Links: Transatlantic e-Procurement

One engineering and manufacturing company takes on the task of aggregating its indirect spend with e-procurement and achieves a significant ROI.

[From iSource Business, January 2002] Founded in Chicago in 1917, John Crane has the kind of pedigree that makes it a poster child for e-procurement, and its experiences to date offer some lessons for other organizations seeking to implement e-procurement in a multinational corporation. 

The company, with its North American headquarters in Morton Grove, Ill., is part of the sealing solutions division of U.K.-based Smiths Group plc, a $4.5 billion engineering and manufacturing company that, besides sealing, also specializes in the aerospace, medical and industrial sectors. With annual sales of about $1.1 billion, John Crane employs more than 9,000 people at 200 facilities in 47 countries, including 25 manufacturing plants and 135-plus service centers.

The sprawling organization made indirect spending a disaggregated nightmare, according to Colin Clark, director of procurement for John Crane. The indirect spend was carried out by many different sites that were not connected by a common procurement system, Clark says. Contract take up was limited and difficult to track, communication was poor, and smaller sites were not aware of activity in larger sites. The company's facilities also used a variety of enterprise resource planning (ERP) systems, making it problematic to leverage John Crane's size and total spend to achieve cost reductions on its indirect purchases.

Getting Started

John Crane and parent Smiths Group began looking at providers of e-procurement solutions for indirect spend in early 2000, eventually choosing Mountain View, Calif.-based Ariba. Clark said the functionality that Ariba offered in its software and the operating costs for the system were key factors influencing the choice of the provider. Ariba's global reach was another factor. Interestingly, although Clark did not say what the Ariba system cost John Crane, he asserts that, given the potential return on the company's investment in the system, price was a non-issue.

Even as they were looking for a solution, John Crane and Smiths Group were also searching for a consulting company to assist in the implementation. The criteria, Clark says, included the ability to provide support in both the U.K., Europe and the United States and a willingness to help John Crane and its parent company develop in-house expertise so that the two companies could manage the e-procurement system following the implementation. By April 2000 Smiths Group had selected Chicago-based CCP global and European-based Archway Consulting, two consulting companies that partnered to offer transatlantic implementation services for Ariba systems.

The Buy-in

To get its employees onto the new system, Smiths Group regionalized its facilities, bringing groups of its U.K., U.S. and European sites together, 10 to 15 at a time, for train-the-trainer conferences. Once the conferences were over, the facilities' staffs had all the tools they needed to do an implementation at their own site.

The Smiths Group had the equivalent of eight full-time employees working on the project and, in addition, had incurred 113 consultant person-days on the implementation by early July. The company is measuring its return on investment in terms of savings by commodity and has targeted a 7.5 percent reduction in costs on the $150 million to $200 million of its indirect-materials purchases that Clark calls Ariba-addressable spend.

Part of the savings will come from aggregating the company's purchases by whittling down the pool of more than 1,500 current suppliers to fewer than 50 for John Crane and fewer than 100 for the Smiths Group as a whole. In addition, Clark says that by moving its purchasing online, the company should be able to better enforce its contracts and monitor compliance with its supplier agreements. Clark further asserts that combining the Ariba e-procurement portal with a purchasing card has taken steps out of the company's supply chain, increased accounts payable efficiency, lowered costs for suppliers and helped to reduce errors in the purchasing process. In terms of staff costs, Clark said the company is not looking for headcount reduction in purchasing, although some personnel will likely be reassigned to more strategic activities. We want to reallocate the heads to do value-added work, Clark says.

Success Factors

Based on John Crane's progress to date, Clark's advice for other companies planning e-procurement implementations is to start slow. You need to keep it simple, he says. A lot of the times when you get into these implementations, you tend to want to get all the bells and whistles right from the very beginning. You need to keep your feet on the ground and make sure that you see reality. Being grounded in reality means understanding not only your own company's challenges, such as how to complete a transaction through your own firewall, but also understanding the challenges your suppliers face. To gain such insights, John Crane, for example, developed a catalog similar to those that it was asking its suppliers to post on its Ariba purchasing platform.

Another success factor for an implementation involving so many dispersed facilities is to bring the stakeholders together early in the process, according to Emily Brady, CEO of Archway Consulting, which has done similar Ariba implementations for such companies as Johnson Matthey, Johnson & Johnson and South African Airlines. In our experience, bringing together key procurement stakeholders from each major country/division/set results in open discussion, team building, and a realization and justification for a common process across organizations, says Brady. We really focus on achieving the maximum return with the lowest investment. Clark notes that an international implementation can also involve cross-cultural issues, and having the key people involved from the start is vital.

Knowledge transfer from implementation consultants to clients is also vital, says Al Patel, vice president of Ariba services at CCP global, which has done some 30 Ariba implementations to date. Clients tend to underestimate the resources they will need to successfully go through an implementation and then have the ability to maintain the system on an ongoing basis, he says. We focus on making sure that client teams are staffed with individuals that can be paired up with individuals from our team, since knowledge transfer is critical for success. We also train them in how to maintain the system, how to administer things and handle changes and the challenges that come up from a day-to-day operational standpoint.

For the future, Clark says that once John Crane completes its e-procurement implementation for indirect goods, the company will turn to its direct spend. There are savings to be had across the board, from a materials standpoint, Clark says. But he sees John Crane focusing on its direct spend 18 to 24 months down the road.