H2O Supply Opportunist

[From iSource Business, May 2001] It's a tale of startling growth: two hundred acquisitions in eight years. Purchased by the industry's largest global player in 1999. A total of $4.5 billion in revenues.

As whirlwind as it seems, that's the story of Palm Springs, Calif.-based US Filter, which has grown from a tiny water equipment manufacturer to a leading provider of water and wastewater treatment systems and services, doing everything from supplying bottled water to treating hazardous waste. In 1999, when the company was bought by Vivendi Water, it became the North American operating unit of the Paris-based water company giant.

Heading up strategic sourcing for the operation is Bruce Beavis, vice president of strategic sourcing. His secret weapon: the use of e-technology to turn his supply chain into a lean, mean machine and one that gives him a competitive advantage. In the three years since he joined the company, he has initiated a series of farseeing e-commerce initiatives. His decisions have always been guided by a level-headed approach, honed by previous positions in operations and strategic planning at Rollins Environmental and Scott Paper, as well as at Deloitte & Touche, where he specialized in operations management.

Here is what Beavis has to say about technology and its impact on the supply chain in his company.

iSource: Tell us how technology is affecting the supply chain within your company.

Beavis:  With the Internet, we have a whole series of tools we never had in strategic sourcing, and those tools are allowing us to reach out to more suppliers in more places much faster than we could before. Plus, we can source the things we buy globally with more ease and efficiency. At the same time, the Internet is providing an automated way to perform functions that used to be difficult or expensive.

For example, a lot of the things we purchase are configured. If we buy, say, a pump, there are perhaps 12 standard features that need to be addressed before the right one can be selected. Things like pressure, temperature and the kind of application it's used in. We're in the pilot phase of an online configurator that lets us fill out questions about the features that are needed and then searches a database of manufacturers, pulling the correct model number for the product that satisfies all the requirements. It will save us huge amounts of time in our entire design, specification, engineering and purchasing process. Instead of seeking information by looking in manuals or going to individual Web sites, we have a tool that can simultaneously search and check multiple product offerings.

We'll also reduce mistakes. If you think of the possibilities for error when people fax documents back and forth it's human nature; mistakes will be made. But this configurator does internal engineering logic checks. If you operate in sea water, for instance, it will make sure you're not using components that will corrode, or it will suggest you use different components.

iSource: Are there other, important effects?

Beavis: Yes. The major one has to do with our relationship with suppliers. We can make sourcing plans and tell our suppliers that they need to adhere to our road map, as opposed to our being forced to participate in their marketing plans. So, our suppliers are dealing with us in a more customized way.

Here's an example of what I mean: Many of our suppliers have overlapping products, so, in September, we started going live with an Internet procurement portal provided by an ASP [Application Service Provider], which is a meta catalog for selected, existing suppliers of our MRO [Maintenance, Repair and Operations] products, sort of an industrial MySimon that lets us shop for the best deals. Each item is presented in the same format, so you can compare prices and attributes in the same place, instead of going to four different sites and doing four different searches. As a result, we created a competitive marketplace for the distributors of the goods we buy. And, at the same time, we're making the sourcing plan and telling our suppliers that this is the only way we'll buy their products in the future. The Internet has given customers the tools to make effective sourcing plans and bind suppliers to them.

We see this tool as a price discovery vehicle, too. If you're one of the four or five industrial suppliers we select and you want a bigger share of US Filter's business, you need to reduce prices to win more of that business. And that's the way we'll get to the right level of pricing. We've created a marketplace and our prices will seek the appropriate level by virtue of the competition created. What's more, it allows us to control the data. If we had let our buyers go to different selling sites, we could never have obtained the detailed data we now have.

iSource: How do these new tools relate to the company's spectacular growth?

Beavis: Of course, we've made many acquisitions. And that means acquiring the supply base of all those companies. Now, we're in the process of consolidating it all. But our approach is to be very decentralized, since it would probably not have been possible to consolidate everything into one, big headquarters operation. And we're using technology to make it work. For example, with our catalog, everyone can switch over to the right suppliers themselves, without having us hire a giant, centralized staff to hassle employees all over the country to make sure they get it right.

From a management point of view, it's something of a virtual company our corporate headquarters is very small, with offices all over the country and we really rely heavily on e-mail, voice mail and video conferencing to run things.

iSource: How have suppliers reacted to your initiatives?

Beavis: Well, with our catalog, I think those that have participated find we've increased their business, because we consolidated our buying onto just a few suppliers in each category. But it was more difficult to get our suppliers on board than we'd imagined. We've had to do a major job of selling them on why it was in their interest to participate. Even knowing we could increase their business five to 10 times, they worried they would set a dangerous precedent that instead of our participating in their e-commerce strategy, they were being forced to participate in ours. It's a major change in the way they deal with customers.

iSource: What about your own people and their reactions?

Beavis: For everyone, there's a great fear of making a mistake, the fear of doing something that will have a cataclysmic, unforeseen result. After all, one of the most difficult tasks in working with e-commerce partners is to try to pick places that will last. You would hate to put a large amount of money and effort into something that won't be around in a year. So, there's a certain amount of risk internally for people trying to push e-commerce. If a project fails, it's difficult to divorce the failure of that project from  e-commerce in general, from the idea that e-commerce is something we should do. It's difficult to figure out how to manage the real and perceived risk.

iSource:  What do you do about that problem?

Beavis: We've taken on a philosophy of, Don't let perfect be the enemy of better. Everything we do makes us smarter; the worst thing we could do is sit on the sidelines and not try anything. At the same time, we always pilot and test things as much as possible in live mode. We're very leery of placing all our money on one bet. The more experimentation you can do, the better off your final rollout will be.

But it's very important that we build an internal constituency at the user level that understands the technology and supports it, versus having corporate people in strategic sourcing coming up with what they think is the real answer and imposing it on them.

Let me give you an example. We're using Metalnet.com to help us consolidate our metals buy, which has been very fragmented. We've used it at five of our business locations and ran about $1 million worth of pilot transactions. From that, we accomplished a few things. We asked for a whole series of enhancements, so they could improve things in their next release. At the same time, a group of our steel buyers were able to test the site and understand what worked well, what didn't work so well and how best to use the tool. Based on the successful completion of that pilot, we are rolling it out to the rest of the organization. It's very powerful to have a half dozen managers in a meeting say that they doubted this tool at first, but found later that it really works.

iSource: What other risks have you faced?

Beavis: One of the things we are concerned about is that we would be involved in e-commerce and have our pricing given away. There are any number of internal pieces of information we're not interested in releasing through a portal. And if we're buying a million units of something at a certain price that's made public and our competitor is buying a tenth of that, it's difficult for the supplier to maintain a price that appropriately reflects the volume of the product. So confidentiality protects us and our suppliers. That's very different from the consumer Internet space where you log onto a Web site and see terms and conditions that everyone must accept.

We believe that we can handle that contractually. We have provisions about who owns the information and how it's released, what is confidential and what is public.

iSource: What would you say is the biggest challenge now?

Beavis: Probably the biggest has to do with where the e-commerce space is at the moment. All the e-commerce providers have wonderful plans of where they'll be in a year. But today, they have partial functionality. They're able to solve some problems. They're able to offer a degree of added value. Where e-commerce wants to be is not where it is today. But that's not insurmountable.

The Internet is so new and changing so fast that everybody faces a constant learning battle. And the winning organizations will be those that can do the best job of  internal and external communication. It's a matter of communication and time. 

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