ROI: Lights! Camera! Procure!

When it comes to definite ROI, Hollywood isn't afraid to invest in box-office hits or e-procurement solutions. But, when the lights go down, you've got to make sure you have a captive audience.

[From iSource Business, April/May 2002] It's no secret that demographics rule in Hollywood, so perhaps it's no surprise that when the e-procurement chief at a major movie studio lists success factors for an e-business implementation, he starts with a tried-and-true Tinseltown truth: "Know your audience."

The point, says Theodore Garcia, director of e-procurement for Universal Studios, is that the success of an implementation depends on winning buy-in from all the parties affected by the new process  from the executives who sign off on the e-business investment to the end users and suppliers who are suddenly being asked to take their relationships online. And winning buy-in means ensuring that the different parties understand the value that they will derive from using the system.

Universal's experience in moving to an e-procurement solution for indirect materials provides a useful case study in how to build universal support for e-business implementation. So, without further ado, on with the show.

Act One: Setting the Stage

Headquartered in the eponymous Universal City, Calif., Universal Studios, part of the television and film division of Vivendi Universal, operates a sprawling campus of movie sets and studio offices amidst the swaying palm trees and rolling hills of southern California, as well as theme parks, specialty stores and entertainment centers in Hollywood, Fla. and elsewhere around the world.

In the spring of 2000, the studio began looking for an e-procurement solution for indirect materials, pursuing the types of hard and soft savings that other companies had achieved by moving their purchasing online. Universal already had moved to an American Express purchasing card in 1999 and had cut the cost of processing its purchases from more than $80 per transaction to around $20, but the company was seeking to build on the p-card implementation to achieve further transactional efficiencies. In addition, Garcia says that the studio was looking to increase contract compliance (with the concomitant reduction in maverick spending) and to consolidate its supply base.

The diverse nature of that supply base dictated one of the primary requirements that Garcia and his team had to bear in mind as they reviewed their e-procurement options. The company's supply chain reflects the disparate focuses of Universal's 15 divisions, which concentrate on different segments of the entertainment industry. The nearly 60,000 suppliers that service the company include a multitude of specialized support firms, largely small and mid-sized, that provide a product or service in support of a particular facet of Universal's business. Among this varied group, Garcia and his team found that awareness of e-procurement, let alone willingness and capacity to adopt e-business technologies, ranged from "never heard of it" to "let's try it out, we're ready to go."

Second, an e-procurement implementation would need to take into account the complex web of existing buyer-supplier relationships at Universal. "We found that the relationships that developed between the end users and the suppliers are somewhat unique from business unit to business unit, supplier to supplier, and project to project," Garcia says. For example, different business units might employ different approval models or other business processes even when dealing with the same supplier. Trying to impose a single process on the end users in the various business units could cause the users to simply continue transacting with suppliers using their established methods, thereby negating much of the value that Universal hoped to gain from moving to e-procurement. "We cannot simply put in a process and say, 'This is how you do it,'" says Garcia. "They'll say, 'No thank you, we'll do it the way we have been doing it.'"

By September 2000 Garcia and his team had reviewed some 45 potential solutions, finally settling on MarketMile, an e-procurement provider set up by American Express. MarketMile's offerings, targeted primarily at mid-market companies, include a hosted e-procurement platform that gives buyers access to both a predetermined set of major suppliers  such as Boise Cascade, Compaq, Corporate Express, Newark Electronics and Office Depot  and to buyer-specified suppliers. For the latter, MarketMile provides catalog creation and management services and helps them become "e-enabled," that is, gets them onto the MarketMile supplier network, doing business. The solution provider also offers an aggregated spending program that allows mid-market companies to take advantage of large organizations' buying power by pooling their purchasing with that of a company, such as American Express.

Act II: The Pilot Thickens

Universal signed a contract with MarketMile in February 2001 and began the implementation process in March. The solution finally went live on June 29 to a pilot group of 55 end users who had been identified through their p-card transactions as patrons of suppliers that were included in the initial move to MarketMile. Universal's rollout plan called for about 750 end users and 30 to 40 suppliers to be processing transactions through the system by the end of 2001, eventually extending to about 1,500 users. Initially end users in various business units within the studio's Los Angeles-area group were trained on the system, with additional users to follow elsewhere. Additional suppliers will come onboard the system, too, as they become e-enabled.

Moving the complex and unique buyer-supplier relationships online has been a multi-step process, according to Garcia. First, the implementation team has gauged the interest among the end users and suppliers in taking a particular buying relationship online. Second, the team has looked at the impact of e-enabling the relationship to ensure that both the buyer and supplier would benefit from the change. The goal is to judge whether a particular relationship would be suited to an online environment. "There are certain situations that will arise where e-procurement probably is not the best tool with which to execute the relationship between the end user and the supplier," explains Garcia. "It may be an emergency item. The requirement might come in at 1 o'clock in the afternoon and that item has to be here by 4 o'clock. There isn't a tool in place that would allow the transaction to be confirmed and the delivery to be on its way  besides a telephone call to the supplier  that assures the end user that the item is in a truck and on its way.

"So we realize that e-procurement has its limitations as well, and it's a limitation of the technology itself," the e-procurement director continues. "There is no way in which we can peer into the inner workings of all our suppliers. Not all of our suppliers have systems that can be peered into, like an ERP [enterprise resource planning] suite that can check inventory and availability."

Once the e-procurement team identifies a relationship appropriate for e-enablement, the team holds a meeting that brings together the end users and suppliers, as well as a representative of MarketMile. The meeting is crucial to winning buy-in, Garcia explains, because it brings all the implementation issues into the open. "We're all together at one time," he says, "discussing how exactly this technology is going to impact them, change management issues we are going through, the objections or concerns or problems that may arise with this change in the relationship, and where is e-procurement appropriate and where is it not appropriate."

Act III: e-Procurement Triumphant

Garcia notes that his team has built support for e-procurement within Universal Studios by "marketing" the system internally with targeted messages, that is, by communicating to each affected community within the organization the specific benefits it will derive from using the MarketMile solution. The messages that the e-procurement team delivers to senior management, for instance, might focus on the value that online purchasing is generating for the organization as a whole, such as through the reduced transaction-processing costs. But for the end users that will actually be using the solution on a regular basis, the messages highlight time-savings and productivity gains that the system affords by providing a one-stop shot for their day-to-day purchasing needs. "Whether or not they are concerned about their productivity in the dollar sense," Garcia says, "they are concerned about, 'Can I get my task done so that I can move onto something else.'"

The buy-in process can involve a significant amount of time and education work, but Garcia argues that the payoff, as measured in high user acceptance rates, justifies the up-front investment. Indeed, a September 2001 study by Mercer Management Consulting estimates that the MarketMile implementation will help Universal reduce its purchasing cycle time by 40 percent and cut its purchase order processing cost, on a per transaction basis, by 75 percent.

From the solution provider side, Gayle Sheppard, president and CEO of MarketMile, points to several success factors exemplified by the Universal Studios implementation. First, Sheppard says, Garcia and his team have communicated that the e-procurement initiative has executive support and therefore is viewed as strategic to the company's business. Second, they have clearly defined the scope of the project, including who will be involved in the different divisions throughout the company and the return on investment that the company expects to achieve. And three, Universal began with a clear plan to drive adoption of the new purchasing tool.

Garcia, meanwhile, says that Universal is tracking adoption by measuring the percentage of eligible transactions  those that could be put through the MarketMile system  that actually are put through the system. In cases where compliance has been less than 100 percent, the team has investigated the cause, although not necessarily with an eye to strict enforcement. "You can't go back to these people and say, 'Hey, you did something wrong,' because you also have to empower them to make the best judgment, and in many cases, they have made the best judgment [to not use the system]," says Garcia.

Of course, despite the internal marketing and the efforts to overcome objections before they can affect adoption, Garcia admits that end users do occasionally avoid using the system anyway. In those cases, the e-procurement team reminds the users of the meetings, in which those objections were addressed, nudging them onto the system. That's just part of the ongoing education process, says Garcia, who adds, with a chuckle, "That's part of the fun."