Success depends on much more than supplier pick
By Mark Vigoroso -- Purchasing, 11/19/1998
Enterprise e-commerce systems are not built in a day. And with good reason. Vastly disparate product offerings, rapid technology evolution, brief track records for e-commerce system providers, and a sparse installed customer base make system selection subjective at best, and a guessing game at worst.To succeed in choosing an appropriate e-commerce system, purchasing, IT, and management must study and understand not only the e-commerce application and the e-commerce system provider, but, perhaps even most importantly, they must assess their own company's readiness for online procurement.
Buyer preparation is key
"E-commerce systems often fail because companies are not ready for them," says David Alschuler, managing director of electronic business at Aberdeen Group, "not because of supplier shortcomings."
For pulp and paper manufacturer Weyerhaeuser Co., the process of getting ready for e-commerce began with a strategic assessment and reevaluation of their procurement function in 1995. "Purchasing had always been fragmented and decentralized, so we needed to get our arms around our spend and our supply base," says Scott Walker, director of finances and business processes for procurement and supply management. "We then created a vision around procurement from a process perspective, with a focus on automation and consistency in processes."
Three years later, Weyerhaeuser has consolidated a large portion of its MRO spend and is in the selection process for an electronic catalog and requisition tool aimed at 18,000 work stations across the company by the end of 1999. In the first phase, requisitioners will have controlled access to an array of preferred suppliers' catalogs on the company intranet. Looking forward, the system will interface with an ERP system and promote increased supplier automated interaction. "Our strategic and business process changes are much more important than our software pick," says Walker. "The system will facilitate both procurement-card and EDI payment methods."
Similarly, buyers at Eastman Chemical Company viewed e-commerce as a solution to extended cycle times and fragmented spending. "We embarked on three pilot projects to reduce cycle times for indirect production materials," says Eddie Page, purchasing manager, "and about a year into that study, we realized we needed to look at the benefits of Web technology."
As part of an evaluation team comprised of Eastman buyers and IT staff, consultants conducted a two-month analysis of Eastman's procurement patterns. The team discovered that one-time spot buys with purchasing cards were preventing Eastman purchasers from consolidating their buying power.
After evaluating five major players in the e-commerce provider market, Eastman settled on Commerce One's Commerce Chain Solution. In a pilot scheduled for launch later this year, Eastman employees will be able to buy office and lab supplies at negotiated prices through key suppliers' catalogs on their company's intranet. And the timely steps of invoicing, receiving, stocking, and issuing will be skipped, delivering the goods directly into the hands of the requisitioner.
Moving to an online buying model was a necessity for Denver-based electronics contract manufacturer, eftc. "It was critical to our survival," says Bob Child, vice president of vendor management. "Dealing with 43 distributors, our buyers were using the phone on every requisition and distributing four paper copies of every purchase order."
Child developed a proprietary network called JIT-Net that automatically disseminates eftc's MRP information to preferred suppliers. For any part that is needed within 21 days, a purchase order is automatically issued and the part is delivered within a three-day window. "We're down to three preferred suppliers and no paper trail," says Child.
Software screening
Indeed, an in-house "soul search" may be just as important as a conventional sourcing strategy when considering an e-commerce system. But once an internal readiness is established, there are distinct performance criteria that buyers tend to look for in an e-commerce application.
1. Cost-effectiveness. A "buy-side" e-commerce application, where supplier catalogs are replicated and standardized, and then accessed through the buying company's intranet, can cost millions of dollars. Installation, customization, and technical support can run up a bill too steep for many companies' budgets. But the justification is that the returns will far outweigh the initial investment, by as much as 500%, according to Commerce One estimates.
"In acquisition costs alone, we're looking at 3% to 5% additional savings above and beyond traditional routes of supplier partnering or supply-base optimization," says Weyerhaeuser's Scott Walker.
A "sell-side" e-commerce system, where suppliers simply make their catalogs available online to password-wielding buyers, costs no more to the buyer than the price of an Internet connection. But this model is not considered an end-to-end solution, and many purchasing organizations are using it as an inexpensive foray into online buying.
Such is the case at pharmaceutical manufacturer Eli Lilly. Buyers can access BT Office Products' online catalog and source items that have been pre-approved by purchasing. "Two years ago, we never would have considered buying on the Internet," says Emerson Brown, senior sourcing associate in purchasing development. "So we're using this free system as our pilot before we consider moving to a broader solution."
2. Integratability. E-commerce systems are costly enough without having to reconfigure existing ERP or account management systems. For this reason, most buyers are looking for near seamless integration.
"Our IT resources are scarce with priorities such as Y2K," says Weyerhaeuser's Scott Walker. "So any outside e-commerce system must be laid in very simply, fit our technology framework, and compliment our ERP strategy."
At Eastman Chemical, one of the deciding factors in choosing Commerce One's Commerce Chain Solution was its compatibility with SAP's R/3 environment. "We were looking for strong ties to SAP and to Microsoft's Windows NT and Site Server platform," says Eddie Page.
3. Scalability. Accounting for changes in the volume and nature of requisitioners, products, and suppliers is a must for any e-commerce application. At the pilot stage, most companies start with a few types of indirect production materials, key test facilities, and some preferred suppliers. But as the program evolves, it must be able to accommodate a new supplier's catalog, or 10,000 new concurrent users, for instance.
"We're starting with office and lab supplies," says Eastman Chemical's Eddie Page, "but in the long term, we want this to be our primary procurement vehicle for routine items like hand tools, janitorial and welding supplies, and consumables."
In addition, capabilities that a buying organization may not opt for at the outset should not be a chore to implement further down the road. In the longer term, Eastman plans for routine commodities to be available through their intranet, as well as RFP and supplier-selection capabilities.
Jon Corshen, vice president of product marketing at trade'ex Electronic Commerce Systems, Inc., says scalability is key: "A component-based architecture with decision and bid analysis, supplier collaboration, and negotiation modules allows for an interchangeable, plug-and-play functionality."
4. Ease of end-use. Any amount of technological sophistication or high-level strategizing is worthless without a user-friendly "front end." The long chain of a enterprise-wide e-commerce system won't subsist if the weakest link is the very first one.
With Eastman Chemical's online buying system, users are guided by on-screen "wizards" and can place an order with as few as three mouse clicks: Enter desired product, select from qualified suppliers, and place the order. To truly free their purchasing pros from labor-intensive, transaction-focused steps, the requisitioner must be comfortable making purchases within the limits of built-in buying rules. "We were looking for a single entry point into the system," says Eddie Page.
Brian Caffrey, president of Solutions Consulting Group, suggests that the importance of understanding user culture should not be underrated. "Employees have to want to use the system. The user interface must be simple and even aesthetically pleasing."
5. Supplier buy-in. Smooth interface with the e-commerce system is just as important for participating suppliers as it is for the buyers. Eastman's key suppliers, for instance, receive orders electronically into their sales systems, saving them time normally spent on the phone and saving money from lower inventories sustained by predictable purchase patterns. Further, they can modify their catalog content on the fly through their Web browsers.
Tim Minahan, senior analyst at Aberdeen Group, advises purchasers to weigh supplier buy-in very heavily in their e-commerce system selection process. "Look at the impact the system will have on your suppliers," says Minahan. "Will they be willing and able to support the new technology and workflow?"
Suppliers are integral to Weyerhaeuser's e-commerce strategy. They looked very closely at how their e-commerce system would impact their suppliers and even involved them in the system selection process. "It's just as expensive for a supplier to process a sales order as it is for us to place a purchase order," says Scott Walker. "Anything we do to save them money, saves us money."
6. Ease of maintenance. Once an e-commerce system is installed and operational, maintaining its content and functionality should not be major responsibilities for buyers nor suppliers. In-house IT departments should be able to handle routine network maintenance, buyers and/or suppliers should be able to manage catalog content through an intuitive Web-based interface, and purchasing departments should be able to easily modify any buying rules set for end users.
Provider perks
As with any supplier, buyers should practice due diligence with buy-side e-commerce system providers. With e-commerce companies, track records are short and installed customers are rare, so some may be looking to build their customer base first, and satisfy individual customer needs second. Consequently, aside from the actual application, vigilant buyers question certain performance criteria within the software company itself.
1. Does the company understand your business? "How well does the e-commerce system provider know my business, other than on a theoretical level?" is one question buyers should ask themselves, according to Brian Caffrey. "The e-commerce company should have an intimate knowledge of the culture, process, and working environment of a prospective customer."
It's largely up to the buying organization to educate the software provider on its buying patterns and processes, but the system provider should come to the table with at least a rudimentary understanding of how the industrial supply chain works. Caffrey even suggests looking for a procurement background in the e-commerce company's personnel, or at least some experience in management consulting.
2. Are strategies aligned? In an e-commerce provider, buyers should look for a technology strategy that fits with their procurement strategy. For instance, if the buying company wants the end user to have buying power, as is the case with Eastman Chemical, then the system should be capable of supporting buying rules and user profiles. If they want to be able to access multiple suppliers' catalogs, then the e-commerce system should provide for data scrubbing and standardization.
Weyerhaeuser evaluated nine e-commerce companies before narrowing the field. "We looked for technology and procurement strategy fit across an array of e-commerce system providers," says Scott Walker. "If any were way off the mark, we tended to avoid them. We want to align ourselves with a provider that aligns well with our procurement and IT strategies."
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