The eprocurement report:

Transcription

1 WHITE PAPER JULY 2013 The eprocurement report: 21st century procurement moving from expense to advantage

2 Executive summary It is not necessary to change. Survival is not mandatory. W. Edwards Deming Embracing every opportunity for advantage should be natural for today s business leaders, in both private and public sectors. An area that has been underexploited so far is the potential for procurement to deliver significant efficiencies and cash savings, and 21st century procurement technology is being adopted as a key enabler. Technology provides the very best procurement efficiency and prices to the individual buyer as well as real time transparent line level data to the CFO and CPO. Technology adoption is of course driven by the search for savings but it s also a natural extension of our online behaviour at home. If we find benefits to buying online personally, then we should feel very comfortable buying online corporately and that is what we are finding. Much as we experience at home the modern corporate emarketplace provides maximum choice, minimum prices and maximum process efficiency in getting from identifying a corporate need to satisfying that need. I asked the accountancy and business advisory firm BDO LLP* to carry out an independent review of our public sector customers a decade on from the UK Government s first meaningful study of eprocurement. Specifically I wanted to understand how and how far the public sector was benefiting from eprocurement. The answer is that there are tremendous benefits being experienced in both price (up to 10% savings) and process (up to 50% savings). This is delivering cash efficiencies to protect front line services and also provides an efficient and effective way for suppliers to do business. So, we are at the end of the beginning we have a substantial group of users and, thanks to BDO, proven evidence of the benefits being achieved on every transaction. Having achieved this progress I would urge every organisation to seize the savings and intelligence available from a modern emarketplace. Every procurement leader is being asked to deliver more and better the great news is that, with the right technology, they can. We have even created a simple calculator to allow you to see what those benefits could be. I hope you enjoy this white paper and feel compelled to take the next step along the road to your personal goal of procurement excellence. Nigel Clifford Chief Executive, Procserve 2

3 A transformational opportunity Time for a change Lows and highs In this white paper, we will take you on a journey of exploration. We hope to highlight the vast procurement opportunity available to organisations, by providing an understanding of where we have come from, with the ultimate goal of providing you with a means to calculate yourself the potential benefits you can achieve. The potential of procurement to transform the business has historically been modest. However, dramatic cost savings enabled by the extension and adoption of new procurement technologies and practices has helped to propel procurement into the boardroom and to the heart of the business plan. With an improved bottom line, businesses can invest in the top line. They can invest in new products, attack new markets or enhance citizen and customer services in national, regional and local markets. In short, we are approaching a tipping point where political, economic, social and technological advances are converging to usher in a new chapter in the procurement story. The procurement tipping point Technology innovation: rapidly maturing emarketplace and Purchase to Pay (P2P) innovations are extending best practices, establishing ultra-competitive supply communities, and uncovering in-depth buy and sell side intelligence. Socially driven sharing: our more collaborative lifestyles are extending into our professional lives: increasing engagement with colleagues and developing a more collective approach to knowledge sharing. Economic realities: the wider downturn, successive spending reviews and a desire to change direction (whether entrenching or expanding into new areas) procurement is now a driver for business transformation. Political imperative: with public and private sectors under intense pressure to reduce cost, procurement is on the boardroom agenda and procurement leaders are being asked to do more. This creates a perfect storm for procurement while more is being demanded the procurement profession has greater technology potential at its disposal to be able to step up to the challenge with confidence. Tools like emarketplaces have matured to the point where they are now able to deliver their promise a transparent, ultra-competitive virtual marketplace where buyers and sellers interact seamlessly and efficiently. This delivers fast and easy access to the best contracts and prices straight to the buyer s desktop. In addition to the best prices, emarketplaces reduce inefficient, manual interventions and lower processing costs. Online catalogues and comprehensive supplier web-shops are more common, although still far from a given. Your ultimate goal may not always be the cheapest purchase it could be the one that best suits your needs (for the lowest cost). Here, electronic processes come into their own, delivering the kind of in-depth intelligence that can uncover historic spending patterns, departmental or satellite office spend, benchmarking and more. It is much easier to make a decision if you have the data to back it up. As an example, large volumes of transactions worth 1.3 billion to date are flowing through systems such as the Procserve Commerce Network (PCN). This allows procurement leaders to begin to answer the most complex and perplexing of commercial questions. emarketplaces are extremely flexible in terms of infrastructure and usage. For example, they can operate standalone or deliver integrated additional functionality to an ERP system that is already up and running. They can be used for a specific single commodity bought from the open market through regular competitions or a huge variety of products and services bought from catalogues or through mini-competitions. It s all the choice of the buyer depending on what suits their organisation. The solutions are also designed to be future proof if it s standalone it can be integrated in the future. Barriers to adoption are therefore coming down. Even those organisations that are thinking progressively about procurement have room for improvement as the BDO LLP report points out. After carrying out in-depth interviews with public sector organisations the BDO LLP findings highlight the scale of the opportunity. For example, one organisation was sourcing well over 13,000 identical or near identical products again with no consistent approach. More worryingly disturbing price differentials were common: an item cost one office 6.40, while another paid as much as Another product carried a wide spectrum of prices from as low as 3.96 up to 6.99 paid by the same organisation. Another organisation with 42 nationwide offices had yet to co-ordinate their spend. Procurement remained a strictly local affair, with each office responsible for its own purchasing. Generally speaking the BDO LLP report found that there were areas of great practice and also areas for improvement. Overall the public sector-wide adoption of eprocurement has the potential to save billions. 3

4 It s about the benefits Obviously the priority and urgency with which the opportunity is seized will depend on the benefits available to both buyers and suppliers. From efficiency and transparency through to compliance and control, the below table offers an insight into the benefits across the value chain. Buyer Supplier Efficiency Efficiency gains from automation, integrated standardised processes and supply chain improvements include significant time saving. Ability to get best priced deals directly onto buyer s desktops. Automation benefits suppliers and buyers as both can improve the efficiency of their P2P process. Suppliers receive payment quicker as processing times are significantly reduced. Suppliers with efficient P2P systems and competitive pricing will be more attractive to potential buyers who will be able to make informed decisions. Visibility and transparency Immediate visibility of all spend that has been transacted through the emarketplace. Control of what is bought and at what price. Improved audit and greater accountability. Assurity of the most up to date pricing. Changes to catalogues subject to workflow approval. Suppliers can ensure buying organisations have up to date information on product price lists and introduce new products quick through ecatalogues. Because the buyer understands its demand there is greater assurity about contracted volumes. Suppliers can avoid a lag between changes in prices and corrections on a buyer-hosted price list. Compliance Greater visibility and integrated reporting of all purchasing activity enables organisations to check progress against targets such as Government targets on carbon emissions. Ability to monitor compliance with corporate procurement and Finance Policy and introduce standards such as No PO, No Pay. Buyers who are bound to central government and EU Directives are better able to monitor and demonstrate their compliance through the real time data. Cost savings The ability to control demand leading to reduction of product lines enables more standardisation and economies of scale. Data can be shared across members of the buying network allowing peer group organisations to collaborate on contracts and frameworks on aggregated demand levels. Smaller organisations can also enjoy the enhanced purchasing power of economies of scale by aligning the requirements with larger ones. Electronic transactions deliver significant cost savings in terms of time, paper and postage. Easier, more simplified purchasing through electronic request for quotes and running mini-competitions. Faster payment through the use of einvoices. Electronic transactions also help suppliers to achieve significant cost savings. The visibility of shared data and aggregation of contracts and buying offices enables suppliers to enjoy economies of scale. Through using electronic transactions suppliers can re-evaluate service level agreements, more efficiently aggregate orders and delivery frequency while reducing their carbon footprint. Control Enhanced compliance to centrally agreed contracts delivers enhanced economies of scale. Significant price reductions can be achieved and then enforced through control over the number of items available through framework agreements. Greater visibility enabled by a single source of data for all transactions with a buying organisation or buying group. This enables smarter contract and relationship management. Ability to monitor price variances and buyer and supplier behaviour. Suppliers can achieve greater control over their finances as automation and modern P2P practices can ensure quick payment of goods provided. 4

5 The ematurity indicator Rather than a single, unsophisticated savings estimate, companies want a realistic view of the benefits that are achievable, given where they are. The BDO LLP report tackles this and focuses on the importance of understanding how far you have come in the eprocurement journey by introducing the concept of the ematurity Curve. For those in the Innocence and Awareness categories, the opportunities for major cost reduction are very real. They can and should avoid opportunity loss by fast adoption and roll-out to get to the same point as those further up the Curve. The ematurity Curve shows that the further it is along the Curve, the less opportunity the organisation has to realise savings through its processes or spend reductions. This is because organisations in the Competence and Excellence categories have already achieved the benefits of wide-scale emarketplace adoption. For organisations further along the Curve, the task is to continue to look for even greater commercial advantages from their situation for example expanding its use into new arenas or organisational pockets. In the private sector of course, if you re operating in a place where Excellence is the norm, anything less puts your business at risk from your competitors. If you re not performing at the same level, you ll be at a disadvantage. The ematurity Curve and savings at each stage Spending price reductions expected by P2P maturity level % of low value spend 15% 10% 5% 0% Transactional process savings expected by P2P maturity level % of P2P employment costs 60% 40% 20% Excellence Competence Understanding Awareness Innocence 0% Excellence Competence Understanding Awareness Innocence 5

6 The ematurity indicator translated Level Innocence Awareness Understanding Competence Excellence Indicators of purchase to pay maturity for low value, repeat spend Limited vision for using electronic aids to procurement. Commodity purchasing through telephone calls, fax or . Purchases from catalogues are manually requested. No use of emarketplaces or framework agreements to leverage buying power. No routine central analysis of buying patterns. Accounts payable involves matching paper invoice to authorised purchase order form / goods received note to release payment. Invoice amounts are manually entered to accounts system. No systematic process for tendering of locally authorised one off purchases. Some vision for using electronic aids to procurement. Low use of emarketplaces or framework agreements to leverage buying power. Majority of commodity spending through supplier web sites / phone / fax / (including pdfs) no enforcement method to move away from paper processes. Ad hoc / occasional central analysis of buying patterns. Payment amounts manually entered to accounts system. Occasional use of a systematic process for tendering of locally authorised one off purchases. eprocurement goals exist, with implementation started for some stakeholders. Some use of an emarketplace for purchase of low value items. Less than half of repeat purchases (by value) made through central framework agreements. Some commodity purchase orders / invoices processed electronically which enables some electronic approval and matching. Many locally authorised one off purchases are tendered through a systematic process. eprocurement goals, including emarketplaces are being implemented to all stakeholders. Many end users regularly requisition through emarketplaces. Many of the low value spend needs are met through emarketplaces. Central framework agreements are negotiated for the majority of repeat purchase items (by value) spend outside of these agreements is prohibited. Many frequently used suppliers submit invoices electronically into buyer systems. This enables electronic matching of purchase order / invoice / goods received note. Most locally authorised one off purchases are tendered through an electronic tool to enable fast receipt and comparison of quotes. Possible delays to further adoption of emarketplaces due to slow user or supplier uptake. emarketplaces and einvoicing have been fully adopted throughout the organisation. End users requisition nearly all low value repeat spend through emarketplaces, mostly based on centrally agreed supplier framework agreements. Central function runs programme for review of suppliers and leveraging of best prices through review of system data. Use of electronic purchase order and invoicing is mandated for repeat spend suppliers. This enables electronic matching of purchase order / invoice / goods received note, with few exceptions due to errors. Locally authorised one off purchases are tendered through electronic tool to enable fast receipt and comparison of quotes. 6

7 Understanding the benefits the evaluation calculator For the journey... Until now, calculating benefits was hypothetical. Today, we have real data that enables us to define real benefits. Using the experience of the organisations researched, BDO LLP has taken a number of common inputs to develop the evaluation tool used to calculate savings based upon factors such as annual goods and services spend and transaction volume and the number of people deployed in the purchasing and accounting process. Whilst BDO LLP does not claim that this is the definitive saving, it is nonetheless a clear indication of the order of magnitude that can be expected. Through the research, substantial process savings from transferring high volumes of indirect spend typically accounting for 20% of spend but 80% of purchase orders and invoices were identified. Other noteworthy savings include 7% spend savings through compliance with purchasing policy and 5% price savings by using electronic Request for Quote (erfq). Interestingly it also noted a 1.5% saving on the supplier side through reduced cost of overheads in operating the contract. More impressive though is the breadth of the savings opportunity and the additional value demonstrated. Procserve has launched a new interactive microsite where you can evaluate your organisation s ematurity at Whatever stage of the eprocurement journey you are at, there is value to be gained. The stars are aligning to create a tipping point of immense opportunity. Organisations agile enough to grasp this will see tremendous transformational benefits as bottom line savings impact top line strategies. Inertia is no longer an option and will threaten relative positioning and competitive advantage. The good news is that whatever first step is taken, the benefits of more efficient processes and controls, improved commercial intelligence, understanding of buyer and supplier behaviour and having the data to understand the implications of buying decisions big and small, are continuous all the way along the Curve. The trick is to understand how far you are into the journey and how much the better you can be for having taken it. Enjoy the journey = About the Research Accountancy and business advisory firm, BDO LLP, is the UK member firm of the BDO International network. The firm employs 3,500 people across 23 UK locations, generating revenues approaching 400m. * BDO LLP was engaged by Procserve to assess the benefits its customers have received from using the Procserve Commerce Network (PCN). BDO LLP interviewed public sector clients of Procserve who have implemented the PCN over the last six years. The research included a large police force, a government agency with multiple offices nationwide, councils and several suppliers. The report evaluated which aspects of the procurement process are affected by the PCN and the savings that resulted. It assessed how the implementation was undertaken in each case and the extent of on-going support that was provided by Procserve. 7

8 About Procserve Procserve is a leader in enabling secure transactions online and powers one of the most trusted and secure commerce networks in the world. Established in 2006 to underpin the UK Government s ecommerce strategy, today the company s networks are used by over 13,500 buyers and 25,000 suppliers across public and private sector organisations to buy, sell and share information within virtual communities. For example, Procserve delivers the National Police Procurement Hub for all 43 police forces in England and Wales. In 2013 Procserve commissioned the consultants BDO LLP to research the impact that its emarketplace solution (the Procserve Commerce Network) has had. This research informs this white paper. Procserve Commerce Network The Procserve Commerce Network (PCN) is a leading emarketplace solution. It has processed over 1.3bn transactions. The PCN is a secure supplier network that enables buying organisations to manage their procurement activities, increase spend under management, gain financial control over their indirect spend and get the best value for money. The PCN enables the secure transfer of data between the back office and internet-based systems within a buying group and between buyers and suppliers. It is trusted by police forces, the NHS and Her Majesty s Government to deliver all of their transactions securely within the Cloud. It has industry leading accreditation, enjoys low set up costs for supplier organisations which encourages more suppliers to join and the payment costs for buyers is based on actual or potential usage. 3,400,000 transactions have been processed on the network over the past five years, with 46% of those taking place in the last 12 months. Procserve is regarded as a strategic partner by its clients offering advice and collaboration. The company has seen strong year-on-year growth in the volume of transactions as organisations from Central and Local Government (education, health and blue light emergency services) have embraced the Amazon style online procurement system. Learn more: th Floor, Portland House, Bressenden Place, London, SW1E 5RS info@procserve.com Telephone: Website: