Editorial: B2B race worth a punt

Go on, be honest, the word ‘procurement' really does get your blood pumping, especially when the e-vowel is parked out the front. Admittedly, driving the word ‘procurement' into my thought processes had images of Big Fresh shopping and Billy Connolly's hilarious routine about a visit to his proctologist backing out of the dark, lower levels of my mind. Before it embarrasses me any further, I'm ditching this word association game, and applying some respectable logic to the concept. It makes sense; you just have to save money by taking the manual, repetitive tasks out of business-to-business purchasing. What does surprise me is the magnitude of such savings, and where they fall.

Deloitte Consulting's global study, Leveraging the e-business marketplace (CW Cover Story July 3, p24), which sampled 55 organisations in Australia and New Zealand, found that companies grossing between $US1 billion and $US5 billion could recoup three times the outlay and save 9 per cent of annual supply costs if they installed end-to-end e-procurement systems. The figures were based on an average implementation spend of $US2 million to $US4 million.

When B2B e-commerce arrived on a grand scale earlier this year with fierce competitors General Motors, Ford and DaimlerChrysler teaming up to announce the Newco ( now called Covisint) auto exchange, few underestimated the technological and business challenges (see page 18). The goals of this exchange seem plain enough - cut costs by streamlining the purchasing process and let suppliers pocket savings by leveraging the car makers' buying power for additional discounts. In the US, Big Three supplier buying power is enormous: GM spends $US85 billion each year; Ford $US80 billion; DaimlerChrysler $US73 billion.

Cost savings would flow from shrinking the so-called $US49 billion work-in-progress (WIP) inventory and the ability to communicate better information faster throughout the supply chain. A potential back-end cost reduction of $US1065 per vehicle, or 6 per cent of the manufactured car cost is estimated. Surprisingly, the savings estimates favour the suppliers, splitting $US695 per vehicle (supplier) and $US368 per vehicle (manufacturer). Suppliers are expected to profit from volume discounts, streamlined purchase processes, improved productivity and reduced inventory costs.

The vehicle industry in Australia is also pursuing the benefits of B2B and has learned that collaboration not competition must be the golden rule. E-procurement only works where competing industry players collaborate on issues like methods and standards, says Barry Keogh, manager of e-commerce industry association Tradegate ECA. The Australian Automotive Network Exchange project will build a common network infrastructure allowing industry players to purchase parts from suppliers. Association members have realised that for rival car manufacturers to use different purchasing methods and messages imposes enormous costs on suppliers.

Given its more modest aims, the Australian initiative is more of a sure bet than the US auto exchange, for which overcoming the business hurdles is likened to the job of ‘herding cats'.


Editor in chief

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