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A Florida Atlantic University study in 2007 found that 50 percent of local governments in the United States had implemented some form of e-procurement, with 20 percent of the non-adopters planning to adopt e-procurement in the next three years*. Even if the projected 60 percent or so current adoption rate has been realized, local governments still likely trail the two-thirds of private sector companies that research firm Gartner/AMR says have already adopted e-procurement.

Online e-procurement platforms can provide greater transparency in public spending (demanded by constituents), boost efficiency and provide commodity savings. These advantages are especially attractive given tighter budgets and pressures on local government procurement resources to do more with less. So the question is: Why haven't more local government procurement organizations adopted e-procurement?

Behind the numbers

A closer look at the Florida Atlantic University 2007 research results suggests some answers. Few local governments had harnessed the full potential of increasingly robust e-procurement toolsets (first table on p.21), and early adopters favored on-line bid/tender systems, designed to increase the transparency of the contracting process, but didn't address the underlying processes to administer and account for the actual spending against those contracts (second table on p.21). Far fewer organizations had updated highly manual requisition and approval workflow processes with automated systems (36 percent), and fewer still had taken steps to enable their supply base electronically — a critical component in creating a closed-loop and fully transparent buying process. When it came to supplier enablement, only 29 percent were capable of accessing supplier e-catalogs; and fewer still, 17 percent, had the capacity to transmit electronic purchase order to the supply base.

Local government procurement organizations increasingly need to operate in a de-centralized model because they are shorthanded; budget reductions have forced more buying activity away from purchasing to end-users. In these situations, there was a divergent view of the main benefit of e-procurement. Although not reported in the table, a resounding 82 percent of these organizations cited increased utilization of their agency's own contracts as their top benefit from e-procurement. De-centralized buying processes make it more difficult for the purchasing department to enforce compliance with negotiated, preferred vendor agreements.

Research found the top obstacle to e-procurement for local governments is “too expensive to implement,” a situation exacerbated by current budgetary pressures. System price tags that stretch into the high six or as much as seven figures are more accessible to larger, state procurement organizations, but they remain beyond the budgetary grasp of most local jurisdictions and don't provide the almost immediate payback required for return on investments during current economic conditions. In fact, the previously cited obstacles remain just as relevant today, or even more so when it comes to resource constraints. However, technological advancements have provided new business models to make these systems more accessible and affordable than ever. The ubiquitous nature and familiarity of consumer e-commerce, whether conducting Google searches or shopping from sites such as Amazon.com or Travelocity, have reduced user resistance to on-line buying on the job, while simultaneously raising expectations for ease-of-use from the e-procurement interface.

Overcoming the obstacles

The prospects for rapid adoption of e-procurement by local governments have never been brighter. Let's look at some recent innovations that promise new ways to overcome each of the 10 obstacles originally identified by survey respondents:

1. Too Expensive to Implement

   Known alternatively as “Cloud Computing,” OnDemand,” or “SaaS” (Software as a Service), the availability of secure and reliable hosted applications have dramatically changed the economic model for e-procurement, making these solutions more accessible for even small municipal governments (55 percent of survey respondents spent less than $50 million on purchases). Without the up-front costs for hardware and software, or internal IT resources to run them, government purchasing departments of all sizes can identify budget-friendly solutions with annual subscription fees below six figures, instead of incurring up-front license and implementation fees in excess of $1 million.

2. Lack of Financial System Interoperability

   While many local governments have yet to take the plunge into e-procurement, most have some form of an ERP (Enterprise Resource Planning) platform that manages key internal processes such as human resources (HR) and finance. ERP systems designed to manage intra-enterprise business processes and transactions do not typically address key requirements for e-procurement, however, because unlike functions such as HR and Finance, the key to successfully enabling e-procurement involves inter-enterprise process flows with third-party suppliers. The availability (and low cost) of new technology standards such as XML (Extensible Mark-Up Language) have largely alleviated concerns about integrating e-procurement with back-end financial systems. Using XML, an e-procurement shopping cart can easily be “checked-in” to the back-end ERP system, with cart items coded with appropriate NIGP (National Institute of Government Purchasing) commodity codes that ensure transactions are posted to the correct general ledger accounts.