Innovators who supply success
Ultimately, e-business success is all about delivering the goods. The three finalists in the Supply Chain Management and Procurement Award all demonstrate the importance of managing this key process.
A fully integrated end-to-end processing system for the wealth of procurement and supply chain activities of a large company is still a pipe-dream for many firms. However, Ericsson UK has embraced the opportunity provided by e-business to deliver customer-facing application connectivity with seamless back-office processing, thereby sharpening the competitive edge that e-fulfilment can provide.
Ericsson's workforce processes some 2,500 requisitions and 7,000 invoices per month. Tackling the physical implications of this amount of paper has been key to the success the organisation has enjoyed since roll-out began in 1999. Web-enabled document handling and workflow has been provided by Staffware, operating across the existing intranet, and linked to the Peoplesoft enterprise resource planning system. Set-up costs for the project were about £1.25m.
Self-service is another important feature of the new system, with the application automatically populating forms with details such as those relating to the individual requisitioner, authorisation levels and certified suppliers. The only point at which paper is now handled is when an invoice comes into the accounts payable department prior to being scanned.
Perhaps the most innovative element of the project is its end-to-end connectivity. Whilst many organisations have intranet supply chains, with millions being spent on Web sites and interfaces, many fail to integrate the system into the back office.
But closing that final link is important. As a result, Ericsson expects £1m per year in productivity gains, stemming mostly from halved purchase order cycle times and a dramatic reduction in the effort required to process invoices. Return on investment payback will be achieved in the second year.
Ericsson represents an outstanding example of automated procurement within a large organisation. In particular, Ericsson has successfully negotiated one of the most difficult issues in e-procurement implementation, that of integration with other back-office systems and processes. This is where many firms face difficulties. Ericsson has dramatically reduced the amount of paper involved in its end-to-end purchasing process. The integration of the procurement solution with existing ERP systems, including HR, project management and finance applications, ensures that a purchase order is automatically populated with details of the employee who raised it, the authorisation route and levels, the authorised supplier and other financial control information.
Supermarket chain J Sainsbury was looking for more from the electronic supply chain than could be provided by traditional electronic data interchange. The firm wanted to work with its suppliers on promotional events and new product introductions. It wanted to ensure full visibility of sales, depot stocks and store availability. Such a system would require a high degree of flexibility to deal with 4,000 trading partners.
The inability of older systems to facilitate operations for today's competitive marketplace is demonstrated by the fact that it could take up to two days for sales information to filter through from the checkout to the supplier. The potential for error was extremely high, as were the costs of having to accommodate that level of supply chain latency.
The Sainsbury/Eqos Collaborative Planning System (CPS) has been devised to fit the bill. It provides the kind of communication across the supply chain that can trigger alarms on stock shortages as well as instant feedback on promotion successes and failures. The system is fully integrated into the supplier's internal systems to ensure end-to-end synchronisation, with the functionality of Microsoft's Biztalk enabling a single system to be hosted on several servers, so giving suppliers the ability to up- and download information as they need it.
The total set-up cost was less than £500,000, which is dwarfed by the £2.5 m a year in direct saving Sainsbury's expects through reduction of wastage and reduced administration.
In a fiercely competitive marketplace, the visible service Sainsbury's provides to its customers is only as good as the invisible supply chain that supports it. This is, in short, why CPS is so important, and successful.
J Sainsbury's solution allows it to plan and monitor the success of promotions with its 350-plus suppliers. By providing full visibility of the electronic point of sale in its stores, it can forecast product requirements with each supplier based on the day-by-day success of any new product launch, promotion or offer. This type of collaboration is what many electronic marketplace sponsors are only now beginning to explore. Initial use of the solution and benefits are impressive. With nearly 4,000 promotions already handled by CPS since its implementation in February 1999, Sainsbury's predicts a 500% return on investment in three years. The solution has reduced the occurrence of "out-of-stock" situations on promotional items by 25%, leading to savings of £2.5m per year.
Royal Sun Alliance
Royal Sun Alliance faced the challenge of improving contracts' compliance, and began to evaluate the potential of e-procurement as a result. Explorations quickly showed that this most successful element of e-business would help to deliver significant and sustainable bottom-line benefits, improve compliance and reduce administrative burdens, whilst improving service levels. However, e-procurement also created the need for a wholesale overhaul of the existing supply chain base to create e-solutions for all areas of spend.
It was the sheer size of the supply base and the lack of management information that made effective supplier management insurmountable under the existing system. Old processes could not support the delivery of improvements year-on-year, and there were strong cultural barriers to change. It emerged that there was little faith in old corporate contracts, local arrangements had been tailored too much to local needs, and there was a general fear of sacrificing local autonomy.
Cap Gemini Ernst & Young helped Royal Sun Alliance overcome these hurdles with the implementation of the e-procurement package from Ariba. Quick wins were important, and 14 weeks into the project the first wave was rolled out to 2,000 employees. This enabled them to own it from an early stage and show them how it could help rather than hinder them.
The system will roll out across the UK by the end of this year, and worldwide next year. The savings will be dramatic: £22m-£25m per year, about 10% of all purchasing costs. But a culture is changed too: purchasing will be able to deliver true compliant global sourcing for many of its commodities using point-and-click technology within an empowered environment.
One of the key factors behind the success of Royal Sun Alliance's e-procurement project implementation must be the approach it has taken in communicating the solution internally. A communications programme was used to create a "burning platform" for staff to want to use the system. Encouragingly, RSA is implementing e-procurement in the context of several other business initiatives. both electronic and traditional. Several projects are under way to complement the e-procurement initiative, including the negotiation of long-term contracts for high value transactions, and the use of buying agents for one-off purchases. It has also extended the potential benefits of its e-procurement approach to the UK's small and medium sized enterprise (SME) community, through its "Usecolor" initiative. This online service incorporates a buying zone where SMEs can benefit from RSA's purchasing power.