[From iSource Business, October 2001] Reinvention: That's the challenge Peter Provenzano faced when he took over the helm of his parents' Rockford, Ill., business in 1996. Originally named Pro Technical Products Inc. in 1987, the company began as a supplier of fastener parts to the aerospace and defense industries and later moved into the procurement of engineered components and spare parts for production. When he took the reins, however, Provenzano had a different vision for the company: supplying indirect materials through the Internet. So, he renamed the company SupplyCore.com with the goal of becoming a sort of uber-integrator for products ranging from computers to cleaners, providing everything from a product catalog to logistical services, inventory management and shipping. The firm's Web-based catalog now includes about 500,000 products.
Timing was everything. The Defense Department was just embarking on a major effort to streamline procurement and was looking for outside companies to enlist in the project. What happened? SupplyCore.com won a contract as one of five, prime supplier contractors for U.S. military bases. With that business under its belt, the company then turned its attention to commercial clients, which now include Caterpillar and Woodward. This year the company's revenues are projected at $70 million, up almost 40 percent from the year before.
iSource Business talked to Provenzano about enabled technology's promise, the roadblocks enablers and customers face, and what to expect down the road.
iSource: Where does enabled technology offer the greatest opportunity for companies?
Provenzano: The biggest opportunity is for technology to automate transactions, allowing companies to be able to plan better. That happens by improving the information companies are able to retrieve and then analyze.
iSource: How does that differ from the way things are today?
Provenzano: Take indirect materials, for example. One of the challenges most organizations face is that a lot of maverick purchases take place because procurement has become so decentralized and there are so many different vehicles with which to buy. You can do anything from using legacy systems to taking your own credit card and running down to the store. As a result, organizations have lost that data aggregate, that data history, and they're not able to standardize products across multiple facilities. That means they can't get volume discounts. Technology can dramatically change all that.
iSource: What other benefits are there?
Provenzano: The goal is to reduce operating costs, create efficiencies, reduce inventory carrying costs and ultimately reduce product unit costs by rationalizing the supply chain. Organizations that achieve those goals are going to be around for the long haul.
But we see the real benefit in integration. The idea of the integrated supplier has been around for a long time. For example, if you were an electrical supplier you would get all the electrical supply business for a particular company. So you would integrate all the purchases of that commodity. If you take it to the next level, however, then you have one supplier for all commodities. That means marrying procurement with material flow and management of those supplies that are purchased.
iSource: Where does the human touch fit in?
Provenzano: I do not think technology alone is the answer. There has to be a marriage of technology and service to really meet the needs of customers. Too many have tried just the technology piece. Technology can help automate transactions but that doesn't necessarily always solve the problem. There still needs to be someone at the other end of the telephone when the customer has an issue to address. There still needs to be someone to handle conflict resolution. And there still needs to be someone who can go out and identify products, when necessary, at the right price, and manage those supplier relationships. The technology piece doesn't answer all that.
iSource: Is that something many companies haven't understood?
Provenzano: All too often, when organizations try to implement the technology piece by itself they find it's difficult to succeed. What they haven't recognized is that there has to be a logical path to get to the future.
But it just doesn't happen overnight. Organizations need to adopt reasonable timelines and strategies. And there needs to be a coupling of both technology and services that support that technology.
It comes down to this: It's an evolution, not a revolution. Too much revolution has been preached. That's just not the reality. The promise of e-procurement technology, for example, is great. But it doesn't always happen as quickly as everyone expected it to. As a result, there is definitely a degree of disillusionment in the marketplace today.
iSource: Of course, the attitude in the market has changed a lot over the past few months.
Provenzano: Yes. The market is very different today. Before, there was confusion - a deer in headlights mentality because there were so many different messages out there. Organizations were inundated with information on e-procurement and there was a lot of fear and excitement: excitement about the opportunity and fear that if you didn't do it quickly you would be left behind.
Now there's some disappointment and many companies are licking their wounds. I do feel confident, however, that we'll start seeing a greater acceptance of e-procurement technology, but that it isn't going to happen overnight.
iSource: What other roadblocks have companies encountered?
Provenzano: Because of the decentralization that exists in purchasing, people have had the ability to buy on their own outside of any corporate guidelines. But when you start to put a solution in for indirect materials purchase, you're taking away some of the user's ability to make purchases not authorized by the system. The change management piece is very critical. And getting buy-in at all levels in a customer organization is very important.
iSource: How do you handle that?
Provenzano: By involving various levels of the organization very early on in the sales process. It can't just be a mandate from the executive suite. It needs to be accepted by the end users, the folks who will be using the solution. You must identify the decision-makers and the people who are going to be using the solution and give them all a say before the solution has been chosen. It makes a big difference in terms of implementation afterward.
iSource: What other concerns do you think users have?
Provenzano: If a company has an outsourced solution, it often loses the ability to perform that function internally. As a result, there's the fear that, by doing this, they will lose the ability completely. Let me explain: When an organization adopts an e-procurement solution, for example, certain activities that used to be performed internally start to be performed by a third party. The people who used to do it are moved elsewhere. However, if the arrangement doesn't work and that competency doesn't exist in the organization any longer, then the company could be in a difficult position. Those are the risks that many customers fear.
Often, we see situations where companies picked a solution that isn't delivering what it promised. And that's another fear. What if we choose something and it doesn't function the way we want it to? In today's economy, that prospect becomes even more of an issue, particularly in light of the many failures that have occurred.
iSource: Why has the market not been as interested in the e-procurement of direct goods?
Provenzano: I think the marketplace, in general, purchases direct products far more efficiently than indirect. So I think procurement of direct goods hasn't been as much of a problem. By eliminating the indirect problem, you are able to redeploy your resources to handle more strategic issues. The less time you spend on indirect materials, the more time you can spend on more mission critical materials.
iSource: How has the economy affected purchasing?
Provenzano: We haven't seen any decline in purchases for existing infrastructure. If facilities exist, organizations still need to support those facilities. That's what's happening in indirect materials. I'm not as in touch with capital expenditures.
iSource: Where do you see technology and the supply chain headed in the future?
Provenzano: I think the big change will be in software as we know it today. Off-the-shelf software will not exist because it will no longer be purchased it will be part of an offering that a supplier provides to its customers. Third-party supply chain management firms are truly going to be the distributors of the future, managing both the information flow and the material flow between supply chain members.
iSource: Do you have other predictions?
Provenzano: I think organizations are going to be far more integrated internally. Communication between supply chain members is going to be more automated and integrated, and there will be less human interface in the process.
I think we will continue to see a decline in traditional store and forward distribution, giving way to more of a direct relationship between the manufacturer and customer, either through a third-party supply chain management company or even through a direct interaction. There also will be less time between when inventory is produced and when the customers consume it. We'll continue to see inventory levels decrease and efficiency rise.