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Purchasing
The eProcurement Equation
11/1/2007
MAKING ePROCUREMENT LOOK EASY
Be patient. It’s taken 12 to 13 years, Maier admits, to get U Penn to where it is today in ePurchasing. "It’s continuous process improvement," he stresses. Indeed, it takes time to articulate the role and responsibilities of the purchasing department, and to gradually educate users and management about the tremendous savings potential. "We spent probably four or five years cultivating the notion of Purchasing as a value-added organization," Maier says. Today, with increasing pressure for spending management, the role of a Purchasing department as a cost containment organization is clear to everyone.
It’s not the software, it’s how you use it. Ultimately, how you use an eProcurement product is more important than which vendor you choose. The big question, Maier says, is: "Are you able to utilize [the eProcurement system] as a tool to produce significant results?" Addressing that issue up front can keep your school from looking back in 18 months and wondering where exactly that touted ROI is. Critical to success is changing the culture in the purchasing group to go with the system, Maier advises: "Just implementing technology is not going to change anything. If you don’t also restructure or change the culture in the purchasing organization, you’re not going to be able to leverage and maximize the investment in that technology."
Measuring Your ROI
Despite all the potential for cost savings, users say a challenge with any electronic purchasing system is documenting the return on investment (both projected and actual) on such systems, which are typically large and sprawling and touch many users and departments. ROI is important in making the initial business case for eProcurement system investment to the president and board, and in calculating the system’s effectiveness after the fact. To develop that business argument, you’ll need to set up metrics ahead of time, in order to gather data prior to installation, and thus supply comparison points. Oracle, for example, offers something called "Strategic Procurement Insight," a nocost service in which Oracle reps work on-site to show prospective customers what sorts of metrics they need to set up.
The savings most easily tracked are hard-dollar savings; drops in spending on materials can come from better use of negotiated contracts. Since implementing a formal self-service eProcurement system in 1996, for instance, the University of Pennsylvania has documented more than $100 million in savings on products and services. The Penn Marketplace, built on the Oracle E-Business Suite and Oracle iProcurement, supports some 1,700 users across the university. The centralized online supplier marketplace contributes to other savings, allowing Penn’s purchasing organization to manage its supplier relationships strategically, and to monitor overall spending.
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