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Leader: E-procurement - remember it, it's now with us
But how many companies are using it properly?

By silicon.com

Published: Wednesday 18 August 2004

In the late 1990s, this writer found himself penning a fair amount about e-procurement. Remember how industry-wide e-hubs such as Covisint for automotive - distinct from e-procurement in general - were going to revolutionise supply chains? Then they flopped, mostly.

Well, e-procurement, post-hype, has made its way well into the mainstream but it still faces problems. A contract win today for Ariba (yes, they're still around, cast now as a 'spend management solutions provider') is instructive.

On one hand, Ariba's customer du jour, O2, comes out with the heartening news that it is looking towards procurement that is sophisticated, with an emphasis on process and quality.

So we report that those people at the mobile operator who spend all that money on suppliers want to share purchasing know-how and make sure there is an audit-proof trail of who spent what and why. Which all makes a lot of sense.

The less encouraging side of this equation is the savings in terms of hard cash that O2 is making. But, we hear you say, isn't e-procurement, reverse auctions, hubs and all, supposed to be about squeezing out 'efficiencies'? Well, yes and no.

For O2, it's obviously great to be able to say they have, for example, spent 25 per cent less on cabling together a load of mobile phone masts. Sure enough it makes buying all that software seem worthwhile.

But what of the suppliers? In that case, although O2 opened up bidding to five instead of the usual two suppliers, it eventually ended up making those savings with - you guessed it - its usual supplier.

Better to win 75 per cent of the business than none at all, you may well now say. But is it?

While many of those serving an industry such as telecoms are giant equipment makers, not short of a bob or two (despite some lean, post-bubble years), smaller suppliers across economies have been hit hard by reverse auctions, to single out that flavour of e-procurement.

E-business experts, including our columnist Rene Carayol, have spoken out against a culture that hammers small vendors who see their margins slashed. There is now a tangible mood to champion CIOs who don't simply buy on cost but engage in dialogues with suppliers, to get that illusive thing we call value.

The answer today from O2 is that it can use software to build in decisions made on quality of relationship as well as cost of product or service. Let's hope that e-procurement has evolved to this extent, for the sake of both sides of the equation, the buyers and suppliers.