EXCLUSIVE: How e-procurement can add value and improve public sector efficiency

Tuesday, October 28, 2008

Esa Tihilä looks at the trend towards e-procurement and how public sector bodies lead the way in moving online to make controlled spending go further

After a rocky start 10 years ago, e-procurement is now starting to deliver on its long-standing promise of more streamlined supply chains, better relationships with the right suppliers, and significant savings on spend.

Surprisingly, one of the key sectors at the forefront of this innovation is the public sector. Results from department-wide – and in some cases, city-wide – public sector deployments have been impressive, driving significant financial savings with new, more efficient operational models.

Why is public sector leading the way? Local and central government bodies are often tasked with improving efficiency and raising service standards – such as through the Gershon Review.

Furthermore, public sector bodies are more constrained by external policies and procedures covering these activities. This drives the need to show a clear, auditable record of what has been spent, by whom, and on what.

If you can’t see what your organisation is spending money on, you simply do not have effective control over your procurement processes. Better management of corporate spending has to start with visibility of the problem.

Electronic procurement solutions enable you to automate time-consuming and error-prone manual procurement processes which often result in poor spend visibility, lack of process control and wasted opportunities for optimising corporate spend and supplier relationships. e-procurement software has been specifically developed to optimise procurement processes. An easy-to-use front-end interface coupled with advanced software functionality, which supports a high level of automation and compliance with corporate policies and contracts, ensures control and transparency from sourcing to purchasing.

Put simply, e-procurement has the ability to deliver significant cost savings. By identifying preferred suppliers that can offer the best pricing or volume discounts, it lowers the cost of goods and services.

Another core benefit of the e-procurement model is that it removes the need to have goods in store "just in case", freeing up capital and making the overall purchasing process more efficient and effective.

Public sector organisations deal with tens of thousands of suppliers, with anything from nuts and bolts to toilet supplies; to electricians or plumbing services. Ensuring an effective supplier relationship when dealing with a large number of suppliers reinforces the business case for e-procurement and e-sourcing applications as it helps to deliver greater visibility and control.

But e-procurement can deliver far more than just lower prices. The net impact of other key deliverables – such as better productivity, faster planning, greater visibility and the elimination of unplanned, ad-hoc buying – will result in a considerably higher overall return on investment.

Organisations still have the reassurance that they have the budgetary control, visibility of spend and process transparency needed, but automation brings with it the additional benefit of freeing up time and resources and enabling staff to focus on other, more strategic areas of the business.

The public sector has been a pioneer of e-procurement and it is a business model which is well-proven in Scandinavia, where the benefits achievable have been tangible.

With 5,000 employees and 50 professional buyers dealing with more than 10,000 suppliers, Helsinki took the decision to streamline its procurement processes and manage supplier relationships more efficiently.

It looked to automated e-procurement from Basware Purchase Management to approve, manage and control procurement across the entire organisation.

Jorma Lamminmäki, Helsinki procurement director, said: "The city’s purchasing volume is about two billion euros per year. Saving even a few percentage points translates into significant sums of money."

Helsinki is now in a position to benefit from volume discount purchases and an ongoing spend analysis, allowing it to realise ongoing cost savings. The city also plans to use its e-procurement system to expand its competitive bidding capabilities through online sourcing.

The case demonstrates that e-procurement technology has the ability to deliver tangible cost savings and a clear return on investment. Not only from lower prices and percentage reduction as a result of organisation-wide, streamlined procurement, but critically, also from the internal efficiency gains that the technology brings.

It can play a crucial role in transforming the financial value chain, giving procurement managers greater control over corporate spending, and also supports continued innovation and improvement of core processes, for a sustained return on investment – a formula which adds up for any organisation.

Esa Tihilä is BasWare general manager for Europe and Americas