Silicon Valley- Recognizing the critical role purchasing plays in bottom-line performance goals, companies are putting more emphasis on enhancing the efficiency of their procurement departments.

In the Internet world, that has come to mean devising e- procurement goals enabled by Web-based software.

But the software plug-in solution is hardly a cure-all in itself. Before even getting to that stage, companies must devise an overall procurement plan, something that may be missing in the wake of moving purchasing functions from a transactional base to a strategic cornerstone, said Kate Searls, director of e-commerce research at consulting firm Advanced System Integrators Associates, Minneapolis.

"You have to develop and fine-tune a procurement strategy before an e-procurement strategy can be implemented," Searls said. "Companies need to define the ways that purchasing can improve ROI [return on investment]. Companies need to be clear on the end they are trying to achieve before focusing on the means to accomplish that."

AMR Research Inc., a Boston-based consulting firm, agrees with Searls.

"The notion that a company can transform itself into an e- business by simply using a piece of software and adding it to its existing infrastructure is wrong and dangerous," said AMR senior vice president Jim Shepherd in a recent report. "Companies must instead incorporate e-business concepts into their overall business strategy," he said. Issues to be aware of include the extension of the enterprise to trading partners, the transformation of relationships with customers and suppliers, radical changes in the order-fulfillment process, and the addition or replacement of entire sales channels, he said. "These are not decisions for a Web master or even a CIO alone."

Assuming that a procurement strategy is in place and goals are well defined, setting up an electronic system to correspond with those goals may be the necessary next step, according to Searls.

The rationale behind moving in the electronic-commerce/ electronic- procurement direction are fairly obvious, she added. Such efforts are fueled by the need to improve efficiencies, optimize relationships, get ahead of the competition, and reach new trading partners.

In many cases, companies and purchasers already have their feet wet in e-procurement, Searls said. In these cases, the first phase of the project can be bypassed.

The first phase for direct production purchasing involves the creation of enterprise resource planning interfaces throughout the company, according to Shepherd.

In the second stage, senior management, IT, and other department representatives should devise an e-business plan detailing how information technology and software can be used to support the overall corporate objective and purchasing goals.

"It's then taking the current system and using Web-enabled tools to optimize relationships with suppliers," Searls added.

Beyond the installation and use of Web tools, success will rest in the adoption of tools that give buyers control, she said. "Buyers want to have as much control of the tools as possible. Purchasing professionals are very well aware that they could waste a lot of time and money searching through dozens of supplier sites," Searls said. "The buyers would rather get on an intranet and get all the data they need at one point."

When the infrastructure is in place, next-generation e- procurement goes beyond the information-gathering stage currently in practice.

The next step: build the suppliers' trust and confidence in handling transactions such as contract negotiations, collaborate planning initiatives, and set replenishment targets over the Internet.

"Once companies have done a good job of getting through the first cycle of e-procurement, they will naturally look for ways to leverage the supply chain with additional tools," Searls said.

Reasons for e-commerce adoption:

- Improve efficiencies

- Optimize current relationships

- Get ahead of the competition

- Reach new trading partners

Source: ASI Associates

Copyright 1999 CMP Media Inc.