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You’ve invested in an e-procurement system. It’s been implemented throughout your organisation and now you can sit back, relax and watch the bottom-line benefits start flowing in. Or can you? Experience
has shown that implementing an e-procurement system doesn’t necessarily mean it will be used effectively, or even used at all. This is a particular problem within large corporates with decentralised business units which are often incentivised to look after their own bottom line in an isolated fashion. Why should they buy into a group-wide procurement solution? They probably resent the fact that they might have to pick up the cost for their share of this group wide programme. But without this buy-in, the benefits of your investment in e-procurement will be significantly diluted. The solution lies in the smart utilisation of incentives and disincentives: carrots and sticks. These must apply not only to the business units, but to group structures as well as managers and users You must have a strong CIO with an understanding of the value chain and the need to keep certain support functions centralised in order to leverage corporate purchasing power. Buy-in to the shared services concept for support functions is critical and a few tricks will help achieve this. Some of these could include:
· Incentives based on adoption within the group of centralised procurement contract usages; · Setting up the shared services office as a P&L (profit & loss) business unit in its own right; · Ensuring that all payments from accounts payables include the up-front usage of the procurement system; · Revenues for the shared services business unit are based on additional benefits from group wide contact negotiations and rebates negotiated centrally. This must be offset against expenses and the proceeds paid out to the business units in proportion to their usage of the contact. However, all this must go hand-in-hand with a dedicated effort to remove unconscious disincentives to buy smart. For example, the use-it-or-lose-it approach to budget spending is sub-optimal and needs to be replaced with and EVA (Economic Value Added) or ROI (Return on Investment) model. At the business unit level, a judicious mix of incentives and rules can ensure effective utilisation of the e-procurement system. These incentives and disincentives must extend beyond the financial – they must be geared at making it easier, more productive and more enjoyable for individuals to use the system than to not use it. How? Use positive
reinforcement techniques: ·
Ensure the system is easy to use and that people are
trained to use it properly; · Keep potential users informed
about developments every step of the way; ·
Support individuals during the change over to the new system; and ·
Identify and promote an internal project champion. A little negative reinforcement also won’t go amiss to ensure
you have the support for system usage from senior management. ·
Insist on purchase orders being placed into the system; · Deal
with the inevitable issues, which will arise from each business unit by
providing a forum in which these issues can be aired and addressed. This
helps promote buy-in from business unit managers; · Only
then should you issue an edict in terms of usage of the system; · Monitor
spend outside the system during a transition period; · Set
a cut-off date after which no payments will be made if not processed through
the system – and stick to this date without exception; · Monitor
usage of the system by the individual business units and make them aware of
usage by other units. · Finally,
place additional incentives on the table.
THE ADVENT of business-to-business e-marketplaces around the
world has caused disquiet among suppliers who believe their customers will
use these markets to turn away from them or worse, turn the screws on them. But the reality is that e-marketplaces offer smart suppliers a
unique opportunity not only to grow their customer base, but also to improve
their margins through increased efficiencies. However, this requires a mindset change. Traditionally,
suppliers have limited themselves to a segmented role in the supply chain. But the supply chain in the e-era can no longer be regarded as
a linear structure between supplier and buyer. Rather it’s a supply “web” of
processes occurring sequentially in some cases, and simultaneously in others.
Suppliers have a critical role to play in managing this web. GLOBALISATION
Another misplaced concern is that e-marketplaces will result
in marketshare erosion, particularly as buyers have welcomed the opportunity
marketplaces offer to break out of the single supply source paradigm. But this phenomenon works both ways. If buyers have an
opportunity to look for alternative suppliers, suppliers benefit by becoming
part of the commercial community created by e-marketplaces. Not only do they
reach a greater number of potential customers, they also broaden their
exposure to additional potential suppliers of their own. More importantly, e-marketplaces offer an unprecedented
opportunity to realise real operational efficiencies and they open the way
for true collaboration between suppliers and buyers – to the mutual benefit
of both. COSTS
AND PRICE
But, say the sceptics, there are costs associated with
belonging to an e-marketplace. That’s true. But there
are costs associated with any type of sale, including opportunity development
costs and traditional sales channel costs. And then there are issues of price. Many suppliers believe
that being on an e-marketplace makes it easy for competitors to undercut
their prices. However, a marketplace
provides a level of transparency which makes it possible to complete on more
than price. It should also be recognised that buyers that select suppliers
on the basis of price alone, will do so regardless of whether the sale is
being conducted through an e-marketplace or not – and in a less transparent manner. Yes, an e-marketplace can be a threat to suppliers who
continue to define their role in old economy terms. But it presents enormous opportunities to those prepared to
step into the future.
Miraculum is proud
to welcome new members to the community. 3M “Old Mutual is a large diversified organisation with
substantial spend across a decentralised framework. Through the combination
of technical and procurement intellectual capital, Miraculum provided Old
Mutual with the ability to consolidate and leverage this spend in a cost
effective manner that provides enormous benefit to the group and its
operating subsidiaries. Miraculum enables us to unlock synergies and boost
the bottom line of the group.” Roddy Sparks, Managing Director, Old Mutual, South Africa
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