Paper Clips and Memory Chips

Picture this in your mind’s eye: a flow diagram with three vertical rows converging on a single point to the right, each row populated by interconnected squares with various "what-if" and "go-to" phrases in them.

You probably think I’m describing a bit of a programming routine. Actually, it is the workflow diagram outlining a major company's procedure for purchasing a pen. The same method was used to purchase office equipment, cars, and paper clips. The item didn’t matter, the company employed the same highly inefficient purchasing scheme.

Or consider a company whose purchasing agents had 113 separate and different entries for listing AT&T because different people entered it as A.T.T., or ATT, or A T and T, and so on. The company needed 1,000 person-hours to weed through this purchasing jungle at a cost of about $100,000.

Several years ago a friend of mine, a manager at the former Digital Equipment, wanted his own subscription to the publication I edited. He needed the approval of his manager. That manager had to get the approval of his manager, a vice president, before the purchase request could be processed. The subscription cost $19.95. If you factor in everyone’s time in processing it probably increased tenfold.

What’s all this got to do to with IT? Everything. The reason is that there are systems and technologies coming to market that are aimed at the emerging supplier relationship management (SRM) market; and these have IT written all over them.

The problem is that, until now, IT management hasn’t taken much initiative to help clean up what in many companies are deplorable and laughable procurement systems.

If you need a reason to think about streamlining procurement, consider this: By instituting a state-of-the-art SRM system, analysts and consultants estimate any company can save five to 15 percent off its current purchasing totals.

IBM developed a rigorous, Web-based purchasing system that made its Internet purchases go from zero dollars in 1997 to more than $12 billion in 1999. IBM estimates savings over this time -- without any sacrifice to purchase quality -- to be $240 million.

Dun & Bradstreet Inc. saved $8 million in each of the last two years after it installed an SRM system of its own design. It’s no mistake that companies like D&B and IBM have tested the SRM waters. They are using the same SRM solutions that they offer to users, teaming with companies such as SAS Institute to provide the data warehouse and data analysis components of these systems.

To date, most efforts to wring efficiency from inefficient procurement processes are being driven by procurement managers. But early in the process these managers must involve their IT counterparts. The SRM solutions are inherently Web- or Internet-based and are data intensive operations.

For example, procurement data often resides on multiple systems, sometimes dozens of them -- the result of corporate mergers and other activities. To unify purchasing methods, the data has to be standardized, which makes SRM a great data warehouse candidate. So if you are data warehouse savvy, you are half way there.

If you are installing an ERP system and are thinking that this will take care of your company’s procurement needs, think again. ERP systems are great for many things, but they are transactional in nature. They can’t be employed to answer key questions, such as who are we buying from; how much are we spending with each supplier; is this supplier in sound financial shape; and how are our buying practices changing over time?

From a practical standpoint, consolidating procurement practices is an inherently centralized endeavor. Centralizing anything in today’s corporate environment calls upon the IT manager’s political acumen as much as anything else.

The most enticing aspect of getting involved with streamlining a company’s procurement is that the ROI can appear quickly, sometimes in the first months of operations of the SRM system. You can get started by asking some simple questions, such as how are office chairs purchased in our different branches? You may be surprised what turns up. --Bill Laberis is president of Bill Laberis Associates Inc. (Holliston, Mass.) and former editor-in-chief of Computerworld. Contact him at bill@laberis.com.