“e” Marks The Spot

eProcurement may be a goal, but it is also a process, a journey, if you will, that takes a company’s purchasing department from the days of phone and fax into the Digital Age. As with any journey, the move toward e-procurement requires a roadmap showing...


Technically this component was time-consuming but relatively straightforward, according to Saunders. Because IBM had already implemented e-procurement systems for general procurement internally, it had developed much of the technology that it subsequently used at UTC. Nevertheless, Saunders notes that UTC’s diversified structure made the implementation a lengthier process than that experienced at IBM. The primary challenge involved ensuring that the IBM systems integrated seamlessly with UTC’s legacy systems.

In both cases – the FreeMarkets auctions and the IBM outsourcing project – UTC pursued a policy of introducing the new process at a single division to test the waters. The idea was to demonstrate concrete returns on initial investments in e-procurement, use the success to ensure continued management buy-in and then extend the program to other divisions. “The strategy was to go for some quick hits, show success, convince the leaders that this is the right thing to do and then move on," Brittan says.

Carrier was the first division to use FreeMarkets, followed by Otis. Carrier was also the first division to convert to the IBM procurement system, in July 1998, followed incrementally by other divisions, with all U.S. operations due to be connected to the IBM system by the end of this year. With FreeMarkets, Brittan explains that the incremental approach has worked because the auctions have produced such dramatic price reductions, even from long-time UTC suppliers. "Inside of our buying community, we had an event in January 1998 with PC boards," he says. "Our buying people all said that their jaw just dropped." More recently, Brittan had a top executive from a UTC division sit in on a buying event to watch the price dynamic during an auction. "It was a revelation [for the executive]. The price dropped, and the people that you had been dealing with all these years and who last week had told you that they had given you every last drop of blood, all of a sudden [give you a lower price].”

This incremental expansion process is continuing. UTC is set to begin converting its European divisions to the new general procurement system. The company conducted its first Asian auction in March and is now doing auctions in Europe as well. Further, Brittan is now using FreeMarkets for what he calls "totally nontraditional buying," that is, using the reverse auction process to select suppliers of such services as tax preparation and human resource consulting.

This gradual approach has also given Brittan an edge in managing the change to the new e-procurement systems and processes.

Change Management
Change is always an uncertain prospect in a company with established business practices. In terms of business processes, UTC’s challenge was to introduce a uniform purchasing process into six divisions that had developed their own procurement culture over many years. "It's a time-consuming process of overlaying a corporate system onto the way that the [divisions] do business," Saunders says. "You can’t run an air conditioning business the same way you run an aircraft engine business. There are reasons for differences, and they all have to be accommodated, to the extent possible."

In addition to the inter-divisional issues, Brittan says that some degree of concern was to be expected from the company’s employees as the e-procurement system got rolling and the company began to introduce new practices. For example, e-procurement systems allow companies to involve non-purchasing staff in interactions with suppliers to a much greater extent than before. "It isn’t just a buyer and a seller anymore," Brittan says. "It's an engineer, a buyer, a finance person, a quality person, a manufacturing engineer, a [human resources] person and a whole bunch of different people working together with the supply base. You have to be able to manage that interface."

To meet these challenges, Brittan emphasizes the importance of change management to the whole process of introducing an e-procurement solution. "You have to have an intensive company-wide communications program," he says. "It's not enough to tell people once. You have to tell them over and over again what it is you are doing, why you are doing it and what the expected benefit is."

Education is also an important component of managing the change process. As an example, Saunders says that line managers must be trained in how to exercise their approval authorities under the new systems since they have a new capability operational control over costs.

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