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November 20, 2000 |
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E-Procurement: Problems Behind The Promise
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Charles Schwab & Co. wishes it had done the same when it turned on its Ariba system in October 1999. The $4.7 billion brokerage says one reason it hasn't yet attained the return on investment it expected from its E-procurement initiative is that it left open alternative forms of purchasing, namely paper and E-mail requisitions. So although Ariba Buyer is now available to 14,000 employees, and will be available to a total of 25,000 by year's end, users who don't like change have been able to thwart the system. "We have lessons we've learned," says Beverly Mackey, VP of procurement services at Schwab. "We should turn off alternative forms of requisitioning."
Parsons Brinckerhoff Inc., a $945 million transportation engineering and construction-management company in New York, has had to review the new buying processes it's instituting with its installation of Clarus' E-procurement suite among more than 18 business units. It's also using the deployment as an opportunity to revisit purchasing policies, procedures, and vendor contracts that haven't been touched since the early 1980s. "We evaluated vendors again and hired new staff," says Suzanne Puccino, VP and director of corporate services at Parsons Brinckerhoff. "We've basically revamped our entire purchasing system and group. We used Clarus as the excuse to do that."
The hard part has been integrating the E-procurement suite with a cost-accounting system from Oracle. The company began deploying Clarus' suite a year ago and is behind in its rollout schedule because of the prolonged integration effort. Because staffers will use the system to buy computer hardware and software, office equipment, office furniture, office supplies, and printed stationery, Parsons Brinckerhoff had to ensure that detailed project data flowed between Clarus and cost-accounting centers used to track the cost of each project within Oracle to ensure proper billing to clients. The company purchased an additional module from Clarus called Clarus Fusion, which loads project names, job numbers, expenditure types, and cost-center information from Oracle into Clarus. "It has taken time for Clarus to understand connections to the Oracle system," Puccino says. The rollout "has taken twice as long as expected."
Instead of Parsons Brinckerhoff making Clarus available to all 250 domestic offices by midyear as planned, the company is rolling it out initially to just 15 sites. The rest of the project won't be completed until after next year.
"Back-office integration isn't as easy as one would like to think," says Steve Hornyak, Clarus' chief strategy officer. That's why Clarus has taken on the task itself, rather than pointing customers to a third-party enterprise-application integration company. The problem at Parsons Brinckerhoff, Hornyak says, is that the company was an early adopter of Clarus' Oracle Fusion Link product, one of the vendor's six Fusion Link offerings for linking to major enterprise apps. Parsons Brinckerhoff hit some bumps in building real-time links between the Unix-based Oracle applications and Clarus, which runs on Microsoft Windows NT. Because the project took longer than expected, Clarus footed part of the bill.
Deb Kunkler, a procurement manager at Idaho Power Co., also knows that being on the leading edge of technology adoption has some "nonbenefits." Idaho Power, a hydro utility in Boise serving Idaho, Oregon, and Nevada, deployed an E-procurement suite from Commerce One last year. It figured integration between the system and an ERP suite from Indus International Inc. would be complete by now, but Idaho Power is still working on it, in part because the company had to upgrade to the latest release of Indus Passport, which became available in August. "Integration has been the biggest challenge but will also be the greatest value," Kunkler says.
The utility expects to see its investment pay off in three years. So far, it has deployed Commerce One in standalone mode to 185 employees for office and janitorial supplies. But links to work orders stored in Indus are crucial for linemen and other workers to order hand tools, safety gear, and project-specific supplies through Commerce One.
Another complaint about E-procurement applications is that they're generally focused on indirect commodity items such as office supplies and computer equipment, and neglect other areas of spending such as services, capital projects, and production materials. A recent Granada Research study concluded that several large expenditure categories, including capital equipment, parts replacement and repair, and professional services, aren't adequately served by Web procurement platforms. Gartner Group says none of the E-procurement systems available today supports more than 40% of service businesses' purchasing needs. Adds AMR Research's Mitchell, "The biggest disappointment is the breadth of the applications."
Wachovia Corp., a $6.3 billion banking and financial services firm in Winston-Salem, N.C., would like to expand its deployment of Clarus beyond the 1% of total spending that the system processed this year. The company is awaiting the next release of features from Clarus to enable procurement of professional services, such as technology consulting, staffing, and legal and accounting services, as well as configuration of network and telecommunications equipment. Limited supplier readiness among service providers and network equipment vendors is another factor curtailing the scope of the project, which today covers office supplies, hardware, and desktop software. "I'd like to turn up the gain further," says Bill Huber, VP and manager of strategic sourcing at Wachovia. "Today it's only a blip on the screen."
Electronics producer Texas Instruments Inc. has also limited its E-procurement project. TI's deployment, which is based on software from Metiom, addresses only supplies not tied to the manufacturing line, such as spare parts, lab equipment, and computers, which represent a third of the company's $5 billion of annual spending. The remainder is spent on raw materials and electronics components, as well as capital equipment, and is integrally tied to the company's SAP manufacturing system.
The problems TI needs to solve in direct-materials procurement are starkly different from the issues it faces in purchasing indirect materials, says Alan Daniel, E-procurement manager. Rather than tracking spending, negotiating discounts with suppliers, and ensuring on-contract buying, which is already tightly managed on the direct side, TI is looking for ways to improve communication with suppliers about inventory levels, delivery schedules, and other information critical to production lines.
Commerce One, i2 Technologies, Nexprise, and Oracle all say that they can deliver software suites that resolve these issues, letting TI and other manufacturers meet online to design products and buy the custom components to build them. But most companies view what's available as largely unproven. "Most procurement systems today haven't mastered how to do that," Daniel says. "That requires integration not only with your enterprise resource planning system but with supplier and customer ERP systems. Those things may be coming, but they're not here yet."
Illustration by Kerri Smith
Photo of Kunkler by Steve Welsh
Photo of Daniel by Doug Davies
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