Mahon is general manager for procurement at Caltex Corp., a $20 billion petroleum refining and distribution company headquartered in Singapore. Caltex, a 65-year-old joint venture between Chevron and Texaco, has interests in 11 refineries and 7,800 retail outlets, and it operates about 700 Star Mart convenience store outlets throughout the Asia Pacific region and Africa. The company's area of operations also includes the Middle East, New Zealand and Australia.
Caltex implemented the Ariba Buyer e-procurement platform two years ago to streamline its purchasing, outsourcing hosting and support for the solution to Chicago-based Technology Solutions Co. (TSC). TSC also helped integrate the Ariba system with the regional centers for Caltex's SAP e-business financial backbone in South Africa and Singapore.
But Caltex, which deals with more than 8,000 suppliers in 60 countries, quickly found e-procurement does not begin when the platform implementation ends. It was pretty clear to us from the beginning that in Asia electronic procurement wasn't enough, Mahon says. We've got currency problems and tax problems. We needed a way to make international sourcing easier.
Recognizing that the complexities of coordinating payments among multiple business units and trading partners across international boundaries were holding up the integration of suppliers into the procurement platform and, therefore, the expected return on investment Caltex began to look for an e-payments system to augment its purchasing system. The company surveyed the available solutions but ultimately decided to build its own system.
Caltex organized conferences around Asia to get supplier input on its future e-payments system. The first thing they said was, don't make it [purchasing] card-based, Mahon recalls, explaining that the suppliers, many of whom were small enterprises, didn't want to pay fees on p-card transactions. Supplier feedback in hand, the company assembled a cross-functional team from five of its biggest Asian operations. The team designed the requirements for the e-payments system, and Caltex, after request for information (RFI) and request for proposal (RFP) processes, partnered with JP Morgan Chase to develop the system. Caltex began implementing the system in August, integrating it with its existing Ariba and SAP systems and again outsourcing hosting to TSC.
Using the system, Caltex can initiate payment to those of its suppliers that are enrolled on the Ariba e-procurement platform. The system handles cross-border currency and tax issues, including value-added tax, goods and services tax, withholding tax, and remittance.
Besides these expected results, Mahon cites several additional benefits. For example, because the e-payments system ties into the company's SAP system, detailed transactions flow directly into the financial system. What we found was that we had completely outsourced our payables, Mahon explains.
Another benefit: intercompany billing between different business units. If Caltex in the Philippines wants to make a purchase from a supplier in Malaysia, the supplier may agree to do business with Caltex Philippines, but it may want to get paid by the local Caltex Malaysia company. We do that for some suppliers, but it takes a lot of accountants in the background to handle all the intercompany billing and get the books straight in both [units], Mahon says. With the e-payments system in place, that problem goes away.
Finally, the new system has allowed Caltex, for the first time, to establish different payment terms for each supplier. Before e-payments, Caltex stuck to a net 30 days after goods receipt policy for all suppliers. Some long-time suppliers had much higher cost of capital than the petroleum firm, with much greater working capital exposure, and those suppliers were discounting their receivables for onerous interest rates. With the e-payments system in place, both sides can benefit from early payments: Caltex, because it gets early payment discounts, and the suppliers, because they no longer have to discount those receivables.
Caltex started a five-country pilot in August, and by mid- to late autumn the company expected to open the e-payments system up to its entire supply base, with the goal of bringing the majority of its 8,000 suppliers onboard the e-procurement and e-payments systems within a year. Reaction from suppliers thus far has been so positive that Caltex is examining the possibility of commercializing the e-payments system, perhaps marketing the solution to its suppliers' other customers or more broadly.