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November 20, 2000

E-Procurement: Problems Behind The Promise

continued...page 2 of 3

Illustration by Kerri Smith

More on E-procurement:

sidebar: US Office Products Tries To Stay Ahead Of The Game

sidebar: In A Perfect E-Procurement World

InternetWeek: E-Procurement For Small Manufacturers In Reach? (10/16/00)

InternetWeek: Exchanges Learn To Negotiate (9/18/00)

TechWeb: Ariba Upgrades Procurement Products (9/11/00)

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Just ask Dell Computer. Nearly a year after the No. 1 direct-sales computer vendor began its implementation of Ariba Buyer, Ariba's flagship E-procurement suite, Dell has electronic catalogs for just nine of the 1,400 suppliers it deals with. It has been slow going for Dell to get the content it needs from suppliers because Ariba applications require catalogs to be in a file format called Catalog Interchange Format.

Dell is pleased about routing $10 million a month worth of requisitions, representing a broad range of nonproduction commodities, through its Ariba system since going live with it in August. Without electronic content for most of those products, however, 30,000 Dell employees must manually enter data into the system while referring to cumbersome hard-copy catalogs. "It's very difficult," says Julie Reed, a strategic business manager at Dell. "Suppliers aren't all tech-enabled. It's often the first time they've created a file in the form we need."

Dell had planned to register all 1,400 of its suppliers on the Ariba Commerce Services Network by last April. The Ariba Commerce Services Network enables secure transaction routing and exchange of transaction information between a company running Ariba Buyer and its vendors via electronic data interchange, fax, E-mail, and XML-based messaging. The registration process requires each supplier to fill out a comprehensive form online, after which Ariba verifies the supplier's identity and works with the company on security measures and encryption formats to ensure integrity of transactions. If the supplier wants to interact electronically with Ariba, the vendor will work with it on EDI or XML registration and testing. Dell says it takes a lot of hand-holding just to get the ball rolling and that it hasn't had much help from Ariba. Only a third of Dell's suppliers are registered.

Nick Solinger, Ariba's director of product marketing, calls supplier-enablement and content management "a multifaceted and extremely hairy issue," made more difficult by suppliers' fears that E-procurement will erode margins or hurt them in some other way. Ariba does offer customer-implementation resources, including a 50-person content-discovery and services group to help suppliers create electronic content and get on to the Ariba Commerce Services Network. Ariba has done more than other E-procurement application vendors to provide and support a wide variety of tools and services, Solinger says, but he admits it needs to do more. "It's an area our customers are definitely pushing us on," he says.

For its part, Dell is about to launch a campaign to get more suppliers on board through a series of "summits," in which the computer maker will bring together suppliers in groups of 10 for several hours of presentations and education about the benefits and requirements of E-procurement. When the process of registering all suppliers is complete, the company expects to cut in half the $40-per-transaction cost of processing purchase orders. "The circle isn't complete," Reed says. "We end up faxing or mailing purchase orders, and that's not E-commerce."

It's a similar story at VF Corp., a $5.6 billion apparel manufacturer in Greensboro, N.C. The company is still in the process of deploying Ariba Buyer, a project it started in April, and has found to its surprise that even suppliers registered on Ariba's Commerce Services Network weren't able to conduct transactions with VF via the Ariba system. In several cases, suppliers that had set up XML or EDI links to Ariba hadn't fully tested them and sent botched data or failed to respond in trial runs conducted by VF. Some suppliers are so busy working on electronic links to customers operating in environments other than Ariba, they've put VF on an E-procurement waiting list.

Consequently, VF has postponed until next year the completion of an electronic catalog for all the nonproduction commodities it buys--and like Dell, its employees enter requisitions manually. Because most suppliers have been unable to support the Catalog Interchange Format required by Ariba, VF has set up catalogs through Ariba for just six of the 40 vendors it buys from. VF believes there's enough value in using Ariba to capture and analyze spending activity that it will continue on track. "Suppliers need to get there," says Norm Marttila, an E-business process executive at VF. "It's a timing issue. But we see enough benefit today that we're not putting the project on hold."

Photo by Ray Ng But be careful what you ask for. Companies that manage to collect electronic catalogs from suppliers face the daunting task of integrating, formatting, checking, and updating them, all while ensuring the data is easy to navigate. To tackle that challenge, Great-West Life and Annuity Insurance Co. in Denver worked out a deal with Remedy, its E-procurement applications provider. Remedy agreed to integrate a catalog-management application from Requisite Technologies that will make searching for products in the catalogs more intuitive, at no extra cost to Great-West Life, says Graham McDonald, VP of finance at the $2.7 billion company. Still, the Requisite project added six months to Great-West Life's software deployment, which the company began a year ago and was supposed to make available to 4,000 employees by the end of this year. Now it's looking more like the middle of next year.

The company says it's worth the wait, as it doesn't want to trade efficiencies already gained in the purchasing department for the labor required to create a catalog from scratch. So far Great-West Life hasn't encountered the problems Hormel had with Requisite. "Catalog management is a very important part of E-procurement," McDonald says. Without it, companies could wind up adding people to manage the catalogs even as they reduce their buying staffs.

Companies implementing E-procurement software struggle not just with technology issues, but with creating acceptance of the procurement system by users and purchasing professionals. Many of those employees may have had purchasing autonomy, and may feel impinged on by a corporate mandate to adopt new processes and vendors. "There will be a lot of religious battles," says Pierre Mitchell, an analyst at AMR Research. "Supplier preference is [easier] to resolve around office supplies. But when you get into the plant and say, 'You guys will use Snap-on instead of Stanley tools,' there will be backlash."

Training is critical to gaining acceptance among users, yet it's often overlooked to the detriment of the project. Dell has deployed Ariba Buyer to 30,000 employees and has 3,000 frequent users, but the company wishes it had spent more time training users from the start. Although the company initially provided hourlong training sessions, many users require additional support. "The interface is intuitive," Reed says. "But you have so much visibility into the buying transaction you never had before, it's confusing and can encourage a lot of questions."

Dell turned off its legacy purchasing system when it went live with Ariba. That gave users no alternative for buying nonproduction supplies and drove the need for intensive training. But it was the right thing to do, Dell says.