E-sourcing set to deliver for Royal Mail

E-sourcing set to deliver for Royal Mail

Purchasing software streamlines operations and cuts costs

Royal Mail expects to save £300m over the next two years thanks to an electronic sourcing system handling purchasing of everything from vans to pencils.

More than 950 contracts are now live on the system, which aims to improve co-ordination of the firm’s £2.5bn-worth of annual procurements and 100 purchasing staff.

The software will help Royal Mail make aggregated decisions, rather than buying items individually, said Daniel Cameron, director of performance and transformation for group procurement.

“It will help staff perform market analysis of a particular supply base to get the best product and price based on many factors,” said Cameron.

The system also helps Royal Mail comply with procurement legislation, and data will be re-used from previous contracts to show the reliability and cost-effectiveness of suppliers.

Under the old manual system, auctions, requests for information and price quotes were exchanged on paper. The new process is faster and easier to use, as well as saving money on manpower and preventing delays in supply, said Cameron.

“The electronic system is a far more efficient way of operating,” he said. “We wanted to combat the myth that doing things online is more time-consuming.”

Unlike electronic procurement, e-sourcing software handles the entire tendering process, including correspondence, rather than just bringing together suppliers and customers.

Both technologies are increasingly popular; Forrester Research predicts that use will grow by more than 20 per cent in 2008.

E-sourcing has particular benefits because it can help large firms exploit economies of scale, said IDC analyst Beatriz Valle.

“These systems can drive real cost savings. Suppliers now need to connect to them to compete in the market and this gives corporates greater control over prices,” she said.

But there are downsides. “The worry with central e-sourcing is that local parts of the organisation may miss out on a better deal elsewhere by being centrally managed,” said Butler Group analyst Sarah Burnett.

Royal Mail’s SAP e-sourcing software is part of a wider procurement transformation programme.