Dave Loesch, TSW International, Inc., Atlanta, Ga.

In the drive to remain competitive, organizations are searching for innovative ways to streamline their operational efficiency and maintain their strategic advantage. One innovation that has emerged recently as a focus for information systems and business process experts is the marriage of best practice procurement policies with leading-edge information processing technology.

Global economic conditions require organizations to increase production and improve customer service with fewer people. Technology is an ever-increasing mechanism for addressing these market requirements. At the same time, companies are realizing procurement is a part of their strategic competitiveness. In many organizations, the cost of purchased goods and services can account for 50 to 60 percent of gross revenues. For example, in some industries such as electronics, this number can climb as high as 90 percent. An improvement in the efficiency of the procurement operation has a tremendous impact on the bottom line.

The only constant is change
One of the major challenges organizations face today is ever-changing business conditions. Microprocessor power is doubling every 18 months. Competitors are becoming partners. Businesses are being streamlined, reengineered, outsourced, and restructured. The old adage, "The only constant is change," has never been more appropriate.

There are several economic factors shaping the future of industry. First, the global village is a reality. Companies that have not expanded beyond domestic borders are finding it difficult to survive. Communication technology makes the world a smaller place, and consumers and companies share information and resources seamlessly. Another important economic reality is dwindling resources. Organizations are not only looking to preserve physical resources through recycling and asset preservation programs, they are seeking to protect the intellectual capital of their employee base also. These factors contribute to a more competitive global environment forcing companies to innovate and streamline their operations.

Procurement solutions--electronic commerce and the Internet
Until recently, there was no technology solution designed specifically for enterprise procurement management. Many end users deployed multiple procurement systems because they were supplied as adjuncts to financial, enterprise resource planning, or asset care packages. However, enterprise procurement solutions have begun to appear that allow the entire supply chain to be managed through emerging technologies such as public network commerce, imaging, workflow, and electronic catalogs. These facilities help companies eliminate paperwork and reduce ordering and invoicing errors. Procurement cycles are reduced by streamlining the replenishment process and involving the supplier network in the design, build and shipment process. This helps to reduce time-to-market and increase customer satisfaction.

Electronic commerce provides other less tangible, but critical, benefits. Opportunities for outsourcing are increased as physical and geographical barriers diminish. Supply and distribution intermediaries dissolve as manufacturers and customers establish direct contact. On-line resources enable more timely access to new products, latest pricing, and product inventory status.

The growth of public networks is also skyrocketing, a fact that facilitates intra-enterprise communication and electronic commerce. Via public networks, organizations can access services such as IndustryNet, CommerceNet, MainteNet and PartNet. These and other services enable potential buyers to browse on-line multimedia catalogs, inquire about pricing and inventory availability, schedule deliveries and even process payments. Although security and bandwidth issues limit the complete exploitation of the public network, solutions are emerging every day that make utilization of the public network in business more practical.

The emergence of enterprise procurement
For most companies, time-to-market is crucial. As the transition to client/server ago gained momentum several years ago, companies seeking partnerships with best-of-breed procurement system suppliers soon discovered these suppliers didn't exist. Certainly, there was an abundance of enterprise resource planning, financial, and asset care vendors offering a purchasing "module," but no one, it seemed, focused their value proposition on the procurement aspect of the supply chain.

For an enterprise procurement strategy to be effective, the system must focus on a wide range of business requirements. These include support for production and raw materials, maintenance repair and operations, logistics and government. Procurement solutions are now available as large scale client/server applications utilizing the latest technology. This enables customers to preserve the value of the system to the user while maintaining access to enterprise-wide data. As a strategic business initiative, enterprise-wide procurement produces measurable return on investment. For example, some companies have cost-justified their entire investment in asset care technology through the materials management component alone.

Shifting attitudes toward procurement--a case study
Because much of the focus on procurement has been administrative, the emphasis has been on controls, approvals, and price reductions. Purchasing departments often have been built on a hierarchical model requiring users to undergo tremendous administrative burdens to request even the most simple purchase. In this hierarchical and paperwork-laden environment, the buyer is often reduced to an expediter as they struggle to meet the time-sensitive needs of their clients; time that could be better spent if the administrative aspects of the procurement cycle could be streamlined.

Recently, there have been important shifts in this attitude. For example, one software developer's early exposures to changes in procurement attitudes resulted from an implementation engagement at a large multi-national manufacturing company. The chief executive officer of the company set as one of his stretch goals an annual reduction of 10 percent in direct purchases (non-production materials) representing $200 million in annual savings. As part of this strategy, the company re-engineered its procurement operation in conjunction with a decision to contract with the software developer to implement its procurement system.

The project goals were clear: the company wanted to remove as many of the administrative tasks from the buyer's job as possible and apply buyer skills to contract negotiation and other value-added activities. The company also wanted users to requisition materials and services directly from the supplier with whom pre-negotiated contracts had been established. This reduces administrative processing, turnaround time and inventory carrying costs.

While the project emphasized the benefits of volume purchasing, the company did not want to dictate procurement policy to the local plants. It wanted each plant to maintain its own stock numbering and naming system and to be allowed to manage a network of local suppliers. To support this requirement and enterprise information sharing, the system had to support cross-referencing each plant's supplier and stock identification systems.

Although the project is still underway, many of the expected returns are already being realized. One plant reduced its inventory from $14 million to $8 million. Another reduced overtime by 22 percent, much of which was attributed to material delays. Early returns have been so encouraging that the company has revised its stretch goal from 10 to 15 percent.

Enterprise procurement--an emerging trend
A survey of recent articles in the press further support this trend in procurement. A recent Fortune article highlighted many forward-thinking companies and described how they are applying a business process focus on procurement to produce tangible impact on the bottom line. Although each company's strategy might be somewhat different, one common theme persists: competitive companies with a vision for the future are taking the focus off the administrative aspects of purchasing and are looking to apply the financial and bottom line leverage offered through a best practice procurement technology solution.

These organizations realize the tremendous impact on profitability that improved procurement practices can produce. Enterprise procurement enables organizations to increase their efficiency and better service their customers. Enterprise procurement enables organizations to provide better and faster service without adding staff. It positions companies for the future by helping them to anticipate and plan for change. Enterprise procurement can provide a competitive advantage that organizations need to execute their plans business successfully into the next century.