The Bigger Picture
Ted Ramstad is something of an evangelist for e-procurement systems as part of supply base rationalization. Ramstad, group director for global supply management at Dallas-based Perot Systems, a worldwide provider of information technology services and e-business solutions, says e-commerce supports the rationalization process because it permits companies to get a broader snapshot of the market and to be more strategic in their sourcing.
Bruce Beavis, vice president for strategic sourcing at the Philadelphia-based US Filter, is putting that principle into practice. A subsidiary of French Vivendi Water NA, the company has recently undergone a period of acquisitions and currently offers goods and services ranging from water purification and treatment products to the design, construction and operation of water plants and the manufacture of equipment for those plants and water-distribution systems.
With such a diverse buy spread over six divisions and more than 400 sites throughout North America, Beavis has made supply base rationalization a priority. He estimates the company achieved a 10 percent reduction in its supply base in 1999, and now US Filter is targeting further 30 percent reductions for both 2000 and 2001. We really see e-procurement as the enabling vehicle that helps us do that, Beavis says.
Using different types of e-marketplaces to rationalize spending, US Filter is focusing its electronic initiatives on two areas of procurement: MRO supplies and mission-critical chemicals.
In the MRO segment, US Filter's goal is to shift control of supply selection from end-users to purchasing managers who can negotiate pricing, delivery and other terms upfront. The company has been using purchasing data warehousing to get a better picture of its spend and its key MRO suppliers. By midyear, 10 such suppliers were set to make their catalogs available to US Filter employees online through Datastream's iProcure system, a hosted (that is, third party-operated) electronic marketplace. US Filter staff, regardless of their location or the size of their facility, can log into iProcure and purchase MRO products from approved suppliers.
Says Beavis: What I want to have is a controlled marketplace where our employees log on with one set of passwords. They can see 25 of my national contracted suppliers. When they log on, all that contracted pricing is reflected with no questions. And because a lot of these suppliers have overlapping distribution, we can put in motor, Baldour, 5 HP' and pull up the same motor from three or four distributors. By having multiple suppliers that can supply the same item, we can essentially shop our national contracts simultaneously and electronically for this item. The key here is that Beavis has his purchasing team's specifically selected suppliers in the system, creating more management control than ever over this strategically sourced supply base.
For its chemical needs, the company's goals include reducing its supplier base, as well as establishing a preferred-supplier hierarchy, according to Ronald MacReynolds, strategic sourcing manager at US Filter. To accomplish these goals, the company turned to e-marketplace SupplierMarket, which specializes in hosting reverse auctions for built-to-order direct materials. US Filter selected six chemicals (caustic soda, hydrochloric and sulfuric acids, bleach, chlorine and sodium bisulphite) for its initial auctions, based on their high dollar value and their wide use throughout the company's facilities.
MacReynolds wrote the RFQ for each of the six auctions, stating the specifications of the chemicals sought and the terms, including the period of the contract, units to be bid (gallons or tons) and the locations where the products would be used. He then contacted SupplierMarket.com, which collected additional information from US Filter; prequalified suppliers to ensure they had the infrastructure in place to handle the requirements set forth in the RFQ; and administered the bidding, which took place in April. The only cost to US Filter was the time necessary to prepare the RFQs, while SupplierMarket.com says its collects a commission of 2 percent to 4 percent of the final bid from winning suppliers.