Financial services company blends buy and sell sides

By By William Atkinson -- Purchasing, 12/22/2000

For Cleveland, Ohio-based KeyCorp, a 24,000-employee financial services institution, the journey toward e-procurement began with some strategic changes dating back to 1996. "At that time, as a result of a procurement reengineering initiative, we created a corporate sourcing organization to consolidate the accounts payable and purchasing operations of 15 banks that we had acquired over the course of a number of years," explains Deborah L. Manos, director of technology strategy, corporate sourcing.

As part of the consolidation, the bank introduced Oracle accounts payable and purchasing applications.

In 1997, the bank created a strategic sourcing organization to focus on spending in specific "silos" and portfolios in the organization (all spending except for interest expense and salaries), as a way to reduce expenses. "We looked at strategies like demand management, supplier management, and price reduction," says Manos. Between 1997 and 1999, the bank was able to reduce its total supply base, and also reduce its spending by between 12% and 15% from 1996 figures.

"As we looked around for our next challenge, we focused on the idea of Web-based requisitioning opportunities within Oracle," she continues. "We also looked at some other potential providers who were a bit more user-friendly than Oracle was at the time." (Manos notes Oracle has become more user friendly since then.) The team conducted a strategic platform analysis over a period of about 14 months to decide what technology it wanted to bring in for the next phase of sourcing. "During this time, things changed dramatically in the market, with players moving in and out," she recalls. "This posed a challenge for us."

Another question the team faced was how could e-procurement actually save money. There was no easy answer, given the centralization strategy had already reduced expenses by creating a streamlined process, the move to preferred suppliers had created high supplier compliance, and the reduction in the supply base had led to some aggressive pricing.

What pushed the group to the next level was realizing the bank's business-to-business group, Global Cash Management International, was beginning to strategize on how to offer value-added services to the bank's commercial clients using the bank's Key.com presence. "After three months of research, this group concluded that there was value in e-procurement for their needs, both from the buy side as well as the sell side," notes Manos.

On the buy side, the bank created a horizontal marketplace on Key.com for its middle-market clients, allowing them to visit the Web site and take advantage of e-procurement initiatives with reduced pricing. "It became a buying consortium," Manos says.

On the sell side, the bank partnered with some integrator companies to allow its middle-market clients who were also suppliers to have a Web presence on Key.com. "This became an electronic storefront for them," she adds.

When the corporate sourcing group and the business-to-business group realized they were both headed in the same general direction in terms of their interest in e-procurement, they combined their efforts to choose a provider. "We narrowed our potential provider base from 18 to three, then ultimately selected Ariba," reports Manos.

The system has been operational since May 2000 and currently carries office supplies, PCs, consulting services and travel/entertainment. The office supply program was relatively easy to set up, according to Manos. Consulting services was a bit more difficult, but since the bank has been using few consulting services since implementation, it hasn't posed much of a challenge. "PCs were more challenging, because not all of the suppliers were prepared to meet our needs," she says. The bank wanted suppliers to be able to provide certain information on its electronic catalogs for users to view before making purchases. Some of the suppliers found this difficult to do, given complexities in Ariba's catalog interchange format.

The most difficult set up that took about 80% of the time was travel and entertainment. Under the new system users are required to submit all expenses via the system. "However, users really appreciate it now, because they get reimbursed much more quickly," Manos notes.

Currently, there are 800 users involved in a pilot program in four commodity areas. A recent internal satisfaction poll found that 76% of users agreed the Ariba system was easy to use, streamlined, and a better way to manage expenses. Another 5% to 10% were neutral, preferring to adopt a "wait-and-see" attitude; those who disliked the system tended to be "those who were firmly entrenched in the old ways," according to Manos.

Continued growth in the e-procurement area is being fueled largely by a new bank strategy called "Perform-Excel-Grow." Under this strategy, 52 teams are focusing on their respective business units and seeking ways to increase revenues and reduce costs. "Corporate sourcing has been brought in as a cross-organizational team to help these other teams better manage their expenses," explains Manos.

Early on, the cross-organizational sourcing team was able to link a significant amount of demand management-related savings to its Ariba system. "The reason is that the system is able to 'turn off the faucet' quickly in terms of permitting expenses for non-catalog offices, consulting services, and allowing people to travel," she explains. "In other words, the system is very effective in reducing demand."

The bank also plans to have Ariba drive its new e-business culture, which will include all internal processes, such as purchasing, human resources, training and communications. "Senior executives are planning to have the system ultimately be the exclusive means by which employees will be able to submit expense reports and purchase anything," she continues. "As a result, we plan to continue to pull in many more commodities and business processes in the future, and in early 2001 we will roll it out to between 18,000 and 20,000 employees."

Manos shares her own recommendation to other purchasing execs pursuing e-procurement: "Due to the speed of change in the market, people need to 'time box' their efforts," she suggests. "Keep things within a three- to four-month development period. Don't seek perfection, and don't waste a lot of time customizing what they have. Put it in, get it working, and then continue to build on what they have as new technology becomes available."