Enterprise Users Poke Holes In E-Procurement

Electronic procurement systems are leaping onto the Web, where proponents believe much of the routine buying of goods and services will happen in the future. But business users themselves seem more guarded about e-procurement, pointing to holes in current approaches.

“The software for e-procurement is still immature,” said Robert Guido, vice president of global Web technology at the American International Group Inc., a $27 billion insurance company. The benefits of e-procurement can be overwhelmed because “you have to integrate that with existing legacy systems, and then tie every process with easy work-flow forms for purchase approvals,” Guido added.

Dan McMenamy, controller for the Hyatt Regency Chicago, agreed that online purchasing systems still have a long way to go before there are universal catalog formats and a rich electronic-payment infrastructure to settle deals online. On McMenamy's wish list: A central Web repository where the hotel could place a list of needed items and then sort through bids from suppliers.

“We're a long way from those ideal days,” he said. “A lot of the frustrations we've always had in purchasing are still there.”

But for some enterprises, especially smaller buyers, any automation of the purchasing process is a big improvement.

For instance, the San Francisco Newspaper Agency, which handles purchasing and other business processes for the San Francisco Examiner and San Francisco Chronicle, has been able to make more than 90 percent of its requisitions paperless with a recently deployed Oracle procurement package, said purchasing manager Moya Valdez. “The online system gives us access to everything we need to locate and approve a purchase order.”

But other users are dubious about e-procurement entirely replacing paper purchase orders and the signature on the loading dock.

“If the system breaks down between when an order is placed and when it's received and paid for, you need some kind of paper trail,” said Ron Gerould, purchasing manager at St. Joseph's Hospital.

The hospital does use the Web, however, to research goods and services. It also belongs to Premiere, a volume-purchasing organization for nonprofit hospitals that maintains a Web site where members can review product catalogs, see details of volume-discount contracts and link to supplier Web sites.

A recent survey of purchasing agents found similar opinions. The survey, taken at last month's National Association of Purchasing Management's annual conference, found widespread unhappiness with current e-procurement tools.

Some 40 percent of the 212 respondents, users of both enterprise resource planning (ERP) and dedicated electronic purchasing systems, complained they had to use more than one system to do basic purchasing and contracting. Another 86 percent said they wanted a single-entry search engine for doing comparison shopping, but only 25 percent have this today.

And a third of the purchasing managers said they could not easily place orders against a master contract, even though 94 percent said they wanted to do so.

Results of the survey, sponsored by e-procurement software maker American Management Systems, did not surprise analysts.

“There is tremendous dissatisfaction with the procurement systems, which have not kept up with the changes in the purchasing processes,” said John Bermubez, vice president of research at AMR Research.

Bermubez provided one extreme example of a large truck manufacturer that deployed Baan's ERP system but kept its 25-year-old e-procurement/EDI system in place.

Still, vendors are working hard to deliver e-procurement functionality. ERP vendor PeopleSoft Inc. announced the initial participating merchants--including Compaq and travel giant The Sabre Group Inc.--that enterprise customers using PeopleSoft's latest software suite will be able to reach from within their company's Web portal. Upon entering Compaq's Web site, for instance, a buyer will see a customized product catalog, dictated by the details of the volume-purchasing agreement between Compaq and the buyer's organization.

PeopleSoft's functionality, which will include automated work flow and purchase-order generation, will be generally available early next year. Rival SAP AG, meanwhile, has a similar scheme in the form of its B2B procurement technology.

Equipment vendors are getting into the act as well. Dell Computer's Premier Commerce, unveiled last month, presents customers with quotes based on negotiated discounts, and multiple orders can be placed against a single purchase order. Dell officials promise integration with ERP systems later this year.

And a slew of new Internet firms are opening a variety of procurement portal sites, which may offer smaller enterprises a quick and less-expensive road to e-procurement.

Take Works.com Inc. and Elcom Services Group Inc., two companies offering online procurement catalogs. In the case of Works.com, the service offers more than 20,000 office products that small companies can access over the Web and use for $1.50 per order. One feature both companies offer--as do all sophisticated procurement systems--is work flow for routing a purchase request through an approval process.

--Richard Karpinski and Saroja Girishankar contributed to this report.

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