e-Procurement: Failure to Implement, Not an Option!

Basil Nikas
Founding Board Member
National Electronic Commerce Coordinating Council
President- SicommNet iCatalog Division

Prior to the Internet, procurement functions were thought by many to be contentious, mundane processes of the overall enterprise. Most organizations had separate procurement offices, or preferred to assign people within the individual departments to specific purchasing tasks. The primary job of this workforce was to research products and services needed by the organization, handle myriad details relating to their requisition, approval, payment, and ultimately be responsible for the delivery of the host of items about which they might or might not know very much. Before the Web, the process was labor-intensive, dominated by paper, often centralized, and subject to countless costly inefficiencies due to re-keying, changing prices, product sets and personnel.

With the advent of Internet-based procurement solutions, supplier products and their pricing data could be presented and managed via virtual catalogs. Using these online catalogs, authorized users could easily search and select from a host of electronically stored products and service descriptions, often available through a browser-based interface.

Basically, e-Procurement means that electronic communications are used to support all of the transactions that facilitate the procurement process. From access to online product and catalog information through electronic payment services, the Internet facilitates seamless exchanges in support of electronic commerce.

Properly planned and executed, an e-Procurement system will reduce the time required to complete transactions, prevent maverick purchasing, and capture information that allows management to scrutinize buying patterns and prepares the buying organization with statistical tools to better negotiate new contracts.

There are tangible and intangible benefits from the use of e-procurement. Tangible benefits include the ability to introduce, increase, and improve strategic sourcing on indirect and direct commodities, the ability to reduce resources currently involved in paper and manually based procurement processes through improved payment processes and decreased cycle time, the opportunity for increased auditing and automated accountability and tracking from start to finish, and increased and more sophisticated reporting functionality. Intangible benefits include the ability to improve and introduce commodity and vendor management, reduced turnaround and improved throughput, improved trending of cost-center spending, improved visibility of price changes, and improved spending controls and employee compliance.

The return-on-investment (ROI) calculation takes into account the costs and benefits of e-procurement system implementation. Based on the ROI, a decision whether or not to go forward is made. The ROI method for making e-Procurement system implementation decisions, in theory, is simple. However, in practice, it is very difficult because most of the costs are tangible while most of the benefits are intangible or hypothetical. This leads to the “It makes sense, but I can’t prove it” conundrum.

In order to “justify” the shift to e-Procurement, organizations have searched for ways to document the benefits surrounding the new technology and business processes supporting e-procurement. At the same time managers and business leaders have taken a stronger position with regard to the importance of procurement in the organization, realizing only then that traditional means of negotiation and procurement do not provide a comprehensive view of the spending habits of the organization, private or public, nor do they lend value in proactively sizing the needs of the consuming user groups. The old paradigm often led to over-spending, reactive buying habits, ineffective and inefficient procurement processes, and little or no visibility to report analytics.

As in other areas of process re-engineering, assigning terminologies to new and revised processes, these new technologies are trans-morphing the “Procurement Process” into a “Strategic Sourcing Process.” Strategic sourcing should be considered the backbone of any e-Procurement initiative.

Strategic sourcing enables a buying community to proactively source goods and services at highly competitive prices. This is done by selecting a “best of breed” vendor for a particular need and/or for a particular purchasing category (i.e. office supplies, furniture, PCs) as a standard going forward. The elements of vendor sourcing include gathering historical spend data and vendor performance reports together into a bid or auction environment where the vendors are able to participate in a competitive bid environment for a contract or a specific purchase.

E-Procurement is the tool to enable successful, strategic sourcing in this environment. While the business plan and strategy may be realized via the sourcing exercise, e-procurement is the “on switch” to an electronic, automated bid environment. Strategic Sourcing would be unlikely to occur without e-Procurement. E-Procurement gives buyers the ability to retrieve historical spend data at their fingertips. It enables the buyer to post bid requirements in an easy to use graphical, Web-based environment, which can be integrated and priced with a familiar Internet browser. Vendor entries can be managed with an e-Procurement tool, with control held by the buyer. Once bidding has closed, the buyer simply runs standardized reports to quickly determine, in a fair environment, which of the vendors satisfies the agency’s needs.

For those organizations already utilizing sourcing tactics of some kind, e-Procurement will expedite strategic bid opportunities and offer enhanced reporting and audit capabilities that must be extracted manually without such a system.

True e-Procurement is a marriage of strategic sourcing and an electronic procurement tool. Having one without the other will never produce the expected, or promised, return on investment.
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A founding partner and President of the iCatalog Division of SicommNet, Mr. Nikas has concentrated his efforts in creating strategic alliances and fostering the growth of Electronic Commerce in the public sector arena. Mr. Nikas gathered a team of top public sector purchasing professionals and Internet/database technologists to develop end-to-end Internet based public purchasing services as the next paradigm in cross agency, co-op purchasing. The SicommNet Team is the leading e-Procurement service provider to the state and local market serving the states of Hawaii, Maine and Idaho and US Marine Corps Logistics Command with over 40,000 vendors and hundreds of thousands of commodity items listed in its master catalog trading partner service.

Mr. Nikas served as the ITAA (Information Technology Association of America) Delegate/Board Member on the NECCC, and was Chairman of the ITAA State and Local Public Enterprise Electronic Commerce Committee from 1998-2001. In December 2001, Mr. Nikas was voted a lifetime status of Ex-Officio Founding Board Member of NECCC along with Carolyn Purcell, Texas state CIO. Mr. Nikas chaired numerous committees on the NECCC such as the NECCC Privacy 2000 Work Group. Mr. Nikas also serves as Co-Chair of the NIGP (National Institute of Governmental Purchasing) Supplier Advisory Council. Mr. Nikas has spoken extensively throughout the United States on Electronic Procurement, E- Government, Internet Privacy and Security issues.

Mr. Nikas co-authored the NECCC "Privacy Policies: Are You Prepared" - a guidebook for state and local governments. He also prepared the NECCC Bulletin on "The Uniform Electronic Transaction Act (UETA) and House and Senate Bills HR 1714 and S 761." He was a task force member on NECCC publications "Electronic Commerce: A Blueprint for States," "E-Government Strategic Planning" and "Enterprise Electronic Government." He also wrote the chapter on “eProcurement in State and Local Government” for an all-encompassing book on eGovernment, which was published and distributed to over 5,000 state and local officials.

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