E-PROCUREMENT - WHAT YOU NEED TO KNOW
Richard Ward, Chairman of First B2B Limited, leading experts in EDI (Electronic Data Interchange), the technology behind e-Procurement, argues that e-Procurement is at its best when both trading partners can see real benefits from the exercise

It’s a familiar situation for a company in industry. A large customer gets in contact to say that, in future, they would like you to trade electronically with them by joining their e-procurement project. It may have happened to you before, or this may be the first such approach you have had. How should you respond? Can you gain from the exercise? What choices do you have and how should you start tackling them? First B2B provide solutions to the questions surrounding e-procurement.
First Principles
The aim of the large customer in introducing e-procurement is to save itself money. Working manually with paper copies of purchase orders, delivery notes, invoices and receipts is expensive in manpower and can lead to problems of human error, such as mistakes in input or lost documents. The attractions of a system in which all documentation arrives in digital form and can be transferred electronically into the company back office systems, are clear and the customer will be determined to push on with the e-Procurement exercise. The enlightened customer will realise that good business is oiled by mutual gain and will therefore ensure that its suppliers benefit from the exercise but unfortunately many customers are seduced by apparently cheap implementation projects in which the costs of implementing electronic data integration fall unfairly on the suppliers.
One model for such cheap solutions is where suppliers are pointed towards a web portal at which they can receive their documentation and into which they must input their data. Such web portals may well be dressed up with catchy jargon, such as “web pickup” or “zero integration” but the truth is that the price for the customer receiving the benefits of EDI is that the supplier must undertake double entry input into and out of their own systems via the web portal in order to make the relationship work. If the supplier has a number of large customers they may well have to input into four or five different web portals and convert any data from these portals back into formats acceptable to their own back office systems. The supplier will have to carry very heavy administrative costs to satisfy a range of customers.
We have heard of suppliers approaching customers to ask for higher prices or a larger share of the customer’s purchases in order to justify these costs but often they are not sufficiently confident of their position to take such steps. Similarly we have heard of suppliers walking away from business as their profits from it were insufficient to cover the additional costs they were being asked to take on.

Another Way
Fortunately, these are no longer the only choices that are available to suppliers faced with a customer demanding electronic data transfer. Trading partners can now use services which are designed to make the exchange of data as painless as possible based on “Software as a Service” (SaaS) technology which allows electronic documents to be translated into whatever formats are required before being despatched directly and securely into the systems of the trading partner. The systems are multi-tenanted which means that overheads are directly divided by usage so companies only using the service a little are on low cost contracts, whilst those using the service extensively pay appropriately to their usage. The services, such as those provided by FirstB2B, can be thought of as a “black box”. The customer sends out a purchase order in the format their systems use, which passes through the black box and is received by the supplier in the format their systems require. Goods are despatched and the despatch note is sent according to the suppliers formats, once again passing through the black box to be received by the customer in the format they require. It really is that simple. Initial setup is generally simple, as sophisticated mapping tools take the pain out of making the connections between trading partner formats. No matter what e-procurement system a large customer chooses, use of a SaaS based EDI service will allow a supplier to fulfil their obligations to that supplier and even gain benefits themselves from reductions in their administrative load.

The Enlightened Large Customer
Life is, however, easier if the customer requesting the movement to e-procurement understands the benefits of a SaaS based system and establishes their move to e-procurement around such as system. In working this way they are supporting their trading partners by presenting them with a solution and a possible route to cost savings instead of imposing costs on them.
One such enlightened customer is eaga plc, a FTSE 250 listed company providing support services to public and other organisations, particularly focusing on green and energy efficiency solutions and typically working with vulnerable client groups. The company is expanding rapidly, both organically and by acquisition with manpower in excess of 4,000 and with a turnover in excess of £600m, eaga draws supplies from a wide range of small and large suppliers. More than 80% of eaga transactions are completed electronically, demonstrating the importance of EDI to the company. Eaga intends to move to 100% electronic transactions and the use of a SaaS system reassures the eaga commercial team that they will not be making unreasonable demands on the remaining suppliers as they ask them to change.
eaga appointed First B2B to handle their EDI transactions two years ago in a three way tender process. The First B2B SaaS based system was selected because of a combination of the company’s experience, the total cost of ownership delivering excellent value, Quality assurance procedures accredited to ISO 9001:2000 and the robust data security arrangements.
The extreme efficiency of the link with eaga’s Oracle ERP system was a major benefit for the eaga IT team. The SaaS EDI system provides a single incoming communications “pipe” carrying one set of formats that are standard to the Oracle system. This simplicity meant that the IT team would be saved considerable in-house work ensuring compatibility with the different communications methods and file formats of their trading partners. Focusing on this work would have taken them away from more strategic IT functions. By using First B2B eaga saved over £35,000 in the first year’s trading with just the first trading partner on the system.
Simple and comprehensive contract arrangements help both eaga and their suppliers. Graham Tye, eaga’s IT Director explains “The nature of the SaaS service gives us great predictability of our EDI costs. The contract is a fixed price regardless of the transactional volumes involved. There is no extra cost if a trading partner wishes to change their formatting – it is a straightforward and highly satisfactory arrangement for us at eaga and allows us to keep pace with the growth of eaga’s many business ventures whilst keeping control of costs.”

Summary
• The advent of Software as Service solutions to EDI means that suppliers need no longer dread having administrative costs forced upon them as part of a customer’s EDI programme.
• No software or hardware is now required at trading partner sites so the IT challenge is not great
• The scaleable costs of First B2B’s multi-tenanted SaaS EDI systems mean that small suppliers don’t face big overheads to move to EDI
• E-procurement can be a genuine “win-win” situation as the customer and supplier can both make administrative savings from the move to electronic documents

Industrial Focus July/August 2008