When it comes to hot topics in the financial services sector, new procurement technology has become a favorite subject. "There is a sea change happening in the industry," says Brian Desmond, vp of product marketing for PeopleSoft. "Years ago, procurement was viewed as a necessary evil. Now, companies are looking at it in a more strategic way." Desmond says that shaving just one percent of a company's costs through better procurement can increase profits by more than two percent.
In one recent example, PeopleSoft deployed its procurement product for the Commonwealth Bank of Australia, which has more than 1,000 branches serving 10 million customers in Europe, the United States and Asia Pacific. Using PeopleSoft's Web-based system, CBA expects to save $11 million in staffing costs over the next three years because of an 80 percent reduction in time-entry errors and its ability to negotiate early payment discounts.
Of course, procurement technology isn't necessarily a panacea. Indeed, banks must be vigilant in choosing vendors, monitoring spending and factoring business-disruption costs (which are often somewhat intangible) when using technology to improve procurement systems. But banks, which have tiptoed into new procurement technologies in recent years, are looking to accelerate efforts as global competition continues to squeeze margins.
Bankers have actually been thinking about procurement for some time-right along with many other industries-but there's little doubt that the issue of sourcing and the supply chain has been steadily moving up the priority list. Gartner predicts that at least half of all global 2000 companies will have a chief procurement officer reporting directly to the CEO or CFO by 2008. "While we are continuing to leverage our existing platform, we are also adding automation to our vendor decisioning processes," says Jim Ford, Wachovia's director of strategic sourcing.
With banks and other industries refocusing on procurement as a way to cut costs and boost profits, experts are ramping up their own efforts to sell advice to eager executives. Aberdeen Group just announced that it would expand its procurement practice in 2005 to meet expected demand across several industries, including financial services. It plans to hire several new researchers devoted to sourcing and procurement, expand its ongoing benchmarking and surveying of the sector, and debut a series of "Supply Management Best Practices Workshops" in regional markets across the country. Aberdeen cites globalization, procurement automation, outsourcing, and rapidly changing supply-market dynamics as key drivers.
Still, many banks may require significant coaxing in 2005, considering the skepticism out there: A study by Forrester Research in April 2004 found that 11 percent of financial services firms that had deployed e-procurement systems ranked results as "well below expected benefits" compared with only one percent of all businesses (banking and non-banking) making that assessment. "[Bankers] bought it expecting that by itself it would lead to great cost savings," says Andrew Bartels, a vp and research analyst at Forrester Research. But unlike more centralized industries, many banks hadn't studied their supply chains to determine the best procurement strategies. Without such analysis, procurement technologies can't fully wring out inefficiencies.
Of course, bankers aren't alone in their disappointment: Across all sectors, Forrester reports 30 percent of companies ranked e-procurement as "below expected benefits." Forrester says lack of supplier participation and incomplete technology deployments are among the biggest challenges, although the strongest demand for procurement technology will come from large enterprises with more than $1 billion in revenues.
Banks, however, may be in a better position than many other industries to use procurement innovations to their advantage-mainly because they spend more money purchasing "services", such as advertising, consulting and legal, than buying material goods. "Services procurement is the new frontier," says Bartels. Still, he says banks have focused too much on material goods in the past and, even then, without much success getting employees to comply with corporate directives. "That memo just gets thrown in the pile, and employees just go out and buy something else," he says.
The focus on services procurement could become a theme going forward. "To really do this successfully, you have to identify where you're going to get the biggest bang for your buck," says Jim Gahagan, PeopleSoft's vp and global industry executive for financial services.
