An eye to saving more than just money

Although e-procurement is saving manufacturers substantial amounts of both money and time, several widespread preconceptions are needlessly slowing its adoption. One, e-procurement is frequently associated only with indirect spend, or at best MRO (maintenance, repair and overhaul); two, for many in business, the only e-procurement processes they're aware of are e-auctions; and three, most think it's something that is only appropriate for the very largest companies. The reality is very different. Manufacturers have been using aspects of e-procurement techniques to save money on direct spend for years; many parts of the buying process, including supplier discovery, are perfectly suited to electronic techniques; and there are even solutions to e-enable the smallest enterprises. There's a range of tools, processes and services available for everything, and organisations of any size. At Rolls-Royce, success with e-procurement for indirect spend has encouraged the firm to move into the same processes for direct production materials, components and assemblies. "It's no longer a pilot for us – it's a business process," says Matt Smart, e-sourcing manager with Rolls-Royce. "We've had great success on indirect spend such as car rental and computer equipment, so we're now working to enjoy the same efficiency improvements in the processes involved in supplier selection and negotiation for our direct spend." The process can also be extended to dealing with sub-contractors. "Sometimes we will be giving them complete plans, but we may also be asking them to design the product," explains Smart. "And whereas traditionally we'd have communicated and negotiated on a one-to-one basis, we are now implementing e-sourcing and auctions functionality using the Exostar toolset to eliminate non value-adding activities as well as some of the face-to-face contact." Clearly, the e-procurement process works well when buying from approved suppliers, but many companies are also benefiting from the electronic enablement of supplier discovery and recruitment. Linx Printing Technologies manufactures inkjet printers used to print barcodes, date codes and other information on retail packaging, and turns over £50–60m per annum with around 600 employees. Making use of Vendigital's services, Linx has carried out a number of auctions for direct spend – components and assemblies used in the company's manufactured products. Before embarking on such projects, Brian Cattmull, purchasing and logistics manager with Linx, advises that manufacturers take a close look at their purchasing strategies. While large companies like Rolls-Royce already have formal (and even audited) purchasing strategies and methodologies, most smaller manufacturers won't have been through this exercise. "It's a good idea to go back to basics and look at both how much you're spending and the risk involved," suggests Cattmull. "Items where you have both a high spend and a high risk are strategically important. For those, we work with suppliers to design out cost. But where the spend is high and the risk low, those components are appropriate for the use of e-auction technology." Cattmull also cautions that for many companies, there is yet more work ahead. "If you've been working with the same supplier for years, you may find that some parts are not well specified – the knowledge has been built up over time and is likely to be stored in people's heads. The Vendigital process is very rigorous and disciplined, and ensures that you put the necessary work in to specify parts in sufficient detail for the e-auction to be a success." In fact, the work isn't just in specifying the components themselves: but also how they should be packed, how, where and when they should be delivered and so on. Linx opted for the full e-procurement process, including supplier recruitment, and the company's experience demonstrates the value of this approach. "We defined some top-level requirements such as the size of company, years in business, geographical area, quality standards and so on," explains Cattmull. "That picked up over 300 suppliers, who each received an outline of the contract. As the process continued, the number of suppliers reduced until we were left with 15. And because of the way the process works, filtering out unsuitable candidates as you go along, these suppliers were automatically optimised for the job in mind." Get price out of the way Ultimately, the number of suppliers was reduced to four or five, and at this stage Linx made personal visits. When it comes to the benefits, of course the e-auction process does have an impact on price: but paradoxically that's by no means all. "A major benefit for us is that it gets price of out of the way," insists Cattmull. "There are no silly games or heated negotiation: instead, you can concentrate on issues like quality, delivery and vendor assessment. The whole process is a lot less confrontational for both parties, and price becomes just one of the parameters on which we make a decision." e-procurement tools aren't just restricted to sending commercial 'paper', such as invoices and RFQs (requests for quotation). They should also be considered as a means for greatly improving both the speed and accuracy of transferring technical documents between a manufacturer and its suppliers. Cosworth Racing, well known all over the world for its design, development and manufacture of ultra-high performance engines for racing, rally and road car applications, makes use of Documentum's eRoom for this purpose. Chas Bamlett, purchasing manager at Cosworth, explains: "We can pull the necessary technical documentation for a part from our internal engineering system in the form of PDF and CAD files. This package is dropped into an eRoom and then, at the click of a button, is notified to as many suppliers as we want. We specify the quantity, delivery date, batch sizes etc." Not everyone uses the same CAD system so the files are automatically translated into formats appropriate for each supplier. They then have immediate access to both the technical and commercial information in the eRoom, and can decide whether they can meet the delivery requirements, what price they want to quote, or indeed whether they want the work at all. It's all a far cry from the previous practice of cutting up large drawings so they can be sent through the fax machine. Suppliers interested in the job fill in a price and confirm their ability to deliver. "We can see on-screen the prices and dates quoted," says Bamlett. "We can indicate our preferred supplier: it's not a firm order at this stage, but at least that supplier can pencil it in and the others know not to plan for it." The Documentum kit is integrated with Cosworth's manufacturing system, so once an order is raised, it's dropped straight into the supplier's eRoom. But again the system goes beyond the mere exchange of documents: it can provide valuable information on suppliers, such as on-time delivery performance. This information is now available to Cosworth Racing on a monthly basis. Previously, it was compiled annually – too late for anyone to do much about it. A future enhancement will also provide suppliers with graphical data on how they compare with competitors. Slashed process times Cosworth Racing enjoys huge benefits from the savings in time, but at BAE Systems these benefits are ranked equally with price savings. Jerry Coughlan, programme manager for e-sourcing at BAE Systems, says: "We started off using e-auctions, as that was the only technology available at the time, but have now introduced electronic RFQ, RFI [request for information] and other parts of the procurement process… In terms of reduction in process time, we say we've gone from months to weeks, weeks to days and days to hours. Equally important has been the pricing benefits: we now know we're paying the market price." BAE Systems has paid a great deal of attention to the detail of ensuring that its e-procurement process delivers the maximum benefits. For example, with a central electronic set of tools for purchasing, the company's been able to develop a series of templates for particular components – say, resistors – which cover the parameters the buyer needs to specify in order for suppliers to quote. There's a lot that needs to be learnt in order to make an electronic process effective and successful, and this is just one example of how the system can be made easier to use. One other very important spend that is often taken for granted is that on energy. However, here the complexity means that while electronic communication has a direct role to play, there's not yet a complete substitute for skill and expertise. Synthomer, a world-class supplier of synthetic polymers to industries ranging from paints and adhesives to textiles, speciality papers and plastics, has four plants in the UK with 24-hour manufacturing operations. "With that level of manufacturing, our energy spend is huge," says Alison Brown, buyer for Synthomer. "And with the markets rising at the moment it's extremely important to get the best deal as quickly as you can." This is one market in which in-house analytical software or generic e-procurement platforms have limited capability – it's just too complex, with vastly different ways of quoting for supply, and with many elements, like transmission charges, not always included. But there's still a place for electronic communication. Synthomer makes use of the services of energy procurement specialist EnergyQuote. "We can easily watch the bids coming in online," says Brown. "We were thus equipped to make a good decision based on accurate information." All well and good, but using e-procurement for direct and even indirect spend, poses not just a technical challenge but an immense cultural hurdle. Going about purchasing in a totally different way has an impact on all stakeholders involved in the buying decision, including R&D, manufacturing and purchasing, and this shouldn't be ignored. If you do, e-procurement will be seen as a gimmick, be confined to one or two projects and then forgotten. James Anthony, director of e-procurement services firm E-Three, says: "The real challenge is to equip the organisation with the right skills to ensure the electronic tools are used appropriately. It's not just a question of obtaining the best price but ensuring the process runs smoothly and that they end up with a contract that gives them a firm basis to transact on for the next 18 months or whatever. We help companies to do that effectively. The mindset has to move from 'I need to buy this so I'm going to ring up a supplier or send out a piece of paper' to 'I need to buy something so I'm going to send out an e-auction unless there's a reason'." Talk of processes, consultants and technology sounds expensive, but that's not necessarily the case. Smaller organisations have not been forgotten, and also stand to gain a great deal. E-Three offers a bundled package of software, services and support that starts to become viable for projects involving expenditure around the £200,000 mark. And for those SMEs wanting to get started on the electronic interchange of catalogue information and commercial documents, such as invoices, purchase orders and goods received notes, there are even cheaper options. Impaq has a document exchange offering that will sit on an SME's accounts system – such as Sage – and allow the company to trade electronically with suppliers and customers, by translating documents between the different XML interchange standards.