When you're a steel producer and fabricator and your biggest commodity purchase is scrap metal, you may think that moving to e-procurement isn't an option. But the potential benefits of online buying were simply impossible for Randy Hill at CMC Steel Group in Seguin, Texas, to ignore. So, early in 2001, the steelmaking subsidiary of Commercial Metals Corp. decided to review its e-business strategy and start moving some of its buying online.

CMC Steel manufactures, processes, trades and distributes a wide range of steel bar mill and structural grades from four SMI Group mini-mills in the Southeast U.S. along with some secondary metals and numerous raw materials. The firm convened an executive team to evaluate its e-business situation and decided that e-procurement would be its highest-ranking priority. CMC Steel didn't waste much time in setting lofty goals for e-procurement, stating publicly that it wanted to move 80% of its spend online, which meant getting its hands around the 40,000 stocked inventory parts in its database.

When CMC Steel reviewed its spend, it found that 70-80% of its purchase orders were generated for MRO, adhoc and inventory replenishment items. It was in these areas that CMC saw the most potential for putting the spend into catalogs and greatly reducing transaction costs. "We went out and looked at software solutions and defined our objectives to decide if we wanted to build or buy an e-procurement solution," says Hill, chief information officer, adding that the firm wanted to become more strategic in its sourcing in addition to streamlining its transaction processes.

"We wanted to rationalize our inventory item content between locations as well as rationalize the supplier content into a single system to drive procurement efforts," he says. So, after reviewing the tools available for its needs, CMC Steel decided to go with Clarus Corp. as its provider for e-sourcing tools and Cardonet for catalog and content management requirements. Hill says CMC felt that the quality of the online content was key in driving the success of e-procurement, but starting in the right areas helped drive its return on investment.

The MRO spend was the early target to gain sourcing benefits and lower transaction costs. The implementation started with the SMI-Texas mini-mill because it was located at the company's headquarters in Seguin (near Dallas) and provided the most resources. SMI-Texas offers a range of steel grades, including specialty steels for forging and customer specific applications.

Commodity managers grouped the company's spend into about a dozen different categories and then used the Clarus e-sourcing tool to improve contract terms where possible. Once the contracts were negotiated, the items were put online using Cardonet to provide better inventory visibility. Hill says the previous inventory management system was slow and error-prone because data was scattered, inconsistent and often out-of-date. The Cardonet software manages a centralized data repository from which clean, complete product information can be fed to the company's MRO inventory management system and allow CMC Steel to update the information in its database.

"We are blending the capabilities of Cardonet and our maintenance management system, so when an individual is shopping and adding to his or her cart, the inventory is visible to the user," says Hill. CMC Steel also is implementing a supplier portal where suppliers can update their catalogs with an easy-to-use tool to keep information accurate and fresh without taking on additional burden internally.

CMC Steel reports significant cycle time reduction on purchase-order processing by improving its inventory management and inventory turns. The goal is to reduce PO costs from $80 to half that. With 40,000 stocked parts feeding the company's four plants nationally, the Cardonet system is being used to centralize the data, remove duplicates, replace missing or confusing information. In addition, the Cardonet software is used to aggregate other supplier catalogs and enable the company's buyers to easily find and order non-stocked items.

With MRO under control, CMC Steel is looking at its biggest commodity spend, scrap metal, an industry that isn't usually conducive to online business due to its fragmented supply base and abundance of "mom and pop" shops. To drive the transition, CMC is going the extra mile to bring its scrap suppliers online, even offering to buy PCs for some suppliers if needed to gain the efficiencies saved in buying online.

"We're going against the trends in the industry and improving the supply chain between our raw materials suppliers and our mills," says Hill, adding that the varied range of supplier readiness is one of the reasons the company chose to use Cardonet. "Many of our direct scrap providers have no idea what online catalogs are. We'll have ASCII files, Excel spreadsheets, manual entry, all types of content that is going to be driven toward our catalogs and we need a tool to rationalize that and make sure it's consistent."

Hill says a supplier's ability to get online may determine whether or not it will continue to supply CMC Steel in the future. As the company aggregates its spend, it means sourcing multiple commodities to single suppliers, resulting in a reduction in the number of suppliers.