Getting Started In E-Procurement

Dec. 21, 2004

Where should a company without an e-procurement program begin? The majority of companies start with indirect materials or services because those tend to be standard items: corrugated paperboard, office and factory supplies, MRO items, janitorial services, lawn care and even temporary labor. "We have focused on high-spend commodities," says Michael Mendoza, global e-sourcing leader at Owens Corning Inc., Toledo, Ohio. "About 7% to 8% of the corporate spend is now on auction. I think we can put somewhere in the neighborhood of 25% to 30% on auction." Yet others, such as Hewlett-Packard Co. (HP), Palo Alto, Calif., started with direct (production) materials such as logos and memory chips and are now looking at e-procurement of additional product components such as power cords, power suppliers, cables, fans and motors. Regardless of where companies start, it's imperative that they look at their business processes and the processes of their partners and "ask themselves what has to change for this to work," says Karlie Arkin, e-marketplace manager for HP's Supply Chain Services. Often, melding, refining or replacing disparate systems is a top priority. "You must assess the magnitude of the undertaking and come up with one single supply-chain process that you can use across multiple business units throughout the company," says Robert Piconi, general manager of supply-chain strategy and architecture at Lucent Technologies, Murray Hill, N.J. "You can't buy the [software] first and then redo the processes. You must assess your processes and marry [them] with the right software." In addition, says Mountain View, Calif.-based Albert Pang of research company IDC, there are a number of strategic decisions that a company must make before it begins e-procurement. "Even if you are just using it for indirect materials, you have to figure out how many suppliers you will use and what you need to do to convince them to use this system," says Pang. "And you will need to connect purchasing systems to back-end applications such as finance, accounting and inventory management." It's also helpful if companies build variables other than price into any bidding or e-procurement process. "An end-to-end solution that integrates data and evaluates the variables safeguards against the natural tendency of purchasing people to be price-driven," says Steve Ricketts, vice president of marketing at Emptoris Inc., a sourcing solutions firm in Burlington, Mass. "It allows a company to evaluate the trade-offs and buy on the total cost of ownership -- not just price." Indeed, building variables into the bidding process, he says, is essential for companies that want to use e-procurement for direct materials in order to "determine the optimal relationship among price, quality and delivery." All that planning, however, will be wasted without training. "You need to train employees in its use and tie it to the overall performance of the enterprise to succeed," says Piconi.

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