Purchasing exec urges peers to embrace e-buying

By Kathryn Belyea -- Purchasing, 7/13/2000

Ernest Gabbard, director of corporate procurement at Allegheny Technologies, is implementing an office supply e-procurement program after a successful pilot run. Passionate about procurement-and electronic procurement in particular-he challenges fellow purchasing professionals to stop wading in the shallows and to gain the crest of an advancing wave that will dramatically change the procurement function .

Q: Regarding electronic procurement in general, do you feel that people should jump on the bandwagon, or do you still have reservations?

A: I have zero reservations. But rather than jump on the bandwagon I think we ought to lead. We ought to be the bandleader, so to speak. If we don't lead this revolution, we're going to get left behind. I can see our company as well as many other companies totally changing the way they do procurement.

Q: Some procurement people still have reservations about buying office products online.

A. Office products are one of the easiest things to buy electronically. We're telling people that as of a certain date they will not be able to place an order for office products manually.

Q: Some procurement officers are not satisfied that e-procurement helps them control spending for office products.

A: The essential element of e-procurement is that you get the requesters to place orders for whatever they need electronically, directly with suppliers. But you have to build controls right into the software. Otherwise, you will just empower people to spend any amount for whatever they want.

Q: Have you experienced any problems with your own project so far?

A: Yes, we tried a pilot with one supplier, which didn't work. We also had some problems with initial software from our current supplier. For example, we were unable to obtain our contract prices (vs. catalog prices) online. We were also unable to trace order status. However, new software has been proven to provide contract prices for all items in the supplier's catalog.

Q: What are the skill sets required for e-procurement?

A: One of the major training needs will be to teach procurement people how to manage contracts because that's what they're going to be doing rather than placing purchase orders. Purchasing professionals will establish contracts with preferred suppliers. End users will order their materials directly.

Q: Some purchasing managers attempting to implement e-procurement of office supplies have encountered problems with customer service. They call to follow up on delivery problems only to get the voice mail runaround.

A: When it comes to service, it doesn't really matter how you place an order. If you have a poor supplier, ordering electronically only accelerates poor performance. If they can't supply items in a timely manner, then the system is not working, regardless of how orders are placed.

Q: Having completed a successful pilot, what's the next step?

A: We're rolling out the process to everybody in the corporation. The majority of volume is now done through electronic means, which tells us that people are embracing the process. We're going to establish a date on which they can no longer place orders manually because that's the only way to fully leverage it and to eliminate maverick buying. For example, let's say I'm spending three-fourths of my office supply budget with this supplier, and the other fourth is going someplace else. The leverage comes from instituting a system where people can buy from only one supplier. This gives us the best of both worlds. I get excited about it.

Q: Some companies don't have sophisticated in-house IT departments and may not have resources needed to work out software issues with their suppliers. What are their options?

A: We have a sophisticated IT department but, in this case, almost all the work was done by the supplier. Our function was to ensure that the software interfaced with our systems. The smaller you are, the more you have to rely on the supplier, but if the supplier can't meet your needs, you don't want to do business with them.

Q: Some companies have invested heavily in Electronic Data Interchange (EDI) and can't see how reinvestment in Internet technologies will benefit them.

A: First, true EDI is a different concept from electronic procurement. EDI is a computer to computer interface. There's no human being in the transaction. In e-procurement, an individual can review online catalogs, select products and place orders at pre-established contract prices. Secondly, an investment in e-procurement can be less than EDI.

Q: Some buyers don't understand how you tie e-procurement into back office systems, specifically in relation to invoicing and payment.

A: Electronic funds transfer (EFT) may be the logical choice in the future, but it's probably not the most viable method currently. Invoicing and payment require different arrangements with different suppliers, and I don't think most purchasers or suppliers are capable of true EFT billing and payment. However, most suppliers will accept orders in traditional fashion, such as net 30 days. The most common method of payment is by p-card. A good system will allow electronic reconciliation, so you don't have to print copies of invoices and match them with orders. Say you have 20 people ordering office supplies, and each places several orders in a month. Orders have been entered electronically, so the accounts payable person can match the invoices at month-end with transactions that were entered electronically. Some are doing pay by transaction, but we didn't look at that. That may be a new solution. It's not tested and tried, but it's probably a potential solution for smaller companies not willing to invest in their own software.

Q: How does e-procurement work with multiple suppliers in a given supply category?

A: With an eye to going beyond office supplies, some companies are establishing electronic marketplaces with online ordering capabilities and multiple supplier catalogs. This is obviously a better solution than logging on to different sites with different passwords. Smaller companies might want to outsource this. Larger companies will prefer to develop their own electronic malls for employees, pulling catalogs to their own extranet sites. Our extranet allows our people within our controlled environment to launch out to supplier sites to view their catalogs.

Q: How do you answer the buyer whose system has crashed a time or two and says, "When the computers are down, no orders can be placed!"?

A: Computer outages are going to happen, but everyone acknowledges that they're becoming less frequent with contemporary sophisticated equipment. I've had no experience with an outage for more than an hour or two. If you have an order that's critical, then you have the alternative of calling or faxing-as long as this is the exception rather than the rule.

Q: What about training for end users?

A: This is an extremely important aspect that can not be overemphasized. It's critical to select a supplier who is capable of providing initial hands-on training with users plus follow up or remedial training, within a short period of time, until all end-users are comfortable. I think it's also extremely beneficial to form user groups. They provide a forum for identifying issues with respect to using the system and identifying subsequent training needs after the initial training. You can pick a subset of 20 in a group of 200 users to provide feedback to help identify additional training needs or shortfalls in your initial training.

Q: What's next in terms of e-procurement at Allegheny Technologies?

A: MRO.

Q: Are you planning e-procurement for direct spending as well?

A: Eventually. We have no choice. If we don't, other people will. I would rather be a leader in this revolution than a casualty.