Carl O. Falk
Carl O. Falk, Vice President, Commerce One, Walnut Creek, CA 94596, 925/941-6016, firstname.lastname@example.org
Abstract. In an increasingly competitive and global business environment, enterprises face constant pressure to reduce costs and increase productivity. Corporations are now realizing that procurement organizations play a vital role in the strategic positioning and financial well being of enterprises. The savings realized in procurement go straight to the bottom line - and they have a multiplying effect on profit margins. That is, depending on an enterprise's purchasing volume as a percent of revenues and its profit margin, a 5% reduction in purchasing can result in a 30% improvement in margins. Payback periods for the investment to realize these savings are almost always less than one year. With this in mind, it is easy to see why procurement automation for the procurement of indirect goods and services is the hottest segment in the electronic commerce marketplace.
Indirect spending encompasses a wide variety of goods and services, including maintenance, repair, and operating goods (MRO), communications and capital equipment, computer hardware and software, advertising, and corporate expenses, industrial and office supplies, travel and entertainment expenses, facilities and services. Historically, companies have been hindered by the inability to control and track indirect expenditures. Even today approximately 95% of these purchases remain manual.
The automation of the procurement of indirect goods and services can provide enterprises with a substantial cost reduction. Recent surveys of actual installed customer sites shows a reduction in the cost of goods and services purchased from 5-15%. In addition, the cost of the procurement process itself has been reduced by 70%, which corresponds with a cycle time improvement of 50-70%. In almost all cases the results have far exceeded expectations with payback periods of less than one year.
The solution that achieves results of this magnitude uses a business approach that empowers employees to directly select needed goods and services and completes the order process in a totally automated manner. Facilitated by web technologies and the deployment of Intranets and Extranets, a growing number of organizations are now employing next generation, desktop electronic procurement applications. These easy-to-use applications streamline internal processes associated with indirect spending and dramatically reduce costs related to the procurement of indirect goods and services.
Commerce One and several industry analysts have studied extensively what it takes for a buying organization to maximize their Return On Investment from an indirect procurement automation intiative. These studies are outputs from the Commerce One Commerce Council, an advisory group comprised of both buying and selling organizations, as well as interviews with customers of other application vendors. The results are conclusive that the following three elements are in fact Critical Success Factors for a successful desktop electronic procurement initative. They are:
A complete solution must encompass both sides of the procurement process in order to bring both buyers and sellers together in a virtual trading community.
In retrospect, the interrelationship of the solutions elements is intuitive. Using an analogy, the electronic procurement application is like a high end sports car. It's great looking, fun to drive, highly responsive, quick, analog dials for accurate, rapid feedback - we could go on and on. However, it is little more than something to look at without - you guessed it, high octane fuel. Try driving it off the lot without even a little fuel. It just doesn't work. Nor will the electronic procurement application work without Transactive Content. It may not be exciting, it may not be great to look at, but Transactive Content is a critical element for the user to have a saftisfying experience. And just like the high octane fuel in our analogy, in its raw state supplier content is much like unrefined oil as it comes out of the well. Until it is refined, processed, and enriched it doesn't work well for our intended purpose. Only then does supplier content become Transactive Content. Now we have the ultimate sports car and the highest octane fuel to power it. But we still don't have a complete solution. Unless we have a state-of-the-art road, the experience will be less than satisfying. Imagine driving this high powered sports car on a road designed for the horse and buggey. This is akin to having a "best of class" desktop electronic procurement application, high powered Transactive Content management to fuel the procurement application, and then using EDI or fax to communicate back and forth with your suppliers. The complete solution requires an Autoban type of experience. And that's true Trading Partner Interoperability.
The following features and requirements resulted from Customer input at the Commerce One Commerce Council, an advisory group comprised of both buying and selling organizations, surveys of customers of other application providers, as well as in-depth analysis by the Gartner Group, a leading industry analyst.
Customer Driven Features And Requirements For Desktop Electronic Procurement Applications.
Customer Driven Features And Requirements For Transactive Supplier Content To "Fuel" The Desktop Application.
Customer Driven Features And Requirements For Trading Partner Interoperability.
In summary, only when enterprises have carefully planned for the implementation of each of the above critical success factors in their electronic procurement automation initiative have they realized their full return on investment. Savings in the cost of goods and services from 5-15% are typical, as well as process cost savings of 70%. And with a 50-70% reduction in the procurement cycle time, inventory costs are reduced accordingly.