Expense Management: Better Ways to Buy

Sometimes costs don't need to be cut so much as captured, quantified, and reconsidered.

Straight to the E-source

In many respects, today’s “E-sourcing” delivers what yesterday’s E-procurement promised: an easy way for suppliers to bid for contracts online through reverse auctions or by submitting electronic requests for proposals (RFPs), quotes, and information. “It gives suppliers the information they need so they can put their best foot forward,” says Roy Anderson, vice president of MetLife’s global procurement, “but it eliminates the sales stuff.”

At transportation and logistics company Con-way, E-sourcing brought some much-needed standardization to a process that was so ad hoc that, as chief procurement officer Mitch Plaat notes, some RFPs were “not optimal” and in other cases “we hadn’t even gone through the bid process.” Rolling out the system posed some challenges, notably the resistance of managers who wanted to keep their supplier relationships close to their vests. But with C-level support, the initiative pushed through and sourcing acquired more rigor.

Con-way declined to disclose figures, but E-sourcing software vendors claim that users can often negotiate 10 to 20 percent savings. Beyond savings, E-sourcing platforms provide a way to compare suppliers on attributes other than price. Some companies, for example, use them to create supply chains based on environmental sustainability or other criteria.

MetLife uses E-sourcing as part of an effort to make its purchasing strategic rather than tactical. For instance, if it decides that a key part of its IT strategy is to make greater use of hosted storage over the next five years, it will look for vendors whose strategy matches that. “The data allows us to see which suppliers are moving in our direction,” says Anderson. “If their bids are getting further and further away from the preferred structure, they’re losing focus on MetLife.”

Con-way paired its E-sourcing software with an SRM module, which tracks service-level agreements, rebates, and contractual discounts. It also provides a structure for periodic reviews and supplier-performance scoring. “The suppliers know how they’re being judged,” Plaat says. “It’s all measurable on the scorecard and shared in quarterly reviews.”

Going Shopping

Once a supplier base is established, whether it be for computer hardware or Post-it notes, buying becomes a breeze. Or, at the least, not a chore that requires a specialist. At MetLife, 95 percent of indirect goods are now ordered through self-serve online catalogs. This makes it easier and more cost-effective for suppliers to do business with MetLife, and frees up procurement staff for more-strategic projects. The procurement department’s head count is 10 percent lower than it was seven years ago.

Rounding out the buying process is E-invoicing, which has seen rapid growth in recent years. Some of the systems, which are most often offered by either credit-card or software companies, scan paper invoices (which still make up 80 percent of all bills), while others require suppliers to switch to electronic invoices. This is one area of corporate life where the concept of “paperless” is really taking hold. Paper invoices can get lost, damaged, misplaced, misinterpreted, or ignored. In electronic form they can be tracked, processed, and reconciled far more quickly and with lower error rates.

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