Proving that electronic procurement can be a means to greater savings is Eastman Chemical Co. Located in Kingsport, TN, Eastman is no newcomer to the industry. The chemical giant produces a wide variety of chemicals, fibers and plastics, employs over 17,000 workers and racks up an annual $5.3 billion in sales. According to their chairman, Earnest W. Davenport Jr., "It is critical that Eastman receive quality goods and services from suppliers in a timely manner. Technology has allowed us to provide Web-based procurement and this results in saving time and money, both for our employees and our suppliers."

Because the market in which Eastman operates is mature, opportunities for increasing profit are found by streamlining the company itself in hopes of giving it an edge over its competition. With this in mind, Davenport gave procurement manager Tom Meisel the goal of achieving the lowest cost raw materials position as possible. According to Meisel, "As a chemical company in a mature industry, we need to address a cost situation." Towards this end, he decided to utilize e-procurement in three capacities. First, by holding reverse auctions and letting their suppliers bid for orders. Second, by using e-marketplaces for realtime spot purchases. Third, by placing realtime direct orders with suppliers. His goal was to spend Eastman's procurement budget faster and more efficiently. His challenge was deciding what products to buy and through which process.

But before Eastman took even its first step into reverse auctions, Meisel realized he had to find out whether Eastman's suppliers were in a position to make the jump to trading online. To assess this he designated a group of engineers to draw up a comprehensive survey, the aim of which was to gather as much data on their suppliers as possible. This survey was sent out to their top 100 suppliers and was presented in an itemized form concentrating on the suppliers' information technology departments, the technologies they currently use and what changes they would tolerate in working with e-procurement. A simple strategy, Meisel points out, but one that companies often overlook when implementing an online e-procurement system.

What Eastman found through their survey, and what any company venturing into e-procurement is also likely to discover, was that not all of their suppliers were willing to make the jump online. Surveying their partners about the suppliers' information technology departments gave Eastman a means by which to determine whether or not abruptly changing the way it conducted business with its partners was the best approach. He learned that, depending on the channel, some purchases are better off handled traditionally, or by using an application that blends traditional and Internet capabilities. And even though Eastman's sheer size made it easy to win over suppliers, Meisel concedes that an enormous effort had to be made to educate the suppliers about the changes electronic commerce would bring to the marketplace. A task he insists requires commitment from all levels of management.

In designing auctions, Eastman's procurement department periodically reviews their number of key suppliers. Depending on these numbers, Eastman might seek new suppliers and leverage those relationships. As Meisel puts it, "The more people participating the greater possibility for success." As a result, he reports, the average time required for Eastman's purchasing transactions has been reduced from two months to two weeks. In regards to speeding up operations with existing suppliers, Eastman has begun connecting its enterprise resource planning (ERP) planning system directly to them. This gives them the flexibility to make spot purchases as well as make scheduled buys. In addition, Eastman fosters trading partner relationships by connecting to a third-party Internet storefront. To create links with its customers, Eastman utilizes a storefront based on extensible markup language (XML). Using XML allows the chemical giant to glean as much information about its business as it could recieve through the e-procurement process itself. Meisel explains, "The more accurate sales data we get the more closely we can schedule the production of our products."

In the drive to automate its spending, Eastman has also shifted its order entry system to the Internet in all areas of procurement. This seems like a simple enough move, but the benefits have exceeded expectation. As a result of digitizing the spending process, the purchasing loop from the plant floor to the supplier warehouse is now easier to track and requires less labor to oversee, a factor that significantly reduces the number of employees necessary to handle the process.

With Eastman's approach to e-procurement, evaluation is a constant process. The chemical company's procurement department makes a point of reviewing its strategy on a quarterly basis, noting which channels its products are best bought through. Eastman also reevaluates the procurement infrastructure. To do this, the company has created a digital business venture group whose aim is to look for software providers whose products tackle trouble spots in the purchasing process. The group's goal is finding the technologies that make the procurement process as stress-free as possible.

Eastman Chemical is a gleaming example of how successful e-procurement implementation can save significant time and money – no matter how big or small the company.

Source: How to Spend $2 Billion Per Year
Lisa Nadile
Electric Commerce World, May 2001
http://www.ecomworld.com/search/author/article.cfm?ContentId=1046