States premature on e-procurement

• By Dibya Sarkar
• Sep 03, 2001

State governments are rolling out enterprisewide e-procurement systems without

assessing their current purchasing operations, technological capabilities

and political backing from lawmakers, according to a national study.

Although e-procurement systems may produce a windfall in savings and

improve efficiency, the recently released Forrester Research Inc. study,

"States' eProcurement Road Map," found that states aren't thinking through

their plans. As a result, it may take them longer than expected to develop

a system and to realize benefits, the study found.

"I think governments have the right idea, but they will be frustrated

along the way," said study co-author Jeremy Sharrard, an analyst with the

Cambridge, Mass.-based technology research firm. Forrester interviewed purchasing

directors from 30 state and five local governments, and the majority said

they plan to integrate purchasing into enterprise resource planning by 2003.

The report divided states into four classes based on varied issues,

opportunities and plans. At the top are the "Fundamentalists" that "boast

centralized purchasing operations [and] have distinguished themselves as

e-government vanguards and have tech-interested governors who are most equipped

to take on robust e-procurement rollouts quickly." The report identified

nine states, including Pennsylvania and Massachusetts, in this category.

But the report said that, by far, most states are not equipped to roll

out statewide e-procurement systems. It identified the remaining states

as:

* "Bureaucrats," with centralized purchasing structures and practices

but not the technology infrastructure.

* "Technocrats," which have strong e-government advocates but not a

centralized process to support an enterprise resource planning rollout.

* "Laggards," which come up short in all areas.

Depending on a state's situation, the report recommended outsourcing,

partnering with other states, starting small pilot projects with several

interested agencies, or joining buying consortiums.

The study also found that it is critical to have political support from

legislators and governors, who can gain agency and public support for such

projects.

Funding is also a problem, Sharrard said. Because many states can't

afford multimillion-dollar systems, vendors put up the money and then recoup

their investment by charging suppliers a transaction fee. But this self-funded

model has collapsed, he said, because it isn't profitable for the vendors.

Instead, a hybrid funding model is emerging where states put up some money

and vendors recoup the investment through fewer transaction fees.

Sharrard also said more state governments than local governments are

concerned with e-procurement. He said local governments don't have the funds

to implement such systems and will probably have to wait to join a state's

purchasing system.