Tame the TCO Beast

Purchasing management flaws force companies to seek new solutions.

As enterprises continue to scrutinize costs during lean economic times, many are beginning to find flaws in the way they manage the purchasing of indirect goods and services.

Many have turned to e-procurement systems or procurement services providers to cut purchasing costs, but those solutions can fall short.

"[Total cost of ownership] doesnt stop when you get something in the door," said Tim Minahan, an Aberdeen Group Inc. researcher who recently authored a report on ECM (enterprise cost management). "Companies have to look at ... buying or leasing. Then theres automating the ordering process through payment and reconciliation, and then they should get the most value out of the items once theyre delivered."

One company that takes a holistic approach to managing the life cycle of costs will introduce this week its ECM suite of software, services and content. Twelve-year-old ePlus Inc.s suite addresses not only upfront purchasing processes but also the back-end financial reconciliation and management of assets.

The company, originally a leasing and IT services and fulfillment business, pulled together a suite of software that provides buy- and sell-side e-procurement, asset management, content and catalog management, and electronic payment coupled with a range of financial services, logistics and IT professional services, as well as business process outsourcing services.

Competitors, such as Ariba Inc. and Commerce One Inc., take a more silo approach, focusing on e-procurement or on asset management. More recently, Peregrine Systems Inc. has come closer to ePlus vision by combining asset management with financial services and some procurement functions.

ePlus has been working on its vision over the last six years through acquisitions and integration work and by building competency in each area it serves, according to company officials. The vendor gives customers a choice of using the tools in-house, through a hosted managed service, or as the foundation for a fully outsourced business process service.

Most customers typically start with one or two software modules—often hosted and integrated with the customers internal IT systems by ePlus.

"We wanted to do e-procurement, but one of the things that sold us on [ePlus] is that they do broader [functions]," said Amy Pullman, IT acquisitions manager at international engineering architecture company Michael Baker Jr. Inc., in Coraopolis, Pa.

Although Michael Baker looked at better-known e-procurement providers such as Commerce One and Ariba, "those were overkill for what we wanted and cost a whole lot of money. And they didnt have the [services]," Pullman said.

Michael Baker chose to implement ePlus Procure+ system as a managed service, then added the Manage+ asset management system. The company selected its ePlusMarket and created its own standard catalog, according to Pullman, who found the ePlus marketplace to be cost-competitive.

The progression of Michael Bakers selections was logical, said Kley Parkhurst, senior vice president of corporate development at ePlus, in Herndon, Va. After implementing the procurement system, "they were looking for a fixed asset management system from [enterprise resource planning] vendors. We offered them one totally integrated with their e-procurement, so they could do the financial asset management they wanted and have no upfront cost and no lengthy integration process," said Parkhurst.

"We started doing strategic spend analysis with them, found they had six different suppliers and hundreds of invoices each month. They could buy the same things from ePlus at the same cost and save a couple of bodies internally," Parkhurst said.

Michael Baker went from three full-time purchasing employees to one, Pullman said. At the same time, its purchasing cycle dropped from eight days to two or three, and it has saved $200,000 in less than a year after buying $6 million in goods and services.

With a typical price of at least $1 million for e-procurement implementations, a hosted model and subscription-based pricing make it more affordable for midsize companies to get into the game.

ePlus targets midsize enterprises with at least $25 million in revenues, although officials said they believe the sweet spot for its offerings is the $300 million revenue range.

Because of the cost advantages with subscription-based pricing, as well as the ability to control the application as if it were behind a corporate firewall, ePlus officials said they believe most customers will choose the model.

"A couple of years out, I would guess 80 percent of customers will be in the managed services environment," said Ken Farber, president of ePlus Systems Inc. and its Content Services group, in Lakewood, N.J.

Aberdeens Minahan said he believes that a new trend is emerging to outsource the entire business process.

"Companies will have a hard time justifying why they need to manage that activity anymore. Its not just hosting, but managing the supplier relationships, training, catalog management," Minahan said.