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Evolving Indirect Purchasing: Traditional vs. Real-Time E-Procurement

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We live in a world that increasingly demands immediate information and results — from streaming players (Roku, Apple TV) and cell phone apps, to two-hour deliveries for online orders and voice-assisted technologies (Amazon Echo, Google Home, Siri). People expect easy, comprehensive and accurate responses “in the now” for everything they do.

A study1 of people 35 years old and under, conducted by the Pew Research Center’s Internet & American Life Project, noted that this group’s “hyperconnected lives” have resulted in unfavorable social behavior, including a need for “instant gratification and loss of patience.” Putting aside the relative positive and negative societal consequences of these developments, the fact is we live in an increasingly instantaneous, hyperconnected reality where people expect great improvements in efficiency and quality of life.

The consumer expectations of “in the now” extend into the work environment, as well, where employees are often frustrated to find business systems and processes that fall short on the promise of delivering easy, comprehensive and accurate information on demand. Employees’ increased expectations for getting things fast and accurate is outpacing the traditional ways of doing business.

Internal procurement is a highly visible area where this shortfall occurs regularly. As e-procurement (B2B e-commerce) users look to purchase items they need to keep their offices running smoothly (indirect spend), they naturally expect the same fast online-shopping experience they enjoy at home when buying for themselves.

Having outdated product selections or slow, cumbersome processes for purchasing and ordering drive savvy users to find outside consumer websites (e.g., Amazon) that provide the efficient experiences that match their consumer expectations. While these “rogue spenders” may ultimately find items they are looking for at a great value, buying efficiencies and procurement visibility are lost in the process, resulting in less than optimal results for the organization as a whole.

The Traditional B2B Indirect Procurement Model

The traditional indirect purchasing model is to consolidate the supplier base (usually to one or two main suppliers); negotiate strong discounts based on buying power and spend; set up some type of an automated e-procurement or marketplace system (using hosted and “punchout” e-commerce web catalogs); and compel users to purchase from preferred vendors at prenegotiated contractual pricing. This approach is a natural extension of direct supply chain models requiring focus in order to optimize the full lifecycle of critical suppliers.

Organizations have done a great job of optimizing direct supply relationships and have turned toward indirect procurement for the next area of incremental savings. Naturally these organizations attempt to extend tried-and-true direct approaches. However, with large numbers of suppliers and potential suppliers to manage, this optimization at a supplier level becomes difficult with indirect procurement.

When shopping, users typically search through negotiated catalog pricing that is often dated or “punchout” to supplier e-commerce catalogs one at a time in an attempt to find items they are seeking. With traditional e-procurement solutions, this is usually a frustrating and time-consuming process, which often drives users to purchase from third-party sites (i.e. Wal-Mart, Staples) — often referred to as off-contract or “rogue spending.”

It’s estimated that up to 18%2 of expected savings is lost on products purchased outside of the prenegotiated supplier contracts (rogue spending) and about 33%3 of total products purchased by enterprise employees were outside of procurement. Significant annual savings opportunities escape each year due to off-contract spending. Especially for enterprises with hundreds of millions of indirect purchases each year, the losses really add up.

Users identified as rogue spenders are drawn to technologies that deliver what they need easily and quickly. Procurement departments that adapt and deliver this “speed of now” experience will keep their internal customers engaged, reduce spend and be more competitive in the marketplace. As a result, procurement will secure a positive reputation as a strategic enabler rather than a roadblock to the overall success of the organization. If procurement does not adapt, time wasted on inefficient purchasing methods can lead to disappointed stakeholders and lose business to more nimble, efficient competitors.

Consumer-like features that have made their way into e-procurement systems (e.g., shopping carts, saving favorite items, one-click ordering) are a positive step. But while these capabilities provide a better shopping experience, they fall short of meeting the “now” immediacy expected from end users who want to take advantage of dynamic online price fluctuations, which can yield to disparate pricing across suppliers for the same item, commonly known as price dispersion.

Without real-time capabilities built into the purchase experience and extended across the complete procure-to-pay cycle, an organization will never achieve a satisfactory user experience or fully realize the true savings that an automated e-procurement solution can provide. And a big win for any organization is to realize the true savings often promised by e-procurement automation, but never fully achieved.

What Is Real-Time Procurement and Why Does It Matter?

In computing, real-time is defined4 as “relating to a system in which input data is processed within milliseconds so that it is available virtually immediately as feedback to the process from which it is coming.”

Providing immediate and relevant actionable intelligence based on user input is the main goal of real-time processes. For example, a real-time universal B2B e-commerce search that delivers relevant and accurate information — balanced with procurement rules — to the e-procurement user, creates a robust, empowering shopping experience that narrows the gap with online consumer-like shopping. Unfortunately, this real-time infrastructure and approach is not an inherent part of implemented e-procurement solutions today, resulting in lost opportunity for savings across many touch points. Real-time processes have many advantages.

Summary

Keeping up with technological advances and user expectations in e-commerce is a challenge for procurement. Even if an organization has been an early adopter on providing consumer-like features for B2B shopping, it is likely falling short of meeting the hyperconnected, instantaneous capability expected from shoppers today. A real-time e-procurement infrastructure immediately advances procurement into this “speed of now” experience and delivers significant and quantifiable savings and results.

Real-time capabilities fulfill a need that users may not have voiced directly, but have passed on as feedback to procurement indirectly though non-compliance and rogue spending. When users experience an efficient and intuitive enterprise e-procurement system, they continue to use the system to keep spend under management.

As user adoption increases and rogue spending decreases, real-time capability aids in streamlining the e-procurement process, simplifying the shopping experience, shepherding compliance and strengthening relationships with stakeholders — all of which contribute to the success of a business in today’s increasingly demanding environment. Advanced real-time functionality in B2B e-commerce is essential to drive user satisfaction and compliance, and to fully deliver unrealized savings on indirect spend.

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1. Pew Research Center’s Internet and American Life Project (2012) Millennials Will Benefit and Suffer Due to Their Hyperconnected Lives. Retrieved from http://www.pewinternet.org/files/old-media/Files/Reports/2012/PIP_Future_of_Internet_2012_Young_brains_PDF.pdf

2. Ardent Partners (2015, March) The Real Cost of Contract Non-Compliance: A Multi-Stakeholder View. Retrieved from http://ardentpartners.com/2015/03/the-real-cost-of-contract-non-compliance-a-multi-stakeholder-view/

3. Spend Matters (2015, December 30) How to Rein in Maverick Spending. Retrieved from http://spendmatters.com/2015/12/30/how-to-rein-in-maverick-spending/

4. “Real-time, a. Oxford English Dictionary. 2nd ed. 1989,. OED Online. Oxford University Press. 30 April 2007.

5. Ed Hopkins. "Price Dispersion." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 06 April 2017. Retrieved from http://www.dictionaryofeconomics.com/article?id=pde2008_P00036

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