The name Intel Corp. is almost synonymous with innovation and forward-thinking. So it comes as little surprise that the company decided to go against the grain when implementing an e-procurement strategy, going after direct materials before indirect materials.

Intel began its earliest experimentation with e-procurement as early as 1998, using a Web-based tool to procure travel for its employees and bring more decision-making to the end-user. According to Craig Brown, director of materials strategic programs operations, Intel "got a pretty good savings per ticket with that so we got more passionate about moving to direct materials. We started looking at the few suppliers that we spend a lot of money with and we implemented Web-based tools around the order, placing the order, shipment notification and paying the invoice."

Intel uses a series of e-procurement tools including an Ariba front-end, but Brown stresses that the tools selected are not the major factor in the success of a move to e-procurement. Intel's e-procurement savings on direct materials have come in streamlining engineering processes and not from dramatically improved pricing. Intel uses electronic product data management to administer sub-contractors, and electronically exchanges the large data and design files used in product development. Brown says there is as much savings in eliminating all the manual data transfers as there is on price improvements.

"If you have good commodity management on the price of direct materials to begin with, then you won't see as dramatic savings in moving to e-procurement because you've already negotiated the savings," Brown says. "When you have 200 direct suppliers it's easier to manage those suppliers manually. You know who they are; you know what the spend is with each. But when you have 10 or 100 times that many like you typically do in the indirect space, you don't know where your spend is going, so aggregating that spend is more cost-effective. The real pressure on supply count is when we do the indirect e-procurement and aggregate those thousands of suppliers in that area down. The indirect side is much more about sourcing changes and the direct side is more centered on fast decision making and that kind of thing."

Currently, almost 90% of Intel's direct materials spend is going through either the Web or XML-based transfers. Intel is a strong supporter of the RosettaNet e-business process standard for the electronics industry, with more than 10 RosettaNet direct connections to date and many more in the works. Intel has gone out to its suppliers and done a lot of enabling towards RosettaNet, going on tours of Asia and informing suppliers that they are pushing these tools. Brown says bigger suppliers are getting pull from other customers to get on board and about 70% of its direct materials suppliers are in Asia so it localizes the efforts to some extent. In fact, some Asian governments like Malaysia and Taiwan are providing funding to help suppliers move to RosettaNet and other e-commerce initiatives.

Intel has taken a tiered approach to moving its direct suppliers to the Net with a firm but helpful attitude, while the indirect transition is expected to be more firm. The tiered approach moves suppliers to a Web-based system to minimize the financial and infrastructure investment on the supplier's end. The larger suppliers are being moved onto XML and RosettaNet.

"We've stated to our suppliers that [moving to e-procurement] is the long-term objective and if they want to stay with us they will have to do it," Brown says. "The first thing is get them on an e-tool and then move the more advanced ones to the RosettaNet. You can do it by saying you will only send a Web-based PO out, not send a paper PO. If they can't receive that, they won't get a PO. The next step might be they might not get anything except an e-mailed invoice."

Aligning suppliers to an industry standard like RosettaNet is helpful because it is something that suppliers can use with other customers. "If I go out and try to sell them on an Intel proprietary solution, and then IBM goes to them and five other companies come in pushing a proprietary system, it's more trouble than it is worth," Brown says. "But with RosettaNet if they implement with us first, they are excited because they know everyone else will be on that later. So standards are important in creating that network effect."

Intel has experimented with reverse auctions, but Brown says the results did not impress, noting that Intel experimented with the technology in an "up" market which put the suppliers in the drivers seat, while today's slumping demand could mean better results for reverse auction users.

The use of e-procurement has already freed up some of Intel's purchasing staffers and the move to indirect e-procurement will likely continue that trend, bringing the need for some "skills changes" in Brown's words, with some purchasing staff members moved into strategic commodity management or customer satisfaction areas.

Tracking the monetary savings gained is another area that differs in direct vs. indirect materials spending. On the direct side, a cost savings target is set and measured monthly so based on payments and discounts, Intel knows what the aggregated cost savings are. Intel plans to use indirect tools with pricing and percent compliance and other indicators built in, so the company can react accordingly when indicators aren't in line.