Purchasing develops tools that lead to new strategy
By Staff -- Purchasing, 4/20/2000 2:00:00 AM
The procurement operation at Microsoft is taking big steps toward becoming more strategic.
Perhaps the greatest enabler has been use of a suite of technical tools that has virtually eliminated transaction-processing activities previously performed by the procurement (as well as the accounts payables) operation.
The tool developed by Microsoft for its use internally electronically processes 99.8% of the company's requisitions for MRO goods and services, a total of about $5 billion annually. The tool, called MS Market, is used by 11,000 requisitioners to place 8,000 orders a week for office supplies, computer hardware and software, business cards and other MRO items in nearly 50 countries. It has reduced the cost to process a purchase order from $60 to $17.
In four years, MS Market has helped to reduce transaction-processing costs at Microsoft by $18 million.
Both procurement and IT (information technology) had a hand in developing and deploying MS Market, says Lisa Haistings, senior product manager. "We developed the tool internally because there was no external solution available at the time." Haistings is responsible for deploying technology tools within the procurement and accounts-payable department.
MS Market, which is available to all requisitioners on the corporate network, is comprised of catalogs that contain products available from Microsoft pre-qualified suppliers. Through a set of decision-making rules, end users are led toward placing their orders with these suppliers.
"Because of its corporate culture, Microsoft does not mandate that its employees purchase supplies from the suppliers selected by procurement," says Lonnie Pacelli, director of corporate procurement.
Five years ago, Microsoft had no centralized procurement operation to speak of, says Pacelli, who has consulted with Fortune 500 companies on their procurement practices and systems while working at Andersen Consulting. He came on board at Microsoft as an IT program manager, working to deploy another Web-based tool used by procurement, Microsoft Invoice.
In the early 90s, procurement at Microsoft was mainly tactical. Evolving throughout the years, the group now is made up of 23 procurement professionals, located at the software company's Redmond, Wash. headquarters. These professionals process virtually no paper transactions whatsoever, says Pacelli. They are trained, experienced procurement business specialists. Another 40 professionals who perform purchasing activities are located throughout the world.
Microsoft's corporate procurement group now focuses mainly on the purchase of business process outsourcing, contingent staffing and labor, desktop technology (PCs), enterprise hardware and data center services, enterprise software and telecommunications, and marketing.
Within MS Market reside the catalogs of 12 Microsoft prequalified suppliers, which provide some of these products and services to the software company. The catalogs are hosted by Microsoft. Suppliers provide content that includes pre-negotiated prices, and they update the information on a regular basis. The software does not connect end users directly to the suppliers via the Internet. It does however generate requisitions that run through an approval process before being sent to the company's SAP financial system. SAP then generates a PO, which is either e-mailed or faxed to the supplier. MS Market also alerts the legal department about orders that are placed from the prequalified agreements.
To use MS Market, little training is necessary, says Haistings. Although the company does provide instruction on the intuitive package to new sites which come online.
Microsoft also developed and deployed a tool for use by suppliers, called Microsoft Invoice. This tool provides suppliers with capability to send invoices to Microsoft via the Internet. Microsoft Invoice allows suppliers to invoice the company with or without PO interfaces within the SAP system. "Basically the tool acts as a front end to SAP for suppliers," says Haistings.
The tool, which has been in place for two years, is used by 7,000 users in nine countries. Benefits to Microsoft include cumulative savings of $20 million. "It virtually eliminates headcount to process invoices," says Pacelli. With the tool, suppliers have full visibility and capability to inquire on the status of their invoices. They also have full visibility of their PO. Once the invoice is approved and accepted, it gets queued for payment. It helps to ensure that suppliers are paid within terms.
"We were initially concerned that suppliers might balk at having to enter their invoices this way," says Pacelli. "But they gain control over the process. Their invoices do not wind up in a dark hole. The invoices are always visible to the supplier and Microsoft business owners."
Successful deployment of these tools has led procurement to a "new frontier," development of a tool that helps steer end users to the company's prequalified suppliers. "We are currently working to better match buyers and suppliers," says Pacelli. "With agreements in place we can better leverage our pricing and ensure that we are getting consistent service from location to location."
Over the next 18 months Pacelli says that his focus will be on "transforming procurement managers into 'small business owners,' getting them to think more about matching buyers and sellers and ensure that we are offering end users the right suppliers and products."
Where end users are not using pre-qualified suppliers, "we need to find out if there are problems with services or whether users just prefer to use other suppliers," says Pacelli. "If it's the latter, then perhaps we should evaluate that supplier to see if he or she should become a Microsoft prequalified supplier."
At the same time, "we will continue to focus on ensuring MS Market is a decision-making tool' and offering our customers an end-to-end procurement solution," says Pacelli. "Not all supplier relationships can be supported by a catalog of goods and services. We need to ensure if an end user knows what they want and that they get it from the right supplier. If they need assistance in defining what they need to buy then that service is available. Both internal and external customers need visibility to the full procurement process, from requisition to payment."
Pacelli suggests that other procurement professionals interested in taking similar steps at their organizations try not to develop "a be-all solution." It's more important, he says, for procurement "to get something operational and to get requisitioners to use it."
At the same time, it's not a good idea to automate purchasing of all commodities at once. "MRO is a great place to start," he says. "Take one high-volume commodity such as PCs and use it as a learning commodity. Then start adding commodities."
He also strongly recommends that procurement enlists top management support and have a crisp communication plan to end users to promote usage of the tool.
The procurement organization at Microsoft also uses technology tools for expense reporting and MS Market supports internal services such as travel and desktop shipping activities.
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