The drastic downturn in electronics has slowed the movement of many electronics manufacturing services (EMS) providers to the Internet. However, starting about a year ago when the recession was starting, Solectron, the world's largest EMS firm, embarked on a major initiative to do more of its business with suppliers over the Web. The company's goals are to cut costs, lower procurement cycle time, increase buyer productivity and make Solectron more competitive in the marketplace.

John Caltabiano, director of global procurement, says Solectron's Internet initiatives center on purchase orders and acknowledgments, forecasts to suppliers, requests for quotations (RFQs) and online exchanges for auctions.

"The Internet is key for us to reduce our overall cost of doing business," says Caltabiano. "When you are making investments in business process and tool-set changes, it is difficult in the short term. But in the long run we expect to see our acquisition costs reduced by 30%."

Solectron is about a third of the way through deployment of its Internet initiative in terms of sites and suppliers. "Our strategy is driving us to achieve certain objectives on a quarterly basis," says Caltabiano.

One objective is to send more RFQs to suppliers via the Internet so Solectron can respond more quickly to RFQs from original equipment manufacturers (OEMs). For an EMS company, this can be essential to winning new business.

"When you are looking for a job, it is not who you talk to as much as how many resumes you have out there. The same is true with RFQs," says Caltabiano. "While there is targeted business that you go after, you also have to respond to a lot of RFQs," he says.

To respond to RFQs, EMS providers need to price out potential customers' bills of materials (BOMs) and need to send out their own RFQs to component suppliers and get them back as quickly as possible.

About 60% of RFQs are going out via the Internet to suppliers, says Andrew Gomez, manager of supply chain tools for Solectron. That represents about 500 suppliers receiving RFQs electronically.

"A year ago we were just getting started. We've come pretty far in a short time," he says. Solectron uses an RFQ tool supplied by Tradec, which has already improved its efficiency in the RFQ process by about 40% as improvements have been made to both suppliers' response times and completeness of RFQs being sent back.

Besides RFQs, Solectron is also sending more purchase orders and forecasts to suppliers via the Web. The EMS firm uses i2 Web Procurement software that is managed by E2Open. It has helped Solectron with deployment of its vendor-managed inventory (VMI) program under which suppliers hold parts that Solectron buys until Solectron sends them an order. The program helps Solectron keep lower parts inventories. Solectron has VMI programs with certain key suppliers for certain high value components.

"We have VMI, but penetration of the program was stalled because of the difficulties in getting suppliers into closed- loop electronic processes using EDI transactions," says Gomez. Now, forecasts and acknowledgments can be transmitted easily between Solectron and suppliers over the Web. With the new Web-based system, about 86% of suppliers on Solectron's VMI program are now sending forecasts and acknowledgments compared to just 6% with EDI.

Solectron also expects more business with suppliers to be transacted over the Web. "Today, just on the Web Pro product, we are moving close to 80,000 purchase transactions a week and that's just at seven sites. We have 22 to go," says Caltabiano.

In past years, Solectron has experimented with online exchanges to get rid of excess inventories.

"We tried to do auctions, but our results weren't very good because we found no markets for parts," says Caltabiano, adding that, "The normal channels for disposing of inventory, brokers, are still out there."

Solectron has had better luck, however, with auctions for indirect services. "We are seeing 30-40% savings over current contracts for such things as janitorial, security and uniform services," he says.

And Caltabiano has not given up on the idea of online exchanges and auctions for production parts. "When the market comes back, these guys (the exchanges) will be one relatively important channel partner for companies like ourselves," he says.

In times of shortage, online exchanges can play an important role in locating hard-to-find parts. When a buyer is looking for a shortage part he or she often calls a number of brokers, but doing so can drive up prices because it creates the impression among brokers that demand for a part is greater than it actually is.

"After you buy a part, you find out the part you received was sold three times before you actually got the final product," says Caltabiano. The price increases each time because everyone wants to make a profit. "If you can find the one guy who is sitting on the inventory, you might pay half as much," he says.

By going to an online exchange, buyers can find parts and determine pricing without creating the impression there is huge demand.

However, Solectron will move forward cautiously with online parts exchanges. "These tool are not used universally by our supply base, which is a problem," says Caltabiano.

While online exchanges can be used to drive down prices during times of oversupply, suppliers have long memories. If they feel a customer was unfair to them during oversupply, they might be less than accommodating during periods of shortages.

"Our relationships with suppliers are important to us so we have to be careful in the negotiations and market pricing techniques we use," Caltabiano says. "We have a council that we have formed with suppliers and we will be using the councils over the next six months to get a feel for how we should be going forward in this area," he says.

Besides reducing costs, the Internet has helped Solectron improve buyer productivity. "Buyers spend less time doing paper management and have more time to focus on strategic issues," says Caltabiano. "The buyer in the past had to keep folders of faxes of actions that occurred with an order. It would take days to pull together the information for a meeting. Now, since the information is digitized and available through a database, it comes back within seconds," he says.

Caltabiano points out that large quantities of information need to go back and forth between Solectron and its suppliers. "The ability to move the information quickly and our ability to disseminate it to our customers in terms of commits is important. The ability to move information automatically into our ERP systems, which these tools allow us to do on a real time basis, is a competitive advantage," he adds.