Words like "efficiency" and "cost effectiveness" can have a hollow ring without numbers to back them up. But as with all catch phrases, there's an element of reality-as well as a bit of wishful thinking-when supply chain managers apply these terms to e-procurement.
Some industry executives are beginning to quantify e-commerce's benefits for the supply chain.
Using electronic rather than traditional purchase orders enables high-tech procurement organizations to save $100 per PO, according to a survey conducted by AMR Research Inc., Boston.
For respondents from the semiconductor, distribution, EMS, and OEM sectors, using a design or supply chain exchange can cut costs 5%. The AMR study also shows that e-commerce can reduce the engineering review process from 12 days to two.
Electronics supply chain managers are just beginning to explore e-procurement. Some, such as Sun Microsystems Inc.'s procurement executives, are studying the benefits and risks of taking the e-plunge.
Old habits die hard
Supply chain managers continue to rely on legacy processes and technology.
"A large number of midsize companies still issue tens of thousands of POs via fax," said consultant Gene Richter of Richter Katonah Inc., Katonah, N.Y. "There's no comparison to handling POs over the Net."
It's easier than working with EDI, which is inflexible, hard to use, and costly, said Richter, a former procurement executive at IBM Corp.
In the electronics sector, large companies have been first out of the starting gate because they have the capital to drive e-procurement, analysts said.
The enthusiasm that e-procurement evokes outpaces the progress many users have made on that front.
"Most [supply chain managers] don't have anything resembling the PowerPoint slides they present to customers," said Bruce Hudson, an analyst at the Meta Group in Munich, Germany. "The promise remains a promise. It hasn't been fulfilled yet."
The emergence of e-procurement requires taking a new look at business practices and redeploying resources.
"There's so much process and policy redesign that needs to occur," said John Ciacchella, vice president and managing director for the Americas high-tech practice at A.T. Kearney Inc. in Santa Clara, Calif. "It's not just a technical problem but a question of business processes. You have to determine, for example, what level of information sharing you will do and what standards you will follow."
Send in the re-engineers
OEMs need to improve the process on both the supply and demand sides-with customers as well as suppliers, Ciacchella said. "The [economic] slowdown we're facing provides a great opportunity for doing this. ... This is the perfect time to re-engineer for the next upturn."
AMR predicts that spending patterns will shift from traditional enterprise resource planning to e-commerce and supply chain management software applications.
"As companies outsource noncritical SCM business processes to trading partners, real-time supply chain nervous systems must be set up to ensure efficient and effective supply chain operations," AMR said in a new report.
The research firm identified areas of increasing importance as e-business emerges. They include:
- Supply chain collaboration-supports the joint development of supply and demand plans and schedules among internal users and external partners;
- Supply chain event management-supports the measurement, monitoring, and "proactive" notifying, decision support, and control processes for managing events within an enterprise and across external trading partners;
- Private trading exchange-supports business via a Web site set up by a company for use by its trading partners;
- Public trading exchange-supports business among trading partners via Web sites set up by independent operators or consortiums of partners;
- Product life-cycle management-supports all product phases from development to end of life.