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A Hire Power

Services E-procurement is quietly gaining ground, helping companies control an expense that often escapes scrutiny.

Anne Stuart
CFO IT

March 17, 2003

Back in the Dark Ages — before last summer — KeyBank USA hired temporary workers the old-fashioned way, which is to say inefficiently and expensively. If IT managers, for example, needed programmers or Web developers for a three-month project, they'd typically E-mail requests to a few favorite suppliers. Then they'd wait a couple of weeks for responses to trickle in. Then they'd choose a supplier — not necessarily the one with the lowest quote, or one of the bank's officially preferred vendors — and start the purchase order on its lengthy internal journey. "We had a lot of handoffs," acknowledges Debbie Manos, senior vice president and chief sourcing officer at the Cleveland-based bank, which has about 900 branch locations in a dozen states.

At last the workers would show up, but the company was limited in its ability to assess them; it didn't know, for example, how many qualified workers each vendor made available, or how well those workers performed. So the next time managers went looking for programmers or developers, they'd start from scratch. Given that the bank might have as many as 1,500 IT contract employees on staff at any one time, the "system" was clearly costing precious time and money.

Companies in all sectors approach the hiring of temporary workers, be they IT contractors, administrative help, extra accounting staff, or any other sort of employee, in much the same way. Most companies, in fact, spend more on such services than they do on hard goods — up to 70 percent of a total procurement budget by some estimates.

Several years ago, "services E-procurement" came on the scene, offering companies a way not only to automate the hiring of temps but also to buy travel, printing, maintenance, legal, and other services via the Internet. So far, however, it has proven most popular in taking some of the labor out of hiring labor. At KeyBank, managers now log onto the company's services-procurement system, Ariba Workforce, and specify what they need (for instance, "Web developers, high proficiency, three-month project, Cleveland area"). The system automatically routes the request to the bank's preferred suppliers, which have three days to respond with candidates. The managers make their choices, and because they are hiring only from preapproved vendors (the request is first sent to a list of 10 suppliers; if a manager wants more bids, he or she can extend the query to a second tier), the system automatically generates a purchase order for the transaction and a permanent record for the employee.

"It takes all the subjectivity out of the process," says Manos, whose company uses similar applications for buying supplies and managing travel expenses. "And six months from now, if [a project manager] has the same kind of need, he can search for people he's used in the past, or that other project managers have used." More than 11,000 KeyBank employees now use the system, generating substantial savings by getting competitive bids from a few preferred suppliers. Manos expects KeyBank to recoup its costs within 18 months.

Straight from the Sourcing
While KeyBank ranks among the pioneers in services E-procurement, its experience is hardly unique. After two years of downsizing and belt-tightening, companies of all sizes are now looking for novel ways to cut costs. For that reason, they're taking a hard look at just how much they spend on services — and how little control they bring to it. The area is of particular interest to CFOs and finance departments, says analyst Christa Degnan of Aberdeen Group Inc., because "companies know there's some fat they can trim in services, but they've lacked visibility and control in this area."

Depending on the industry, analysts say, services can account for 30 to 70 percent of all corporate spending. But because there's often no centralized process for buying, tracking, and accounting for services, CFOs may have only the haziest picture of the total cost. In the Forrester Research/Elance Inc. December 2002 "CFO Omnibus Report," half of the 152 finance executives surveyed admitted they didn't know their companies' ratios of goods and services spending.

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