IBM uses the Web to transform production purchasing
By StaffStaff -- Purchasing, 4/22/1999
At IBM, the push to use new technologies to change the way production purchasing works with suppliers has never been greater. In the mid-1990s, IBM spent 25¢ of every dollar earned on outside suppliers. Today, the company spends 55¢. Says John Paterson, vice president of production procurement and reengineering, "Two years ago we recognized the need to integrate with external suppliers. The path we chose was the World Wide Web."The goal is to exploit the Web in all aspects of procurement, from gathering market intelligence to negotiating and selecting sources, to order, invoice, and payment. "We are building fairly simple applications," says Paterson. "If we don't see a commercial application, then we build it ourselves. The average time to build a Web application is only three months and costs just $50,000."
One application that struck a nerve with Paterson was IBM's deployment of Web EDI. "I've been with IBM 28 years and I well remember our efforts with traditional EDI," says Paterson. "We had long and painful discussions with suppliers. I guess we took about five years to get 800 suppliers on EDI." By contrast, deploying EDI over the Web netted 800 suppliers in just two months.
IBM now uses Web applications to transmit electronic graphics on the Internet to core suppliers, to share contracts globally so that new contracts don't have to be reinvented, and to transmit its bill of materials to printed circuit board assemblers.
That last application took three months to write and cost $70,000. Now PCB contract manufacturers send back to IBM the prices for all the components in the bill of materials. IBM then analyzes the data to see if Big Blue can get any parts more cheaply than the contract manufacturer can. IBM expects $200 million in savings from this project alone in 1999.
Saving money and transforming the procurement function has been satisfying for Paterson. But the icing on the cake was kind of nice too. "Procurement got coverage in IBM's annual report last year, and I don't think that has ever happened in the past 75 years," says Paterson.
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