Companies make a mistake if they think that technology alone will bring the benefits of electronic trading. Understanding the unique needs of the business and good planning will have a much bigger impact on making e-procurement a success.
This was the main message at a seminar in London hosted by supply chain management vendor i2 into how enterprises can effectively deploy strategic sourcing technology.
‘You must understand from first principles what is best for you. You can’t just copy what other people do,’ said Professor Andrew Cox, director of the centre for business strategy at the Birmingham Business School, University of Birmingham.
‘Just because someone else is doing it, doesn’t mean you should be doing it. Be clear on your focus and understand your strengths and weaknesses.’
One i2 customer took this approach to streamline its procurement processes. Hewlett-Packard made the decision in Spring 2000 to increase the efficiency of its direct materials procurement.
Its goal is to put 80% of its procurement processes on the Internet by 2004 and to measure the benefits of doing that along the way.
‘We had 83 product organisations and supply chains enabling each of those divisions,’ said Jeff McKibben, director of the worldwide e-procurement program at HP.
‘We also had a culture of real autonomy and it was a point of pride. Decentralisation was an aspect of the company we had to address because each development done by a different division was not well leveraged from one division to another.’
After the initial assessment the company decided a private e-marketplace was the best way to proceed.
An e-marketplace is an online community where groups of buyers and suppliers meet to trade goods within agreed specifications and timeframes. Private e-marketplaces are run by a single buyer who wants to connect to a number of suppliers.
HP had begun by trying to write the system itself, but then settled for a ready-made package.
‘We started in 2000 and were already doing some collaboration so we went in-house. But in the long run we knew we could not afford the investment to build a marketplace,’said McKibben.
‘We chose i2 because of the robustness and scalability of the solution. These were problems with our internal platform.’
HP is using i2 Supply Chain Collaboration as the basis for forecasting and inventory collaboration.
To date,the marketplace has saved HP more than $30m, according to McKibben. On average in the first year it has made a 10% saving in material sourcing costs and increased the amount it makes from selling off excess inventory to around 80 or 90 cents on the dollar.
‘In some cases we have recovered more than we paid,’ said McKibben.
Measuring results in this way is one of the keys to success, according to HP. It advised ompanies to define a roadmap for roll-out of the system and to tolerate variations in different business units. It is also important to give suppliers options in how they access the marketplace.
Cox said that the technology choice should come only after a thorough analysis of requirements. ‘You have to be very careful about technology. You have to understand what you are doing but there are massive opportunities if you get it right,’ he said.
Integration underpins success in streamlining sourcing and procurement according to i2, but customers warn of the complexity.
‘The future is in integrating it all. Most customers are looking to pull together sourcing and procurement. It’s about cleaning and standardising data in the organisation so that world class sourcing can take place,’ said Nick Ford, head of business development for i2 in Europe.
HP warned that integration comes with disadvantages if you are choosing the best software to meet each business need.
‘[We were] tempted to solve [the problem] by best of breed but the issue with best of breed is integration, which is a challenge,’ said Mckibben. ‘There is a price to be paid for going best of breed.’
HP is now considering i2 in other areas such as strategic sourcing although it said it has no time frame for this.