Challenges in E Procurement Adoption in Europe

Transcription

1 WHITEPAPER MONTH Challenges in E Procurement Adoption in Europe

2 Abstract Introduction: Although Europe is considered among the developed economies but still E Procurement adoption rate is low when compared with equally developed countries like United States. Benefits reaped in practicing E Procurement, Challenges faced in E Procurement adoption by various industries (Large industries and Sme s) and European Union measures taken in improving adoption rate are discussed in this paper. Main reasons for low adoption rate among large scale industries in spite of availability of various resources (skilled professionals) are the main focus of this white paper. Problem Statement: Due to the downturn in the Economy companies are trying to trim the trans-fat by optimizing spend, increase visibility and improve overall efficiency. Supply chain and procurement activities once overlooked now gains importance. E Procurement is one such area which is gaining momentum in recent days due to potential savings. Organizations spend about 20 trillion on services and procuring goods externally on a global basis. Any efficiency improvement or spend reduction measures will improve dollar to dollar savings. However in spite of various benefits companies face challenges in adapting E Procurement solutions due to various factors which differs from Sme s to Large Enterprises. Savings from E-Procurement: Companies are finding ways to reduce and optimize spend. By adapting E Procurement, E invoices are used instead of paper invoices which not only bring huge savings but also improve integration and automate the process. Processing a paper invoice in Europe will cost around 1.13 euros to 1.65 euros whereas E invoicing processing charges vary between 0.28 euros to 0.47 euros. A cost reduction of approximately 70 to 75% can be obtained. According to European Associations of Corporate Treasurers. Companies could save 80% of the current cost adapting to E-invoicing which reduces the manual work involved, reduces time, and improves responses. Company using Traditional Invoicing Company using E Invoicing Average No of Invoice received per month by European Firm Cost per Invoice Euros Euros Avg Cost savings , Euros Total Percentage of Cost Savings 75.2%-71.5%,

3 Visibility and Good information flow Seamless Integration Spend Reduction Benefits of E Procurement High service Level Wider Opportunities Seamless Integration and Comprehensive Opportunities by using E Procurement: Companies by implementing E Procurement bring the supply partners (manufacturer, distributor, wholesaler, retailer, end customer) together which is the need of the hour. Seamless integration between the supply partners changes the basic culture of the organization in a stream lined fashion.e Procurement offers wider platform exclusively for sme s to compete globally and exposed to more business.

4 Main Challenges in E Procurement Adoption: Although E procurement brings a host of benefits still a low adoption rate is witnessed among European firms. Main reason behind the low adoption is identified as the Sme s fail to adapt. Europe comprises of 80% of Sme s when compared with 20% of the large enterprises. Among this 80% nine out of ten are micro enterprises with hardly 5 to 10 employees working. Among 20% of the large enterprises almost 9% of the companies face difficulty in transition to E Procurement or face challenges after implementing E Procurement solutions. 20 Proportion of Companies Sme's Large Enterprises 80 Challenges faced by SME S: 1. Fear of upfront cost involved. SME S find it difficult for the initial investment required to form the basic E Procurement infrastructure which is high. 2. Lack of skilled professionals. Few professionals are available but demand higher pay packages which SME S can t afford. 3. Updates in this field are very rapid which happens more frequently (at times on a daily basis).sme S finding very difficult to adapt at a faster pace. 4. Fear of development time.sme s are worried about the time consumed in developing a customized E solution. 5. SME S are forced to comply with certain (ICT) regulations related to E Procurement 6. Training employees is going to be more cost involved and time consumed process which SEM S can t afford. Challenges Faced by Large Enterprises: Large Enterprises face challenges in two different stages, Before adoption and after adoption. Before Adoption: 1. Resistance to Adoption: First and foremost is the basic conventional attitude of senior Procurement officers who got used to the traditional way of procuring. Due to the automated process they feel that they have lost autonomy and resist in bringing E procurement in operation. 2. Financial obstacles or Budget Approvals: Procurement professionals who initiate E procurement transition in an organization find it more difficult to get budget approvals which brings sluggishness in adoption

5 After Adoption: 1. Business Process Reengineering: Most of the European large enterprises find it more difficult to get reengineered or realigned in a stream lined fashion. Migration and Integration of complete process pose a serious threat and companies find themselves unsuccessful in practicing E procurement solutions. a) Integrating Supply chain network: Most of the large enterprises have outsourced its procurement services to external agencies. Aligning company s activities with the third party is a Hercules task. Example: Company x outsourced sourcing of MRO indirect commodities (ex: Pumps or electric motors) to an external agency or MRO integrators. Company should know exactly how many pumps are in the inventory of Integrators and how many they hold in their warehouse this visibility helps the company x to carry out any maintenance on its plant. b) Aligning Application providers: Hosting companies or Application service providers are responsible for managing the applications of large enterprises in Europe. Aligning the applications of a company with that of the hosting companies is another vital challenge faced by the organizations. c) Maintaining High service level: To maintain higher service level a proper integration of the automated system plays a vital role. Companies find it a big challenge during migration into E Procurement solutions with regard to provide a uniform view to end customers. Example: 2. Supplier Adoption: Second most common challenge faced by European firms. Suppliers of the Business are not ready to adapt electronic mode of trading. European Union reports that companies place only less percentage (25 to 35%) of orders online with suppliers. 3. Lack of Confidence: Researches shows that only 20 to 25% of the global 5000 have given authority to nonprocurement professionals to accesses the procurement portals for purchasing activities. This shows that software developers have not gained the confidence of CPO s. 4. Development time: Large enterprises are concerned about the development time it takes to develop a customized solution suiting their Business process. Challenges faced by large enterprises and Sme s in common: 1. High uncertainty avoidance, 2. Cross national differences, 3. Technical complexity, 4. E signatures affecting the cross border procurement activities, 5. Lack of awareness.

6 Recent Measures in Increasing E Procurement Adoption: Government Measures: European Union has taken certain vital steps in improving E procurement adoption. Some important measures are as follows: 1. Public Procurement: Certain European governments have made E procurement mandatory while participating in public bidding. Countries like Denmark, Spain, Italy, and Sweden etc. have made e invoicing mandatory for public transactions. 2. PEPPOL: Pan-European Public e-procurement On-Line is a pilot project introduced by European Union which enables member country to take part in public bid of the other member country. PEPPOL serves as platform for buyers and sellers to electronically exchange their catalogues, invoices and orders mutually. 3. SEPA: February 1 st 2014 Single Euro Payments Area has come into force by which all the electronic credit transfers, payments and direct debits will be processed in a common way. SEPA will expedite the payment process and the credibility of transactions.sepa has been accepted by 27 European Union countries which include Monaco, Switzerland, Liechtenstein, Iceland and Norway. Company Measures: Certain E solution providers in Europe have taken few vital steps in spreading E procurement which are as follows: SAS: Software as service is provided by the European E solution providers which are available at cheaper cost even a sme can adapt easily. Above all it doesn t require much of training and enhance procurement professionals to get adapted easily. Cloud computing: Cloud computing is offered by European E solution service providers which reduces the pain of maintaining an infrastructure. Cloud computing provides high capacity and scalability. Process integration can be achieved by means of engaging cloud computing services. Conclusion: More awareness should be created to make procurement professionals understand the immense benefits and better business control achieved out of E procurement. To avoid business process reengineering issues migration can be done in stages.e procurement adoption has lot of challenges but still if adopted and implemented successfully it is going to lead the organization way ahead of competition Keywords Used E Procurement, References Expert Interaction

7 Gartners-Technology research firm Aberdeen group springer.com About the Author