Contract manufacturer uses e-procurement to become more competitive on costs

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

NatSteel Electronics, the $3 billion Morgan Hill, Calif.-based contract manufacturer, became involved in e-procurement for three reasons having to do with the company itself, its suppliers, and its customers.

"First, you can only take so much money out of the cost of parts," explains Al Sardella, director, supply chain management of the Americas for the 12,000-employee company (275 of who are in purchasing). "After that, you need to look at the way you do business with suppliers and find ways to make it more efficient. E-commerce provides you with new cost-savings opportunities."

A second reason was to strengthen its relationships with strategic suppliers. "This is especially important in today's critical shortage environment," Sardella explains.

Third, customers were beginning to expect it. "E-commerce provides me with a way to manage information in real-time, which helps me react to our customers' needs," he continues. "In addition, there are a number of companies out there who have been telling their contract manufacturers that, if they don't invest in Web-based solutions, they won't get their business. As such, we see e-commerce as a way to expand our customer base."

NatSteel currently uses e-commerce tools to purchase many of its production products and materials. Given the strategic nature of these items, Sardella sees little if any opportunity to outsource any e-commerce activity. "Since our personal relationships with our strategic suppliers are so critical to our continued success in fulfilling our customers' requirements, we would not really consider outsourcing any of these activities."

At first, internal users had some concerns with the system. "Anytime you change, you move people out of their comfort zones," Sardella notes. "Their comfort zones consisted of faxing or phoning in orders to suppliers. It took awhile for them to become comfortable using the Web, but once they saw the benefits, they began to feel more at ease."

Currently, Sardella has few privacy concerns with the technology, but as the e-commerce initiative expands, he anticipates taking some steps to ensure privacy. "We will eventually be having discussions based around our relationships with our strategic suppliers, pricing, and the amount of business we do with these suppliers," he explains. "These are competitive advantages that I would not want my competitors to know."

Benefits

To date, Sardella has identified four benefits to the company's e-commerce system. First, the company has been able to reduce inventories. Second, it is better able to react to its customers' schedule fluctuations. Third is the increased ease of doing business with its supply base. "Finally, with the increased productivity, we don't have to hire as many new people to handle procurement activities," he adds.

For the future, Sardella is looking for a fully integrated, end-to-end e-commerce solution-from NatSteel's customers' customers all the way through the supply chain. "No one offers this yet, and I still think we're a few years away from seeing it anywhere," he adds.