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E-Procurement: From Strategy to Implementationby Dale Neef
Business people these days are becoming weary of new fads, movements, and revolutions, and rightly so. We have, in less than a decade, been taken through such "revolutionary" transformations as total quality management, business process reengineering, enterprise resource planning, activity-based costing, and retail e-commerce. Companies have downsized, outsourced, empowered employees, shifted processes and organizational structures from vertical to horizontal, completed strategic sourcing initiatives, and purchased IT systems (often on the basis of dubious return on investment), with investments amounting to millions of dollars. And, of course, they have paid management consultants and software companies many millions more for advice on implementation and change management.
Yet, completing business-to-business transactions over the Internet is genuinely something very different. The unexpected emergence of the Internet as a tool for business has meant that we have once again been thrown inescapably into the fray of major investment and change. As I have argued before1 it is all part of an accelerated pace of change that will bring about a fundamental restructuring for all industries, worldwide, and participation is essential for the survival in the new economy.
I have written this book about e-procurement in part because I believe that there has been a mistaken emphasis on e-commerce (electronic retailing) in our approach to the use of the Internet. Swayed by the activity around online retailing-the fortunes to be made with dotcom startups, the venture capital that was available, the relative ease in which a Web site for retail sales could be built, the massive coverage of the subject by the business press-we have failed to understand that e-commerce is a relatively unimportant step in the development of the Internet. It is a vital part of an overall e-business strategy, of course, but online retailing-unless it is fully integrated into the supply chain-is simply a mildly effective extension of the sales process. Moreover, expanding revenues, given the margins made in most industries, is far less effective as a strategy than is fundamentally and permanently reducing major costs-something that affects the bottom line directly.
The real value of the Internet, as many companies are beginning to experience first hand, comes instead from business-to-business, buyer-vendor transactions that include electronic procurement and full integration of the electronic supply chain from customer to supplier. In fact, as electronic procurement and supply chain software continue to evolve, the relative value to companies of online retailing will almost certainly continue to shrink in relation to the enormous cost savings and fundamental restructuring of companies that will come about as a result of the evolution of Internet-based business-to-business activity.
The purpose of this book is threefold. First, it is simply to explain to those who have not previously dealt with the area of procurement the fundamentals involved with purchasing and replenishing materials. Though certainly not as glamorous as many (in fact, most) areas of business, procurement-whether for everyday office supplies or for materials used directly in the manufacturing process-is nonetheless an enormous expense for companies, large and small, and in every industry. In fact, so enormous is the expense and potential savings that e-procurement should from this time forward be seen as an integral part of your company's overall e-business strategy. I hope that the book can therefore serve as a primer for introducing the importance of the subject to organizational leaders and for elevating the subject from the tactical to the strategic.
The second purpose of this book is to explore the phenomenon of the electronic trading communities-the volatile and fast-growing area of online e-markets, auctions, reverse auctions, and exchanges-that is effectively revolutionizing the relationship between buyers and sellers in virtually every industry, worldwide. A battle for control over the influence and utility of these online exchanges is now being waged between a powerful group of software companies, industry-leading alliances, and third-party application service providers in a volatile mix of competition and collaboration that is at once both explosive and effective, and that will eventually affect virtually every supplier and buyer in the economy.
And finally, this book is intended to help managers, executives, and other organizational leaders to take the first important steps necessary for defining and implementing their e-procurement and overall e-business strategies. I have therefore devoted several chapters to the development of strategy, to project approach and structure, and to the activities necessary to creating an effective plan of change management. As many have learned from past lessons with enterprise resource planning systems, business benefits come not only from the functionality of the software system, but often more importantly, from changes in the way employees do their work. Just as e-procurement should be seen as strategic rather than tactical, we should also avoid seeing it solely as a technical solution. After all, to be effective, the behavior of employees in the purchasing department (not to mention the behavior of those employees throughout the organization who today buy "off contract" with little concern for price or administrative overhead costs) will need to change dramatically. For this reason, I have dedicated several chapters specifically to "lessons learned" around project and change management, relating at a more detailed level some of the leading techniques that have worked well for successful companies and consultancies in the recent past. I hope these will be useful to the soon-to-be managers of enterprise-wide e-procurement initiatives.
I should, at the outset, admit that although the book examines the basic software platforms and major players in the e-procurement industry, the business-to-business e-procurement marketplace is extremely volatile. Software vendors merge, realign, and bring forward new offerings on an almost continuous basis. Electronic markets and auction sites are multiplying rapidly, while at the same time beginning to falter and collapse, as competitors vie for dominance. The models for e-procurement-enterprise-based, outsourced, or networked-are all in a state of evolution.
In short, it is a marketplace that is constantly changing and evolving, and therefore this book is by no means the last word on the subject. But the fundamental principles behind electronic procurement are sound and well understood, and it is critical for organizational leaders to understand these principles, the major players, the marketplace, and the key issues in order to be in a position to create an e-procurement strategy with confidence. E-procurement initiatives are seldom simple, compared with building a Web page, but their potential for cost savings are enormous, and few companies have the luxury of waiting for a much more settled marketplace before acting.
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