Adhesives maker deploys e-auctions across the globe
David Hannon -- Purchasing, 9/4/2003 2:00:00 AM
The e-auction model has received different levels of acceptance from different geographic markets around the globe. The model or strategy that is accepted by a North American supply base may not necessarily be embraced by Asian or European suppliers. And a global sourcing organization needs to be wary of such differences when planning its procurement strategy worldwide.
Global adhesives, sealants and coatings manufacturer H.B. Fuller (St. Paul, Minn.) has some firsthand perspective on this topic. The $1.3 billion firm has purchasing operations in Europe, Asia and Latin America in addition to its North American and global operations based in St. Paul, which coordinate the company's global sourcing strategy for decentralized execution. The company began rolling out e-auctions on the ChemConnect marketplace in late 2002 (after one failed reverse auction attempt in 2000) and has found that its sometimes decentralized sourcing strategy works well in deploying auctions because each geography needs to be approached individually.
"I think the North American suppliers recognize [e-sourcing] is here to stay," says Ed Snyder, vice president of global sourcing at H.B. Fuller. "We get a lot of discussion but at the end of the day, they recognize they can either go with the trend or get left behind. There is some push back in North America but it is less than in other regions. We had more push back in Europe, for example."
In fact, one incumbent chemical distribution supplier of H.B. Fuller's refused to participate in the European bid because of the move to e-auctions.
"In Asia, it appears the suppliers have been bidding [through e-auctions] but not getting business, which has led to some suppliers asking why they should participate if they will not win. So, it may take some upfront coaching in that market. In Latin America, it is just new for them and it will take some time to get the suppliers there used to the tools."
Snyder also feels the chemicals industry tends to have more global contracts in place and is less regionalized than some other industries, which has made the chemicals industry less of a breeding ground for e-sourcing strategies than high-tech or automotive markets. In fact, Snyder's own experience with e-auctions came from working in the high-tech industry before moving into chemicals.
"The chemicals industry has less regionalized supply and more commodities that are global in nature, so there was less of an opportunity to get savings through auctions," Snyder says. "It just took longer to get more traction. The chemical industry's sourcing strategy is more complex than many other industries."
Getting senior-level buy-in on the e-sourcing strategy was not so complicated for H.B. Fuller because the sourcing team knew right where to go. To better manage the sourcing activities, the company created a supply chain council, made up of the CEO and top management, which reviews sourcing and supply chain strategies quarterly. In addition, there are nine more focused strategic sourcing teams made up of key stakeholders in areas such as purchasing, technology, and manufacturing to drive regional strategies for managing raw materials, indirect, IT and other spend categories. Currently, 90% of the company's sourceable spend goes through these teams.
H.B. Fuller has held nine e-sourcing events to date and has planned 20 more over the next two quarters. Its first event in December 2002 involved sourcing a chemical distribution contract with more than 1,000 chemicals and $10 million in spend and brought 10% savings over existing contracts. So far, the focus of e-sourcing work has been primarily on direct materials sourcing.
H.B. Fuller developed a four-phased approach to e-sourcing. The first phase focuses on simply connecting with suppliers electronically. The next phase of the approach involves learning about the auction process and trying hosted auctions and driving internal use. To drive use and familiarity with the tools, purchasing staffers were asked to hold at least three auctions each by a certain date, no matter what the amount of spend involved.
"I have also asked them to do at least five postings for suppliers on the ChemConnect trading exchange by a certain date," Snyder says. "Once they are familiar with the tools, we can better gauge how these tools fit into our strategy. I don't want to target a percentage of spend because it may not drive the right behaviors. The most important thing is to use the tool to execute the strategy."
The third phase focuses on business partner collaboration and the final phase involves using e-auctions as a business intelligence tool.
ChemConnect was selected as the technology provider for e-auctions because of its expertise in the chemicals buying industry. Snyder says ChemConnect helps identify potential auction candidates based on its experience and knowledge of market conditions, suppliers, contracts and other factors. Early on in the relationship, ChemConnect held a mock auction for about 100 of H.B. Fuller's senior managers, using different business managers as mock suppliers to give a real sense of what the dynamics at play are in an auction event.
"It was a fun way to help us understand the sourcing potential for this technology from both sides—selling and buying," says Snyder, adding that the streamlined process achieved with e-sourcing allows buyers to invite a broader range of suppliers to bid on contracts and can help bring more minority- and women-owned suppliers into the mix.
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