Philips adopts e-procurement in bid to cut costs

A company-wide purchasing system is set to save Europe's largest electronics company tens of millions of dollars

A company-wide purchasing system is set to save Europe's largest electronics company tens of millions of dollars

Europe's largest electronics company - Philips - is to roll-out an electronic-procurement system, which, it claims, could cut its annual purchasing costs by tens of millions of dollars.

The Dutch electronics manufacturer plans to roll-out an e-procurement system, to more than 100 sites worldwide, in a project which aims to cut 8% from its $5bn global supply bill.

The system will link 100 separate ERP systems throughout Philips to create a company-wide purchasing system that will channel orders to a small number of preferred suppliers.

The move follows research by Philips that showed it was only achieving 3% of the savings it could make because staff were either unaware of who the preferred suppliers were or failing to place orders with them.

"We will be able to reduce the cost of transactions and increase the speed of realising savings negotiated with our suppliers," said Neil Deverill, head of purchasing at Philips.

The system, dubbed STEP (simple total electronic procurement) by Philips, is designed to eliminate paperwork by allowing staff to order equipment from their desktop PCs.

In preparation for the new system, which will take up to 18 months to deploy, the company has standardised on Dell desktop PCs and installed an intranet.

Philips has contracted its IT consultancy subsidiary, Origin, to manage the roll-out. The e-procurement software is being designed and supplied by Ariba, while PricewaterhouseCoopers will assist individual Philips sites to re-model their businesses around the new system.

One of the challenges facing Origin and Ariba is the development of middleware to feed purchasing decisions to 100 separate ERP systems in Philips plants, which include legacy systems developed in-house and many older systems which are no longer supported by their manufacturers.

"Origin are probably in a fairly good position in that they have been partners with ERP suppliers, Baan, JD Edwards and SAP. Having said that, it is still a very major project," said Marianne Kolding, analyst at IDC.

Philips has been running a poster campaign to encourage its staff to "buy in" to the new system.

but the company will need to offer carrots and sticks, to persuade staff to use the new system in their day to day work, warned Kolding.

Benefits

  • Savings of up to 8% from $5bn global purchasing budget

  • Provides managers with up-to-minute information on purchasing costs

  • Could cut time spent on paper work by 100 man-years in Europe

  • Provides managers with an automatic audit trail for each purchase made

  • Read more on IT risk management

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