Sun Microsystems and Andersen Consulting yesterday launched an Internet procurement venture that the companies say will give businesses an option to outsource run-of-the-mill purchases of office supplies, furniture and other "indirect" materials.
The yet-to-be-named venture will work with Sun and iPlanet E-Commerce Solutions, an alliance between Sun and Netscape Communications established last year by America Online, Sun and Netscape's parent company.
Sun will have a minority stake in the company, which is expected to be up and running by the end of the third quarter, and Sun will be a "charter customer," Mark Tolliver, president of iPlanet E-Commerce Solutions, said in a conference call. In addition, Sun will sell hardware and services to the venture, while iPlanet will sell e-commerce infrastructure and application software. The total value of those purchases is $US300 million over the next three years.
Procurement of office supplies, furniture and other "indirect" materials -- the types of supplies needed to support the business but which are not used to make the end product -- is "the right thing to outsource," Scott McNealy, chairman and chief executive officer of Sun, said during the conference call.
"I think the interesting component about this particular exchange is it's ... very horizontal," McNealy said. "Every organisation buys chairs and stuff."
McNealy said companies that outsource their procurement to the venture could see a cost savings of as much as 50 percent, as the venture "uses the Web for what it really is good at," McNealy said. Sun itself could expect to save about $1 billion over five years, said Dow Bauknight, acting chief executive officer of the new venture.
The e-procurement venture already has commitments from companies worldwide willing to spend more than $20 billion as subscribers to the venture's services. The new company hopes to facilitate over $200 billion worth of indirect procurement by 2004. Companies that want to buy the service will have to subscribe and pay both a transaction fee and a category management fee, Bauknight said.
Asked during the conference call whether Sun entered the venture to compete with a similar service offered by Microsoft, McNealy said he didn't consider the Microsoft service competition, adding that the major difference was that the Sun-Andersen venture's products would scale and be available for mission critical operations at global companies.
To get low prices "requires lots of transactions, and lots of transactions requires scalability," McNealy said. "That 'other company' is still trying to do 64 (bit). We have been doing 64 bit for a long, long time."
The venture will not compete with Andersen Consulting's traditional systems integration outsourcing, said Joe Forehand, chief executive officer of Andersen Consulting. The venture will employ procurement experts who will provide a "human performance dimension" and differentiate the outsourcing service from other offerings, Forehand said.
Andersen Consulting will hold the majority stake in the venture and will initially oversee the day-to-day running of the new company. The company will start with an existing base of commercial products that are in their fourth or fifth release, and the two companies will work together on product development, Tolliver said. The backbone provider is MCI WorldCom's UUNet division.
Andersen Consulting's majority investment in the company was placed through its venture capital unit, AC Ventures. Company officials said they didn't have a complete investment plan yet and provided no specifics about how much each of the companies will invest. In addition to Sun's minority equity investment, several other strategic partners and customers will be pursued as investors in the venture.