E-CATALOGUES: E-procurement’s critical Catch 22

Recent research undertaken by Byline for e-catalogue content management company Cataloga has highlighted a ‘you go first’ approach towards e-procurement from buyers and suppliers. This stand-off attitude is causing significant delays to the much-promised return on investment from e-procurement implementations. Adam Jacobs Cataloga’s Senior VP Sales and its Co-Founder delves into the research findings.

Our recent research among European suppliers of indirect goods and services (goods not for resale eg stationery IT furniture and so on) into their attitude towards e-procurement drew one very clear if ironic conclusion: there is a high degree of confusion in the marketplace. This confusion appears at many levels. While most supplier organisations can clearly understand and recognise the benefits e-procurement will eventually deliver the majority don’t seem to have a grasp of how to take the first practical steps towards e-procurement readiness. More worryingly perhaps is the fact that the majority of suppliers don’t yet see enough impetus on the side of their corporate customers to drive them towards the production of e-catalogues: buying organisations simply haven’t clearly communicated the e-procurement value proposition to their suppliers.

Many suppliers do claim to have firm plans for some level of e-commerce but there are serious question marks over their specific understanding of e-procurement. Of the 44% of respondents that claimed to already offer some kind of e-procurement service their answers to the question: “What do you understand by the term e-procurement?” produced definitions that where either too simplistic or too vague to be useful. Some erroneously felt the ability of customers to select and order products through a supplier’s own website represented e-procurement most resorted to such generalisations as ‘online trading’ or ‘online way of doing business’. Few understood the complexities involved. For example only two respondents explicitly included the ability to exchange business documents with the customer a fundamental concept within e-procurement.

Recognising the potential for electronic business

Having identified suppliers’ confusion about what e-procurement encompasses it was perhaps surprising – although encouraging – to see suppliers say that within three years they saw the greatest number of product sales being delivered through electronic catalogues for e-procurement systems than any other type of catalogue (see figure). In addition more than 70% of respondents saw the role of their e-catalogues as being either very or vitally important to their business. However few of them seem to have started the process of addressing the technological issues involved in producing e-catalogues. In fact only 16% currently produce e-catalogues for any of the major e-procurement platforms including Ariba Commerce One Oracle SAP and many others and significantly even fewer had firm plans to do so in the future. So why is there such a huge gap between an appreciation of the potential for electronic business and the action required to take advantage of e-procurement?

Who takes the first step: buyers or suppliers?

The survey has found evidence of a disturbing ‘you first’ mentality which presents a serious obstacle in B2B trading activity and could leave European businesses trailing far behind their US counterparts. It appears that many suppliers are waiting for their corporate customers to take the lead in driving e-procurement assuming that they have the most to gain. For this reason they feel it should be the responsibility of the buyers to solve the technical integration problems through the provision of the technology and the technical support required for suppliers to participate in e-procurement systems. However suppliers need to realise that unless they want to be left behind in an industry with a projected annual growth of more than 100% they need less talking and more acting. Further than this the opportunities for those suppliers that are early adopters and first movers in the creation of e-catalogues in opening new channels of business and entering new marketplaces are enormous.

Catalogue content management: a potentially painful task

A central requirement of e-procurement is that suppliers find a way to manage appropriately formatted Ready-to-Load electronic catalogues. At their simplest e-catalogues are nothing more than lists of products and services – the electronic versions of what suppliers are already used to producing on paper. In reality the e-catalogue must go much further. The data in e-catalogues must be structured to be easily searchable across multiple e-procurement formats and deliver the ability to integrate the information they contain into their core business systems.

Customers’ e-procurement plans hinge on the ability to automatically generate requisitions and purchase orders without re-keying information. This capability is critical to improving the procurement process both in terms of efficiency and reduced cost. Also critically important is the ability to take a single view of multiple suppliers and catalogues for the purposes of sourcing products and comparing prices. The benefits of online trading can be curtailed if the buyer has to log on to multiple supplier sites each with its own style of navigation and presentation. In essence what customers need is a single catalogue amalgamating the data from all the suppliers with which they do business.

From the customer’s point of view then the requirement is crystal clear: catalogues that deliver e-business-ready content in the format required for their specific e-procurement implementation and that are easy to use. Suppliers may recognise this requirement but are distracted by the huge technological challenges associated with producing multiple-format e-catalogues. In our survey 90% of respondents identified content management issues as being the biggest single obstacle to e-procurement.

Fran Howarth research director of e-business at the Aberdeen Group recently said that: “Catalogue content management has been identified as a major point of pain for companies seeking to join e-procurement implementations or online marketplaces. A recent survey by the Aberdeen Group indicated that companies are spending on average more than US$200 000 on automating their catalogues a fact that is prompting organisations to use a third party for managing this process. With implementations throughout the world and technology that can seamlessly connect to the offerings of all major software vendors Cataloga is well positioned to help companies automate integrate and maintain their catalogues.

“Our survey indicated that a 10 000-line item catalogue takes an average of 20 days for retrieving processing and delivering a new supplier catalogue. Given that the e-procurement market has not yet even reached 10% saturation companies should take advantage of the lessons learnt by early e-procurement technology adopters and entrust their catalogue development and maintenance to companies such as Cataloga that specialise in this area.”

The e-cataloguing challenges that suppliers need to overcome are numerous involving technological marketing sales financial and cultural considerations. They include:

Combining the ordering mechanism with the payments mechanism.
Integrating the supplier’s data with other back-office or supply-management systems.
Sourcing the technical expertise needed to build e-catalogues or outsourcing the task.
Overcoming the inherent security problems of online media.
Managing the updating of content to meet expectations for real-time information.
Reflecting differential pricing including volume discounts and individually negotiated terms and contracts with key customers.
Producing information in multiple formats in the absence of mature and stable international standards.
Meeting the requirements for content in multiple languages and currencies.
Producing content suitable for distribution via multiple channels without duplicating effort and costs.
Addressing the marketing issues around delivering the supplier’s brand throughout a buying organisation.

The current critical Catch-22 of e-procurement

The significant hurdles in creating quality e-catalogues have created a ‘Catch 22’ situation in European e-procurement implementations. Many organisations implementing e-procurement systems or private exchanges are finding that the lack of supplier content and hence liquidity is seriously hindering the ability to generate any return on investment. Beyond this without the high-profile references of successful e-procurement implementations the majority of the market – natural pragmatists – simply won’t be prepared to make the financial commitment required to implement their own e-procurement system. Finally without this mass of buyers starting to procure electronically there aren’t the compelling commercial reasons for suppliers to become ‘e-procurement-ready’ and create ready-to-load e-Catalogues. And so it continues until someone breaks the cycle.

The solution

Those companies that are breaking the cycle are forward-thinking corporate buying organisations who recognise the imperative to educate their supplier base to lead them through the complex process of providing their catalogue data in the bespoke formats required for their individual e-procurement implementations. Open lines of communications and education between buyers and suppliers are key to the success of e-procurement implementations.

Organisations such as JM Sainsbury have created comprehensive supplier adoption programmes to demonstrate the clear value in suppliers participating in their system easing their supplier base into the system and rapidly generating liquidity. Organisations that invest in demonstrating and understanding the benefits of e-procurement to both ends of the supply chain will be first to see the enormous efficiencies that e-procurement can deliver.

Our research has shown the confusion in the market. The only way through this confusion – and for e-procurement to become a reality across all industries – is for buyers and suppliers to work together to open the debate over e-procurement to educate each other to the value proposition on both sides of the equation and cooperate to overcome the technological and cultural barriers.

Originally published in e-mmerce