Demand to connect manufacturers with their suppliers online is booming in the United States and Asia, but Europe is lagging, according to Harvey Seegers, CEO and president of GE Information Systems, which both uses and facilitates such online connections for customers.
"Electronic procurement is the new frontier," Seegers proclaimed at a morning keynote at an electronic commerce conference sponsored by Giga Information Systems. He added that GEIS has led parent General Electric's exploration of buying from its suppliers over the last three years.
"We are now convinced we have found gold," Seegers said. "If it works well for us, it should work well for you."
The promise of business-to-business e-commerce has inspired companies throughout the world to test out electronic data interchange (EDI), a system which sends standard forms--such as requests for quotes--directly from one computer to another.
GEIS used GE's own purchasing departments to test online purchasing of both raw materials for building products as well as for so-called indirect purchases, things like office supplies and tools that aren't used for a specific product.
"Typically 50 percent of [a manufacturers'] sales go into purchases of supplies and materials, with another 10 percent for indirect purchases," Seegers said. "But indirect goods and services account for 80 percent of procurement transaction volume, often with little or no control of the purchasing department."
High volumes of such low-value purchases, typically under $3,000, creates opportunities for misunderstandings and mistakes. GE found that 25 percent of the indirect supply invoices required human attention before payment.
Automating its own purchases of such materials led GEIS to offer similar services for customers. Its GE Total Purchasing Network (TPNPost) connects companies and suppliers through either the Internet or GE's secure private network (called a Value Added Network or VAN), then links it to the manufacturer's internal material requisition process (MRP) software.
TPNPost is an EDI system. Buyers post orders on a private Web site, then notify authorized suppliers by email or pager. Suppliers bid for the order, and the buyer asks for more information or makes a purchase.
"We found we had cut our cycle time by 50 percent, our procurement costs by 30 percent, and material costs by 20 percent," Seegers said, noting that GE will do almost $1 billion in purchases through the system this year.
Hewlett-Packard also uses the TPN system and has cut the time for making purchases from an average of two months to one week, he said.
Seegers said GEIS has now created other systems for online purchasing, including:
--TPNMart, a purchasing setup for buying indirect materials. A company posts a catalog of supplies and prices from authorized vendors on its intranet. Orders are automatically converted into an EDI document to make the purchase.
--GE TradeWeb expands the use of EDI to smaller companies. It uses a Web browser as the interface and will boost GE's trading partners from 14,000 to 25,000.
"We believe [online purchasing] drives most defects and delays out of supply chain," said Seegers. "The electronic commerce revolution is underway. Businesses that hesitate do so at their own peril."