Cargill: Unready suppliers slow move to e-procurement
By David Hannon -- Purchasing, 12/13/2001 2:00:00 AM
While many adopters of e-procurement technologies have visions of streamlined buying and fast returns on investment, the ride for many has not been so smooth. "We've struggled with the whole electronic purchasing area," says Gayl Bunes, e-procurement project manager at Cargill, an international marketer and distributor of agricultural products based in Minneapolis. "We still believe in all the benefits of e-procurement and we believe the benefits are attainable, but it has taken us much longer than we thought it would because of [a lack of] supplier readiness," Bunes says.
Supplier readiness for e-procurement differs from company to company and from industry to industry. For example, suppliers to telecom OEMs may be more prepared for online buying and selling than are suppliers to a major agribusiness company.
In its move to online buying, which was launched formally in September 2000, supplier consolidation was a major goal for Cargill. Of the 46,000 North American indirect materials suppliers from which Cargill buys, only 160 are preferred suppliers, accounting for just 20% of the company's $3 billion annual indirect spend. Cargill's goal is to reduce its total number of indirect goods suppliers from 46,000 to 5,000.
"We have many suppliers with whom we spend less than $1,000 a year," Bunes say. "We're trying to eliminate these smaller suppliers because we know there are big bottom-line savings to be gained by consolidating and leveraging our supply base. The question is 'How do we do that?'"
Bunes says that when Cargill approached its preferred suppliers about offering electronic catalogs, the suppliers were all for it. But the project hit some delays, she says, as most of the suppliers had yet to go online with their catalogs.
"[The suppliers] said, 'Yes we're willing to do that.' But when those companies went back to their management to tell them what would be required, many said they weren't ready. They needed to set up teams to find out how to provide the needed information and do business electronically, not just with Cargill, but with all of their customers." Bunes says. "I would say all suppliers are ready, willing and able," she adds. "But, sometimes it's a matter of timing. They want time to figure out their strategy and they say it will take three months. We say 'Okay.' We want it to be good for both of us."
With that in mind, Cargill targeted indirect suppliers it believed were more likely to be e-ready in the beginning. These included electrical distributors, mechanical distributors, and providers of office supplies and computers.
"These types of suppliers are consistent across all of our business units and they represent the majority of our spending," Bunes says. "These are also the suppliers that have been willing to provide catalogs."
Cargill sells everything from animal feed to meat to steel. Its purchasing is very decentralized to suit its diverse businesses. The company's small, centralized purchasing department helped the various business units to decide which suppliers to target for online catalogs. And if a major supplier has been unable to provide an online catalog, then Cargill has tried to establish some type of alternative electronic buying process. However, suppliers to Cargill are made aware that their online preparedness is a consideration in the company's move to consolidate its supply base.
So far, the percentage of suppliers on the company's Ariba system remains minimal, but the streamlining effects are already evident. About 81% of Cargill's indirect spending transactions are below $2,500, which means a great deal of management time had been spent reviewing and approving small purchases. To streamline that, the company now permits Ariba system users to purchase up to $2,500 worth of goods and services without additional approval. For requisitions that need approval, e-mail notification and online approvals have been implemented to further streamline the process.
Another step that has streamlined the process at Cargill has been the introduction of an e-catalog automation tool from Cardonet Inc. of Santa Clara, Calif. The software standardizes all product descriptions in a catalog so buyers can search and find what they need more efficiently. For example, if a buyer is looking to buy a black pen, the concern about different abbreviations and spellings is eliminated. One supplier may list black pen as "blk pen" while another lists it as "pen, black." The Cardonet software corrects this and lists all products consistently. Before new catalogs are brought online now, they are put through the Cardonet system to ensure consistency.
The overall e-procurement project is progressing every day and Cargill now has 36 catalogs and more than 250,000 line items online. "We have $8 million per month going through the system right now," Bunes says. "We expect to expand that significantly by May 2002."
Cargill's long-term plan includes moving international suppliers onto the Ariba system, but the level of e-readiness for many of these companies is even lower than readiness among U.S.-based suppliers. For now, Cargill is focusing on its domestic suppliers and letting the rest of the world catch up.
"We could spend a lot of money and time, but if the industry isn't mature enough, we won't get very far," says Bunes. "We're focusing on the U.S. to learn the lessons."
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