[From iSource Business, December 2001] Three years ago, the folks at A.T. Kearney, the $1.5 billion management consultant subsidiary of Electronic Data Systems (EDS), decided it was time to get serious. With 25 percent of the company's revenues coming from consulting services which helped major companies to improve purchasing and supply management, the time was ripe to harness the power of the Internet to its strategic sourcing consulting service. In an effort led by Vice President of Strategic Sourcing Tom Slaight, A.T. Kearney developed software for conducting auctions over the Internet. Then, in January 2000, the company launched a new subsidiary -- a technology and services provider that offers customers access to Internet-negotiations software -- called eBreviate, based in Walnut Creek, Calif.
eBreviate entered the scene by introducing online auctions and an electronic request-for-proposal (RFP) system that allows customers to manage proposals from selected suppliers; and sourcing management technology that enables the analysis of customer spend, management of sourcing teams and the tracking of compliance with all previous deals. In the past two years, eBreviate's 95 customers, ranging from Volkswagen to Procter & Gamble, have sourced more than $10 billion using the technology.
As the interim president of eBreviate, and with his experience at A.T. Kearney, Slaight's world, and his scope of the B2B industry, is growing exponentially. He agreed to sit down and share his take on what companies are doing and need to be doing in the future to fight the resistance that will inevitably erupt among their employees, management and suppliers to the changes that are touching and transforming every part of e-commerce.
iSource: Tell us about the difference Internet-enabled technology has made to business.
Slaight: I look at supply management from the viewpoint of the acquisition and management of all purchased resources needed by a company: the identification and selection of the supplier, the setting up of the commercial relationship, the negotiation for that relationship, the ordering and receipt of the material, and the ongoing management of the supplier. So, my comments focus on a broad definition of supply management.
But to get the full picture of the impact technology has had, let's step back a few years. When the Internet became available to the masses in the mid-1990s, supplier selection was the first activity the Internet helped companies with. When A.T. Kearney started using this approach for strategic sourcing a decade ago, a large part of the effort was helping clients identify suppliers they didn't know about. They could increase the competitive dynamics by including alternative suppliers in the mix.
iSource: The issue of globalization was important at that point, wasn't it?
Slaight: Business was becoming globalized, but there weren't any tools with which to identify suppliers. The Internet gave us a global billboard for supplier communications. That meant that not only the major suppliers but also the relatively small suppliers could spend money to set up a Web site and turn it into an electronic brochure the world could access.
iSource: What came next?
Slaight: We started to look at the entire sourcing process and what we could do to streamline it, and we started looking at the process for RFPs. First, we used run-time spreadsheets to make supplier responses easier and more accurate. Then we went to electronic mail. Eventually we asked, Why don't we set up a Web site and have the suppliers respond to requests over the Web? We figured that it would allow more suppliers to respond and would enhance buyer communication during the process.
Internet and other technology tools, like the kind eBreviate and other companies offered, changed the economics of supplier negotiation. In the past, it wasn't really an open market. The relationship between buyer and supplier was more like liar's poker. Suppliers would submit a bid with four or five others, and the buyer would indicate that it wasn't competitive. But no one really knew whether or not that was a bluff or even whether your company had won or lost. You only knew what the buyer told you.
iSource: So, interactions became more legitimate?
Slaight: When you introduce an auction, you get price visibility. As a supplier, you know your price and you know the lowest price. Depending on how a buyer sets up an auction, suppliers might even get more information, for example, about whether it's in the lowest quartile or even its ranking among suppliers. The process is also accelerated. Another significant phenomenon is that online negotiations change the way things are sold, shortening the process and giving visibility to the marketplace.
iSource: What other changes do you see with Internet-based technology?
Slaight: The development and adoption of Internet-enabled technology is the biggest thing to ever happen to purchasing. Purchasing, logistics and supply chain functions were often considered backwaters in many corporations. The professionals working in these areas were specialists who approached their job with an attitude of avoiding risk at all costs. For instance, when enterprise resource planning (ERP) systems were developed, the last module for the system to be introduced was purchasing. This was because it seemed to be the least systematic; few corporate players were asking for purchasing to be modernized.
All of a sudden, with the widespread acceptance of the Internet, the supply chain, purchasing and the management of supplier relationships became a way to create a competitive advantage. Take Michael Dell, for instance. In order for customers to order and configure computers online, he needed a new way to set up parts acquisition and inventory. He wouldn't have been able to reach his customers directly, without creating the largest inventory in the world, if he hadn't created relationships with his supply base.
iSource: How easily have companies accepted these changes?
Slaight: There's still a learning curve taking place. I remember when Internet negotiation tools were first introduced and people said they might work with commodities or specific engineered materials in a large, fragmented market, but not for a service. Yet, eBreviate ran some of its earliest auctions for telemarketing services, and the savings were significant. It always amazed me when people who had never seen an auction were not shy about saying what would or wouldn't work. The category boundaries moved steadily outward to the point where almost anything can be auctioned. Some companies, like VW, are systematically testing the limits of auctions. I tell my clients, If you haven't had an auction that hasn't worked, then you haven't pushed the envelope, you haven't tried enough of them.
You see, when an auction fails, nothing serious happens. For example, the supplier's price may go up, but you don't have to accept it. The supplier may complain or refuse to participate, but suppliers are always complaining or threatening not to participate. Internet negotiations are low-risk, high return and easy to use.
Buyers, however, are naturally conservative. Many buyers' entire experience has been in the old environment, so when they are suddenly dealing with a new technology, it can be frightening. They fear they won't be able to survive in this new environment. But as companies get more and more comfortable, there's a kind of accelerated adoption that is almost viral in nature. Again, look at VW. In 2000 they ran several dozen auctions. In 2001, they're projected to complete more than 800.
iSource: What about suppliers?
Slaight: Some suppliers have taken the approach that, I'm going to hold my breath and it will go away. They will respond to a RFP, but when they hear the buyer will conduct Internet negotiations, they withdraw. If they're incumbent, they're just about admitting they've been over-charging you. If they're not incumbent, they're letting you know they can't compete.
For the guy who's not incumbent, who's been trying to sell into a place for years, it's a real advantage. He may have always suspected that the company decided not to award him the business because it was unwilling to risk switching suppliers. But now he knows whether he has really won or lost because he knows what the prices truly are, and his opportunities become greater.
In addition, suppliers have to take a different approach to differentiate themselves on factors other than price, and auctions have to provide other parameters, like quality, to allow them to do that.
iSource: How do you handle supplier or buyer resistance to the use of Internet-based sourcing?
Slaight: You have to have companies willing to test the limits of a technology. And you have to have companies willing to fail. After all, the risk of having an auction go bad isn't that great -- even if it's for something mission critical -- as long as you've been careful how to set it up. When the gavel comes down, you have to be clear you haven't made the final arrangements. All you've said is you're going to work together to finalize the contract.
The greater risk, as a matter of fact, may be in not doing everything you can to get the most competitive prices.
iSource: What else?
Slaight: Deal with resistance by obtaining measurable savings for customers -- it goes a long way. Second, obtain those savings faster, maybe 25 percent faster than before. Also, when an enabler delivers the service, it should set up a war room at the customer location to run the auction, as well as a demonstration room so people can get a play-by-play of how it was done. People become more comfortable with the idea when they can view it.
Most importantly, make sure to get the CEO, the chief financial officer (CFO), the division operating presidents and all the decision-makers who may have said, That won't work in my business, to come in to take a look. Demonstrating to senior executives that this works can make all the difference.
iSource: What are the risks of all this collaboration?
Slaight: There will have to be some legal ground rules. If I'm setting up a program with two or three strategic suppliers, I have to make sure they're not going to share what they learned from that relationship with one of their customers that may also be my competitor. It's the risk of a complex relationship. And it becomes more and more of a risk, because your customer may be your competitor or your joint-venture participant. It's not clear-cut, but I think that, because of the expansion of these types of relationships, companies are more careful about the sharing of information than they used to be.
iSource: Are there any limits to the technology?
Slaight: People say the marketplace will become completely transparent, however, there will always be a need for face-to-face negotiation. In some cases, it's not appropriate to be a part of a completely transparent system. You have to analyze the spend and decide the type of enabling technology you need to use. You classify it according to the importance to your business and the competitiveness of the supplier marketplace. Categories that involve a high-dollar amount in a competitive marketplace lend themselves to using enabled tools. Strategic situations where there's little competition and where you need to build a strong relationship aren't as appropriate for this technology.
iSource: How will enabled technology develop in the future?
Slaight: New technologies usually follow the same series of phases. First, you have an introduction phase, then a familiarization phase, then a commercialization phase. Finally, it becomes a commodity, like electricity -- something you plug into the wall.
The use of enabling technologies powered by the Internet is going to expand until 2010. We may see some AI [artificial intelligence] applications added, some neural networking applications. Wireless is going to have an impact. High definition television will have an impact. But, it's gradually going to become an every day occurrence and will stop being the next big thing.
iSource: How is the economic downturn affecting things?
Slaight: The advance of enabling technologies was fueled partly by the technology and partly by the stock market. The downturn, on the other hand, is a different matter. While it has made things a lot colder for the dot-coms, Fortune 1000 companies are very interested in achieving the kind of benefits the tools we're talking about can provide. They're looking at it from the standpoint of how much faster they can use the technology to get reduced costs. They're way past the experimentation stage. Now it's a strategic tool.
This interview was conducted by freelance writer Anne Field for iSource Business.
eBreviate entered the scene by introducing online auctions and an electronic request-for-proposal (RFP) system that allows customers to manage proposals from selected suppliers; and sourcing management technology that enables the analysis of customer spend, management of sourcing teams and the tracking of compliance with all previous deals. In the past two years, eBreviate's 95 customers, ranging from Volkswagen to Procter & Gamble, have sourced more than $10 billion using the technology.
As the interim president of eBreviate, and with his experience at A.T. Kearney, Slaight's world, and his scope of the B2B industry, is growing exponentially. He agreed to sit down and share his take on what companies are doing and need to be doing in the future to fight the resistance that will inevitably erupt among their employees, management and suppliers to the changes that are touching and transforming every part of e-commerce.
iSource: Tell us about the difference Internet-enabled technology has made to business.
Slaight: I look at supply management from the viewpoint of the acquisition and management of all purchased resources needed by a company: the identification and selection of the supplier, the setting up of the commercial relationship, the negotiation for that relationship, the ordering and receipt of the material, and the ongoing management of the supplier. So, my comments focus on a broad definition of supply management.
But to get the full picture of the impact technology has had, let's step back a few years. When the Internet became available to the masses in the mid-1990s, supplier selection was the first activity the Internet helped companies with. When A.T. Kearney started using this approach for strategic sourcing a decade ago, a large part of the effort was helping clients identify suppliers they didn't know about. They could increase the competitive dynamics by including alternative suppliers in the mix.
iSource: The issue of globalization was important at that point, wasn't it?
Slaight: Business was becoming globalized, but there weren't any tools with which to identify suppliers. The Internet gave us a global billboard for supplier communications. That meant that not only the major suppliers but also the relatively small suppliers could spend money to set up a Web site and turn it into an electronic brochure the world could access.
iSource: What came next?
Slaight: We started to look at the entire sourcing process and what we could do to streamline it, and we started looking at the process for RFPs. First, we used run-time spreadsheets to make supplier responses easier and more accurate. Then we went to electronic mail. Eventually we asked, Why don't we set up a Web site and have the suppliers respond to requests over the Web? We figured that it would allow more suppliers to respond and would enhance buyer communication during the process.
Internet and other technology tools, like the kind eBreviate and other companies offered, changed the economics of supplier negotiation. In the past, it wasn't really an open market. The relationship between buyer and supplier was more like liar's poker. Suppliers would submit a bid with four or five others, and the buyer would indicate that it wasn't competitive. But no one really knew whether or not that was a bluff or even whether your company had won or lost. You only knew what the buyer told you.
iSource: So, interactions became more legitimate?
Slaight: When you introduce an auction, you get price visibility. As a supplier, you know your price and you know the lowest price. Depending on how a buyer sets up an auction, suppliers might even get more information, for example, about whether it's in the lowest quartile or even its ranking among suppliers. The process is also accelerated. Another significant phenomenon is that online negotiations change the way things are sold, shortening the process and giving visibility to the marketplace.
iSource: What other changes do you see with Internet-based technology?
Slaight: The development and adoption of Internet-enabled technology is the biggest thing to ever happen to purchasing. Purchasing, logistics and supply chain functions were often considered backwaters in many corporations. The professionals working in these areas were specialists who approached their job with an attitude of avoiding risk at all costs. For instance, when enterprise resource planning (ERP) systems were developed, the last module for the system to be introduced was purchasing. This was because it seemed to be the least systematic; few corporate players were asking for purchasing to be modernized.
All of a sudden, with the widespread acceptance of the Internet, the supply chain, purchasing and the management of supplier relationships became a way to create a competitive advantage. Take Michael Dell, for instance. In order for customers to order and configure computers online, he needed a new way to set up parts acquisition and inventory. He wouldn't have been able to reach his customers directly, without creating the largest inventory in the world, if he hadn't created relationships with his supply base.
iSource: How easily have companies accepted these changes?
Slaight: There's still a learning curve taking place. I remember when Internet negotiation tools were first introduced and people said they might work with commodities or specific engineered materials in a large, fragmented market, but not for a service. Yet, eBreviate ran some of its earliest auctions for telemarketing services, and the savings were significant. It always amazed me when people who had never seen an auction were not shy about saying what would or wouldn't work. The category boundaries moved steadily outward to the point where almost anything can be auctioned. Some companies, like VW, are systematically testing the limits of auctions. I tell my clients, If you haven't had an auction that hasn't worked, then you haven't pushed the envelope, you haven't tried enough of them.
You see, when an auction fails, nothing serious happens. For example, the supplier's price may go up, but you don't have to accept it. The supplier may complain or refuse to participate, but suppliers are always complaining or threatening not to participate. Internet negotiations are low-risk, high return and easy to use.
Buyers, however, are naturally conservative. Many buyers' entire experience has been in the old environment, so when they are suddenly dealing with a new technology, it can be frightening. They fear they won't be able to survive in this new environment. But as companies get more and more comfortable, there's a kind of accelerated adoption that is almost viral in nature. Again, look at VW. In 2000 they ran several dozen auctions. In 2001, they're projected to complete more than 800.
iSource: What about suppliers?
Slaight: Some suppliers have taken the approach that, I'm going to hold my breath and it will go away. They will respond to a RFP, but when they hear the buyer will conduct Internet negotiations, they withdraw. If they're incumbent, they're just about admitting they've been over-charging you. If they're not incumbent, they're letting you know they can't compete.
For the guy who's not incumbent, who's been trying to sell into a place for years, it's a real advantage. He may have always suspected that the company decided not to award him the business because it was unwilling to risk switching suppliers. But now he knows whether he has really won or lost because he knows what the prices truly are, and his opportunities become greater.
In addition, suppliers have to take a different approach to differentiate themselves on factors other than price, and auctions have to provide other parameters, like quality, to allow them to do that.
iSource: How do you handle supplier or buyer resistance to the use of Internet-based sourcing?
Slaight: You have to have companies willing to test the limits of a technology. And you have to have companies willing to fail. After all, the risk of having an auction go bad isn't that great -- even if it's for something mission critical -- as long as you've been careful how to set it up. When the gavel comes down, you have to be clear you haven't made the final arrangements. All you've said is you're going to work together to finalize the contract.
The greater risk, as a matter of fact, may be in not doing everything you can to get the most competitive prices.
iSource: What else?
Slaight: Deal with resistance by obtaining measurable savings for customers -- it goes a long way. Second, obtain those savings faster, maybe 25 percent faster than before. Also, when an enabler delivers the service, it should set up a war room at the customer location to run the auction, as well as a demonstration room so people can get a play-by-play of how it was done. People become more comfortable with the idea when they can view it.
Most importantly, make sure to get the CEO, the chief financial officer (CFO), the division operating presidents and all the decision-makers who may have said, That won't work in my business, to come in to take a look. Demonstrating to senior executives that this works can make all the difference.
iSource: What are the risks of all this collaboration?
Slaight: There will have to be some legal ground rules. If I'm setting up a program with two or three strategic suppliers, I have to make sure they're not going to share what they learned from that relationship with one of their customers that may also be my competitor. It's the risk of a complex relationship. And it becomes more and more of a risk, because your customer may be your competitor or your joint-venture participant. It's not clear-cut, but I think that, because of the expansion of these types of relationships, companies are more careful about the sharing of information than they used to be.
iSource: Are there any limits to the technology?
Slaight: People say the marketplace will become completely transparent, however, there will always be a need for face-to-face negotiation. In some cases, it's not appropriate to be a part of a completely transparent system. You have to analyze the spend and decide the type of enabling technology you need to use. You classify it according to the importance to your business and the competitiveness of the supplier marketplace. Categories that involve a high-dollar amount in a competitive marketplace lend themselves to using enabled tools. Strategic situations where there's little competition and where you need to build a strong relationship aren't as appropriate for this technology.
iSource: How will enabled technology develop in the future?
Slaight: New technologies usually follow the same series of phases. First, you have an introduction phase, then a familiarization phase, then a commercialization phase. Finally, it becomes a commodity, like electricity -- something you plug into the wall.
The use of enabling technologies powered by the Internet is going to expand until 2010. We may see some AI [artificial intelligence] applications added, some neural networking applications. Wireless is going to have an impact. High definition television will have an impact. But, it's gradually going to become an every day occurrence and will stop being the next big thing.
iSource: How is the economic downturn affecting things?
Slaight: The advance of enabling technologies was fueled partly by the technology and partly by the stock market. The downturn, on the other hand, is a different matter. While it has made things a lot colder for the dot-coms, Fortune 1000 companies are very interested in achieving the kind of benefits the tools we're talking about can provide. They're looking at it from the standpoint of how much faster they can use the technology to get reduced costs. They're way past the experimentation stage. Now it's a strategic tool.
This interview was conducted by freelance writer Anne Field for iSource Business.
