Monday, September 15, 2008

The Age of e-PERP: ERP and E-Procurement - Can't We Just Get Along?

One of the most common misconceptions since "eggs are bad for you" or "England can win the next World Cup" is that, when it comes to selecting an automated purchasing system, an organization must choose between ERP and e-Procurement. A large number of Fortune 500 companies that have implemented best-of-breed e-Procurement systems over the last few years have shelved or are considering shelving their software due to problems pushing enough spend through the system. On the flip side, a considerable number of mid-sized companies (and state governments, who often track the mid-market sector in technology adoption) are, like their Fortune 500 counterparts did in the late 90s/early 2000s, considering the switch to e-Procurement due to its perceived functionality superiority over ERP purchasing applications.

What many Fortune 500 enterprises, mid-market companies and state governments fail to realize (with the exception of a few progressive organizations that I will case study in the weeks ahead) is that your e-Procurement system can peacefully (nay, productively!) co-exist with your ERP purchasing module. The secret lies in what each player brings to the table. Your ERP purchasing application brings purchasing transaction workflow that is, by definition, integrated seamlessly with your accounts payable, general ledger, and inventory systems. Your e-Procurement system on the other hand delivers the best-in-breed catalog and content management capability that ultimately represents the secret sauce for driving maximum potential spend through your preferred supplier contracts.

After making a presentation at my local ISM chapter recently I was talking to a VP of Procurement of a local Fortune 500 company who was relating their use of a "hybrid" e-Procurement/ERP approach (let's call it e-PERP, shall we?) that they had been using successfully for nearly a year. In this company's model, users select the products and services they need from multiple online catalogs all hosted in one consolidated "common look and feel" environment by a best-in-breed e-Procurement provider (at least a provider you would think of as an e-Procurement provider although in this model it is their catalog functionality, not their workflow functionality, that is being taken advantage of). But what is key is that once they have made their selection, the complete requisition through payment workflow is conducted within the ERP application. Sounds a bit like the old e-Procurement punch-out, right? Well it does a bit but with e-PERP there are two critical differences, these being:

1. Punch-out (or "round trip" for those of us who remember CommerceOne!) has historically been a method for bringing catalog item data from a supplier's web site into e-Procurement for PO creation purposes. An organization would then need e-Procurement/ERP integration to bring the item data into ERP for reconciliation, payment, posting and inventory purposes. The e-PERP model brings item data directly into ERP, bypassing e-Procurement workflow which is not being utilized. This accomplished by the best-of-breed e-Procurement/catalog provider implementing XML integration directly with the ERP application (Oracle/PeopleSoft and SciQuest do this today as part of their partnership).

2. Whereas punch-out only worked (effectively) for the larger vendors like Grainger and Corporate Express who had the resources to build punch-out compatible web sites, the e-PERP model works even for "Mom and Pop" vendors. This is because the best-in-breed catalog providers have built core competencies for creating and maintaining web catalogs for any supplier (even small local vendors that have never had a web presence before). This means that by using e-PERP an organization - with the help of its best-in-breed provider - can upload all of its preferred supplier contract content to the web catalogs in as little as 2-3 weeks, leading to rapid and effective utilization of its agreements by users and very high levels of contract compliance. This is in contrast to the ERP-only approach where an organization would have to build and maintain supplier catalogs behind its firewall, a far more lengthy and costly endeavor. And the e-Procurement-only approach? Well here you have the integration issue and the need to explain to your CEO why you are not using the ERP system you spent millions of dollars implementing!

Over the next few weeks I will be researching additional case studies of e-PERP in practice. I will be reaching out to companies, public sector entities, e-Procurement and ERP vendors to validate that I am not "smoking something" in thinking that such historically fierce adversaries can co-exist in value-added harmony. I will be looking for further examples of organizations who have realized that you really can have your ERP Purchasing cake, eat it, and enjoy lashings of e-Procurement ROI for dessert.

Oh, and England's chances in the 2010 World Cup? Not a hope.


Anonymous said...

e-Procurement should be an intregral part of any organization running an ERP. Small and Large ERP's like Oracle, SAP, Lawson, Microsoft and others all have e-commerce enabled modules. The benefits are well documented, and the cost of PO issuance and Procure-to-Pay process can save organizations thoudands of dollars per year, depending on the number of PO's issued.

Mark, you are right, Supplier Enablement is a thing of the past. Utilization of Supplier Networks and/or typical transactive websites are all that is needed in the Web 3.0 Environment. A B2B, B2C, or B2G relationship should link to one marketplace and the marketplace then is based on the internet and the supplier feeds custom pricing accordingly. As an e-Business Sales person at a large punchout enabled MRO supplier, too many times over the e-procurement/ERP purchasing failed to deliver due to supplier adoption. This is no longer the case with vendors like Vinimaya, ePlus and others...

Anonymous said...

Hello, I am an MBA student at the Mc Combs School of Business (University of Texas at Ausstin)... I am doing a final paper for my Purchasing and Sourcing Management Class and I need to find information about the total Purchasing spend by category of purchase of a Fortune 500 organization, the organization of the purchasing function including reporting relationships, the challenges, goals and objectives, etc.... I have been doing a lot of research on the web but so far I have not found much information... Could any of the people in this blog provide me with some insight on where I can find this information ???... I would appreciate it very much.



Anonymous said...

MBA @ McCombs try there are several companies profiles

Anonymous said...

Interesting observation. In the case of one government all of the ERP procurement functionality is turned off across 13 different types of ERP and over a hundred organisations use the same P2P system which has saved hundreds of millions in reduced expenditure on multiple systems and costly integration.

The truth is the ERP's are dinosaurs and represent an old organisational design (single enterprise and largely vertically integrated) and were designed around technologies based on the mainframe and latterly client server operation. This world is ebbing away and being replaced with collaborative ways of working and information sharing. With some of the emerging P2P systems you can turn off all of the ERP workflow and just send it information to keep the CFO happy.

Your ePERP is really a stepping stone to systems that will eventually run exclusively in the Web layer and will be built using Internet technologies. I get your point about the sensibilities as if a CFO/CEO has just spent many millions 'bolting' in an ERP it would be best to point out the value of the hybrid. Although I would use the workflow of the P2P system and the catalogue/content management as it is less costly and more flexible.

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