Easing into e-procurement with indirect spend
David Hannon -- Purchasing, 2/19/2004 2:00:00 AM
"You need to approach the jump to e-procurement methodically," says Glen Lewis, western region procurement manager for San Francisco-based Del Monte Foods. "You can't just jump out there. You have to do your homework, map out and understand your current processes. You have to flow-chart your processes and don't assume anything. If you have five people explain the process, you may get five descriptions."
That's the mindset Lewis took to moving Del Monte's spend online. Del Monte divides its purchasing operations by its three geographic regions, but has a centralized purchasing function at its San Francisco headquarters. Integrating operations from the 2002 acquisition of the nonketchup business units of H.J. Heinz (everything from Star Kist tuna to 9 Lives cat food) kept Del Monte's buying organization pretty busy. But even before that deal was in the works, Del Monte began an effort to reduce costs company wide and rationalize its supply base for improved cost savings. Toward that end, Del Monte began some new efforts to automate its purchasing operations. After years of faxing and phoning orders to suppliers, Del Monte introduced procurement cards from Bank of Montreal for its indirect buying in the late 1990s. The p-cards eliminated invoices and other accounts payable paperwork and helped capture more detailed, line-item spend data than the old manual processes.
But by 2000, Del Monte decided that it needed to streamline its purchasing operations even further and extend the electronic capabilities to a broader set of suppliers. Lewis, who spearheads Del Monte's e-procurement efforts nationwide, says he had been eyeing the e-procurement tools available throughout the 1990s, but wanted to make sure the technology was mature before he implemented a tool to further automate the indirect spending.
After reviewing the different tools available, Del Monte signed on with Datastream (Greenville, S.C.) to implement the Datastream 7i Buy e-procurement module. The tool provides electronic transmission of purchase orders to suppliers, which reduces ordering errors, streamlines the purchasing process and brings valuable cost savings. In addition, Lewis says one of the reasons Del Monte was sold on Datastream was its experience in asset management and tracking. The Datastream suite's capabilities would allow Del Monte to track delivery and performance results and monitor inventory more closely than many other e-procurement tools.
Lewis was very deliberate in his approach to targeting indirect spend categories in the early e-procurement days, saying, "Office supplies are a good lab rat category to start e-procurement. No matter what functional area you are in, you can identify with copy paper and pens. Some people target the areas where they spend the most, but to me that is a mistake. You are better off focusing on where you can get early successes and everyone can learn the process and understand the objective. Everyone can validate that this works and then from there you can take it to the next level."
Del Monte has not rushed to put the majority of its indirect spend online. Currently, about 30% of its indirect spend is on the Datastream tool. Savings in most categories have averaged greater than 15% but vary by category. Lewis says buyers that go in with stars in their eyes thinking they will get 50% price reductions are dreaming, but the consistent level of savings and process efficiencies gained with e-procurement are more than enough to keep Del Monte happy. On the process efficiency side, Del Monte has punch-out connectivity with some suppliers to integrate directly into the suppliers' systems, reducing order times from days to hours.
"We've flow-charted the process and done time studies showing the associated time with each step under the new system and we can clearly see the benefits there," Lewis says. "The process efficiencies are enormous. The old dog is learning new tricks. On the supplier side, some take the ball and run with it and some kick and scream the whole way."
Lewis says Del Monte suppliers have, for the most part, accepted the effectiveness of the new toolset, realizing it can make them more efficient in inventory management and electronic payment. The technical competence of the suppliers weighs heavily in supplier evaluation in this new e-procurement environment. "They have to have the technical resources to be able to do this," says Lewis. "As we consolidate suppliers, that is a heavy variable. Also, their spot on the technology curve comes into consideration. We have suppliers that provide a flat spreadsheet file with item number and description at the lower tier right up to the ones we punch out and integrate directly to their systems."
Measuring indirect spend via KPIs
10/06/2004
Now Playing: 