E-procurement: get the IT price right

Spend visibility has never been higher up the corporate agenda, but
controlling the overheads in any organisation can be viewed as the devil’s
challenge.

One area where technological advancements can strengthen financial
practitioners’ view of their organisation’s spend is procurement. IT expenditure
is one of the largest overheads of any organisation and therefore represents a
huge opportunity for FDs to make savings, and could be of particular interest
where the FD is also in charge of IT.

But the budget, rather than the buying process, often gets more attention
than it should.

Procurement departments are often seen as keeping the business legally
compliant and out of the courts, answering auditors’ awkward questions about
value for money, but not much else.

Better buying

This climate is changing, however, and perhaps not before time.

When you consider the IT marketplace, where price, stock, specification and
so on change on an hourly basis. This presents FDs and buyers with myriad
challenges. Deals can be missed and budgets regularly wasted.

FDs need to take a number of key steps towards assessing if their
organisation can purchase products such as IT better and this starts from the
boardroom.

They must consider whether there is a cultural willingness to adopt a more
strategic approach to procurement? There also needs to be an audit of suppliers
and how long the organisation has traded with them.

It might be, for example, that a buying department only ever purchases from
one or two suppliers and therefore there is little competition and poor value.

Alternatively, your buyer could be spending a small percentage of their time
actually discussing product price and availability on the phone.

But unstructured buying often sees more social ‘chat’ and complacent
relationships under-delivering.
Find out how often the organisation buys. Also, ask how readily manual co
mparisons are undertaken on prices; does the department ever focus on price over
availability, and importantly, does the department ever
forecast its spend/buying habits and then apply this knowledge to structured
purchasing in the future.

Do they benchmark? If so, how often and on what do they base it? How much
paper is used, how long is spent on the phone and so on.

These are all areas that need to be considered in understanding how your
organisation currently buys, before then looking to re-
engineer these processes towards a more structured best practice approach.
Of course, it almost goes without saying that the cost of the actual process
through which the organisation procures must not outweigh the money saved by
getting the cheapest product in the shortest timeframe.

Set a structure

The next action is to consider implementing more structured ways of buying.
This, thankfully, is where technology can remove the black art element of buying
in the IT environment and help make buyers’ jobs easier.

Powerful forecasting and planning functionality can be unlocked with
e-procurement, as well as more efficient purchasing – estimated at £1.1bn of
savings by the National e-Procurement Project.

Is it any wonder organisations such as the ICAEW have set up websites and
forums to debate topics including IT and procurement?

Automated answer

So, what makes a good e-procurement solution? There is best practice
procurement technology that updates daily and brings together numerous
suppliers, brands, prices, specifications and stock within a central
internet-based buying window. There should be no need for extensive training or
implementation costs.

Electronic procurement technology can often list more than 100,000 products
from 1,200 suppliers by best price and availability. This in itself can release
vast swathes of the IT team’s time that can be better spent managing IT rather
than undertaking procurement chores such as ringing round suppliers.

For the FD this means better ROI from more satisfied IT employees as well as
providing an automated buying mechanism that will offer sustained, transparent
and auditable best value purchases.

Savings

By implementing new user-friendly automated processes that empower end users
within a controlled purchasing environment, organisations can achieve a win-win
situation ­ more efficient buying, planning and forecasting; stronger links with
suppliers; and even policing of preferred supplier, framework or cost plus
agreements to stretch the reach of an IT budget.

With an electronic approach to buying, the FD can also limit the liabilities
associated with maverick spend or rogue purchasing.

The latest technology is not just a tool for buyers to get a better deal.

Financial practitioners can use it as a mechanism for greater purchasing
visibility and future proofing.
The end result is that technology is bringing finance, procurement and IT
departments closer for measurable, sustainable, long-term savings through a best
practice approach.

Time wasters

Industry trend research has found private and public sector organisations are
wasting time and money. It is estimated that over £2.7bn of IT budgets, £61.2m
in unneeded phone calls and more than £1bn in wages is related to wasted time.

In all, managers are unnecessarily spending an average of eight hours per
week on managing IT procurement, telephoning around for best price and
availability. This is the cost of unstructured, inefficient buying processes.

Peter Robbins is MD of Probrand