The predominant message from the history of e-procurement is that there has to be something in it for both buyers and suppliers. Too often, suppliers have been put off by initiatives they perceive to be "buyer-led", and vice versa.
As a result, the record of corporate e-procurement is littered with failed business models, such as the so-called "vertical markets" of the mid to late 1990s. These third-party operators would act as aggregators of demand, then try to negotiate discounts from the supplier base. "No supplier is going to join an initiative like that if they see their margins being cut," says Paul Clayton, a senior consultant for ProcServe, the e-procurement company set up by PA Consulting Group.
The quid pro quo element that was missing in early e-procurement systems is now present, however: if suppliers are holding back in fear of losing out financially, there should now be the attraction of a bigger market, for example, to attract them. This is illustrated at the St Mary's National Health Service Trust in London, one of a group of hospital trusts introducing the Zanzibar e-procurement system. Andrew Holden, its finance director, says improved flows of information about prices should now prevent any individual health trust being "picked off" by suppliers.
On the other hand, he notes, a fully electronic system in which an online order is "flipped over" to become an invoice means suppliers can be paid much more quickly. And while suppliers may, within a year or two, have to use Zanzibar to sell to St Mary's, those with catalogues adopted by the system can look forward to bigger markets as Zanzibar develops critical mass within buying organisations.
A key lesson has been the importance of adoption by suppliers. "The more obstacles you put in a supplier's way, the more likely it is not to join," says Mr Holden. "Content is the core issue," agrees Lyn Duncan, business development director at @UK PLC. "It's terribly chicken and egg: suppliers don't want to invest time and effort into loading their content on until you can show them orders, and buyers don't want to invest time and effort into training people how to use the system [unless sufficient content is available]."
For @UK, which works with organisations to enable online procurement, the solution has been to ensure that a critical mass of a supplier's content - between 30 and 50 per cent of what the customer will need - is available on a "plug and play" basis as soon as the site goes live.
One big sticking point for suppliers, especially smaller companies, has been the cost of e-procurement systems and marketplaces. Charges are typically about £700 a year, says Mr Clayton, which can be a disincentive for small suppliers unsure of how much work they will receive.
ProcServe is free for suppliers, while buying organisations pay an annual subscription and invite suppliers to join. In spite of the cost for buying organisations, the approach works, as Terry Wilcox, commercial director of Proactis, a UK procurement software specialist, notes: "E-procurement must create a discerning marketplace, in which organisations specify the suppliers they want to do business with, rather than being forced to buy from those organisations that compete for business by paying a fee."
The ordering and payment process also needs to be electronic. For buying organisations to obtain full savings from e-procurement, they must review their buy-to-pay process and "vigorously chase out" any manual processes, says Andrew Fraser, managing director of financials at Civica, a consulting, software and services provider.
Until recently, progress has been stymied by a mismatch in technology. Janice Kite, UK e-business manager at Johnson & Johnson Medical Devices, part of the US healthcare company, visited an NHS customer in 2001 who did not even have an e-mail account or a personal computer. She says J&J still receives a high volume of NHS orders by fax or e-mail. "For us, that isn't electronic - it still has to be pulled out and keyed into our system," she says.
Mr Holden at St Mary's notes that with 3,000 PCs for 3,500 employees at the trust, implementing an e-procurement system is much easier than a few years ago. He expects up to 400 employees will eventually be purchasing via Zanzibar, across different departments.
But implementing the new generation of corporate e-procurement systems is still complex - linking IT systems of suppliers and buyers via third parties can take months.
Another crucial issue, says Ms Kite, is ensuring that catalogue information within a system such as Global Healthcare Exchange (GHX) is kept up to date and consistent: "You can have all the technology in place, but if the data are not aligned and up to date, then you will get failures," she says.
Sometimes obstacles remain out of suppliers' and buyers' hands. Brett Mauser, director of global procurement at NCR, says the requirement in some continental European countries to submit paper invoices with all value-added tax receipts prevents the company from having a fully electronic e-procurement system in those markets.
At least buyers and sellers now realise that success in e-procurement is not about how much they can screw down the other side, but - as Veera Johnson, ProcServe's chief executive puts it - building a relationship from which both can benefit.
