E-commerce: Unconquered Territories

After faltering at the starting block, online procurement might have found the magic combination to finally make businesses sit up and notice: indirect buying.

And PC giant Dell Computer is leading the pack.

Businesses have resisted online buying services until indirect e-procurement arrived on the scene mostly because open buying was slow and perceived as less-than-secure.

E--procurement is the purchasing of support goods and services through an online, private customized catalog. The catalog contains products a company is interested in, and has approved for employee purchase, as well as a company’s negotiated pricing.

According to AMR Research, the worldwide market for indirect procurement applications grew 67 percent last year, reaching $259 million in sales. AMR projects 130-percent growth of the applications during 2001. By 2005, research group Gartner anticipates $8.5 trillion in transactions will take place through e-procurement.

Untapped Resources

Buyer-hosted electronic catalogs are one of the unconquered territories of the New Economy, but they’re worth learning more about. Indeed, there are just a few players who today can count themselves among the success stories.

With more than 50,000 business customers using its online purchasing and information portal, Austin, TX-based Dell Computer Corp. is ahead of the curve.

Dell’s Premier Pages, which target corporate buyers, differ from its public access e-commerce site in several important aspects, including the following:

•customers can browse at their own tailored levels;

• individual access privileges are created for companies;

• there are unique pricing models; and

• controlled product management is determined by each corporate client based on past preferences.

Prices also are based on what has been negotiated in contracts. Buyers can refill orders with one keystroke, since previous purchasing information is already stored, sorted and instantly retrievable.

The Premier Pages have put a customized face on buy-side procurement since 1996. Its business-to-business (b-to-b) services combine Dell servers and integration software to link customers’ existing procurement systems directly with Dell and other trading partners. This allows customers to configure their systems in real time, with up-to-date pricing for each organization.

A good order-management system must have wide distribution capabilities, be able to link to a variety of procurement systems, and reduce workload and general ordering annoyance for customers—all while improving performance.

Computer purchasing completed through e-procurement is a little trickier than buying paper for the copier. Most customers look for systems to be configured for single employees. Clients therefore need accurate pricing across many variables.

In the past, this type of buying meant a lot of paperwork and lengthy phone consultations. The wonder of online procurement is that it links and immediately updates a complex array of information across previously separated fiefdoms, such as purchase order/requisition, accounts payable, approvals and invoicing.

Added Value for Customers and Companies

Managing such a sophisticated ordering set up is certainly no small undertaking. Tom Fountain, Dell’s director of b-to-b integration, says the company found that segmenting customers into different sales groups has worked out best. These include:

•the relationship segment (Fountain’s domain), which consists of Fortune 3,500 companies with revenue in hundreds of millions up to the largest in the world;

• the public segment (government agencies, education, healthcare); and

• small- to medium-size businesses.

Fountain says this highly focused approach is one of the Premier Pages’ best selling points.

What’s the chief payoff for all this hard work? Staying leading-edge is vital to the corporate identity of a high-tech company like Dell.

The world’s leading direct computer systems company couldn’t lose face on technology. Indeed, paperless ordering is Dell’s customer relationship management calling card.

Case in point: Litton PRC, a global systems integrator, was using a traditional paper procurement system in which all domestic and international purchase requisitions went through its main headquarters in Virginia.

This system required an average of 16.2 days just to get a requisition to the purchasing department. Some requisitions required as many as 17 approvals!

If there were errors in a requisition, it had to go back through the approvals chain for changes. Since implementing its tailored procurement system through Dell, life has gotten a lot more pleasant around the Litton purchasing department.

“My buyers spend a lot less time answering questions on the phone and faxing copies of requisitions,” says David Capizzi, vice president of procurement for Litton. “There has been a significant reduction in workload. Before the electronic system was in place, we averaged 21 days from purchase requisition to purchase order.”

Now, Dell purchases take, on average, only 1.9 days from requisition creation to order reception. The benefit to customers is clear, and this is what keeps them coming back.

Fountain says nurturing the customer relationship is one of Dell’s chief online goals. While online ordering has helped Dell maintain solid relationships with small and large corporate clients, there’s more than just a buy-side benefit. Now that corporate customers have access to tracking information right from their browsers, Dell experiences fewer calls: up to 100,000 fewer per quarter.

“Naturally, as we enrich the tool, people will begin using it more than the traditional means,” Fountain says of the enhancements.

A crucial example of streamlining is Dell’s improved procurement software. It’s now more compatible with the company’s extranet so customers don’t have to enter data twice.

Previously, companies would enter the request on their own system and then into Dell’s extranet.

“With integration, you just [enter the data] once. Punch ‘purchase order approved.’ And your request is transferred to us electronically. It’s a clear win-win,” says Fountain.

In all, 70 percent of Dell’s Fortune 3,500 customers are expecting systems that can be integrated within the next two years.

Purchasing of support goods and services can total more than 70 percent of external spending and consume valuable man-hours.

E-procurement can increase both order accuracy and processing speed while lowering costs. It is a valuable tool to offer in nearly any industry.

Definition:

E-procurement is the purchasing of support goods and services through an online, private customized catalog.

Online Procurement System Benefits

For Dell:
Faster payment
Increased customer loyalty
Better customer relationships
100,000 fewer order calls per quarter

For Dell’s B-to-B Client Companies:
Decreased time from requisition to delivery

Increased order accuracy
Fewer orders “lost” internally
Decrease in man-hours spent on purchasing

E-procurement Technology Players
Ariba
Oracle Corp.
SAP AG
i2 Technologies Inc.
Commerce One Inc.