University of Texas, officials in the Health Science Center in Houston considered a variety of eProcurement content management tools to interface with their PeopleSoft ERP system before entering into a partnership with SciQuest. After years of little attention to how small-dollar purchases were made throughout the institution, in 2003 the university opted for eProcurement as a method of reducing both purchasing and administrative costs. Jerry Fuller, assistant VP for Procurement, says the investment in SciQuest already has paid huge dividends. The new system was able to support the implementation of catalogs with 14 key suppliers within a 60-day time frame; today, nearly 60 percent of all transactions with these suppliers are requested through the online catalog. Fuller says the center has been able to leverage electronic invoicing for this group of suppliers, saving nearly $15 per invoice over the conventional paperbased system of the past. He also predicts that the center will achieve its target adoption rate of 75 percent this year.

“The more people we get to use the eProcurement system to buy their beakers,enzymes, and pipette tips, the bigger our savings will be,” Fuller says. “We’ve already been able to negotiate more favorable pricing agreements based on our understanding of spending patterns.”

Meanwhile, in 2002, at Indiana University, officials rolled out a brand-new system from SciQuest. The technology directly connected the university’s online requisition system with its major strategic suppliers, putting purchasing decisions in the hands of end users. Because the system contained only those items under contracts the school had pre-negotiated, compliance with the contracts skyrocketed, and savings increased accordingly. In one case, when school officials negotiated an unprecedented 15 percent discount with a particular computer supplier, end users were purchasing equipment at the new prices the next day.

Then, of course, there’s the University of New Mexico, which in 2002 rolled out yet another SciQuest eProcurement solution, as part of an ERP implementation from SunGard SCT. Like Penn, UNM officials had had enough of the problems caused by manually inputting paperbased purchase orders into the ERP system. It wasn’t long before the school’s eProcurement push became the cornerstone of an effort to improve customer service across the board. Director of Purchasing Bruce Cherrin remembers that the new technology paid huge dividends almost overnight, eliminating errors by transferring data automatically, and by freeing up secretaries and staffers who input data, to perform other tasks.

“We’ve come a long way since the days when requisitions went through the paper approval process from one department to another,” says Cherrin, who notes that the implementation of ERP combined with eProcurement and other systems, cost about $10 million. “The way we have it now, everything is integrated, which makes the whole process more efficient.”

Taking the Plunge, or…

With eProcurement in its infancy, other schools find themselves testing the water. At the University of Washington, officials at the University Stores division recently combined technology from ERP vendor JD Edwards (now part of People- Soft/Oracle) and Ariba, to put together a portal containing thousands of office and laboratory products. The effort, still in beta, also offers a full set of account management tools that provides up-to-date information about supplies ordered and overall expenditures. Another effort at the Massachusetts Institute of Technology boasts similar synergies, pairing SciQuest with ERP from SAP, and similar management features to yield supplier consolidation, reduced transaction cost, and shorter order fulfillment cycles.

They’re still using training wheels at the University of St. Thomas (MN), however. There, Melanie Weiss, director of Purchasing Services, says the school has been “looking at” eProcurement technology for years. Currently, the private Catholic college handles ordering and payment online through ERP from SunGard SCT, but inputs requisitions manually into the ERP system. Weiss says that though she’s looking for a dynamic eProcurement system that can handle orders in real time, she still fears that such a system will cost too much for her tiny budget and that changing the buying behavior of end users could take months. Still, she acknowledges, something must be done. “Maverick buying runs rampant” at St. Thomas, she admits, and she has received a mandate to cut costs. Weiss may be pondering the best course of action, but one thing is certain, she concedes: eProcurement is the way.

“I want to use the same software [as the larger institutions], but because we’re a small school, our volume and transactions aren’t as high as bigger schools,” she says. “As a small school, will the cost justify my savings? I don’t know. But do I believe in eProcurement as something that can make the purchasing process better and more efficient? You better believe it.”