Companies from many different industries and geographic locations have seen strong results from implementing a new procurement system. For example, one home appliance manufacturer actually saved several million on the purchase of a single component for products by using a reverse auction. While these numbers seem impressive, many of these companies could further benefit by tying procurement into any of the other enterprise-wide procedures and processes within a company. If a company has good enterprise-wide systems and processes in place, then the company could realize additional benefits by tying the procurement process to additional systems.
In order to accomplish this, many companies are taking a more holistic approach to procurement by establishing Supplier Resource Management (SRM) systems. SRMs do not focus solely on one aspect of procurement. They do not simply run reverse auctions or provide a supplier database. Instead, SRM systems deal with all aspects of procurement, including negotiating, assessing suppliers, paying for orders, placing orders, approving requests, connecting with suppliers, and more.
Using this approach, business are able to avoid falling into a number of traps. First, many times isolated procurement systems don't take into consideration the company-wide budget and/or spending limits. They are instead used by only one department or for only specific purchases, and they have no connection to other purchasing procedures. Furthermore, many of these isolated programs function outside of the designated metrics systems which makes it difficult to determine its overall efficiency. Another problem is that procurement systems are not usually widely accepted by the end user base. Most workers feel uncomfortable with the new process, and many circumvent the program by using alternative methods of procurement. This is harder to do with SRM systems that require communication and cooperation.
However, even though the SRM does possess many potential benefits for businesses, there are still problems with this holistic approach. For one, implementing such a system is often quite costly. Because they require the construction of an entirely different type of technological architecture, the costs can go beyond the budgets of even many large, successful companies. Just as with early examples of implementing ERP systems which easily ran up into the millions of dollars, SRM programs come with a sizable price tag that may outweigh the savings they generate.
Furthermore, SRM systems can require massive organizational changes with in the company. Instead of keeping all departments separate, new cross-functional teams would need to be created in order to bring all areas of the business under one holistic umbrella. In addition, training will probably become essential. The staff members who are in charge of purchasing may need to expand their skills sets in order to use the system correctly and effectively. Changes to the metrics programs are also necessary so that the comprehensive SRM's success can adequately be measured.
The bottom line is that isolated procurement systems will work for some companies, particularly those that effectively adapt their workforce and purchasing strategies. However, for many other businesses, the holistic SRM approach may work better, particularly if there are problems with adhering to budget limits, getting end users to use the system, and measuring its success. Before taking on the often monumental task of implementing an SRM system, the business must be aware that the costs can be high and that extensive organizational structure changes are required.
Regardless of the system that works best for the business, procurement - either in isolation or as part of an SRM system - can save a business money, can cut down administrative costs and time, and make purchasing more smoothly.