E-commerce will cut stocks, shrink time-to-technology

By By William Atkinson -- Purchasing, 9/21/2000

While some companies be-come involved in e-procurement for one or two reasons and limit their applications to one or two areas, Intel Corp. sees e-procurement as an integral part of its major business strategies. The two most significant strategies relate to inventory levels and time-to-technology.

"When we talk with customers and suppliers, the one thing that everyone seems to agree on is the need to improve management of two major cost items," reports Colin Evans, marketing manager and head of Intel's e-business initiative. "One is the cost of inventory. The other is the time-to-technology transition. Design and marketing processes continue to shrink in our industry."

For these two reasons, just as Intel needs to be able to provide its customers with more accurate information more quickly, the company expects its suppliers to be able to do the same. "The more timely and accurate information is, the better we and our customers are able to manage our inventories, and the better we are all able to deal with technology transitions," he explains.

On the inventory side, for example, when users know that they can place orders closer to the time of actual use (due to speed of the electronic transactions), they can place orders that are more accurate in terms of real-time quantity needs.

And on the technology side, the ability to shift buyers from tactical responsibilities associated with processing requisitions and purchase orders to strategic responsibilities, such as collaborating with suppliers on the next generation of technology, allows Intel to more effectively deal with technology transitions.

Applications

Intel is currently involved in e-procurement in three different areas: indirect materials, direct materials, and capital equipment and construction materials.

In the indirect materials area, the emphasis has been on automating the day-to-day workflow of purchasing these items. "We spend hundreds of millions of dollars on indirect materials, so we want to make the process as efficient as possible," explains Evans.

In this application, Intel uses a third-party provider's system. "We are placing the browsers in the hands of our internal users, who do their own procurement," he continues. By the end of 2000, the system will be connected with hundreds of Intel's indirect material suppliers, and by the end of 2001, Evans estimates that about half of the company's indirect material purchases will be in the hands of users.

In the direct materials area, Intel uses a mixture of systems that integrate with its MRP system and planning capabilities to create direct connections to suppliers. "Some of our systems are home-grown, and some are add-ons to our ERP system," reports Evans.

These additions have been integrated smoothly, largely because of the already existing smooth flow of direct materials ordering. "We don't have individual purchase orders for each line item," he explains. "The majority of the direct materials shipped to our facilities are the result of long-term blanket contracts, either via supplier-managed inventory or specific call-offs against blanket purchase orders."

Privacy of these e-transactions is not a real concern for Intel, given its history of success with transaction privacy in the past in general. "We have always been somewhat extreme about security and privacy related to the data encryption levels, firewall protection, and system security that we require for information flowing between us, our suppliers, and our customers," he explains. "As such, we aren't any more concerned about Internet security than we have been about existing electronic security."

Intel's e-procurement initiatives with capital equipment and construction material procurement have just recently been getting under way, and these operate under still a different system.

Challenges

While the company's inroads into e-procurement have been moving relatively smoothly, there are two challenges that Evans sees.

One relates to standards for connections. "This is also of great personal interest to me," he reports. With the thousands of suppliers and customers Intel has, as well as the thousands of other customers its suppliers have, there is the potential for significantly reduced efficiencies if everyone uses different connections. "We have been working with our customers and suppliers to create the right kinds of alliances that will encourage uniform standards for connections," he says.

The other relates to Internet bandwidth and system performance. "Bandwidth and system performance for sophisticated U.S. companies are much greater than they are for companies in Asia, where we are doing an increased level of purchasing for equipment, materials and subcontracting," he explains. To address these challenges, Intel is taking two steps. One involves helping to design its tools so that they can be used in these "bandwidth-challenged" environments. "The other involves working with the governments, service providers, and companies in these countries to try to improve the infrastructures," he adds.