Managing e-procurement is more than moving buyers online. Amid the gains of better pricing, efficiency, planning and control, unified online procurement requires cultural change, and a second look at longstanding relationships between users and the suppliers they support.

Implementing a single infrastructure for loosely held procurement of indirect goods is a challenge for companies of all sizes. When a Fortune 50 institution like Procter & Gamble, with 100,000 employees and divisions and suppliers scattered across 70 nations decides to take charge, it's worth taking notice. Halfway into a carefully measured three-year rollout of its private marketplace, the consumer-packaged goods giant is continuing to look to the future, but proving that careful methodology can yield results today on a global scale.

A Technology Base

From its Cincinnati headquarters to its smallest operation in Singapore, 40 percent of P&G's annual $20 billion in spending comes in the form of capital expenses and indirect materials. In Latin America and Asia, processes have been mostly manual; in the U.S. and elsewhere, more sophisticated online systems are in place that allow the use of employee procurement cards. But there was no global view of buying among as many as 25,000 P&G employees, and even online purchases weren't linked to enterprise planning systems. There was no way to measure what employees were buying, or leverage vendor contracts for better discounts.

In 1999, P&G set about consolidating procurement with a solution from SAPMarkets (now being rolled into a new division with SAP's portal solution). Since P&G is a long time SAP R/3 user, the choice was made easier, according to David Heppenstall, associate director for global purchasing systems at P&G. "We looked at a number of offerings, but with the tight back end integration with our systems, it was fairly obvious that this was our best candidate." Accounting data, and vendor and materials data in P&G's ERP is leveraged through Enterprise Buyer Professional.

Presently, 40,000 items are available from 170 vendors through P&G's internally maintained catalogs, and an additional 4 million items are available in five catalogs hosted by outside vendors. P&G's praise of the EBP solution is validation of SAP's view of the integrated, modular system world, but the technology was only a part of the methodology that went into a global rollout.

Sponsorship and Culture Change

Any serious new technology initiative requires a champion to sponsor and see an implementation through the rough spots. At P&G, the global business services (GBS) unit is responsible for all indirect procurement, and so the GBS head of purchasing and unit president were the backbone of the movement. According to Heppenstall, the two decided that a measured and incremental deployment was the way to go. "It was very top down and driven by the purchasing business with full support from board level," he says, but not a mandate for a sudden and complete makeover. "The option we took was to pull together a small multifunctional team, run a pilot and prove to the business that if they implement this thing, they're going to save money," says Heppenstall. "Once you prove it, you go and work with all the other business units and say, 'Here's a program, this is what it's going to cost you. Would you like to do it? We have a team ready, here's the benefits we've achieved so far.'"

Rollout plans like this are now de facto for large corporations, not due to diplomacy, but an outgrowth of the management decentralization wave of the late 80s and mid 90s. So says Rick Andrade, senior manager of B2B strategy Cap Gemini, Ernst & Young. "You need to get the efficiencies of individuals in the know out into disparate units that consequently do things faster, better, cheaper." But that does not mean broadcasting whole networks of purchasing options, says Heppenstall, "The worst thing you could do is to implement a technical EBP solution for all the suppliers you have because you'll end up with hundreds and hundreds online catalogs with a lot of duplication." In many cases, best practice and cross-divisional experts are brought together to solve the problems of procurement. "Then you can create consensus," says Andrade, "synthesize the thinking and figure out if the best approach is an e-market or to craft your own plan."

Measurement

Each month, the GBS 'champions' report the savings that the purchasing organization is making for its customers. "EBP has tracking tools that say, 'based on professional sourcing deals and reductions in cost and all the other things they do, these are the savings we've made this month,'" says Heppenstall.

The results are used to leverage still more business units to accept undeniable benefits. "The only thing we've offered people is, 'if you use the system, you'll get better prices," says Heppenstall. "That means that your cost center and budget sees the benefit, it's not some corporate pot of money that you never see."

To date, the EBP solution is up and running in 17 countries with 4,500 users, says Heppenstall. "We're now in the second year and measuring results monthly. We expected and did get benefit after the first six months, which was really design and testing, but once we began doing the implementation we started to get benefits." In the end, P&G expects to save 10 to 15 percent in global procurement expense through consolidation.

Resistance to Change

With senior management behind it, any rollout has a greater chance of succeeding. But what about those who refuse to give up cozy or beneficial longstanding relationships with preferred suppliers? "That has been one of the challenges," says Heppenstall. So P&G makes it a practice to measure and record instances where employees are using workarounds, and then reinforce the sales pitch from the implementation team. "In the end, every supplier needs to be paid regardless of how the purchase is made We spot the individuals ... and then we go and work out with the managers how much money they could be saving the company if they follow the procedures. We are quite pedantic about how we do that."

Suppliers, too, can resist change, if only at their peril. In fact, the best and largest jump to the chance of facing a larger buying audience at P&G, while P&G gets an opportunity to reset terms. "As a [supplier] contract comes to an end, we enter into an inquiry process, building in new requirements," says Heppenstall. That might include mandatory online catalogs, and a review of performance based on quality, deliverability and flexibility to change. The test might be nerve-wracking for the supplier, but in the end, "When you tell the vendor that we're going to give them a regional or global contract with a catalog on everyone's desktop, that is pretty powerful," he says, and yet another incentive to deliver.

Consolidating the supply base is surely one of the biggest challenges of unified procurement. As companies move from division to division and negotiate contracts, they may be closing out large suppliers at other divisions. This is another function of specialty teams that step back before stepping up. "It's putting your goods into commodity buckets, through a strategic sourcing team that goes through accounts payable, analyzes most of the invoices at a given level of detail," says CGE&Y's Andrade. "It boils down to a science, there's no real magic. "How many fewer suppliers can fill the top three biggest buckets and provide the quality assurance you're looking for and perhaps provide a fallback?"

Still, there may be an instance where a local supplier can fill the need better than a global, single source. "When you rationalize the suppliers, are you losing out on something like local responsiveness?" says Jeff Brooks, research fellow, Accenture Institute for Strategic Change. "You should have flexibility, but does your software allow for that? I suspect many vendors do, but software companies often surprise me with their inability to deliver even the simplest functionality."

A Mix of Marketplaces

P&G continues to refine and expand its private base carefully and methodically, and is contemplating the role of oft-maligned industry-led marketplaces like Transora, in which P&G has a large stake, (along with other packaged goods giants like Coca-Cola, Sara Lee and Kraft). Heppenstall says P&G has already used Transora to consolidate demand with other buyers for indirect materials, and is about to start using it for direct materials as well. "We're also clear that there is a role for the private marketplace," he says. "We're developing that, allowing us to consolidate our data across our corporation, and then going out and connecting to other marketplaces, Transora or others, or directly to vendors and customers."

Indeed, newer models suggest that the private marketplaces like P&G's will ease the burden on public marketplaces, which never provided much integration for detailed transactions. Says Accenture's Brooks, " If you know you want to buy from or sell to P&G you go to the private platform and get the added functionality of your own Web page or whatever. For companies without a lot of resources, they can go through a market to source new suppliers or hook up with all the buyers."

That's not to say that the private marketplace will be reserved for P&G's biggest customers. "In many cases," says Wendy Jacques, associate director of external relations at P&G, "we will have relationships with customers in our private marketplace, but it's not very efficient for them to try to do transactions with thousands of manufacturers like us ... You might take the planning work that you've done privately, but transact it over the public network through something like a Transora. We think there's a role to play for both."