Let’s first dispel a little myth that has been
knocking around for a while. It is our firm belief that the
companies that are best positioned to take advantage of what B2B has
to offer are those who have their internal systems under control ...
which usually means companies who have implemented
SAP systems (ok, maybe
Oracle as well).
Having got that off our chests, let’s move on …
The majority of market buzz at the moment is
around how companies are using B2B to reduce costs in their supply
chain in general, and in their purchasing activities more
specifically. If you look a little closer, the activity is quite
often limited to SG&A (or overhead) purchasing such as office
supplies and the like. The real news here is that there is a lot
more to be done with B2B than the current batch of ideas.
According to the US National Association of
Purchasing Managers, the average manual purchase order costs a
company $79. Although this seems high, it actually seems about right
to us. Companies using one of the B2B solutions for purchasing (SAP
of course, but also Ariba and others
out there) are
reporting reductions in their SG&A purchasing costs of around 50%.
When you realize that a dollar saved (not spent) in the purchasing
process is worth 10 times a dollar gained via a sale (based on a
gross margin of 10%), you can see the attraction is squeezing costs
out of the supply chain.
Typical B2B purchasing solutions might feature
a dual solution where:
- The purchasing department has access to
multiple vendors’ online catalogs, allowing for effective
price comparison and negotiation
- The purchasing department makes
available the selected items from the selected catalogs
- All employees are able to access the
catalogs via the web
- Required authorizations – based on
employees level and the dollar value of the purchase – are
automatically routed to the right person for authorization
- Authorized purchase orders are
automatically sent to the vendor, and also automatically
update the companies ERP system
- Remaining steps in the purchase process
(confirmation of purchase order, goods receipt, invoice
receipt etc) will be more or less automated depending on the
extent of the B2B solution implemented.
Staying within the supply chain, but outside
of pure purchasing, B2B software is also being used to drive
efficiencies in the manufacturing process. Over
the past few years i2 has been the most successful
vendor in this space is i2 (whose software allows a company to
optimize the manufacturing process including the procurement of raw
materials, manufacturing itself (for example using JIT principles)
and product delivery). SAP is catching up
fast, of
course, so watch this space ...
In any event, these two areas – Supply Chain
Management in general and purchasing more specifically - have been
the first out the gate. Another area of great potential is the whole
employee/HR area. Since most employees can easily have access to the
web and a browser – no matter where they are located – many
companies have done the obvious and placed most internal policies
(etc) on an intranet which is accessible via the web. The next step
we are seeing is ‘self service’ … where employees can make changes
to their retirement plans (etc) via the web. SAP
is all over this space.
We would like to end this article as we
started it – with the statement that we believe that the companies
with the best SAP (ERP) systems are best placed because they can add the
B2B layer on top of their ERP layer (or engine) - so don’t divert
too much spending from the one to the other!
On to article
3 in this series - Industry Transformations
