Since 1997, Nelson, an Indiana native, has served as vice president for worldwide supply management at Moline, Ill.-based Deere & Company. Prior to joining Honda in 1987, Nelson worked for 30 years at TRW, headquartered in Cleveland, Ohio, including, from 1985 to 1987, as director of purchasing for TRW Automotive Worldwide.
A past president of the National Association of Purchasing Management, Nelson sits on the board of trustees of the Center for Advanced Purchasing Studies and on the board of directors of the Purchasing Round Table. He is a founding member of the board of directors of the National Initiative for Supply Chain Integration, Ltd., a public/private partnership supported by the National Institute of Standards and Technology to develop and enhance manufacturing supply chains.
At Deere, Nelson helps oversee a $7 billion annual spend. The company's legacy purchasing system, developed internally 15 years ago, covers North America and is supplemented by additional regional systems in place elsewhere. Deere is currently implementing a companywide enterprise resource planning system from SAP and, as of early August, was in the process of selecting an e-procurement platform. The company was also looking at how to integrate Net marketplaces into its purchasing strategy, although Deere has already experimented with reverse auctions through FreeMarkets.
iSource Business recently sat down with Nelson to discuss how e-procurement is shaping the supply chain and the purchasing profession and to learn how e-procurement has changed the thinking of America's top purchasing professional.
iSource: What is e-procurement doing to the supply chain?
Nelson: organizations that use multiple e-procurement standards will stress suppliers' capabilities. This favors suppliers that have the technical resources to handle these kinds of demands.
In addition, the technology allows buying organizations to create electronic marketplaces where other buyers can purchase off their suppliers' contracts. This allows buying organizations to create savings opportunities not only for themselves but also for tier one and tier two suppliers, aggregating the spend even further and creating revenue-generation opportunities.
iSource: What are the main roadblocks to implementing e-procurement strategies?
Nelson: The main roadblock for any organization is getting suppliers focused on e-commerce and electrifying their business and tools. It seems to be a struggle to get suppliers enabled in more than the common commodities like office supplies, computer hardware and other basic MRO items.
Another challenge that we face is moving toward central-led sourcing of these commodities. And since most of the procurement function is done at the unit level, a data rationalization effort is required before we can negotiate enterprise level contracts. In addition, there is the cost and know-how involved.
You have to have a plan, and you have to bite off no more than you can chew. When I showed up at Deere 2 1/2 years ago, I looked at how we bought things, mostly on the indirect side. Indirect is easy pickings, so we started some projects there. For every project, we had extreme results. For example, in MRO we went from 1,675 suppliers to 20. That turns people's heads. Then it's an educational process for your top management.
iSource: Honda's purchasing philosophy emphasized the importance of striking the appropriate balance between cooperating with suppliers and ensuring competitive pricing. In the long term, how will e-procurement affect that balance?
Nelson: Electronic marketplaces will be especially valuable for organizations that do not have expertise in a given commodity or for spot buys. Although these tools should be incorporated into the sourcing process, they don't change the decision criteria of the process, which include not only the price but quality, delivery and performance as well.