Big Picture e-Business

Anyone can implement supply management technology, but it takes an expert to turn it into a competitive advantage. Debra Bell, chief procurement officer at AT&T, tells us how.

[From iSource Business, June/July 2002] Debra Bell may be credited with spearheading the e-procurement and e-supply chain initiatives at AT&T, but she knows it's not a standalone job. And neither is supply management. In order to enable the supply chain at a $65 billion telecommunications behemoth, this chief procurement officer has taken a holistic approach to the task.

When the AT&T e-procurement initiative began several years ago, aggregating purchasing and spend activity from across all business units was the first order of business for Bell. But, lucky for AT&T, Bell realized the bigger picture: Supply management must be an integrated part of managing expense, as well as meeting customer quality, price and delivery requirements. In other words, automating procurement across the enterprise was only part of the mission; re-engineering internal business processes in order to accommodate new technology, new ways of procuring and new ways of aggregating data, is imperative.

iSource recently caught up with Debra Bell to ask her about the impact of supply management on business processes and how it affects the organization as a whole. 

iSource: How has AT&T been utilizing supply management technology?

Bell: AT&T has been very much in the forefront in terms of moving in the direction of strategic sourcing, leveraging our procurement, managing our supplier relationships and our supply base, as well as working across the entire business to make sure we have the right arrangements in place to feed the business needs, but also to give us the benefit of scale in the marketplace.

iSource: How have you gone about trying to merge all the business units together in terms of their procurement?

Bell: We have very strong relationships across the business units. The way I organize the procurement group is by industry expertise. In each area of procurement, for example advertising or network capital, we have groups that specialize in those procurement areas, so they add value by understanding the industry, the suppliers, the trends and the technology of that area. In addition, they work across the business, which means they understand what one group may be doing over in our network services group as well as what someone might be doing in our ATT Labs group  whether they are working with the same suppliers or procuring similar goods. We're able to leverage those relationships and leverage that spending activity across the business by being the single point of contact and having supplier relationship responsibility.

We also have a lot of very strong support across our business and up through our CEO in making sure that we do leverage our procurement in intelligent ways. So it's not a battle for my organization to be able to work cooperatively across the business. It's really just a mode of operation for us, and we have a lot of support across all of the executives in the units.

iSource: When do you think the benefits of e-procurement and supply management technology were realized on an executive level?

Bell: Well, since Mike Armstrong's been chairman he's been a very strong advocate. But we've had a fairly mature procurement organization at AT&T for probably 10 years. It has just continued to increase in focus over the past five years. But certainly the electronic tools have enabled us to really facilitate that in a more systematic, comprehensive way than before we had those tools. For instance, we had a fairly sophisticated legacy system that did a tremendous amount of the financial systems work. We migrated to an ERP [enterprise resource planning] solution probably about four years ago, and that certainly has allowed us to leverage more things like project accounting and procurement functionality of the ERP system. But now the newer e-enabled tools and systems have taken the supply chain a dimension beyond what the ERPs were able to.

iSource: A lot of companies are taking on supply management technology implementations right now; what do you feel are the risks and challenges involved in beginning a move toward enabled technology?

Bell: One of them is simply the fact that it involves changing and re-engineering internal processes to really leverage the technology. The tendency can be to try to make the technology fit your process instead of to optimize your process and use the technology to leverage that as a facilitation device. Working on change management activities and re-engineering internal processes across stakeholders tends to be more complicated sometimes than some people anticipate. Supply chain management touches operations across the business. Therefore, when you're talking about implementing enabling technology, you're talking about crossing virtually every spectrum of a company's operations. It can't be an insular activity just guided and led by the procurement organization. It needs to be a partnered activity across the operations groups and oftentimes across sales and marketing as well. That, I think, is probably the biggest challenge to overcome in trying to get these kinds of technologies implemented.

Certainly, the more general technologies address the simpler transactional needs of a business, but as you get into more complex interaction with your supply chain  configuring goods as opposed to procuring already-established goods  you need to make sure you know what the technology can and cannot do and to what degree you will need to do some customization. And you always need to make decisions on customization intelligently so you don't end up with something that is so customized it's difficult to upgrade and enhance from a commercial perspective.

iSource: What sort of research or examination of its business processes does a company need to do before it invests in enabling technology?

Bell: The first thing that is important to understand is whether or not your company's processes have been examined in a long time, and then you must determine whether or not it has streamlined processes. If it doesn't, you really need to go about the detailed task of making sure that the processes are as streamlined as you can get them, even without enabled technology. Beyond that, it's important to understand what technology is out there and what kinds of force mechanisms that technology will bring just as the result of implementing the technology. I've heard too many stories from other companies that have viewed the tool as the solution as opposed to the tool as the enabler of the solution. But there's a fine line. You certainly don't want to try and contort the technology to meet the processes you've put in place if the technology wasn't meant to do that. But, by the same token, I think it's a mistake to think the tool is going to be the answer because you will have a much more difficult time getting it implemented and getting people to adopt it  including your suppliers.

iSource: Measurements and metrics are a hot topic today. How does AT&T measure its ROI?

Bell: In the e-procurement space, it's really measured in a few primary areas. One is in the systematic channeling of spending through negotiated supplier arrangements, which is measured just to the extent that you can measure and track the additional spending that is being channeled to your preferred arrangements (your preferred arrangements being those that provide you with the best price, terms and performance). That's one area that's actually a fairly easy area to track and quantify in most cases, unless you have no idea what your spending looks like today.

The other is in process cost reduction. Again, that can be a combination of hard costs and soft costs. If, for example, a procurement operation has the responsibility of ordering and invoicing, as those processes are electronically enabled, the budget associated with those functions should be reduced and replaced by electronically-enabled activities. So, again, that is a fairly hard-costs savings.

A soft cost, which is harder to capture, is efficiency: For example, how much easier is it for an associate to place an order and to have that order electronically routed for approval? Or, how much easier is it to be able to have approvers review it in a consistent format and be able to approve or reject it electronically? Those are efficiency measures and, to some extent, you can track them by cycle-time improvements, but it's a little bit harder to get those hard-cash savings.

I think the other area that can be a little difficult to put a hard-savings around but is a legitimate savings and ROI [return on investment] measure is the enhanced supplier performance that comes as the result of having a standardized way of conducting business with suppliers. It facilitates both order accuracy and cycle time reductions in the delivery of goods and services and, to some extent with our largest suppliers, we certainly would intend on measuring that in an empirical way. It, again, is both a soft- and a hard-cost benefit. But the movement to preferred arrangements and process cost reduction  those are metrics you can take to the bank.

iSource: How does AT&T use supply chain technology as a competitive advantage?

Bell: It's a combination of having those dollar savings and by being able to leverage your spending in an intelligent way. That allows you to empirically view your contributions to the business as a competitive advantage. Having knowledge about your suppliers and their performance at your fingertips from data warehouses and information across the business gives you a tremendous amount of information by which to make decisions, work with executives across the business, and determine the smartest, most efficient ways to conduct business based on empirical data. And having electronic interfaces provides a very efficient method of performing business, often replacing manual activities or disparate activities across the business. If you have orders that are lost or orders that are in error, your delivery of the right product and the right service at the right time is affected. All of these things, obviously, are a cost to the business and an impact to the competitive cost structure.

iSource: How long do you think e-procurement and supply chain management systems will be a competitive advantage? In other words, when will it be the expected norm?

Bell: I have to answer that in a couple of ways. e-Procurement, in its most basic form  the electronic transacting of orders and invoices  will probably be the norm in about three years. The technology exists for even smaller businesses to be able to transact electronically without additional costs to themselves. But when I think of supply chain e-enablement, that's bigger than a bread box. That includes things like forecasting, capacity planning, linkages to logistics, downstream suppliers provisioning activities and so forth. That's a very, very comprehensive set of activities and, frankly, I think the jury is still out on how long it will take to get to some kind of a market standard. A lot of companies have fairly sophisticated legacy systems they've created and, until there's some kind of compelling commercial offering that ties all of that together, companies are not going to make that kind of investment without knowing whether or not it's going to be somewhat standardized. Certainly, it's moving in that direction, and e-procurement capabilities are going to incrementally grow into e-supply chain capabilities, but that's more like five years out before we'd see a vast majority of companies with their supply chains electronically enabled.

iSource: Right now, is the marketplace lacking any technologies that are needed to achieve this?

Bell: I don't think they are lacking, necessarily, but I just don't think the maturity curve is there yet. There are a lot of technology companies that are meeting part of the supply chain suite of requirements, but pulling it all comprehensively together is just not mature yet. Because of the dot-com activities that happened over the past year, a lot of companies that were growing and having a lot of investment in developing supply chain technology have been hurt by the economy and by companies stepping back in investing in some of these more expensive applications.

iSource: What do you see in the future of supply chain technology?

Bell: The technology will continue to evolve and morph, and there will be continued enhancements to the technology. I don't see any of it going away over the next horizon of time, but, again, I think the more sophisticated supply chain activities will be what begin to emerge. The value-added services, those things that are intrinsic to the way a company operates but are not transactional in nature, that are more complex and strategic to the way a company operates, that's what's going to emerge over the course of the next five years or so. There's already work there, it's just not ready for prime time.