The E-Procurement Future

Today, both the technology and the buyer's expectations have matured to the point where e-procurement can genuinely be used to source things other than catalogue-based indirect goods. Direct materials, and the services that companies buy (see "At Your E-Service", page 120), are now real options for mainstream businesses - and not just for the few companies whose business models and operations lend themselves to it.

To manage expectations of an e-procurement effort, it's important to remember that the ROI will come only partly through lower purchasing prices. The rest of the return will come from efficiency improvements within the buying process. And the job of moving those improvements from the theoretical to the practical often falls upon the CIO.

SIDEBAR: The Four Questions

How to think about your eprocurement decision

Is the value of the spend high or low?

Is the product or commodity highly substitutable or not?

Is there a lot of competition or a little?

How efficient are your internal processes?

SIDEBAR: Why Users Make Poor Buyers

Taking purchasing power away from the amateurs

With an annual online spend of $US3.2 billion, Motorola is among the global leaders in e-procurement. "The vast majority of the physical goods that we purchase are now bought online," says Toby Redshaw, Motorola's corporate vice president of IT strategy, architecture and e-business.

Now Redshaw is turning his attention to the e-procurement of things other than physical goods - the $US2 billion to $US3 billion Motorola currently spends on services such as consulting, temporary labour, marketing, R&D and cleaning - and the advantages to be gained by professionalising the procurement process and taking purchasing power away from users.

The key to this last strategy comes from a lesson the company learned from e-procuring physical items: Users make poor buyers. "We have great storage guys and great networking guys, but that doesn't make them great buyers of storage and networking," says Redshaw. For that, he says, "You need fierce purchasing professionals with piranha and bulldog genes built into their genomes: We call them 'deal sharks'."

The main boost to operating income, however, will come from securing better prices from service providers and ensuring that both sides stick to a deal, once struck. "You can spend a lot of time negotiating a fantastic global contract with a consulting or accounting firm, only to find that the people on the ground in Brussels or Beijing either don't know about it, or say that they've got a good deal locally that they intend to continue with," says Redshaw.