Links: "Got to Admit It's Getting Better"

Just because a company sells the latest technologies doesn't always imply that it utilizes the latest technologies. For Philips electronics' move to e-procurement, it took a while to admit it was getting better.

[From iSource Business, December 2001] Philips electronics does a lot more than produce those excellent commercials with the tagline "Got to admit it's getting better." The Amsterdam-based company has some 219,000 employees in more than 60 countries, and manufactures everything from batteries to semiconductors to flat screen televisions. Now factor in the number of supplies and suppliers needed to keep all those employees producing all those products, and you approach "Manhattan Project" complexity.

Beginning in 1999, the company became interested in managing that convoluted supply chain with modern e-procurement tools. The task of management was particularly burdensome when it came to indirect materials. Gaspar Mondejar, procurement manager at Philips, says the company wasn't able to track its indirect spend. Not only was that frustrating from a numbers standpoint, but it also meant that the company was missing opportunities to drive out costs. Mondejar says, "We didn't have enough information to make good, leveraged contracts with suppliers. And we saw that, with a central-based tool or system like Ariba, we could get that information much more easily."

Mondejar heads the unit responsible for implementing Philips' Ariba program, which the company calls AUSOM, for Ariba User Services and Operations Management. Unfortunately, his team's experience with getting everything running on the Ariba program was somewhat less than awesome. The problem wasn't with Ariba's software, but in the transferring of paper catalog content into electronic format. European e-procurement lags behind American abilities, and that point was driven home when Philips' suppliers began having trouble switching to electronic catalogs. Mondejar says, "Our suppliers were used to the famous paper catalog, but when we asked for electronic catalogs, we suffered a lot to get good quality and to get it on time, with the right description and with no errors in units of measure or price."

There was also the problem of the sheer scale of getting those catalogs online. At the writing of this article, Philips had about five to 10 percent of their indirect spend in their electronic catalogs, and even that small percentage meant there were 400,000 items in the catalogs.

But the real problem that came with that catalog content was the question of data reliability. It's hard enough to take your own company's products online, but expecting literally thousands of suppliers to be able to populate online catalogs with clean, accurate data is not realistic. Philips needed a way to "scrub" all that catalog content.

That's where San Mateo-based Poet Software company came in. Michael Hogan, vice president of strategy and business development at Poet, explains that his company ensures procurement programs are working with clean, valid catalogs that are priced according to contract, and it also allows companies to measure and report on the information in those catalogs. Hogan summarizes the approach by using a saying that dates to the early days of computing: "Procurement systems suffer from the garbage in, garbage out problem. So we make sure you're not taking in garbage."

Hogan's company set to work on keeping Philips' Ariba installation "garbage-free." Poet's eSupplierPort is designed to allow buyers to confirm that catalog content is clean, properly structured and appropriately priced. Hogan says, "Essentially, we ensure that what goes in is workable information."

But in order for those packets of information from so many disparate sources to work together, they either have to all speak the same language (which is far from the case) or the data scrubbing system has to handle the language they do speak. Luckily for Philips, Poet's software is able to work with what Hogan calls the many "pseudo-standards" companies are adapting, which is no mean feat considering the number of standards that are out there. "Our opinion on this is that there's really a Tower of Babel issue with standards. We're getting more and more, not fewer and fewer."

The acid test, of course, is whether or not Philips was able to enjoy the benefits Poet promised. Now that the Poet system is resident, has the Netherlands become the land of tulips, windmills and contented purchasers? In a word, yes. Mondejar says the software has functioned well, allowing him to migrate catalog content smoothly and manage that content once it's migrated. In addition, it has provided an unexpected benefit: the standardization of products Philips purchases. Mondejar says, "That's very positive because, again, we are talking about millions of different types of products being reduced to maybe hundreds of thousands." So the ads are right. It is getting better.