Procurement software can streamline ordering and help you find bargains--but it's still in its infancy By Heather Harreld When you spend $10 billion annually on materials and services, anything that gets you better prices or makes for a more efficient buying process looks appealing. For San Francisco-based Chevron Corp., internet procurement offered both lures--letting the company simplify its ordering structure while simulta- neously helping winnow its list of 28,000 suppliers down to those offering the deepest volume discounts.
"The overall goal is to direct the spending and eliminate maverick or rogue buying," says Chevron CIO Dave Clementz. "Channeling these expenditures is going to get the savings. We've seen discounts of anywhere from 10 percent to 30 percent from suppliers."
To find those savings Chevron chose a solution from Ariba, called the Operating Resource Management System (ORMS), which provides a front-end to support online transactions and link purchasing data to ERP and legacy systems. The software lets buyers place orders via a desktop web browser while streamlining other business processes, including requisitions, purchase orders, expense requests and service orders. ORMS even provides analysis and reporting tools that let users evaluate purchasing data, a feature that Clementz says is key to negotiating discounts.
Extra efficiency and discounts definitely attract attention. Fueled by widely publicized growth opportunities--Forrester Research predicts that U.S. internet business-to-business sales will grow from $406 billion this year to $2.7 trillion in 2004--the internet commerce software market is becoming crowded with products. But according to Forrester, the most obvious potential providers--ERP vendors--have been late to market with web-enabled versions, and many businesses report that the existing solutions do not offer the flexibility needed for e-commerce. In the meantime, some businesses are turning to procurement software solutions for buying commodities such as office supplies.
On the sell-side of the market, companies are exploiting web-based commerce software to extend ERP and other systems to their customers. Then there's the dark horse--e-marketplaces--that hope to attract both buyers and sellers to their web-based business-to-business sites.
BUY-SIDE SPECIALISTS Buy-side software puts the purchasers in control, letting them create a single web-based interface to their suppliers. The benefits of such a system can extend beyond simply finding the best price quickly. A properly implemented system can also reduce operational overhead.
That's what Alan Daniel, procurement tools manager at Dallas-based Texas Instruments, was looking for when he evaluated procurement software for his company. "Most of the cost of processing the transactions is tied up in the people who are doing it," Daniel says. "Wherever I can redeploy the operational resources to supplier management, that's the thing that allows me to get material cost savings."
Daniel says his company would have had to hire 20 additional people to process the orders that the company's new Intelisys Electronic Commerce (IEC) enterprise system handles. The IEC system, which replaced a homegrown legacy catalog procurement system, connects buyers to suppliers through the purchaser's browser and includes built-in controls to ensure that only authorized buyers make purchases and that those purchases fall within preset spending limits. The company, which spends approximately $5 billion on goods and services each year, intends to use the system to take care of 30 percent of its procurement transactions.
Not Necessarily Easy
It all sounds good, but early adopters have encountered pitfalls with buy-side technology, says Edward Roche, vice president and research director of The Concours Group, a Kingwood, Texas-based research and consulting firm. He says a recent survey of buy-side users found that many CIOs did not factor in the hefty integration costs often associated with launching internet procurement initiatives. He adds that while the basic software for digital purchasing systems is reasonably priced, his research indicates that the costs to integrate those with ERP systems or legacy ordering systems can be two to five times more than the cost to install an isolated system.
"The CIO needs to consider how the system fits into the entire purchasing cycle, not just the price comparison and the purchasing order itself," he says.
"It is the interface between the digital purchasing system and your preexisting enterprise process that is a serious risk in adopting this technology. It's being done, but basically it's an integration issue that you've got to build into your cost estimate."
The interface also depends on what ERP system you need to attach. Connecting legacy systems will require custom programming. And these interfaces may need further revision as new versions of the procurement software or the ERP system roll out.
In addition, Roche says vendors in the emerging buy-side market have yet to settle on firm pricing structures for their solutions, leaving ample room for savvy CIOs to negotiate attractive price tags for procurement software.
"They sort of price it based on how much you can pay and what it's worth to you," Roche says. "The best advice is to get a really tough negotiator in there to cut the deal."
Technical implementation and price may not be the only hurdles, though. Before launching its new Ariba ORMS procurement system last September, San Jose, California-based Cypress Semiconductor still relied on a paper-based requisition process. When fully implemented during the fourth quarter of this year, the software will help the company purchase between $90 million and $100 million worth of supplies annually, says John Ramacciotti, Cypress's vice president of procurement. Despite the seemingly mammoth technology leap from the old system to an online system, however, Ramacciotti says the toughest challenges he faced revolved around people, not technology.
"Some of the biggest issues that we have to deal with are the cultural issues involving the romantic attachment to the old-style system," he says. "The first and probably most important issue that you've got to address is the cultural change. There's a lot of preselling and groundwork preparation that needs to be done."
SELL, SELL, SELL On the sell side, commerce software extends a supplier's internal business data, often contained in ERP systems, to customers via a web browser. Ideally, the technology provides customers a self- service solution for work that they often would have performed over the phone, such as placing orders and tracking shipments. Many vendors in this arena have grown up focusing on specific vertical markets, such as health care or manufacturing and distribution, with current sell-side market leaders including Ironside Technologies, Open Market and Art Technology Group.
School Specialty, a school supply company based in Appleton, Wis., is using Ironside's Ironworks software to allow school districts nationwide to place electronic orders for desks, chairs, laboratory equipment and other supplies.
Douglas Lape, School Specialty's vice president for internet development, says the Ironworks thin-client solution allows customers to access product descriptions, photographs and other information in less than 1.5 seconds.
In addition, he says, the system lets the company's 270-member sales force abandon order-taking duty and spend more time helping customers. The product has also slashed order-processing times from three weeks to three minutes.
"The competition...is not the brick-and-mortar company that sells the same school supplies," Lape says. "It is the dotcom company. The fact that you fill the order does not give you a leg up if you're not providing the internet services."
Laurie Orlov, research director for eBusiness applications at Forrester Research, says potential sell-side users should look for vendors that have a strong track record developing solutions for customers in their specific industry. In addition, solutions should integrate order taking with customer profile information so that customers can move seamlessly from dealing with suppliers over the phone to accessing applications.
Then there are the marketplaces. These newest players in the e-commerce market--including companies like Tradex Technologies (recently acquired by Ariba), Virtual Source and ConnectInc.com (now part of Calico Commerce)--offer application platforms or subscription services to websites that link buyers and sellers from within vertical markets. More than simply procurement tools, these sites often have features such as auctions and chat rooms. Even buyers are getting into the game--Chevron, for example, is extending its solution to allow other energy companies to purchase goods and services from common suppliers.
And Forrester predicts that 53 percent of business-to-business purchasing will be through marketplaces by 2004. But, Orlov warns, this evolving market has yet to crystallize, and CIOs should not yet view these offerings as long-term solutions.
"Anybody who buys now should understand they may have to throw it away," she says.
REVISIT EDI SLOW TRAIN COMING
Costly and complex, EDI has hardly been on the fast track for growth, but the internet and XML promise to broaden its reach By Fred Hapgood During the Berlin Airlift in 1948 and 1949, the U.S. Air Force was faced with the need to unload and turn aircraft around on the ground at unprecedented rates. They solved this problem partly with the help of a new system, invented on the spot, for using Morse code to radio the freight manifest of each flight to the ground teams responsible for unloading that plane in advance of the actual landing. Legend has it that when the personnel behind this effort returned to civilian life, they realized that their codes could be used in another application: teaching computers to understand business.
The idea was to assign standard names to classes of business data, specify standard relations among those classes and design standard representations for those data and relations. Once these standards were coded into programs and distributed, machines would know which data served inventory and which served personnel. Automation would be simpler to design, business interactions would turn over more quickly, paper handling costs would be reduced, and data entry errors could be minimized. Companies were formed and by the late '60s and early '70s articles began to appear about the concept we now know as EDI, for electronic data interchange. The first applications were in transportation.
In the '70s EDI was developed almost entirely inside large companies as a way of making the data and operations maintained on a company's mainframe mutually comprehensible to all departments. Many companies developed their own EDI language, but during the '80s common standards were hammered out in several industries. EDI users were soon eager to start using these industrywide standards to support buyer-seller transactions: purchase orders, inventory, invoices, remittances and the like.
Unfortunately most of these value chains had a mix of company sizes, and the smaller companies, companies without mainframes, were nowhere near as ready.
Even in the '80s most businesses used computers only for payroll. From their point of view EDI came with serious extra costs, including hardware, software and software management, access to a value-added network (VAN) and data entry costs. "This is the first application (since the telephone) where you are trying to put technology in somewhere other than your own branch offices," CIO said, quoting an EDI marketing director in an article published in October 1990. "It takes patience, dollars and time."
Ten years later, according to Ken Vollmer, a senior industry analyst at Giga Information Group in Cambridge, Mass., only 300,000 American businesses use EDI. However, Vollmer expects this enrollment rate to more than double over the next five years. He argues that the environment has become more favorable to small businesses. Computers are cheaper, software is easier to manage and the internet offers much lower connectivity costs compared with VANs. While almost all EDI data was carried over VANs in 1997, the analyst expects as much as 50 percent of it to be carried by the internet over the next few years.
One change looming over the EDI universe is the imminent adoption of XML as a standard way of coding EDI standards. XML is an object representation language that is designed to include a flexible and dynamic range of information about the objects it represents. This makes it ideal as an EDI template. Kendra Martin, who is on the board of directors of the Data Interchange Standards Association, the national EDI/EC standards group based in Alexandria, Va., believes that XML will allow standards bodies to concentrate on business models without worrying about technical or syntactical details, which she thinks will make it easier to move EDI into new sectors and extend its range in old ones.
Martin believes that in the near future EDI will be used to generate online Java objects, such as catalogs or regulatory information. She also sees the technology shifting from supporting primarily point-to-point, two-party transactions, to complex, many-to-many collaborative interactions. In those types of interactions, data would flow from one distribution topology to another as needed, and virtual organizations would form and disband as needed--the Just-In-Time corporation. Finally, she expects EDI to help catalyze the organization of a truly global marketplace, since, properly extended, it would form the basis for a universal language for commercial interactions worldwide.
But it might not work out that way. As Tim Cronin, director of business-to-business integration for the e-commerce consulting company Avicon.com in Natick, Mass., points out, EDI has always worked best among partners that need to exchange stable and well-defined data sets. "Where you have innovation, competition, rapidly changing business models, EDI is a drag," he says, citing electronics, where EDI penetration is very shallow, as an example. At present, global business seems to be moving toward the end of the spectrum that makes EDI less useful rather than more. The technology might still fulfill the dreams of its enthusiasts, but the conclusion of our piece 10 years ago still looks sensible: This is going to take patience, dollars and time.
PREDICTIONS INFORMATION APPLIANCES INTERNET EVERYWHERE Move over PCs. By 2002, Framingham, Mass.-based IDC (a CIO sister company) expects total shipments of information appliances to exceed consumer sales of personal computers in the United States. While consumers are expected to buy 23.9 million PCs that year, sales of information appliances--digital consumer electronic devices that offer cheap and easy internet access--will rise to 27.3 million. By 2004, more than 89 million of these appliances will be sold worldwide, accounting for more than $17.8 billion in sales, a dramatic increase from the 11 million appliances and $2.4 billion in worldwide sales achieved in 1999.
What exactly is an information appliance? IDC includes gizmos such as NetTV devices (web-enabled set-top boxes, along with products such as WebTV), web and e-mail terminals, smart handheld devices and screen phones. NetTV devices, gaming consoles and smart handheld devices will make up the bulk of the market, says Bryan Ma, an analyst in IDC's consumer research program. But Ma notes that these estimates do not mean the PC is dying. "We do see growth in the area [of PC sales]," Ma says. "But the PC is not going to be the only way to go to the web anymore." And in many instances, consumers won't even realize that they are accessing the internet when they use these information appliances to shop, play games or check stock quotes and movie listings. -Sari Kalin UNDER DEVELOPMENT AVIATION FLYING THE SAFER SKIES A pair of new aviation technologies won't guarantee you extra legroom or friendlier service on your next flight, but they may some day help ensure that you arrive in one piece.
At Texas A&M University, researchers are testing a cockpit computer that uses humanlike "fuzzy logic" to determine what a plane and its pilot are doing and how well they're doing it. John Painter, a semiretired A&M professor of electrical engineering, aerospace engineering and computer science, and one of the system's developers, says the General Aviation Pilot Advisor and Training System (Gapats) is designed to alert pilots to potentially dangerous situations. For example, the system flashes a warning message if the pilot tries to land without first lowering the plane's landing gear. Gapats has undergone flight simulator tests as well as trials on a university plane. The researchers are now seeking funding that will enable them to develop a commercial version. "The idea is to give pilots advice and information without increasing their overall workload," says Painter.
Meanwhile, a new Synthetic Vision technology aims to help pilots navigate planes safely through zero-visibility skies. Under a NASA contract awarded last year, Lincoln, Mass.-based Avidyne Corp. and Portland, Ore.-based AvroTec are developing a cockpit computer system that will give pilots a detailed and steady flow of external visual information, regardless of the time of day or prevailing weather conditions. The Synthetic Vision system will use weather radar, GPS technology, wireless data links and an LCD screen to supply pilots with a Microsoft Flight Simulator-like view of the outside world, complete with 3-D renderings of terrain, nearby aircraft traffic and runways.
The arrival of faster computers and increasingly sophisticated 3-D graphics technology are combining to make Synthetic Vision a potentially practical and affordable technology. Dan Schwinn, Avidyne's president and CEO, hopes the system will be adopted by the aviation industry within the next three years.
Schwinn adds that the ultimate goal is to make Synthetic Vision a primary reference tool, which would allow pilots to fly a plane from takeoff to landing without ever looking outside at the real world. "That's the holy grail, to create a 3-D image that would actually be projected onto the window. It's a long-term objective, but something that we're definitely moving toward." -John Edwards NEW PRODUCTS KEEPING INTERNET TIME Paper time sheets are just so old economy. Galileo Development Systems offers a web-based time-keeping application, Intr@Vision Time 1.0, that integrates with existing accounting and payroll systems.
Contract workers, consultants or any other employees who need to record the amount of time they spend on a project can just enter their hours via a web browser. Intr@Vision Time is offered as a service or via an ASP model; it can also be licensed and run onsite. On an ASP basis, Intr@Vision Time is available for a monthly fee starting at $400 for organizations as small as 15 people.
Software licensing is priced on a per-seat basis plus an annual maintenance fee. For more information, visit www.galileodev.com or call 404 877-0187.
WEB-ENABLING THE PRODUCT PIPELINE It takes a complex web of people to develop a new product. That's why Integrated Development Enterprise is bringing the product development process to the web. Its new internet-based development chain management (DCM) software suite, IDweb, aims to integrate and automate all aspects of the product development process. Internal employees as well as customers and partners can access product development information via a web browser, helping to speed product development. Among its features, the suite offers project planning, project management, resource allocation and portfolio management capabilities; it can interface with Microsoft Project and other such tools. The system costs $170,000 per application server and $2,000 per user; a typical deployment at a company with 75 users costs $387,000. For more information, visit www.ide.com or call 978 318-9380.
LOOK, MA, NO DONGLES Being a mobile worker is hard enough without having to remember which connection cord to use with the LAN in the office and which one to use with the hotel telephone. A new notebook PC card from 3Com aims to make mobile workers' (and IS support staffs') lives easier by combining LAN and dial-up access on one card and via one connector--with no dongles needed. The card features a single XJACK connector that can handle both telephone (RJ-11) and LAN (RJ-45) plugs and can automatically tell whether the user is seeking to connect via a dial-up line or a LAN. The 3Com Megahertz 10/100 LAN + 56K Global Modem CardBus PC Card also features software that lets users point and click to configure the modem for phone lines around the world. The card costs $269. For more information, visit www.3com.com/mobile or call 800 638-3266.
RUN, RUN, RUN Can't decide whether to use Linux or Windows on your PC? Run them both with VMware's VMware 2.0. The software's virtual machines let users run multiple operating systems concurrently, isolated from each other yet able to interoperate, without having to reboot or repartition the hard disk. That's particularly handy for developers working on applications for different operating system environments. Operating systems and applications can run in a window or in a full-screen view, and users can toggle between them. VMware offers a version for Linux and a version for Windows NT and Windows 2000; new features in version 2.0 include support for SCSI disks and CD-ROMs. The cost is $299 for electronic software distribution and $309 for packaged software distribution. For more information, visit www. vmware.com or call 650 475-5000.
CONTENT FOR SALE For publishers who don't just want to give their copyrighted content away, DigitalOwl.com can help collect what's due to them. The company's electronic content distribution system, called KineticEdge, lets newspaper, magazine, journal, book and other publishers package, distribute and sell digital content online--and do so securely.
The product has four parts.
Fusion securely packages electronic content, letting publishers determine pricing, royalties and usage rights; publishers can also specify branding and metadata.
Wave manages content licensing, listing and search access, and collects customer profile information (for marketing purposes).
TitlePool is a repository for content.
Vision is client software that lets customers download, read and manage the content they buy on several types of devices. Consulting services are also available, including conversion of content, integration with existing systems and customer support.
Pricing starts at $50,000, including software, services and transaction fees; pricing varies depending on the type and amount of content as well as the degree of services required. For more information, visit www.digitalowl.com or call 407 681-2788.