Removing the obstacles to e-procurement adoption
A Florida Atlantic University study in 2007 found that 50 percent of local governments in the United States had implemented some form of e-procurement, with 20 percent of the non-adopters planning to adopt e-procurement in the next three years*. Even if the projected 60 percent or so current adoption rate has been realized, local governments still likely trail the two-thirds of private sector companies that research firm Gartner/AMR says have already adopted e-procurement.
Online e-procurement platforms can provide greater transparency in public spending (demanded by constituents), boost efficiency and provide commodity savings. These advantages are especially attractive given tighter budgets and pressures on local government procurement resources to do more with less. So the question is: Why haven’t more local government procurement organizations adopted e-procurement?
Behind the numbers
A closer look at the Florida Atlantic University 2007 research results suggests some answers. Few local governments had harnessed the full potential of increasingly robust e-procurement toolsets (first table on p.21), and early adopters favored on-line bid/tender systems, designed to increase the transparency of the contracting process, but didn’t address the underlying processes to administer and account for the actual spending against those contracts (second table on p.21). Far fewer organizations had updated highly manual requisition and approval workflow processes with automated systems (36 percent), and fewer still had taken steps to enable their supply base electronically — a critical component in creating a closed-loop and fully transparent buying process. When it came to supplier enablement, only 29 percent were capable of accessing supplier e-catalogs; and fewer still, 17 percent, had the capacity to transmit electronic purchase order to the supply base.
Local government procurement organizations increasingly need to operate in a de-centralized model because they are shorthanded; budget reductions have forced more buying activity away from purchasing to end-users. In these situations, there was a divergent view of the main benefit of e-procurement. Although not reported in the table, a resounding 82 percent of these organizations cited increased utilization of their agency’s own contracts as their top benefit from e-procurement. De-centralized buying processes make it more difficult for the purchasing department to enforce compliance with negotiated, preferred vendor agreements.
Research found the top obstacle to e-procurement for local governments is “too expensive to implement,” a situation exacerbated by current budgetary pressures. System price tags that stretch into the high six or as much as seven figures are more accessible to larger, state procurement organizations, but they remain beyond the budgetary grasp of most local jurisdictions and don’t provide the almost immediate payback required for return on investments during current economic conditions. In fact, the previously cited obstacles remain just as relevant today, or even more so when it comes to resource constraints. However, technological advancements have provided new business models to make these systems more accessible and affordable than ever. The ubiquitous nature and familiarity of consumer e-commerce, whether conducting Google searches or shopping from sites such as Amazon.com or Travelocity, have reduced user resistance to on-line buying on the job, while simultaneously raising expectations for ease-of-use from the e-procurement interface.
Overcoming the obstacles
The prospects for rapid adoption of e-procurement by local governments have never been brighter. Let’s look at some recent innovations that promise new ways to overcome each of the 10 obstacles originally identified by survey respondents:
- Too Expensive to Implement
Known alternatively as “Cloud Computing,” OnDemand,” or “SaaS” (Software as a Service), the availability of secure and reliable hosted applications have dramatically changed the economic model for e-procurement, making these solutions more accessible for even small municipal governments (55 percent of survey respondents spent less than $50 million on purchases). Without the up-front costs for hardware and software, or internal IT resources to run them, government purchasing departments of all sizes can identify budget-friendly solutions with annual subscription fees below six figures, instead of incurring up-front license and implementation fees in excess of $1 million.
- Lack of Financial System Interoperability
While many local governments have yet to take the plunge into e-procurement, most have some form of an ERP (Enterprise Resource Planning) platform that manages key internal processes such as human resources (HR) and finance. ERP systems designed to manage intra-enterprise business processes and transactions do not typically address key requirements for e-procurement, however, because unlike functions such as HR and Finance, the key to successfully enabling e-procurement involves inter-enterprise process flows with third-party suppliers. The availability (and low cost) of new technology standards such as XML (Extensible Mark-Up Language) have largely alleviated concerns about integrating e-procurement with back-end financial systems. Using XML, an e-procurement shopping cart can easily be “checked-in” to the back-end ERP system, with cart items coded with appropriate NIGP (National Institute of Government Purchasing) commodity codes that ensure transactions are posted to the correct general ledger accounts.
- Limited Resources
SaaS solutions significantly remove the obstacle of limited IT resources as mentioned, however, many early adopters of e-procurement know that the biggest resource drain has often been ongoing catalog management and supplier enablement. Most early e-procurement models required buying organizations to maintain supplier catalog content within the e-procurement system, incurring significant overhead to engage suppliers, obtain and re-format catalog item level content, and update these “local” catalogs as items and prices change. Powerful new search tools now make it possible to search across supplier catalogs at their “punchout” web sites, limiting end-user access only to approved vendors and negotiated items at contracted prices, all from a single user interface that allows the user to access supplier-hosted-and-maintained content, from one unified search front-end. The result: suppliers manage the content on behalf of their buying customers instead of the other way around, thus removing a significant operating cost and obstacle to e-procurement adoption.
- Technology Barriers
One of the most challenging aspects of an inter-enterprise application such as e-procurement is that engaging the external supply base means encountering a myriad of diverse supplier technology platforms, or worse yet – none at all. The most adaptable e-procurement solutions engage suppliers at their highest level of capability and allow them to leverage their existing technology infrastructure instead of forcing them to adapt to one monolithic platform or standard.
- Governing Body Resistance
Resistance to change is an inevitable aspect of human nature. However, the mounting pressure for transparency in government purchasing is making e-procurement an imperative due to greater scrutiny of public officials and their stewardship of public funds. Having a “system of record” capable of tracking and providing public visibility to government spending, down to each widget purchased, is no longer a luxury but a necessity.
- Interoperability With Other Systems
Leveraging open standards technology, the latest e-procurement tools are capable of managing substantially all procurement functions from enabling catalog content and shopping cart creation, through requisition approval workflow, to PO (purchase order) creation, transmission and delivery, but are also modular enough to “bolt-on” to existing systems, for instance enabling the shopping and transaction supplier connections while leveraging established, internal workflow approval processes.
- Supplier Resistance
Most of the early e-procurement models came with a built-in barrier to supplier adoption — participation and/or transaction fees (2 percent of the order value on average), usually to continue to receive orders on contracts they already had. These fees are coupled with the added complexity and cost to adapt to the proprietary e-procurement data formats their buying customers chose to implement. For many suppliers, therefore, e-procurement meant incurring a regressive “tax” or incremental cost of doing business — costs that they likely felt compelled to pass back to customers in the form of higher prices. Today’s more progressive e-procurement models have eliminated supplier fees, recognizing that removing the obstacles to supplier adoption is a key success factor to achieving return on investment from e-procurement.
- Finance Department Resistance
While it could be argued that this obstacle is synonymous with the first obstacle concerning the overall expense to implement, key features of innovative solutions make them more finance-friendly and budget-friendly. Finance professionals appreciate an electronic audit trail that provides spend visibility and safeguards to ensure the validity and compliance of all purchase transactions with contract terms and established buying policies.
- Concern About Local Business Competitiveness
Local government procurement departments seek to make procurement not only more transparent but also more inclusive by doing business with more local and small or disadvantaged suppliers that may lack the requisite technological infrastructure for e-procurement. The irony is that e-procurement has often had the unintended consequence of favoring the “haves” instead of the “have-nots,” driving more business to national suppliers with large investments in well-developed e-commerce systems. The most innovative e-procurement solutions in the market today leverage open standards technology to integrate with any external supplier’s existing c-commerce system and open source technology to enable smaller suppliers to establish an e-commerce storefront that will allow them to meet e-procurement technology requirements without incurring an up-front cost to participate.
- Capacity or Skills Shortage Across the Entity
The best argument for outsourcing has always been to focus scarce resources on core organizational competencies. The value proposition for an SaaS-based e-procurement solution easily meets this test. By engaging third-party experts to manage application hosting and delivery, as well as supplier enablement and content management, purchasing resources focus on analyzing the data, managing the spend, and developing supplier relationships instead of managing software, systems or processing low-dollar value transactions.
|Top 10 benefits to implementing e-procurement in U.S. local governments|
|Type of procurement systemsa|
|Benefits of e-procurement||All||Decentralized||Mix||Centralized|
|Improved overall purchasing efficiency||81.7%||77.3% (2)b||85.2% (1)||76.2% (1)|
|Streamlines purchasing process||69.2%||63.6% (3)||72.1% (2)||66.7% (2)|
|Shorter purchasing processing times||61.5%||59.1%||62.3% (3)||61.9% (3)|
|Simplified purchasing process||50%||36.4%||54.1%||52.4%|
|Increased competition from bidders||43.3%||22.7%||49.2%||47.6%|
|Compensates for lack of purchasing staff||41.3%||27.3%||42.6%||52.4%|
|Transmitting timely public information||39.4%||13.6%||44.3%||52.4%|
|Lowering purchasing prices||38.5%||40.9%||36.1%||42.9%|
|Reduced order times||30.8%||27.3%||34.4%||23.8%|
|Improved compliance with policies||26.9%||22.7%||27.9%||28.6%|
|a. There were 22 respondents in a decentralized system, 61 in a mixed and 21 in a centralized procurement system.
b. The top three rankings for each respective type of system are reported in parentheses.
|Source: Prier and McCue, Florida Atlantic University, 2007|
E-procurement tools in use Used
|Top 10 e-procurement tools used by U.S. local governments|
|Very||Somewhat||Not at all|
|Posting bids and quotes||44||75%||20.5%||4.5%|
|Requisition request and approval||36||69.4%||27.8%||2.8%|
|Supplier registration online||31||71%||22.6%||6.5%|
|Access to supplier e-catalogs||29||58.6%||41.4%||0%|
|Purchasing cards as payment option||28||75%||25%||0%|
|Surplus property auctions/sales online||25||56%||44%||0%|
|Identifying sourcing opportunities||19||47.4%||47.7%||5.3%|
|E-transmittal of purchase orders to supplier||17||35.3%||52.9%||11.8%|
|Electronic contracts database||17||41.2%||42.1%||17.6%|
|Supplier profile and contact information||17||58.8%||29.4%||11.8%|
|Source: Prier and McCue, Florida Atlantic University, 2007|
* “E-Procurement Adoption in Local Governments of the United States,” a 2007 study by Eric Prier and Clifford P. McCue, associate professors at Florida Atlantic University, who surveyed procurement professionals from over 100 county and municipal governments.
About the author
Richard Waugh is vice president of business development for Equal Level, provider of “B2B E-Commerce in the Cloud,” a web services platform that enables users to search across external web sites or stored catalogs from a single search interface, and can be integrated to an existing e-procurement system or deployed as a stand-alone marketplace.