How can the electronic exchange of trading documents, such as invoices and orders, provide a pivotal contribution to cost cutting, integrated construction and improved sustainability?
Paul Morrell, the government’s chief construction advisor, is promoting a change programme to achieve greater integration and a 20% reduction in building costs. Within his plan lies one significant acknowledgement: much of what is required is not that new.
But let’s not kid ourselves. “Not new” is no benchmark by which to predict a level of adoption. In fact, the challenge of change can ensure sufficient delay in the take up of new ideas for busy people to conclude it probably wasn’t that good an idea in the first place.
Almost ten years ago a contractor’s award submission based on the adoption of electronic invoicing missed the cut because it was “not new”. Even though the entire UK economy still languishes at an eInvoicing adoption rate under 5%, the fact that the contractor had “just adopted a known technology” ruled it out of consideration. My argument then, and a core message in Paul Morrell’s plan today, was that we need to promote and celebrate the implementers.
Progress needs both innovation and implementation.How does this address the agenda? Let’s take the three components of cost, integration and sustainability in turn.
Research has shown that an organisation can save 1-2% of its turnover by replacing paper invoices with electronic data exchange and optimised transaction processes (source: Billentis). Unit costs are typically reduced by over 50% and the savings projected across the European Community have resulted in eInvoicing being included within the flagship initiative A Digital Agenda for Europe, which gives prominence to achieving the mass adoption of e-invoicing. Within the UK construction industry, the leading contractors and suppliers are reporting strong gains. The Sunday Telegraph reported projected savings in excess of £80m within Carillion through the introduction of electronic invoicing. McNicholas has, within one year, achieved over 90% eInvoicing adoption within their supply chain and hire specialist, Speedy, has adopted eInvoicing with both customers and suppliers. With Speedy, the accounts payable costs have been more than halved at the same time as customer services and supplier payment processing have improved. Asked what they would have changed about their eInvoicing project, the response from Speedy was simply that they should have done it years ago.
The integration benefits may appear obvious. However, this is an area where rich pickings remain to be grasped. There is clearly no logic to using computer applications to drive construction projects - from design through tender, build, operate and maintenance phases - yet rely on paper as a means of communication. As we move to embrace building information modelling (BIM) it is essential to exchange structured information in a form that can be handled automatically. Each transaction, whether it is a product data file, design, tender, order or invoice, contains valuable information. There is then the disruptive aspect, which is that project partners can increasingly build shared services centred on structured information. Whether this is a shared BIM or the automated cross matching of invoices or the synchronisation of off-hire detail, there is a wealth of opportunity for innovators to drive forward an agenda for cost reduction that actually strengthens project delivery.
And finally, sustainability. There is no doubt this has been in and out of fashion over recent years as companies face tough economic times. In reality, the carbon gains from electronic trading should be grasped whether you are Al Gore or Jeremy Clarkson. Why? Because they come attached to cost, time and process savings with a return on investment often within a few months. Analysis by carbon accounting specialists (source: Carbonclear), has underlined eTrading as a very worthwhile target. The cost to each business and the environment goes a long way beyond the over-quoted “it saves a stamp and an envelope” view. They addressed the carbon impact of the personnel, computer terminals, office space, travel and related consumables in manual exchanging trading documents. The result was that this accounts for an approximate carbon impact (tonnes of carbon equivalent) per employee involved of over 2.5 tonnes per year. This equates to 25% of the target per capita UK saving we need to achieve by 2050. Not to be sniffed at.
A growing number of companies have already discovered that electronic trading delivers benefits on many levels. The cost savings are now proven. The sustainability gains are clear. The industry needs to embrace this for both selfish and altruistic reasons. The journey to 20% savings is likely to involve some tough choices. This is not one of them. Electronic trading should be grasped and enjoyed in the knowledge that it delivers improved integration, strengthens partnering, cuts costs and improves sustainability.
Tim Cole is Divisional Director of the Tradex division of Causeway Technologies