Oil giants form e-hub

E-procurement: Oil giants form exchange to trade $125bn worth as supply chain software developers link up

E-procurement: Oil giants form exchange to trade $125bn worth as supply chain software developers link up

John Riley

Business leaders will drive the move towards Internet-enabled procurement, regardless of resistance from IT units, according to the man behind one of the world's largest electronic exchanges.

The Oil, Gas and Petrochemical Industry Exchange, which starts trading on 5 July, will reduce the oil industry purchasing cycle from three weeks to 30 seconds, only six months after the scheme's conception.

Business leaders, rather than IT professionals, were the driving force behind the scheme, said Chris Miller, Shell International's vice-president of strategic sourcing.

"I've seen a revolution in Shell," said Miller. "This e-procurement programme didn't come from IT - it was business-led. The business demanded our IT colleagues not tell us, for example, that it can't integrate with SAP. They were told to make it happen. If you want it to work, it will work."

The oil exchange, conceived in January and announced in April, expects to facilitate $125bn worth of e-procurement a year and will be the world's largest exchange.

Its founders include Shell, BP-Amoco, Statoil, Mitsubishi and Total Finaele.

"There is a new self-confidence among business people - they now understand how to make IT work for them to get profit up and returns on average capital per employee down," Miller told members of the new London-based E-procurement Best Practice Network.

The oil exchange, based on CommerceOne technology, will provide one hub for transaction flow, initially charging $1-$2 per transaction. Eventually there will be no transaction cost - the Exchange will exist on the services it sells.

Miller said the oil exchange would do more than rely on aggregate spend to reduce costs. "It is a facilitator - it will also offer financial, logistics and auctioning services, for example booking air travel."

However, Miller issued a warning that companies need to be careful when using exchanges because they can give legitimacy to bad deals as well as good deals. "The competitive advantage goes to those who get the best commercial deals - who become masters of the data," he said.

The recently launched Computer Weekly and government-supported E-Procurement Best Practice Network, run by the independent BuyIt best practice group, aims to enable top UK companies share experience and accelerate their take-up of e-procurement. See www.buyitnet.org for details

Relative projected savings using e-procurement

Standardisation: 10%
Compliance: 37%
Leverage, consolidation, supplier cost reduction: 23%
Online bidding price reduction: 20%
Process efficiencies: 7%
Engineering man hours: 3%

Source: Shell International

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