A HIRE POWER
Services e-procurement is helping companies control an expense that often escapes scrutiny.
By Anne Stuart

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 lowest quote, or an officially preferred vendor - and start the purchase order on its lengthy internal journey.

At last the workers would show up, but the bank 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 they 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 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 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 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, New York City"). 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 pre-approved vendors 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 Debbie Manos, the US-based bank's senior vice president and chief sourcing officer. "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 whom other project managers have used." More than 11,000 KeyBank employees now use the system, generating substantial savings by getting competitive bids from preferred suppliers. Manos expects KeyBank to recoup its costs within 18 months.

Straight from the Sourcing

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 finance departments, says US-based analyst Christa Degnan of Aberdeen Group, 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 30-70 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 Forrester Research's 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.

At the same time, those CFOs recognized the need for change. They estimated that streamlining procurement practices could cut services spending by an average of nearly 10 percent. Not surprisingly, more than half the CFOs called finding new lower cost sourcing alternatives a top priority for this year.

Meanwhile, technology for doing just that finally seems ready for prime time. True, the overall B2B picture hasn't mushroomed into the US$6.3 trillion landscape of analysts' late-1990s forecasts, but systems for procuring temporary and contract workers are clearly catching on, as KeyBank illustrates. E-procurement can reduce services spending by centralizing and automating hiring, steering buyers to preferred vendors, cutting paperwork, reducing accounting errors, and speeding up payment to eliminate late fees.

Less than two years ago, leading e-procurement vendors typically boasted just three or four pioneering corporate clients. Since then, with early adopters reporting savings of 10-30 percent, they've doubled or tripled their customer lists. Aberdeen's Degnan sums it up this way: "2002 was the year that companies said, 'these solutions make sense. They're going to save money. Let's try one.'"

But that doesn't mean the marketplace stabilized in 2002. Some vendors vanished; others merged or ended the year poised for acquisition by bigger rivals. Several staffing firms that had begun to develop their own procurement software pulled back, opting instead to partner with the same software companies they'd initially considered competitors. For instance, more than a dozen staffing agencies inked deals with US-based CascadeWorks last year; they now use the vendor's technology to deliver their services.

Meanwhile, market leaders began beefing up their platforms' features. CascadeWorks's Clarity 4 (which also powers Ariba Workforce) can now handle contracts involving complex combinations of time-, project-, and fee-based services, and customers can choose either a hosted web-based model or a licensed software product.

The price tag for services e-procurement makes it prohibitive for most companies outside the Global 2,000. Start-up costs range from US$250,000 to upwards of US$2 million, depending on company size, number and complexity of transactions, features selected, and whether the system is web-based or licensed and run internally at customer sites. But for companies that routinely spend tens or hundreds of millions of dollars annually on contract help, even a 2 or 3 percent reduction adds up to a quick, sweet ROI.

Scott Leibs is editor of CFO IT, CFO Asia's sister publication in the US. Additional reporting by Karen Winton.