See what O2 has done

“We’re getting between 50 and 25% savings from our e-auctions, and we have already saved £4.5 million.” So says Paul Greenshaw, major programmes manager for mobile phones operator O2. The firm went for an Ariba spend management software system earlier this year, going live in July after four months of implementation with software for supplier and contract management, and e-auctions. Greenshaw says O2 has already completed five e-auctions to get high profile proof of concept – all with what he calls commodity products and services. For O2 that means: cables for the mobile phone sites representing £4m annual spend; temporary generators for new masts worth £4m; laptops and the like worth £7m; office supplies at £2m; and hotel agreements at £4m. “The savings in each of these was about 50—25%, so it’s been fairly significant,” he says. Savings have come from two main elements. “Using the system forces you to think through your requirement, so you need a two stage approach. First is thinking and offline negotiations with suppliers. Then it’s the dynamic auction. “About half of the savings come from the conventional negotiation part, and 30—50% from the dynamic e-auction. But it’s the system that forces you to do all of it,” says Greenshaw. Simon Lee-Smith, chief procurement officer at O2, adds: “Working with Ariba, we’ve already achieved significant reductions in process time and supplier costs. In fact, we justified our investment with savings from one single sourcing event.” Greenshaw indicates that that the project wasn’t justified on such direct ROI, but first on the net present value versus existing systems over a three year period, and second, on the need to tighten up procurement. “Our auditors found that our buyers had been doing their best, but their practices weren’t consistent.” He refers to the classic RFI, RFP, strategy analysis, documentation and contract formulation and management. And as with very many companies, that variation was costing O2 money. “The Ariba system hard wires in best practice, so that everybody does things the same way. It provides electronic sign-off, with workflow and authorisation, and all the information is stored automatically as a reference for other areas. And it’s a perfect audit trail.” Who else could benefit? Greenshaw believes the system would be viable for any company with more than, say 10 people in procurement and/or an annual spend of more than £10 million, and that they could expect “significant advantage”. “Our total spend is about £30m, and we’ve taken out £4.5m already. You could scale that down two or three times and still easily justify this – although it depends in part on how well you’ve managed procurement in the past.”