It’s all in the implementation - the success of new technologies depends on how they are introduced

E-sourcing is the buzz word of the moment in procurement – but can this new technology bring success in the long term, or is it a trend that will quickly disappear? For sea containers the answer was in the implementation.

Sea Containers is a global group of companies, listed on the US and London stock exchanges, with a supplier spend of $1.2bn annually, across about 15,000 suppliers, significantly higher than a world class organisation’s base of approximately 1,700 suppliers per $1bn spend.

In 2004, with this in mind, Sea Containers began to explore methods of reducing spend and consolidating the supplier base across the group. Its strategy combined adopting on-demand e-sourcing tools with implementation of the SAP SRM system in one company.

The on-demand e-sourcing tool tackled the immediate procurement challenges as it allowed the team to handle greater numbers of categories with limited resources than traditional methods. It also provided a sound audit trail and a transparent process for suppliers. The SRM e-procurement system implementation meant the supplier base could be efficiently managed in the long term to ensure that savings were delivered.

The on-demand tool enabled the sourcing teams to demonstrate results quickly (within three months) rather than waiting for a full software implementation programme before starting on new projects. This ensured that project success could be advertised quickly and momentum gained in using the new tool. This is fundamental to encouraging use, as it adds focus from the highest business levels – success in one area can be instrumental in top-down support for using the tool in other areas. Users are more likely to use new technology if they are encouraged to do so by senior management.

A common problem when using on-demand e-sourcing technology is lack of in-house expertise, leading to lack of confidence in the system and its advantages. So while lip-service is paid to the new technology initially, users eventually revert to using traditional processes with which they feel more comfortable. In this case, while the primary aim was to produce a short, sharp shock approach to improve procurement processes, another aim was to embed the system for long-term use following implementation of the SRM online procurement and contract system.

A key method of reducing the danger of poor technology take-up is to ensure users are well-trained and comfortable with the system. As there was no in-house expertise, the team invested in the services of an external online sourcing consultancy company, the intersources group. This offered buyers guidance on category suitability, structuring the e-sourcing process, and one-on-one system training. Buyers had an expert contact for all queries at all times throughout the first year’s programme. This method ensures that buyers get a good grounding in the tool, allowing them to gain in confidence while support is
available, and prior to implementation of a full software suite.

With an e-sourcing system there is also a need for supplier training on each sourcing project. This can be time-consuming and can detract from buyer training if they are also being asked to train suppliers while still learning the system themselves.

To avoid this, intersources provided all supplier training in the first set of sourcing projects. This let the internal team focus on understanding the system. It also guaranteed that suppliers gained thorough knowledge of the tool – important as there is a risk of insufficient supplier training leading to low involvement and poor results.

Another trick that can help to build buyer confidence in the tool is to mix elements of the traditional tendering process with the new online methodology – using a traditional paper request for Proposal, followed by an online auction. this proved very successful as buyers could build confidence in certain steps in the online process one at a time, rather than learning all elements in one project.

A key consideration in running any business change project is time, and this is particularly important in implementing new technologies. Sea containers took a year to run six e-sourcing events, which could be considered to be very slow, but gave the team time to build confidence in the system and embed it into company processes while ensuring that the six auctions were all successful.

Technology integration is also an important consideration. new technology must be able to fit with existing systems. The sea containers team had to ensure that projects run using the on-demand system could be linked into the full SRM system once complete, and that the SRM system could link to all necessary company back-end systems.

As a result of the considerations taken by the team, the e-sourcing programme at Sea Containers was a success. Ten successful e-sourcing projects have been implemented in 18 months, each achieving savings of more than 18 per cent. Users have been trained and the company is now using e-sourcing as a “business as usual” tool.

Alex Hartley is group procurement manager at Sea Containers