Procurement Power

Two operating units of Siemens AG have made combined purchases of more than $1 billion in the past year using the company's direct-materials Web portal, Click2procure Direct Material. The system is based on Commerce One Inc.'s Buy and Source E-procurement products and its Collaborative Platform, which lets buyers and suppliers communicate over the Internet.

Siemens got its first taste of E-procurement nearly two years ago when it started buying low-cost, low-value items such as office and maintenance supplies over the Internet and realized savings of $40 to $60 per transaction. Since then, the company has aggressively pushed adoption of the indirect-procurement tools across 13 operating units in the United States and Europe. It's also promoting the use of its E-procurement tools for acquiring direct materials, the parts and materials used in manufactured products, with Siemens manufacturing companies in those same 13 operating units.

The Siemens Westinghouse Power Generation and Siemens Energy and Automation units have saved nearly 40% of the processing costs for the orders placed on the system, says Klaus Haidacher, director of Click2procure. Another operating company, Siemens Dematic AG, recently bid a large contract for high-priced strategic materials and saved 46% by negotiating the $880,000 deal over the Internet.

Together, the three operating units (and some others that are using only the Commerce One collaborative capabilities) have saved more than $1 million in communications costs by using Click2procure to exchange more than 100,000 documents and engineering specifications electronically with suppliers. "We first saw the benefits of E-procurement in 2000, and we've moved aggressively forward since then," Haidacher says.

Companies such as Siemens are on the right track, according to a recent study by A.T. Kearney. The IT research and consulting firm's report, based on a survey of 147 companies in 22 industries with average revenue of $9.5 billion, says that companies that push ahead on their E-procurement plans--starting with low-cost, low-value supplies and materials and then moving up to include high-cost strategic goods--can save $5.7 million on every $100 million they spend. They also cut an average 41% from their order-cycle time and reduce procurement staff by 10%, the study shows. E-procurement offers a return on investment as high as 13-to-1.

Siemens Procurement and Logistics Services, which manages E-procurement for the company globally, keeps return on investment at the top of its priorities when it deploys E-procurement tools to new divisions and business units. Deployments are begun only after it's been demonstrated that the division or unit can achieve a 100% return on investment in the first year. The company requires business units and divisions to achieve that goal, Haidacher says. That quick ROI pays for the deployment. Savings in subsequent years go directly to the bottom line.

Other companies are finding similar success with their E-procurement initiatives. Jeff McKibben, director of worldwide E-procurement for Hewlett-Packard, took Keychain, his company's private E-procurement exchange, live in August 2000. In Keychain's first 12 months, HP achieved savings of $33 million by aggregating purchases companywide and reducing by 30% the time employees spend managing the order process. Those savings more than paid for the cost of the technologies from i2 Technologies, SAP, and Sockeye Solutions, McKibben says.

HP also invested in the Converge Global Trading Exchange, an industry exchange on which it auctions excess inventory and buys parts, such as memory chips, on the spot market. The company plans to continue its strategy of deploying its E-procurement tools across all its operations, including those that are consolidated because of its merger with Compaq. The original deployment date of 2004 for the companywide initiative may be pushed back because of the merger, he says, but the emphasis on connecting the now-combined company with its suppliers hasn't changed.

One thing that may help speed the process is HP's decision to consider supplier-relationship management suites from a number of vendors to replace much of the current technology. HP says a supplier-relationship management suite could replace much of the custom-configured software and would be easier to integrate with what it and Compaq have. Even if the merger requires HP to deploy new technology, the idea behind using the tools is the same.

"We've gotten a lot of value from our E-procurement strategy," McKibben says. "We plan to use E-procurement to help us make the company after the merger as efficient as possible."