Embracing eProcurement Solutions Doesn’t Necessarily Lead to high ROIs, According to Accenture Pan-European Study

A key distinction has to be made between the implementation of eBidding or eRequisitioning solutions

Paris, October 2nd, 2001 – European companies that have embraced eProcurement technologies (Internet enabled electronic purchasing), have achieved very disparate economic returns depending on whether they have implemented eRequisitioning or eAuctions capabilities. In the case of eRequisitioning, the jury is still out as most companies are still at early stages of their implementation. In the case of Auctions, the ROI (Return On Investment) can be very significant but only if key conditions are respected such rigorous upfront preparation and suppliers communication and training, pertinent category and timing selection.

Published for the second year, this pan-European study expands the research from the first study that gave a general overview of eProcurement penetration in the European market. This second study takes the research one step further by focusing on the early-adopters (those with up to two years experience) using the most innovative methods in this field.

Auctions: the ROI can be very significant but only if key conditions are respected such as rigorous upfront preparation and suppliers communication and training, pertinent category and timing selection …

Despite the fact that eAuctions is still in its infancy (many companies have only on average put up for auction 1-2 percent of their spend compared with targets in the region of 30 percent), there is a strong degree of satisfaction as it has speeded up the whole sourcing cycle and typically generated savings of 10 to 35 percent depending on the specific auction undertaken.

“Compared to a traditional tendering process, the view is that the incremental value of the auction itself is in the region of 3 to 5% for an average incremental cost running at approximately 1 to 2% of the auction value,” said Richard Laub, Partner in Accenture’s Supply Chain Management practice.

According to the study, eBidding reached its full potential when:

  • Spend categories and timing of the event were carefully selected to ensure competitiveness;
  • Communication with the suppliers and auction training were effectively conducted;
  • The upfront sourcing work was thoroughly conducted (e.g.: sourcing strategy development, spend analysis, supply market assessment, supplier identification, total cost of ownership analysis and RFQ (Request For Quotation) development);
  • The appropriate eAuction and eRFQ technology was identified and the appropriate support infrastructure was provided.

Under those conditions, buyers benefited most from costs decrease and productivity increases. Furthermore, suppliers benefited from a better knowledge of their competitors, access to new business opportunities, fair and transparent competition during negotiations and ease of response to the RFQ.

Four distinct eBidding service providers were identified in the study:

  • Specialist service providers such as Freemarkets and Accenture DPS. This approach is quite popular because it requires little upfront investment, and combines both sourcing and auction expertise, is ”ready made” and is generally easy to use;
  • Independent category-focused marketplaces. This solution benefits from the fact that industry specific suppliers are readily available and trained in responding to eRFQs and eAuctions;
  • Vertical Consortia based marketplaces (e.g.: Covisint, CPGmarket). These solutions are typically used by the founding members of the Marketplace as a means of generating quick liquidity for the MarketPlace;
  • Internal solutions where companies buy an Auction license from companies such as Moai, Ariba,… and operate it from within. This solution was adopted by companies with significant Auction experience and high forecast volume of future events.

“In order to assess the true success of eProcurement strategies, a main distinction has to be made between eBidding and eRequisitioning, according to Richard Laub. In most cases, eBidding delivers strong ROI if the event has been well prepared and the category carefully selected. On the other hand, it is still too early to make a final assessment on eRequisitioning , since most of European companies interrogated are still at a pilot or post pilot stage of their programme.”

While in the case of eRequisitioning: the jury is still out as most companies are still at early stages of their implementation …

According to the study, internally driven eRequisitioning programmes, which require a high level of investment in technology, catalogue creation and maintenance, and systems integration are better suited for large organisations with a global presence and high cataloguable procurement spend. Furthermore, eRequisitioning solutions are rated as not being very adequate for many of the Indirect purchase categories such as services, configurable purchases, projects and spot buys, etc.

The study also confirms that a majority of European companies are still at an early stage of eRequisitioning (most started implementation in the last half of 2000 or early 2001). Even those companies who consider themselves as “further down the journey than others” are still faced with a two to three year rollout programme. In fact, early adopters have encountered low penetration rate of targeted purchases (20 percent) and targeted users (10 percent). Moreover, these companies have often exceeded their initially budgeted investment by 20 to 40 percent mainly due to integration difficulties with backend systems.

However, most companies were confident that their investments will eventually pay off, particularly those who were combining their efforts with a parallel strategic sourcing effort. This last point was viewed as key to unlock the full potential from the eRequisitioning technology as it allows to rationalise the supplier base, standardise the specifications and fundamentally challenge the “way things were bought in the past”.

eMarketplace: the logical next step …

The study also reveals that eMarketplaces are of great interest within the eProcurement field:

  • Leading industry players and large multi-nationals have established their own eMarketplaces, such as GlobalNetXchange (GNX), BuyForMetals (BFM), CPGmarket, etc.

  • A small number have already created or are creating their own independent private eMarketplaces but may look to expand their base to other players in the future.

Those not at the forefront of building eMarketplaces are mainly “smaller” companies with a predominantly national presence. They are too small to build their own eMarketplaces, but are concerned about which Marketplace to join given the proliferation that currently exists.

“However there is a consensus that eMarketplaces will see a consolidation in the near future as the current size of the market does not seem sustainable, said Pascal Cretot, partner in Accenture’s Supply Chain practice. Many large multinational organisations have already formed partnerships within their industry sectors to build eMarketplaces which will leverage their influence and buying power to (1) encourage suppliers to participate and (2) allow them to keep the benefits within their own enterprises rather than paying independent providers.”

eMarketplaces plan to offer a range of benefits:

  • The greatest immediate benefit of eMarketplaces is the auction functionality, which almost all organisations consider to be of great value;
  • Enhanced Supply Chain Management functionality is the second most valued benefit overall;
  • eRequisitioning is of less importance but is partially due to organizations having this facility set-up internally already;

According to the study, organizations saw consortium eMarketplaces as the likely prevailing model moving forward. Major benefits perceived are the shared set-up costs and shared risks, “guaranteed liquity”, greater potential savings and a wider access to industry specific prime materials. On the other hand, the main difficulties are shareholder co-operation problems, time taken to build a critical mass of suppliers and also the work involved to get agreement concerning shared technology standards between the participants.

“The results of this study are a forewarning of what we expect to be a strong trend in the eProcurement space. In the future, emphasis will be placed more on solutions aiming at increasing the professional buyer’s productivity – such as e-Intelligence and eSourcing - rather than on solutions dedicated to streamlining transactional processes,” concludes Richard Laub.

About the Study
Accenture conducted 30 in-depth telephone discussions with organisations operating in the European eProcurement environment, identified as the most innovative. The 30 customer organisations interviewed, are leading national and multi-national corporations covering 9 European countries and encompassing a broad range of industry sectors including Automotive, Chemicals, Engineering, Manufacturing, Metal, Petrochemical, Pharmaceutical, Retail, Telecoms, Utilities. The research was carried out during May 2001. Discussions were carried out with strategic decision makers, typically the Procurement Director or Manager with responsibility for eProcurement on a European or global basis. Specifically the objectives were to understand the eProcurement implementation strategy, identify the key lessons learnt from implementation, assess whether expectations have been met, compare savings with expectations and identify the next steps.

About Accenture
Accenture is the world’s leading provider of management and technology consulting services and solutions, with more than 75,000 people in 46 countries delivering a wide range of specialized capabilities and solutions to clients across all industries. Accenture operates globally with one common brand and business model designed to enable the company to serve its clients on a consistent basis around the world. Under its strategy, Accenture is building a network of businesses to meet the full range of any organization’s needs — consulting, technology, outsourcing, alliances and venture capital. Its home page is http://www.accenture.com.