Maintaining market competitiveness

By By William Atkinson -- Purchasing, 3/22/2001

While e-procurement is an advantage for some companies and just a luxury for others, it is safe to say it's a necessity for the OEM Systems Division of PRI Automation, Mountain View, Calif., a manufacturer of wafer-handling robotics equipment for the semiconductor equipment manufacturing industry. "With a manual supply chain process, it was incredibly difficult managing change in the industry," explains Robert deNeve, vice president and general manager. "For example, when customers want quotes, they want them quickly, and the supplier that can respond the most rapidly often gets the business." An electronic supply chain system can give a company an edge in this area.

"Manual systems also interfere with the goal of optimizing communication up and down the supply chain, especially when it comes to the large numbers of engineering changes that continually occur," deNeve continues. "When change orders come through slowly, and when communication between engineering, purchasing and suppliers is not optimized, the result is excess levels of scrap material." As a result of this challenge, the division had to hire a number of supplier engineers to visit suppliers and set up communication lines and change order processes.

Challenges within the organization also made e-procurement even more enticing. "We want to double our business in the near future, and increasing supply-chain efficiency will be a big part of our success," he explains. "We will be able to hire fewer purchasing agents and supplier engineers, reduce scrap levels, and increase our customer responsiveness and time-to-market."

Until recently, the OEM Systems Division handled supply-chain communication via fax, phone calls, e-mail and "snail mail," according to deNeve. Now, the division uses an e-procurement system provided by BlackHog. "What I liked about this provider is that the members of their management team have OEM semiconductor backgrounds, and they created their system to meet the needs of this specific industry," says deNeve. "In fact, they began by conducting 'time and motion' studies of buyers in this industry to see exactly what they did. Then, they just automated those processes. As such, their system does exactly what our buyers do, just quicker, easier and less expensive."

The product is a Web-enabled software package that allows buyers to electronically communicate the division's technical and commercial requirements for purchased and fabricated parts to the supply chain. "We create contracts with suppliers," he explains. "Then, the system releases orders to suppliers." Buyers can call up customized screens that flash messages such as, "Here are new change orders," "Here are new orders to process today," etc. "The system allows the buyers to send out RFQs, receive proposals, send out change orders, etc.," deNeve says.

DeNeve is excited about the benefits of the system. "As we double our business in the next one to two years, we won't need to double the number of purchasing agents and supplier engineers we have," he says. "We anticipate salary savings in the range of $300,000 to $400,000 a year."

As change orders move through the system much more quickly than they did manually, suppliers can stop the fabrication and assembly of bad parts much more quickly, reducing scrap costs. "Our scrap rate was about $150,000 a year," says deNeve. "We expect to be able to reduce this by about 25% by the end of this year and by 50% next year."

Another big benefit is improved customer responsiveness. "We can prototype things much more quickly," he explains. "For example, if a customer says he needs a system in eight weeks, the first supplier to respond often gets the business, and we want to be that supplier. BlackHog allows us to communicate designs quickly to our suppliers, who can thus get their raw materials in earlier, finish the prototyping earlier, and allow us to get those prototypes to the customers earlier."

Currently, the OEM Systems Division is in the beta stage of implementing its BlackHog system. "We only have a few suppliers involved at the current time, but we plan to have our top 20% to 30%-those who make up about 80% of our purchases-participating by early 2001," deNeve says. The division is so committed to the concept that it plans to mandate involvement by these suppliers. DeNeve adamantly says, "We will not work with suppliers if they do not participate in the system."