Since then a great deal of work has been carried out to make e-procurement a reality for the industry – not just for the big players involved in the Group, but for any building services contractor that wants to get involved. Irrespective of company size or which software they use for estimating, purchasing or accounts, contractors will soon be able to reduce their order-processing costs dramatically.
What do we mean by e-procurement? It's a phrase that's been used a lot recently and different people have contrasting perceptions of what it means but, within building services, Estimation feels that there is only one model that will work effectively.
Estimation's own field trials, backed by the experience of its sister company in the USA, which has been handling live transactions for over a year, have made it clear that the industry needs a complete end-to-end solution. A solution that connects the contractors' office systems for estimating, purchasing, accounts and contract management via a 'digital exchange' on the Internet, through to the computer systems used by wholesalers and manufacturers.
Ultimately, this model will allow the estimator or buyer to continue working with the software packages that they prefer, yet go out for quotations, place purchase orders and carry out all of their other activities from their desktops. These will be automatically routed through the digital exchange to suppliers. The suppliers' computer systems for managing inventory and processing purchase orders will receive that information and return the appropriate response to the contractor – again via the digital exchange.
Cost savings
The financial savings that are derived from this process are not in the form of lower prices (although there is some evidence that suppliers may reward contractors prepared to trade on the Internet), they are the result of higher efficiencies at both the contractor and wholesaler end.
A characteristic of building services contracting is that a lot of relatively small orders are placed with wholesalers. The average order value is reported to be around £130 for everyday items, so in purchasing all the materials for a job there is a huge amount of administration in terms of purchase orders and invoices. A company buying £1 million worth of materials will be dealing with about 8000 invoices, so it's little wonder that contractors are anticipating savings as high as 75-80% on administration costs alone. For that £1 million of materials, the savings could be £100 000 plus.
Similarly, at the distributor end processing orders is very time-consuming. USA research indicates that automating the processing of orders could reduce administration costs by as much as 75% for suppliers and manufacturers as well. Ultimately, the improved efficiencies should lead to more competitive pricing, so the contractor will reap even more benefits.
Making the theory work
Putting this theory into practice has proved to be a steep and incremental learning curve for the whole Group. Even though there is a similar model already fully operational in the USA, there's been a great deal of fine-tuning necessary to ensure that the UK model suits the way we work in this country.
For example, effectively what we're talking about is the exchange of various messages between contractors and distributors. These messages could be purchase orders, acknowledgements, quotations or sales invoices, but whatever they are it's clearly important that they are understood by all concerned. And as we all know from experience, every contractor and distributor has a different way of organising its information. So one of the major tasks for the contractors and distributors in the Group has been to agree on a format and content for these messages that works for all concerned.
Estimation's role as the Group's technology provider has been to embed a mechanism in the digital exchange that translates the messages from the contractor's language to the distributor's and vice versa.
Another challenge has been that there are several different ways of describing common items and there are no industry standard product codes. So a contractor might want a 'right-handed thingy' but the distributor may have catalogued it as a 'dextro-rotatory wotsit' – easy enough to sort out on the telephone, but some clever cross-referencing has been required to achieve this electronically.
Over the last year some 10 000 of the items commonly sold by BSS have been cross-referenced in this way, accounting for about 90% of the items that contractors buy from the company regularly, in terms of volume.
This highlights an important consideration: it is very unlikely that e-procurement will ever become the only way of purchasing building services items. Certainly, it will very soon become the most efficient way of purchasing commonly-bought items, but as an addition to current processes rather than replacing them. Occasional purchases are still likely to be procured in the conventional way for the foreseeable future.
Perhaps one of the most remarkable aspects of the work of the Building Services E-Commerce Trading Group is the level of co-operation between the rival companies. Not only has there been a willingness among the Group's contractors to share information, there is also a commitment to make these benefits available to all building services contractors. One of the group commented recently: "We've done this because we don't see why the industry should bear the cost of everyone doing it differently. We all use the same central postal, telephone and fax services, so why should the transmission of digital information be any different. It's what we do with that information once it's come into the business that differentiates between us."
Source
Electrical and Mechanical Contractor
Postscript
David Bell is managing director of Estimation.
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