A revolution began on 30 June this year, with the world’s first transaction in an electronic marketplace in the utilities sector. But this historic moment was not reached without a huge amount of time and effort.

Only four weeks before, when the experts had arrived to install the system, it had seemed a tall order. But now, we’re reaping the rewards of that effort.

Last year, it became clear that the company wasn’t fully benefiting from its supply chain management. While the procurement, logistics and warehousing sections of our business were run automatically by our core business system, SAP R/3, a large amount of time was still taken up by lengthy manual purchasing procedures.

When dealing with suppliers, an order form had to be completed and posted to the supplier. The supplier would then post an acknowledgement back to us and, once they had processed the order, deliver the required materials. We would then have to crosscheck the order manually, before forwarding the details to our accounts-payable department.

This meant we had to go through the same laborious process for a small, one-off purchase of stationery as for a large order of cable. It was lengthy, for both staff and the suppliers - there were sometimes several weeks from order to delivery. There was also a large potential for human error.

By September last year, when we were considering how to solve these problems, e-commerce was becoming an increasingly hot topic in the utilities sector. We were frequently invited to seminars and inundated with calls from consultants. Despite attending a lot of meetings, we went through a period when we didn’t really understand how to apply e-commerce to our company. We faced a steep learning curve on the technology and terminology.

As we were one of the first utilities companies to consider implementing e-commerce, consultants could not provide all the answers. Even looking at companies in other sectors was of limited use. It seemed that little integration and few actual transactions were taking place - certainly far fewer than the newspapers seemed to suggest.

We also considered devising our own solution, but one problem seemed insurmountable. Integration with our systems would require heavy investment by our suppliers. As other utilities companies would eventually develop their own systems, suppliers would be in the ludicrous position of having to pay to integrate with each companies’ programs.

Meeting needs

A turning point in the development of our e-commerce solution came this March, when we attended a meeting for UK utilities companies organised by Achilles Marketplace. We already had a lengthy relationship with Achilles, which works on procurement processes for many utilities companies. Along with its technology partners SAP and Requisite Technology, it explained its vision of an online marketplace for the utility industry. The aim was to create a central hub for all UK utility purchasing activity.

We soon realised that this marketplace would solve our problems. If all the utilities companies and their suppliers integrated with this one marketplace, we could all trade together online.

From May this year, East Midlands Electricity (EME) became involved with the development of the marketplace, both on the technology side and promoting its benefits to other utilities. We gave the project our full support and were keen for the first transaction on the site to be between EME and one of our key suppliers. A target date of 30 June was set for the ground-breaking deal.

To meet this target, which required a heavy investment in hardware, it was essential to have top-level support within EME. Our executive directors were involved at every stage, were very happy with the route we were taking and gave us their support.

By the first week of June we had started to install our own “buy-site” on the marketplace. SAP’s core project team began working with EME staff to install the solution. We knew that this type of project would usually require a minimum of 12 weeks and could take up to a year, but we had four weeks.

While EME and SAP were working together on the project, the first supplier to join the site was also undertaking extensive preparations. BICC General, our leading cable supplier, had agreed to commit to the target transaction date. Requisite Technology catalogued all BICC General’s products for inclusion on the marketplace.

Online debut

Not surprisingly, we encountered several teething problems. These ranged from technical issues to the air conditioning system breaking down, but at 1am on 30 June, the online transaction for £170,000 of cable took place between EME and BICC General.

For direct goods such as cable, the SAP R/3 system monitors existing warehouse stock, takes forthcoming orders into account and calculates our procurement requirements. An automatic order is then generated through the marketplace and sent directly to the supplier.

This online system eliminates human intervention - in addition to all the manual purchasing processes being removed from the front end, the accounts department no longer has to generate manual payments. And it’s not just purchasers that will benefit. These time savings and cost reductions are relevant for suppliers as well.

We are inviting suppliers to workshops to demonstrate the benefits of subscribing to the marketplace. Unsurprisingly, several suppliers were initially cautious, suspecting that marketplaces would need substantial investment and that purchasers will use them to push down prices. But once they see the marketplace in action, and discover that BICC General is already making big savings, they usually take a very different attitude.

We are still at a relatively early stage in our e-procurement strategy, but we expect to see significant benefits. We are now working to get more suppliers online. Our target is to get the 50 key suppliers, accounting for up to 90 per cent of our purchasing spend, online by the end of the year.

In the future, the marketplace will also have a significant impact on our purchasing of indirect goods, such as stationery, hotel rooms and other one-off purchases. EME staff will be able to access the marketplace from their desktops and, using a shopping basket system, make purchases as they would on a consumer website.

As well as removing manual procedures, this means our staff will only be able to purchase from approved suppliers, allowing us to eliminate rogue purchasing. It also means we can secure the best deals available.

We are convinced that we’ve made the right decision. We expect to recoup our initial investment in the first year, but this was not our key driver. By joining the marketplace, we are improving our business and realising scaleable efficiencies that can be passed on to our suppliers and in turn filtered down the supply chain.

Jim Whittaker is asset investment manager at East Midlands Electricity