First Pencils, Now People

E-procurement vendors are expanding their focus from materials to services. Will companies buy it?

The billions of dollars that companies spend each year on services has become a potent lure — or perhaps one should say lifeline — for E- procurement vendors. With their stock prices flatlining, and with companies hesitant to spend money on big- ticket software, these vendors are retooling their products and their sales pitches, promising impressive ROI on systems that allow companies to procure everything from contingent workers to marketing, legal, and even landscaping services.

The biggest players, such as Commerce One, Ariba, and PeopleSoft, face competition from a bevy of smaller, often more specialized firms, many of which have targeted the huge market for contract and temporary workers. Large companies often spend in excess of $100 million annually for administrative assistants, IT contractors, and other workers paid by the hour or the project. By helping these companies acquire those services more economically, and manage those workers more efficiently, E-procurement vendors believe they can open up a significant new market, one that may ultimately dwarf the $4.3 billion that companies now spend on electronically procured direct and indirect materials.

E-procurement vendors readily admit that acquiring services is usually more complicated than buying office supplies. To enable customers to procure services electronically, software makers will have to go well beyond online catalogs and Web trading exchanges. Services E-procurement software usually combines front-end functions such as the posting of requests for quotes and comparisons of competing bids, intermediate steps such as workflow and approval routing, and back-end chores such as payments and recordkeeping.

Companies that offer such software argue that it is precisely because the task is so complex that automation can provide a sizable return. As with materials procurement, competitive bidding can help companies pay less for a service such as contingent workers. But what sets services procurement apart is the potential to save on the back end by more efficiently managing what can be a very large workforce.

John Hinshaw, vice president of IT at Bedminster, New Jersey-based Verizon Wireless, a subsidiary of Verizon Communications, points out that even something as simple as a holiday can pose problems. “You have people getting paid every two weeks,” he explains, “and if a holiday falls in that period, sometimes they bill you for it by mistake, or you pay them for it yourself by mistake. Managers have a lot of things to track, and who remembers if two weeks ago everyone had Monday off? “

That sort of lament is music to the ears of companies like Chicago-based Fieldglass Inc., which supplied Verizon Wireless with a system that will help it save between 5 and 10 percent of the $150 million it spends on IT contract workers each year. Some of those savings will come from the competitive bidding that results when Verizon Wireless posts its staffing needs on the system. Better contract management will also produce savings, by eliminating oversights. For example, some contracts stipulate that workers are to be limited to an 8-hour day, yet when time sheets are processed, it’s easy for such terms to be overlooked. If a contractor bills for a 9- or 10-hour day, he or she gets paid for it, and the budget for contingent workers begins to suffer.

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