Previously, for Reliant to process a typical purchase order required 21 "touches" - approvals, logging, classifying and the like - and took between one and three months to move through the system. It was also difficult to enforce any consistent company purchasing policy, and Reliant's back-office system provided very little procurement information with which to leverage price concessions from suppliers. In the first year of its Ariba implementation, says Calderone, 10 percent of Reliant's purchases were electronic, contributing to an ROI of 65 percent. He estimates the second year ROI will be 400 percent.

3 la Carte: Picking and Choosing Among E-Procurement Strategies.
Moving to emulate Reliant's comprehensive levels of e-procurement may seem daunting. In fact, it's easier than it first may appear. The traditional distinction between direct materials (those that go into the finished product) and indirect materials (those that don't) often obscures more than it illuminates. More enlightening are those factors that apply to both direct and indirect materials: substitutability (where one widget is as good as another) and compressibility (squeezing suppliers to force them to lower their prices). In short, if you can put it in a catalog and describe it through standard parameters, then you can source it electronically.

Take items such as pumps, motors, switches, electronic components and valves. Those are clearly direct materials, but they also exhibit high levels of substitutability and compressibility. One manufacturer's motor or pump is likely to be very similar to any other one that meets your specifications, and therefore your suppliers are likely to be competing on price.

Bill Lawson, CIO at electronic instrument and motor manufacturer Ametek, reckons that asking Elliff's questions at his company has resulted in an average 20 percent savings. His company now sources 12 commodity groups of substitutable and compressible items (among them machine tooling, electrical supplies and computer hardware) through an OracleOracle Exchange e-procurement portal. "We have access to around one and a half million SKUs [inventory items] through catalogs maintained by our suppliers," says Lawson. Even so, apart from obvious items such as electronic components, bearings and adhesives, which meet the substitutable and compressible criteria, Lawson is leery of embracing e-procurement for direct materials too quickly. The reason? Through direct negotiation, buyers can at present get a better deal, especially when grouping different items together into a single buy. "At the moment, we believe that direct material and components are best handled though relationships between our purchasing people and our suppliers," Lawson says. "The more important the item, the more true that is." Alles zu Oracle auf CIO.de

For example, Ametek uses a lot of copper wire - around $12 million worth a year. Large and carefully negotiated deals with suppliers might embrace many months of supply, right across the couple of dozen or so wire gauge sizes that the company buys. In reality, purchase orders for wire are releases against a renegotiated contract, at stipulated prices. That kind of sophisticated agreement requires the personal touch. A catalog-based buy, oriented around a single catalog item, would not allow for the same critical degree of elasticity and would lock Ametek into a potentially disadvantageous spend.