Traditionally, supply sourcing has meant mailing out requests for quotes, proposals and information to a scattered flock of potential suppliers and, after waiting for the requests to be returned, carefully comparing and contrasting the results. After a select group of suppliers has been decided upon, the negotiating and contracting processes begins. When compared to the efficiencies afforded by Internet-based collaboration software, these traditional sourcing methods are snail-paced and do little to encourage buyer-supplier partnerships. None too soon, Internet-based collaboration has emerged to challenge these methods and automate a traditionally time-consuming, paper-based process.

Plastics and chemical manufacturer, Eastman Chemical, in Kingsport TN, decided to centralize and streamline its procurement process. Previously, they had been purchasing indirect materials from four separate purchasing sites, each one working independently of the others and each with their own requirements to abide by. Recognizing that streamlining efforts by isolating a single supplier would be more efficient, Eastman utilized a set of strategic sourcing tools from Webango, Inc., Santa Clara, CA to help in the selection process. These tools were designed specifically to select the best suppliers for complex commodities and services, negotiating and managing contracts and developing long-term supply chain partnerships.

According to researchers at Webango, the average Fortune 1000 company can expect to spend $3.5 billion per year on external supplies. By using Internet-based collaboration software to source a commodity, these companies can yield savings of up to 30% relative to the price they pay when buying on an exclusive basis, a statistic that justifies Webango's yearly hosting fee of $250,000.

Consider Eastman's old method of supplier selection. Once the company's procurement office received the mailed requests from the potential suppliers, they would tabulate each one manually. This entailed the careful analyzing of the suppliers' financial history for the past five years, their quality initiatives, inventory management capabilities and payment terms. After weeks of manual spreadsheet analysis, requests-for-proposals would be sent out to a subset of suppliers. From analyzing the subsequent responses, a supplier was then decided upon. This entire process typically took the company three to four months to complete. Using Webango's sourcing software, Eastman was able to send out 17 requests for information and narrow the potential suppliers down to five candidates in just six weeks. Using sensitivity analysis, these five were subsequently narrowed down to two, and finally to one. Debbie Davis-Waltermire, director of worldwide materials and services at Eastman, says her company eventually offered a 3-year contract to a provider of safety supplies based on its willingness to work as a partner and cooperate on factors like on-time delivery and inventory buy back. As a result, Eastman will be able to transfer the management responsibility of 70% of its safety materials inventory to the supplier and achieve substantial long-term savings.

Once a sourcing contract has been established, the terms of that contract must still be managed and there's a software tool for that too. Contract management software makes a record of all the negotiations and documents leading up to an agreement and simplifies the process of resolving discrepancies. Using this tool, Eastman's corporate sourcing team can tabulate scores, analyze results and share information with team members over the Internet.

This updated sourcing strategy exemplifies what has become known as supply chain management "best practices." Best practices are documented strategies that have been employed successfully by profitable businesses. A research and consulting firm known as Best Practices LLC, in Research Triangle, NC, has conducted a study on over 130 companies across 31 industries and has derived seven "across the board" supply chain management best practices that have proven to be efficient tactics:

1. Align supply chain management systems with strategic initiatives and goals

2. Forge partnerships with suppliers

3. Certify supplier-partners

4. Employ technology to improve supplier partnerships

5. Refine and enhance the manufacturing process

6. Foster communication between partner organizations

7. Emphasize the mutual benefits of partnership

On the other end of the supply chain, suppliers are finding that automation software can help better forecast availability of materials and thus ensure an overall more efficient relationship with buyers. Take for example cement manufacturer and distributor Blue Circle, Atlanta, GA. Blue Circle approached its inefficient system of forecasting demand by implementing supply chain management planning and forecasting software from Rockville, MD-based Manugistics Group, Inc. This software utilizes complex forecasting algorithms to help direct the flow of products from the raw material stage through manufacturing, distribution and delivery. Manugistics offers performance-measuring features that allow companies to identify and track key metrics like customer fill rates and on-time deliveries. Prior to implementing the software, Blue Circle had little visibility over its supply chain.

Typically, Blue Circle's customers would call in the morning and want cement delivered in the afternoon, according to business technology manager Vance Pool. "And in the cement business, if our product doesn't show up when it's supposed to, the project comes to a halt." In the old days, when capacity was low, Blue Circle would have to either deliver the cement late or source it from a competitor. Now, with supply chain software, Blue Circle can consistently meet its customers' delivery schedules, which frees up a sizeable portion of the staff to focus on other tasks. "We are forecasting monthly demand at 90% accuracy and saving millions of dollars," says Pool. "I will go on the record as an IT manager and say that automated supply chain systems absolutely offer the greatest return on investment for your IT spending dollar."

Source: Squeezing the Most Out of Supply Chains
Michael S. McGarr
EC World, Dec. 2000