Controlling relationships as well as costs: that's a bottom-line benefit that makers of services E-procurement software will no doubt leverage as they try to drive their products further into the market.

Anne Stuart is a Boston-based freelance writer whose specialties including business, technology, and law.

More Than You Know

Quick quiz: Approximately what percentage of your company's total spending goes for services? Chances are that when you add it all up it's far more than you guessed. According to a survey of 115 large companies conducted by the Center for Advanced Purchasing Studies (CAPS) in Tempe, Arizona:

• Companies spend more on services than supplies. Services spending averaged 33 percent of the total corporate spend, compared with 21 percent for such indirect goods as office supplies. While direct goods, such as production raw materials, still accounted for the majority, averaging 51 percent, CAPS did find one company that spent 86 percent of its procurement budget on services. (Studies from AMR Research Inc., Aberdeen Group Inc., and elsewhere estimate services-related spending at 30 to 70 percent, depending on the industry.)
• Many spend more than necessary. Maverick — or off-contract — buying is more rampant for services than it is for direct or indirect goods.
• Some expect to keep spending more. Twenty-five percent of those surveyed plan to increase services spending by 10 to 50 percent in the next few years.
• Companies manage huge service-supplier networks. Those surveyed averaged nearly 75 active suppliers per purchasing employee. That was more than double the number of vendors per buyer for direct goods and 20 percent more than for indirect goods.
• Nobody's in charge. At participating companies, purchasing departments tended to control spending for only a few of nearly 40 services categories ranging from accounting to landscaping to waste removal. Purchasing often had little or no control in areas with big-ticket services expenditures, such as telecommunications, information technology, and legal help.

And Now the Bad News
After years of hype and high investment, reality has set in among corporate E-procurers. In the late 1990s, company after company thought wonderful things would happen to their bottom lines if they began sourcing and purchasing goods and services on the Internet. Back then, IT experts predicted with glee that "big-bang" E-procurement systems designed for massive corporatewide implementations would save companies anywhere from 25 to 60 percent of costs and bring widespread process benefits.

For the most part, companies are still waiting for predictions like those to come true. Research reveals a massive gap between expectations and real-life experience, resulting in many E-procurement projects being scaled down and spending cut back.

"The key thing we've learned about E-procurement is that it's best to take an incremental approach rather than throw everything at it and hope you're going to get a rapid return," says Ian Taylor, head of group procurement at Halifax Bank of Scotland (HBOS), a U.K. financial-services firm. Since April 2000, Taylor has been building E-procurement systems for HBOS to support 2,000 users at more than 1,000 sites. "We wanted a safe, lower-cost incremental solution," he says. So far the bank has managed to cut staff time spent on procurement and achieve lower prices on certain goods, such as stationery. Now it's focusing on applications for such higher-cost items as uniforms; it's also moving into services E-procurement, notably for temporary staff.

Taylor says it was important that the applications were developed incrementally. "We were able to prove each stage internally as we went along and easily adapt things to suit our own needs," he says. "We also collaborated closely with our suppliers to ensure that they could take the technology on board at each step of the way. We haven't achieved nirvana in terms of absolute integration with their systems, but we'll get there."

At Volkswagen, Meike-Uta Hansen, B2B head of purchasing, says she "started with small but effective projects such as certain aspects of online negotiation." Two years and an estimated $29 million later, VW has built an auction site to support all operating companies and all brands, including VW, Audi, Seat, and Skoda. The auction system has saved the company 20 percent on procurement costs, but Hansen believes there's more work ahead. "We have reduced lead times, cut costs, reduced staff levels, and negotiated better terms, and that's wonderful," she says. "But every company is going through a major learning process. People have to realize it is still very early days for sourcing and procurement systems." —Paul Tate

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