The Last Word: E-procuring of services set to gain momentum

True, e-procurement is paying off for product purchasing. Nevertheless, can it also help companies when it comes to their purchasing of services?Let us look at what this actually implies.

According to the Centre for Advanced Purchasing Studies (CAPS), the average Fortune 1,000 company spends more than 50 per cent of its annual purchasing dollars on services. Services purchasing, however, has remained a largely manual process, conducted over e-mail, phone and fax.

Today, there is little management or financial discipline in what is largely an ad hoc process, resulting in high inefficiencies and little control. As a result, there is ample opportunity for big cost savings.

Many companies estimate it to be in the range of 10 to 20 per cent of services spending or even higher. With the average Fortune 1,000 company's spending at $3.5 billion per year, the potential impact is huge.

Only in recent times have companies identified services as an additional area just ripe for inclusion in e-procurement initiatives. However, they have not been successful in addressing the unique complexities of services through e-procurement applications that are product oriented. In the last year, a variety of e-procurement solutions have emerged that are designed to help companies extend its benefits to services categories, as well.

Purchasing of services spans a wide spectrum. Labour-specific categories such as staffing and consulting are important in the acquisition of contractors and consultants on an hourly or project basis. On the other hand, services such as repair and maintenance, construction, transportation, plant services, oil field services, environmental services and vegetation management, are vital to smooth functioning of the company.

Beyond goods, materials

In the product world, vendor relationships and agreements are defined in the context of catalogs that assign standard measures to quantity and cost. In sharp contrast, most services cannot be readily catalogued. Hence, the front-end process involved in service purchase request means firstly, the definition of the service to be delivered.

Next in line, is the negotiation process wherein the buyer and vendor arrive at an understanding. The process also requires tracking and verification of delivery so that the buyer and vendor are in agreement about payments at each invoicing cycle. This means frequent, dynamic interaction with the vendor community. Vendor management therefore becomes central to the success of an e-procurement application.

While product procurement focuses on streamlining transactions through online catalogs, services are procured by streamlining the inter-enterprise business process through online interaction.

Why e-procurement?

E-procurement of services has emerged as a new enterprise application category that leverages the Internet to streamline the purchasing life cycle and management, be it any category of service. Such initiatives help gain current perspective on services spending and activity, streamline processes and improve interaction within departments and with suppliers, and enhance vendor management.

Benefits are plenty and are available to all users. The finance department gets a current view of services accruals. The accounting department receives invoices that are complete and contain preapproved data.

The purchasing department can reduce costs and negotiate better vendor agreements.

Vendors are paid on time and have the potential to leverage current contracts into a more significant relationship with the company.

The manager requisitioning the service is freed from the "administrative hassle" involved in monitoring the paper trail, and is updated on whether services activities map to the budget, or not.

In addition, managers handling vendor selection can monitor and improve supplier quality.

Going forward, there is little doubt in my mind, that a large part of services that we experience within companies, will come under the gamut of e-procurement.

Companies need to recognize this opportunity and open their doors to the services procurement and experience the many benefits that it confers on the user.

The writer is the head of global sales at Wipro -01markets