By Andrew K. Reese
Oracle Corporation, the world's largest enterprise software company, has a well-established e-procurement process based on the company's own solutions. But Oracle was challenged by a supplier content management process that had the company's procurement staff loading and managing vendor catalogs within the e-procurement system. To accelerate supplier enablement and shift its buyers onto more strategic work, the company began using a new tool that put the suppliers in the driver's seat.
Aiming for "Touchless Procurement"
Oracle's global electronic procure-to-pay process is based on its own version 11.5.10 Internet Procurement, Internet Supplier Portal and enterprise resource planning (ERP) solutions in combination with the company's electronic supplier network. End users "shop" online through the Internet Procurement solution in the same way that consumers use sites like Amazon.com, purchasing items identified in Oracle-maintained catalogs or external "punch-out" catalogs by adding them to a shopping cart. When users check out electronically, the system automatically generates a requisition, routes it for approvals and then creates purchase orders (PO) to the appropriate suppliers for fulfillment. POs are sent and invoices are received using extensible markup language (XML) through Oracle's Supplier Network. Finally, suppliers are paid electronically to gain the additional advantages of electronic payment through EFT and to reduce the associated administrative burden.
It all adds up to a classic e-procurement process that Greg Tennyson, Oracle's vice president for global procurement, travel & disbursements, calls "touchless procurement." And it pays off for Oracle by allowing for, among other things, significantly reduced PO processing costs. "We've got our touchless process down to an order of magnitude that you would have with a credit card transaction," Tennyson says. "So it only costs about $10 to $20 per transaction."
While Oracle does have a global deployment of its e-procurement system, the company's different regional units have varying degrees of access to catalog content within the system. For example, more than 70 percent of Oracle's almost 400,000 purchase requisition lines in North America are catalog-based, meaning that users can find most of what they need in the catalogs available through the company's e-procurement system. That allows Oracle to capture a tremendous amount of its North American spend through the procurement system, with all the efficiencies inherent to putting greater amounts of spend under management. However, until recently, for the company's Europe, Middle East and Africa (EMEA) and Asia-Pacific regions, less than 20 percent of the purchase requisition lines were catalog-based.
Enabling Supplier Self-enablement
Increasing the catalog content available to end users in EMEA and Asia-Pacific would be, in principle, an easy enough process. Using functionality available within their e-procurement system, Oracle's procurement staff has the capability to bulk load catalog content into the system. But, from Tennyson's perspective, the thousands of hours that it would take the buyers to load and manage content from thousands of suppliers could be much better spent on higher-level projects like strategic sourcing or supplier relationship management. "We made the decision to refocus our strategic buyers on more value-adding activities and identify a third-party that could meet the [catalog-management] requirement," Tennyson explains.
According to Aberdeen Group's "Supplier Enablement Benchmark Report" released last year, companies are pursuing several different strategies for meeting the supplier content challenge, including a buyer-managed process (such as Oracle was using), a supplier-managed process and supplier networks and catalog syndication hubs. In Oracle's case, Tennyson and his staff opted to work with an enabler called Aravo Solutions, based in San Francisco.
Aravo offers a set of Web-based, on-demand tools for automating much of the supplier enablement process, or what Aravo calls the "supplier information lifecycle." The toolset allows suppliers to self-register through Aravo's online portal and then load, edit and manage their catalog content for syndication to buying companies' e-procurement systems. The solution puts the onus for updating content and maintaining data accuracy on the suppliers, but at the same time it provides a dashboard for buying organizations so that procurement executives can monitor their suppliers' activities within the platform. After a supplier has loaded and cleansed the catalog data in the solution, the system provides exception reporting tools that verify the data for accuracy and completeness. Once the data check out, the buying organization "grabs" the new catalog content and posts it within the company's e-procurement system.
Increasing Procurement's Productivity
Oracle began its engagement with Aravo in 2004 by undertaking a pilot project in EMEA involving some 20 suppliers and 200 catalogs. The pilot demonstrated the relative speed and ease with which the company could onboard suppliers into Oracle's e-procurement system in EMEA, Tennyson says, and the initial success of the pilot led Oracle to expand its engagement out across its supply base in the region. Within months, the solution allowed Oracle's procurement staff in EMEA to double the number of suppliers that they were onboarding, from 50 to 100 per month. Moreover, the new process enabled by the Aravo solution allowed Oracle to reduce its first catalog submission error rates from 35 to 40 percent down to just 2 to 5 percent. Finally, Oracle has estimated that the initiative allowed it to increase the percentage of its purchase requisition lines that are catalog-based in EMEA from 10 to 20 percent up to 60 percent. And by driving more of its spend through catalogs in its e-procurement system, the company has been able to boost its spend under management to an estimated 75 percent, up from 45 percent, for the EMEA region.
Even as it rolled out the project in EMEA, Oracle also extended its use of the supplier enablement solution to its Asia-Pacific region. Here, too, the project met with success, allowing Oracle to increase its catalog-based requisition lines to about 40 percent to date. As in EMEA, that has helped the company drive its spend under management in the region from about one-quarter (23 percent) to two-thirds (68 percent) without adding additional procurement headcount. Ultimately, Tennyson says the company is looking to increase the level of catalog-based purchase requisition lines up to about 70 percent in both EMEA and Asia-Pacific, as well as convert the suppliers in its North American e-procurement system to the Aravo solution as well. That will allow Oracle to move its procurement staff away from this tactical activity and pass the catalog maintenance responsibility largely back to the suppliers.
In choosing which suppliers to target for enablement in EMEA and Asia-Pacific, Oracle began with the types of commodity categories that had been successfully enabled with catalogs in North America — categories like IT peripherals, laptops and desktop computers, office supplies and even some service categories like temp labor. The company also has expanded into new categories where appropriate, for example tackling mobile telephony in EMEA, where cellular device adoption is higher.
Putting Suppliers in the Driver's Seat
Tennyson says that Oracle did not encounter significant resistance on the part of its supply base to moving to the Aravo solution, although the company did need to undertake some education among its targeted suppliers to explain the benefits of the new process. "Once they have seen Aravo, they've bought into the concept of self-authoring because it allows them to control the data quality," Tennyson says. "They no longer have to rely on a buyer to manage the catalog content. They're empowered to do that themselves, and they'd rather be in the driver's seat." Suppliers don't need to invest in any particular technology to support the program, as all they need is a Web browser to load and manage their content. Tennyson says that the principle issue with suppliers has been ensuring continuity and consistency in how a supplier manages the content; staff turnover at a vendor may necessitate follow-up training for the new employee to ensure that the catalog continues to receive updates.
The normal success factors that apply to any technology implementation have been valid for Oracle's deployment of Aravo, according to Tennyson. "You need to have an executive mandate and a clear understanding of the project's value proposition so that you can articulate the message and drive it within your organization," he says. "And obviously you need the underlying technology around touchless procurement: a Web requisitions tool like Oracle Internet Procurement, an ERP application, the functionality around generating a PO without buyer involvement, XML messaging and a network to deliver and receive those messages."
From a lessons-learned standpoint, Tennyson says that it is critical to understand the technologies that your company has in place and where shortfalls in those technologies prevent you from achieving the kind of touchless environment that Oracle has pursued. And you have to be willing to invest in the technologies to fill in those functionality gaps. The good news is that the payoff can be substantial. "There most definitely are economies from driving people to catalogues," Tennyson says. "You increase your on-contract spend and minimize your maverick buying by bringing a more consumer-like experience to the corporate environment." And by putting your suppliers in the driver's seat.