TruGreen ChemLawn may have the tools to eliminate pesky beetles or stubborn crabgrass, but it was having a little more difficulty finding the right science that would keep its employees in line when it came to procurement. Their transgressions usually involved paying retail and were often last-minute purchases that had not
been approved. But over time they built up–particularly when the company had potentially thousands of field technicians committing them.
For any other midsize company with annual revenues of $1.4 billion, this might have presented a problem. But this landscaping and lawn care company had a sugar daddy to lend a hand. Beginning in March 2005, ServiceMaster Co., the $3.8 billion corporate parent of TruGreen ChemLawn, began working with Ketera Technologies Inc. to equip 4,000 of TruGreen's employees in over 200 branches with a user-friendly e-procurement tool, enabling them to purchase everything from pencils and rubber gloves to fertilizers and lawn mowers from a centralized portal. By mid-August 2005, all of the lawn care division's field technicians were ordering off the new system, eliminating most of that maverick spending, and in the five short months since, TruGreen has already realized a cost savings of 3% attributable to the new system. It has even seen additional savings of between 7% and 20% through discounts, depending on the supplier, simply because it now can drill deep into the details of its employee spending to negotiate better prices. "We're excited about the progress that we've made," says David Rokosky, managing director of supply chain management for Downers Grove, Ill.-based ServiceMaster. "We've used the tool really to create new advantages that we've never had in the past."
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Unfortunately for most midsize companies, there is no one else to foot the bill for technology solutions. The irony in the case of the Ketera system is that TruGreen didn't really need a ServiceMaster to make it possible. What makes the Santa Clara, Calif.-based Ketera's solution so accessible for a midsize company boils down to two simple (in this case hyphenated) words: on-demand. Ketera's e-procurement solution permits companies like TruGreen to call on the system when they need it–with no purchase necessary and no full-time leasing required. "On-demand solutions can be implemented within weeks and can deliver payback within six to eight months. They also have initial solution and maintenance costs that amount to about half of installed software," says Tim Minahan, vice president of supply chain management research practice at Aberdeen Group Inc., a consulting firm based in Boston.
The emergence of on-demand or subscription pricing in hosted and software-as-a-service (SaaS) models now makes e-procurement affordable even for companies, law firms, universities and healthcare providers much smaller than TruGreen. Payment usually is in the form of a transaction-based fee, or a time-based subscription fee. "The entry point pricing for midsize businesses has dropped," notes Andy Kyte, a vice president and research fellow at Stamford, Conn.-based Gartner Inc. "The acceptability of the process is now widespread, and the quality of the service has reached the level where it's possible for midsize businesses to engage with confidence."
There's no software to buy because the applications are accessed via an Internet browser. PCs do not need to be configured. You can pick and choose which on-demand services you want. A big selling point with the decision makers is that there's no capital outlay. You're paying only for the IT resources that you use rather than committing to fixed costs in the form of hardware purchases and leases, exorbitant software license and maintenance fees and dedicated IT employees. The implementation occurs within weeks, not years. On-demand solutions also include key services such as supplier enablement, IT management and end-user training. According to Boston-based consultants AMR Research Inc., some companies are reluctant to go with on-demand e-procurement models because they automatically think they should be installed behind their firewalls, especially in so-called hosted, multi-tenant business models, where several end-user companies access the vendor's software via a Web browser. Nevertheless, AMR notes that the risk of data being stolen hasn't shown up as a real concern.
There are two broad areas in on-demand e-procurement: e-sourcing and procure-to-pay processing. "This is a market that's going through rapid expansion and growth," says Gartner's Kyte. "All of the vendors are seeking to differentiate themselves through end-user functionality, through the number of suppliers that they're connecting, through their pricing strategies, and through the total service offerings. All of them are winning business."
Small and midsize companies are discovering the advantages of using on-demand e-procurement solutions to manage requisitions, spending categories and suppliers. For instance, even though TruGreen had negotiated contracts with suppliers, it couldn't rely on its field technicians to use the preferred supplier list–especially if they needed a few bags of fertilizer or chemicals right away. So, they'd wind up paying retail prices. The branch manager wouldn't catch the off-contract spending until the paper invoices landed on his desk. "The branch level was kind of doing its own thing," says Rokosky. "Everything was on an after-the-fact approval. It was hard to control. We had no standard procurement processes."
Working with Ketera, TruGreen created catalogs customized to the local needs of each branch. So, while the lawn care specialist can order $20,000 worth of certain products without intervention through the centralized portal, TruGreen now at least has control over the supplier list. With one purchasing platform, it now has the ability to collect data, track orders and receipts, maintain compliance and create supplier scorecards. TruGreen has also rolled out a payment capability that allows suppliers to invoice electronically.
"Procurement now controls the supply base," says ServiceMaster's Rokosky. The detail into spending also lets the buyers go to the next step: adding an e-sourcing solution using electronic requests for proposals. For most companies, that's where the real benefit lies. According to research by Aberdeen Group, each new dollar of spending brought under management can yield 5% to 20% in cost savings. Procurement executives can't negotiate decent contracts if they're only guessing at the level of spending with any particular supplier or even in any particular product line or service.
None of this works unless employees are abiding by the rules and using the on-demand tools made available to them. That's why end-user satisfaction is such an important consideration. Just look at TruGreen's weed whackers. They'd much rather be outdoors than wasting time in front of a computer. But if the solution is easy to learn, it won't take them much time. Says Rokosky: "The benefit is you teach them once and you don't have to re-teach them. It's a simple, intuitive tool to use."
Gartner's Kyte agrees. "Organizations that only focus on costs of goods and services purchased are missing the real opportunity to make a strategic contribution to the business," he says. "That speed of response, quality of service and the ease of use of transaction services can have a significant impact on enabling a business to achieve its goals."
For its part, ServiceMaster plans to introduce the tool to its other divisions. Says Rokosky, "We've tackled the hardest one, but [it was also] the one that needed it the most and is going to prove to have the greatest benefit."
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