Automaker Cuts Procurement Costs With SAP Software

DaimlerChrysler AG's Mercedes Benz auto-production operation in Spain has realized a more than 80% return on its investment.
DaimlerChrysler AG's Mercedes Benz auto-production operation in Spain has realized a more than 80% return on its investment in E-procurement software from enterprise vendor SAP.

Daniel Saenz, Mercedes Benz Espana's manager of organization and process management, says his company has reduced procurement costs for nonproduction-related supplies by nearly 30%, using SAP's Enterprise Buyer Professional. The company's annual spending for nonproduction-related supplies is about $60 million.

The savings has been achieved by moving half of the 10 employees required to check invoices and process orders to other jobs, consolidating contracts with vendors, negotiating lower pricing, and reducing the paperwork required for orders--which has helped reduce order lead times from 14 days to one day.

Mercedes has cut the number of suppliers from nearly 1,500 to about 200 since it went live on the software in March at its production plant in Vitoria, Spain, and at its Barcelona offices. For example, the automaker had used 109 suppliers for electronic switches used in machines, tools, and plant maintenance. Now they use a single supplier for switches and all orders are handled over the Internet, Saenz says.

The company also has used the software to connect with the U.S.-based automotive exchange Covisint. Aberdeen analyst Fran Howarth says the company is using EBP as its first step to using Covisint for production parts and materials.

Mercedes says integration to Covisint took only two days, using SAP XML connectors to its SAP R/3 enterprise applications and Commerce One cXBL connectors used on Covisint. Mercedes is currently piloting the use of EBP connected to Covisint with a key supplier and expects to begin using Covisint for production materials early next year.

A key benefit is already being realized, Saenz says. For nonproduction supplies, the company is quickly moving toward exposing its inventory of vital materials to its suppliers so those vendors can maintain their own stock. The vendor-managed inventory system should be ready for full-time deployment early next year, reducing the number of required procurement personnel even further, he says. Adds Saenz, "Once a contract is negotiated, it will be closed, no more searching for suppliers. And no mistakes in the process."

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