E-procurement reinventing the supply chain

While business-to-consumer (B2C) e-commerce is all the rage with users it’s business-to-business (B2B) e-procurement that is rapidly growing into a monster force.

About $30 billion worth of e-commerce transactions took place in Canada last year. According to the Boston Consulting Group, that figure is expected to soar to as high as $200 billion annually within four years. Within the same time frame, B2B e-commerce is anticipated to rocket from $700 billion today to about $2 trillion world-wide.

“B2B volumes will be ten times the B2C volumes by 2004,” said Kurt Ritcey, a partner with Deloitte Consulting in Toronto. “The real dollar value of B2B has yet to be seen, right now [e-procurement has] only started up in Canada in the last eight to12 months.”

E-procurement is the method by which companies can reduce cost and cycle time throughout the supply chain by utilizing the Internet to seamlessly link transactions between suppliers and buyers. The adoption of these Web-enabled processes will assist an organization in various procurement activities, such as catalogue searches, selecting and ordering goods, and payments.

The end result is companies can dramatically lower their operating costs by extending product selection to the desktops of their employees and increasing the economy of scale through an integrated electronic supply chain.

BCE Emergis is certainly buying into this. The BCE Inc. subsidiary inked a deal in late December with California-based software maker Ariba Inc. to create one of Canada’s largest e-commerce marketplaces for business. Moreover, the site’s first major client is Bell Canada which will move about $4 billion of annual purchases through 7,000 preferred suppliers listed with BCE.

Deloitte released a study on the emerging trend last November – Leveraging the E-Business Marketplace. Conducted during autumn 1999, the global study, which polled 200 surveyed companies, predicted an average return on investment of 300 per cent over an initial two to three year project. Those figures are based on an average implementation cost of $2.4 million and annual procurement savings of nearly nine per cent over the first two years.

“E-procurement has been the buzz over the last eight months (in Canada) and the companies that have been embracing it have done so aggressively,” Ritcey remarked. “The telecommunications and financial industries especially have seen the power of connectivity…the incredible pay backs and the opportunity to offer this solution to their customers.”

The cost of e-procurement implementation is far more compatible with limited IT budgets than was the forefather of the system – Electronic Data Interchange (EDI). While EDI has proved itself a reliable, secure means of exchanging confidential information, the high cost of the system and its limitations left many enterprises out in the cold when giant corporations chose to implement it.

Jonathan Tice, senior director of marketing for Sun Netscape Alliance in Toronto, said the evolution of e-procurement has allowed smaller businesses to play a major role in a large corporation’s supply chain.

“It allows an organization to extend its economy of scale,” Tice said. “E-procurement enables an organization to increase the efficiency of procuring goods and services by facilitating transactions while adhering to its previous contracted agreements with its supply partners.”

Tice said the purchasing power offered in an e-procurement model is not the complete story. The real benefits can be found in the relationships fostered between organizations.

“E-procurement is not just the on-line purchasing power but the whole electronic supply chain,” he said. “The purchasing strategies perpetuate only one part of the integrated supply chain – the real efficiencies come through on-line linkages.”

Illustrating Tice’s point, the Deloitte study predicted e-procurement will soon become a way of life for the vast majority of companies, citing 91 per cent of the surveyed respondents have either implemented an e-procurement solution (30 per cent) or plan to do so within the next two years (61 per cent). An organization’s failure to comply will likely spell their eulogy.

Other notable highlights of the study include:

More than 50 per cent of respondents consider e-procurement more important than e-business retailing.

Four of the top five e-business objectives facing respondents can be classified as procurement or supply chain-related: improved supply chain performance, reduced overall costs, improved supplier relationships, and e-business procurement.

Respondents indicated 70 per cent of their suppliers are prepared to collaborate through e-business.

Thirty-four per cent have a formal e-business strategy – half of those companies included supplier partnering and buying as one element of the strategy.

An estimated 41 per cent of global companies that report operations focused in the United States have implemented an e-procurement solution.

The increased economy of scale e-procurement offers also opens the door to greater global competition. But Craig Smith, vice-president of alliance integration for the Royal Bank, believes Canadian enterprises have little to fear.

“[E-procurement is] going to be tremendous for small business in this country, I honestly believe that,” he said. “As Canadian small business owners get more comfortable…it will allow them to look, feel and execute like a big company.”

Tice acknowledged the growing interest in the country, but he added it’s a well-known fact that Canada is traditionally 12 to 18 months behind when adopting new technologies.

“Canada’s adoption rate could have a serious economic impact,” he warned. “But we do adapt to new technologies well.”

Ritcey said he expected proactive companies from all industries to implement an e-procurement solution in the coming months.