22 June 2009
Make the most of your investment in technology and it will pay dividends. Rebecca Ellinor speaks to experts and buyers who have done it
Trying to wade through the language of one technology supplier - or should I say "provider of demand sensing and inventory optimisation solutions", to another purveyor of "enterprise architecture software for aligning strategy with execution" - is a job in itself. And it can be hard to determine if the claims of cost-saving potential are as good as they sound. But times are tough and anything is worth a try. So while technology's certainly no silver bullet, it could be part of the answer, at least. And recent research shows the best-performing procurement teams make more use of technology than those that don't.
We explore some ways companies have used IT - not just to save money or avoid costs, but to generate revenue, in some cases - and offer advice on how to avoid the drawbacks.
Case for investment If you don't already have systems to help manage your organisation's spend, supplier relationships, e-sourcing or invoicing processes, first you'll need to make the case for investment. And, while this is no mean feat, you'd be in good company.
A recent study by the Aberdeen Group, Smart Strategies for Tough Times, found top procurement organisations have "on average higher levels of technology usage across all facets of the source to settle process".
The report added: "Best-in-class organisations utilise strategic sourcing tools, such as automated spend analysis, twice as often as all the others, and sourcing optimisation three times more often as all others, and achieve higher aggregate savings."
The point was echoed at this year's eWorld Purchasing & Supply conference in London. Duncan Jones, senior analyst at technology research firm Forrester, urged buyers to implement strategic and transactional purchasing systems, not just one or the other. "If you want savings, aim for a complete solution on the strategic and transactional side of e-purchasing.
"You don't have to go for everything at once, but whatever you are selecting you need a roadmap of the complete system," he advises.
To convince bosses about the value of investing, Aberdeen says, CPOs would be wise to "arm themselves with clear and detailed business cases on the potential return that their proposed investment in technology can deliver". It also suggests buyers are more likely to get sign-off for projects that give quicker, albeit smaller, returns.
Ken Cole, projects and practice director of SPS Consultancy, has advised on many IT deals and is one of the presenters of the CIPS course 'Understanding IT procurement'.
He advises buyers not to overplay the savings they think they can achieve as a result of any investment, warning that finance directors will want to see "real cash at the end of it".
He also suggests purchasers avoid the temptation of trying to obtain the perfect piece of kit and instead settle for something which is 90 per cent there.
"To get 100 per cent of what you want usually requires special modifications which make achieving that last 10 per cent three to four times more expensive.
"It's nice to have, but do you really want the gold-plated bit when settling for 90 per cent might be the most cost-effective delivery?"
Part of making your case must include clarity over what you will achieve from the purchase of any new tool. In particular, Cole says, if a system sought expressly for the purpose of making savings, purchasers must be clear on the nature of those potential savings.
"Are you looking for simple transactional-based savings, will it be cashable or a transaction process cost saving?" he asks.
Aberdeen says top players appreciate process automation is "not the ends, but rather the means to their goals and objectives".
And, Cole warns, while IT tools may enable you to free up time that can be spent on other work - an opportunity cost-saving - it's important to be realistic and quantify that in some way.
Taking the leap Savings come in many forms and there's a massive variety of technology for all parts of the procurement process.
In Denmark, Carlsberg Breweries is planning to use Ariba's e-sourcing and contract management tools to help it manage its work. Bengt Erlandsson, vice-president, group procurement, tells SM that time efficiencies are just one of the benefits he believes his team
will gain.
"You can do more work with less people or more work with the same people," he says.
He is not expecting to make real cashable savings as a result but it will allow his team to quickly contact a higher number of suppliers for bids, thereby increasing competition - which could result in savings.
He, too, warns against buying something you don't need, and says often people are not using what they already have to its full potential.
"Usually systems can do much more but we're not using the capacity of them. Don't buy something fancy that's not practical. Be realistic. You can buy a Mercedes, which is very nice, but maybe a Volkswagen is good enough. What you buy should suit your needs."
Equally, he says, don't "overestimate and expect the machine to do everything for you" - and make the most of what you do purchase.
"Perhaps when you buy it you have great ambitions, but the most important thing is to implement the system and train people to use it fully. Otherwise it's a modern fax machine - and I don't want one of those."
Training is a key part of investing in technology but often it is not done properly, says Cole.
"People cut corners and it becomes like Chinese whispers - someone gets a little training, they forget most of it, then when a new person comes in they rush through the 15 per cent they remember and so on.
"I've heard IT directors say, 'people will learn this in their spare time' but no-one does that."
Many of the savings procurement hopes to achieve by automation, online catalogues and e-auctions can be lost without proper investment in time and energy training colleagues and suppliers on how to use a new piece of kit - and selling the benefits of doing so to them.
Savings or cost-avoidance In the public sector, an e-purchasing system dubbed the "Amazon for government procurement" has been credited as an important part of delivering £15 billion savings by 2010-11.
The collaborative procurement strand of UK Treasury's Operational Efficiency Review, led by Invensys chairman Martin Jay, said rolling out systems such as Zanzibar will be key to achieving the government's target that 80 per cent of public sector purchasing is to be delivered by a central procurement service.
The system enables buyers to access the best value deals from national frameworks as well as locally based SMEs; a secure method of ordering goods which is linked to their own payment systems; and reduce the time it takes to pay suppliers. The reports this system generates then show the sector what is being spent and with whom. It gives more control and prevents maverick spending.
E-purchasing cards give a similar degree of visibility and control over what is spent where. This vital spend management data then helps buyers negotiate future deals and accurately assess demand.
A just-in-time system designed specifically for paperboard and plastics packaging company Chesapeake helped it save £1 million in 12 months. The purchasing structure at the UK-based firm was disjointed, spread over 40 operations on four continents. It was not making use of its global purchasing power and had problems with suppliers delivering goods every three months but customers wanting products within 10 days.
It bought a bespoke internet-based system by Daylight Supply Chain Services, which monitors and analyses behaviour patterns in the chain and recommends actions that prevent overstocking or shortages. Now just three people manage £42 million spend and material can be sourced and delivered to the right site, from the most cost-effective supplier in the world, in 24 hours.
Niall Walker, supply chain planning manager at Chesapeake, says the cost savings "speak for themselves".
Many firms use these tools to give them better visibility of spend across their diverse businesses. TAQA, the Abu Dhabi National Energy Company, used BravoSolution's spend management system to identify savings opportunities following a series of mergers and acquisitions.
And Dutch cable-making company Draka Holding is working with technology by Zycus to analyse spend as part of its global category management. The firm has about 50 purchasing organisations working relatively independent of each other, and director of procurement Robert van Motman hopes it will help with contract compliance and tracking savings.
Technology can also help with cost-avoidance. One example is videoconferencing (VC) which is increasingly seen as a means of saving money on business travel. Speaking in London this spring, Eric Bailey, senior manager of travel at Microsoft, said the number of air tickets issued by the company had dropped 35 per cent in the first quarter this year, compared with the same period in 2008.
Making money Elsewhere companies are using technology as part of their procurement and supply chain processes to help generate revenue.
One of Europe's top online retailers, Play.com, is using Wax Digital to allow its small purchasing team to manage a huge, direct product portfolio. Managing director Stuart Rowe says it is using the system to help "accurately weigh seasonal shifts in demand, historical buying trends and stock levels". He says this ensures the right levels of stock levels are available to meet demand to ensure the £400 million turnover business doesn't miss out on sales.
The system generates a daily 'buy' sheet for each categoryspecialist, presenting a tailored view of recommended products and volumes for purchase. It then uses a traffic light system to highlight urgent stock replenishments. These buy sheets can be quickly filtered, reviewed and amended as required before orders are submitted electronically direct to suppliers.
In April, Sainsbury's announced it is to work with Wesupply to help it get connected to its 4,000 suppliers. The supermarket already trades electronically with most of its suppliers but Wesupply, working with IBM, links up all the myriad systems. This helps it to communicate with vendors quicker and keep shelves stacked with the right products.
The platform also generates alerts in the event of errors or delays. It allows Sainsbury's and its suppliers to streamline the exchange of orders, shipping information and invoices.
Tim Goalen, Sainsbury's director of supply chain operations, said it would provide benefits to the company and its suppliers. He added that it was part of an initiative to give the company a live view of what's going on in its supply chain.
This is just a handful of the ways in which companies are using technology to reduce costs and ensure they don't miss an opportunity to make money.
But buyers must ensure once they get the system they check it achieves what it sets out to do. Once a new tool is up and running, carrying out a post-implementation review is essential to confirm you got what you expected.
Aberdeen found the "average enterprise fails to implement 21 per cent of the total indentified savings per sourcing project."
Cole concurs: "In three out of four cases people don't check.
"Purchasers should concentrate on what they're getting for their money and then ensure the mechanisms are in place to deliver that."
MORE INFO: USEFUL NETWORKING: free technology Using new technology to help you do your job isn't just about overhauling your existing systems or investing in expensive and complex new infrastructure. Here's some free applications:
Tools Freebie sample downloads are plentiful. One useful website is http://download.cnet.com/windows/ which has purchasing and supply-specific programmes for Windows. Use key words to run your search and take a look at the most popular procurement downloads.
For example, the top choice is the "Automating procurement process sample 1," which sends requests to three suppliers to reply with a commodity item quotation. More than 300 people have downloaded this since it was added two years ago.
A word of caution: watch out for programmes that ask you to sign up for a free trial but take financial details in case you go beyond the trial period.
Podcasts Voice-based downloads are available on subjects from how to do business with small suppliers to green procurement.
CIPS has a number on its own site, see http://tiny.cc/wzw49. Other sites also offer them, for example, US organisation Next Level Purchasing, see http://tiny.cc/lKVTK
Networking Social networking sites such as Twitter and LinkedIn offer the ability to connect with peers, which could help you do everything from seek advice on a tricky problem to getting a new job.
You could use Twitter to update your "followers" - perhaps other buyers or your suppliers - with company announcements, requests for information and more.
To set up a Twitter account and follow the latest news from SM go to: http://twitter.com/steve_bagshaw and hit 'join today'.
LinkedIn has proved a huge success with procurement professionals offering them the chance to join groups and network with fellow buying and supplying colleagues. To sign up visit: www.linkedin.com
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