eProcurement Takes on the Untamed Supply Chain

Purchasing and supply management professionals entering the virtual marketplace as buyers discover that you can still reduce your supply base and enter into online procurement


For their part, buyers must bear in mind the total cost of ownership of products or services they are sourcing through e-marketplaces, as well as the benefits of a stable relationship with suppliers, according to Barry (Keith) Baxter, a business process consultant at eBreviate, an EDS CoNext company that provides e-procurement solutions, including online auctions. Price is what brings suppliers to the short list and subsequently to the table to talk, Baxter says. But I don't think that [e-procurement] will ever replace the ability to build relationships with key suppliers over longer periods. There has to be some stability in the supply base.

Chuck Lileikis, acting vice president for corporate procurement at Lockheed Martin, agrees that implementing an e-procurement system does not preclude forming close, long-term relationships with suppliers.

Bethesda, Maryland-based Lockheed Martin is a $25 billion aerospace, electronics and energy-management company. In March, Lockheed Martin signed a memorandum of understanding with Boeing, BAE SYSTEMS and Raytheon to create an independent enterprise that will develop an Internet trading exchange for the global aerospace and defense industry. (Similar online consortia have been announced in the automotive, retail sales and other industries.) CommerceOne will be the solutions provider for the exchange. But even before the announcement, Lockheed Martin had implemented a supply base rationalization program that has brought the number of suppliers among its 17 divisions down from about 80,000 to near 37,000. The company also had a target to transmit 95 percent of its transactions electronically by 2001.

Lileikis says that the upfront work involved in setting up any e-procurement system requires that a company work with suppliers to bring them into the trading exchange. But even as it shrinks its supply base, Lockheed Martin will continue to work on a long-term basis with suppliers, both to coordinate design improvements and to ensure that parts and services meet Lockheed Martin standards, many of which are based on government requirements.

Beavis of US Filter also believes that e-procurement will strengthen his company's long-term relationships with suppliers. e-procurement, he says, generates savings that can be shared. It allows me to become a low-cost customer to serve. I would cheerfully be the most profitable customer of many of my suppliers and get the best service by costing them the least. To me, that's a huge win-win.

eProcurement is still in its infancy as an industry, and companies are moving into e-marketplaces as buyers at varying speeds. As supply chain professionals seek ways to integrate e-procurement into their purchasing strategies, they need to avoid being dazzled by the technology and focus on e-procurement as one more tool in their arsenal. People don't need an Internet strategy, says Sheehan of SupplierMarket.com. People need a business strategy, and part of that is how they leverage the Internet as a tool consistent with their overall strategy.

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