High-tech giant pushes e-sourcing across business units
Staff -- Purchasing, 5/6/2004 2:00:00 AM
Every good idea needs a champion to drive it across and down an organization. Cost benefit studies can sell the concept to the C-level titles, but bringing the new process to the end users in a way that shows its effectiveness can be an entirely different process. And that's what the purchasing staff at manufacturing and technology giant Honeywell was up against three years ago when it decided that it would leverage e-commerce technology throughout the company to drive efficiency and cost savings.
As a first step, Honeywell named Rick Placido as corporate director of supply chain e-business in charge of driving e-business initiatives through the diverse business units within the company. Placido had spent 18 years with Honeywell as a supply chain site leader and commodity manger before venturing off to a dot-com for three years. As fate would have it, the dot-com went the way of many dot-coms right about the time Honeywell began looking for its supply chain e-commerce lead.
"My role is to deliver the e-commerce tool to the business units and teach them how it can make an impact," says Placido, emphasizing Honeywell's goal of creating productivity while improving the cost of what it buys.
As part of that strategy, Honeywell began looking into e-auctions to see what kind of impact they may have on the company's overall costs and bottom line. But to optimize the use of the new e-auction technology, Placido felt Honeywell needed to leverage a self-serve tool instead of paying high consulting fees for hosted auctions and then develop internal auction experts to spread the strategy across the corporation.
At the time, the provider Honeywell zeroed in on was PurchasePro (now part of Perfect Commerce), because it was focused on two things: e-procurement and self-serve e-auctions. Perfect provides a supplier database and analysis tools that lets buyers put together a package internally. The tools can pre-qualify suppliers before the auction, which saves time on the back end when the contract is awarded.
One auction leader was established within each business unit in Honeywell to spearhead the tool's use and drive auctioning strategy. Placido describes the effort as more of a ground-up movement from within the business units and not a top-down process, although he did have support of senior management throughout the process.
Placido says the tool and strategy has been very well embraced by the top leadership in the company, but like any process or change, there are people that come easy and some take a while.
"Early on, it takes longer to prepare for the auction than a traditional bid package, but we see results on the back end that make it worth the effort," says Placido. "We have people who use the tool for everything and choose either an auction or a sealed bid format. In aerospace, there are times when it just does not make sense to auction because the supply base is pretty narrow. The dynamics would not be there. And when it comes to putting things in families, there are some parts that just don't fit well into families so you get this disparate group of parts that don't flow well in an auction. There is a learning curve, but it's definitely an investment of time."
In 2003, Honeywell used the tool for 869 sourcing events, either auctions or other sourcing events in both direct and indirect spend areas. By mid-2003, there were more than 1,000 suppliers participating in these events, including a good chunk outside the U.S. and more than 700 users trained.
"The goals for this tool are really wrapped into the goals the business has for productivity," Placido says. "E-sourcing for us is more about finding out if the product fits a model that will allow it to be successful in the e-auction/e-sourcing environment and less about targeting a certain commodity. So we've used it for everything from production hardware to MRO items. It's more about the market for each product. We have some objectives around number of events, but it's more viewed as a tool that helps buyers get to the level of productivity they want. The biggest measuring stick for benefits we use is price over price comparison."
Some Honeywell suppliers have resisted the use of reverse auctions, but others see it as a way to get a chance to bid on a contract they might not have been considered for under other circumstances. Honeywell has also used its auction experience to help some of its bigger suppliers auction product that they buy and share some of the savings. Placido says purchasing staff has consulted with sales on Honeywell's participation in auctions as a supplier.
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