The Truth About Risks of e-Procurement
In our earlier blogs we looked at what e-procurement is and at the many benefits of moving your organization to e-procurement. Those benefits include:
- Decreased procurement cycle time
- Increased productivity
- Reduction in cost, errors, duplication, and maverick spending
- Improved vendor relationships
- Stronger standardization of approval processes
- Clearer lines of authorization
- Greater transparency regarding compliance with regulations
- Improved security of data and documentation.
Nobody likes change.
But many organizations have reservations about making the switch and with good reason. They’re worried about the perceived risks of moving from the way they’ve always done it to a new and different way. A way that involves changing the way they do business within the organization and with their suppliers or vendors.
So, let’s talk about those perceived risks. Research has consistently shown that most Chief Procurement Officers (CPOs) consider the following risks to be of particular and equal concern:
- Switching cost
- Partnership risk / trust
- Change management.
If we break these out and examine them more closely, we can see that each one has some validity and should cause some concern. We’ll discuss these risks today and look at potential solutions in our next blog.
Okay then, let’s start with change management.
Change management deals with getting buy-in across the entire organization. It’s more a human issue than a technology issue. This must be addressed from the top down getting enthusiastic support at each level. When planning an organizational change, it’s important to understand that the company reaps the rewards of change only when each employee understands and desires the benefits of the change.
The change must also be integrated into the organization allowing for change and flexibility as the organization grows and changes. An e-procurement system should allow for one-stop shopping so to speak. It should include analysis, oversight, shopping, and clear communication.
Finally, the deployment of the change must be carefully organized to avoid bottlenecking the process through lack of training, support, or understanding of the benefits.
So, what do you mean by partnership risk?
Over the years, most organizations have developed relationships with trusted suppliers. These relationships are valued and should be considered when you think about switching to e-procurement. You want your trusted suppliers to be able to continue to work with you in a secure online environment.
Will your new system be easy for your suppliers to adopt and use?
Is training available for them?
Will your suppliers be willing to work with your web interface to allow access to their catalogs?
Would they be able to manage their catalogs and pricing so that your organization always has the most up-to-date information?
Beyond that, many organizations want to be able to categorize their suppliers. Examples of this include needing to use minority companies, women founded companies, or green companies.
Yes, I see that my suppliers do need to be considered. What else?
Well, many CPOs always worry about the system being available as well as easy to use. What happens if the power or internet connection goes out at your office and you need to place or check on an order? Is your system available away from the main office? Can you access your information anywhere?
Once you’ve bought and installed a software system what happens when updates are needed? What about needing to update your equipment? Does your IT department have the personnel and time to dedicate to the maintenance of your system?
Availability also means that your people can easily learn to use the system and adopt is with a little difficulty as possible. Ease of adoption and training should be considered as well.
So that leaves cost, right?
e-Procurement software can cost upwards of $400,000 and more if you want to purchase the software and licensing outright. When considering this avenue, you also need to consider the:
- Up-front costs of licensing the original software
- Cost of installation (both IT personnel costs and equipment)
- Upfront training costs
Long term costs include:
- Upgrading drivers
- Maintenance of the program
- Future updates & licensing
- Ongoing training
What about the IT costs? Aren’t they worried about that?
Most CPOs considered the technical challenges of installation and upkeep to be secondary to the risks noted above. They are more worried about resistance to change from within the organization or from their procurement partners. They understand that strong, clear implementation is necessary to maximize the benefits of an e-procurement system.
As you can see, the risks of e-procurement are real but don’t outweigh the benefits of making the switch. Studies by The Aberdeen Group, Anderson Consulting, and Forrester Research show that e-procurement can save an organization between 5% and 15% in cost savings if well implemented.
e-Procurement can save your organization time, money, and allow your organization to be a stronger competitor in today’s fast moving, electronic world. eProcurement virtually guarantees an improvement in the bottom line.
Today we’ve discussed a lot of the risks and costs to be considered when evaluating an organizational switch to an e-procurement system. In our next blog we’ll look at how those risks and costs can be mitigated by using a Software as a Service (SAAS) like International e-Procurement (IEP).
If you’d like more information about what International Eprocurement can do for your organization, contact us at 1-866-526-9266 or through our website at https://www.internationaleprocurement.com.