Ready, Set, Save

[From iSource Business, January 2001] As far as corporate infotech goals go, three years ago the folks at Ashland Inc. came up with a whopper: "We wanted an e-procurement system that would be easier to use than the telephone," says Terry Tyler, director of Strategic Sourcing at the Columbus, Ohio-based company.

Ashland Inc., of course, had other aspirations. It wanted to reduce the cost of its procurement transactions, it wanted to standardize its product requirements and it wanted to reduce inventory. But most of all, it wanted to leverage its rather significant purchasing power by consolidating buys.

"We realized we could save significant dollars through leveraging our supply base," Tyler says.

Even today, the telephone goal sounds cooler (although the company eventually attained annual savings of $30 million and cut its transaction costs from $120 to $10, which is nothing to dismiss). As it turned out, devising a system that could beat the telephone in ease of use was almost as challenging for Ashland Inc. as realizing the cost savings and purchasing efficiency targets. But first things first.

Back Then When

In 1997 Ashland Inc. was ripe for a realignment of its sourcing and procurement operations. A $7 billion diversified company with operations in distribution, specialty chemicals, highway production, motor oil and car care products, Ashland Inc. was purchasing its MRO items a category that included everything from pipes, valves and fittings to office equipment and other general supplies from a multitude of suppliers, with no system in place to track these purchases. Even worse, with some 700 sites around the world, the company's lack of a strategic sourcing system meant it could not leverage its purchasing clout.

At the same time, Ashland decided it needed an ERP system to fully automate financial operations. The search began for an e-procurement and an ERP system that together would be integrated into one functional entity to meet the company's diverse needs.

After a long due diligence and supplier vetting process, SAP's R/3 was selected as the primary ERP backbone, and i2's eOperate system was chosen as the e-procurement platform. (At that time eOperate was a system offered by Aspect Development, but the company has since been acquired by i2.) Now came the hard part integrating the two systems so they would provide seamless interaction across various business functions. Today, it is generally understood that systems integration can often be a long, painful process. In 1997, however, most companies were still in awe of the ERP phenomenon, and planning for the actual implementation was far more haphazard than the process for selecting the system. Still, Tyler and his colleagues knew some significant challenges lay ahead. "We were the first company to bolt on eOperate to SAP," Tyler says. "And we knew we weren't going to just take it out of the box and plug it in."

Machine Talk Three years later, not much has changed except perhaps there is a better awareness of the problems involved. "There will always be challenges when you have two machines or systems trying to talk to each other," says Len Smith, CTO for GoCo-Op, an e-commerce service provider based near Orlando, Fla. But as this newest generation of e-procurement software is adopted, it does seem as though companies are learning the early lessons over and over again.

For example, it is still possible, Smith says, for valid purchase orders in the e-procurement system to be rejected by the primary ERP system. Or to find transactions posted in the e-procurement system but not in the ERP.

As for Ashland Inc., its rollout of SAP and eOperate was fairly uneventful, perhaps because it was tightly integrated from the start. eOperate helped the company migrate thousands of Ashland-specific MRO items from the company's top suppliers to a customized online catalog. The catalog hence most procurement activities was then integrated into the SAP system. It was not completely effortless, however. "There were a number of challenges because of the complexity of our manufacturing base and plant sites," Tyler says.

By November 1998, Ashland Inc. completed its implementation, just in time to watch other companies begin their e-procurement-using-lessons learned from Ashland's experiences. No one ever said being a trailblazer is easy. "It's true that companies are following us and are enjoying the bells and whistles we developed," Tyler says.

For example, "At that time there were no known national electrical suppliers that could serve everyone's needs across the whole country. Deciding which supplier to use was really based on where you were located. We set up the system so that an employee buying an item from a supplier in California would read the same description as an employee in New Jersey. But the orders would go to different suppliers," Tyler explains.

Another stumper that Ashland solved was SAP's 40-character description limit. "Forty makes it difficult to find something in a catalog, especially when there are so many different commodities," Tyler says. Eventually a process was developed that expanded the character count to 2000 but then reverted to the 40-character line once the item was selected. "Our search success went up significantly."

Not that Tyler has any regrets about being first. If the company had waited it would have lost out on the sourcing and procurement efficiencies it has realized over the last two years. "To stay competitive, strategic sourcing has to be a redundancy," Tyler says.

Today Ashland Inc.'s employees use the SAP Employee Self Service module to connect i2's electronic catalog to the SAP R/3 system, which sends the orders directly to the suppliers. Users have the option of paying for the items or services with a p-card or receiving an invoice. Either way, the order is tracked from the start in the SAP system, so there will be no discrepancies between i2's eOperate system and SAP's general ledger. (As GoCo-Op's Smith says, "financial people have no sense of humor about this whatsoever.")

So now what was once a 12-step process can be completed in four or fewer steps. Is it as easy as using the phone? Well, maybe not with the standard push button, but compared with some of the new wireless, Internet-enabled models out there, a case could certainly be made.

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