Looking Inside The Box
As budget limitations and executive missives compel logistics managers to streamline operating expenses, web-based procurement solutions have become one obvious fix, offering greater control over purchasing decisions, the opportunity to consolidate supply orders and shipments, and the promise of reduced costs.
Imagine a group of executive-level managers discussing potential sourcing alternatives for company letterhead, envelopes, and mailing labels. Sounds improbable, right? Maybe not, if you consider that office supplies and equipment typically represent the highest internal expenditures for mid- and large-sized companies and that gaining control and adding more discipline to purchasing processes could potentially drive costs down 10 to 20 percent.
Executives today are acutely aware of the direct impact discretionary expenditures have on their company’s bottom line. Where corporate management may have once looked “outside the box” to streamline operations, reduce costs, and identify potential supply chain initiatives, today they are looking internally, literally at boxes of office supplies coming into their offices from disparate vendors.
“Our experience with tens of thousands of mid-sized companies is that there are almost always hidden pockets of wasted money that can be converted into margin improvement—if you know where to look,” says Anre Williams, vice president and general manager, American Express Corporate Service Middle Market unit, citing data from a 2001 report targeting mid-market corporations.
“For example, these companies tend to be doing business with hundreds of suppliers for simple commodities such as office supplies and computer equipment,” he says. “Additionally, employees may be using petty cash or their own personal credit cards to purchase these items—resulting in the company having no real control of the volume and the extend of the spend.”
As budget limitations and executive missives compel logistics managers to streamline operating expenses, web-based procurement solutions have become one obvious fix, offering greater control over purchasing decisions, the opportunity to consolidate supply orders and shipments, lower inventory carrying costs, and the promise of reduced costs.
Sourcing supplies from myriad vendors using both manual and automated processes poses an obvious breakdown in communication, order visibility, and overall procurement efficiency.
Radiant Research, a Kirkland, Wash.-based site organization that does testing and clinical trials of medications and devices for the pharmaceutical industry, found itself in a similar predicament late last year. To remedy its procurement breaches, it decided to seek a new vendor from which to source office supplies.
“When I came on board, about one third of our sites were utilizing a web-based procurement process through another vendor; the other two-thirds were ordering from their local vendors via phone or fax and a host of other methods,” says Garry Mizer, purchasing manager, Radiant Research.
“We were looking for not only a new vendor—one that could offer us an automated billing process—but also a vendor that could help us gain control over that order process.”
Additionally, Radiant required a solution that could be easily implemented and integrated among its 43 sites nationwide.
Radiant Finds Missing Link
After testing several potential solutions, Radiant allied itself with Staples’ Contract Division (SCD), which delivers office supplies, equipment, furniture, and computer software to mid- to large-sized businesses across the country.
To support its Contract Division customers, the Framingham, Mass., company unveiled its StaplesLink B2B Internet solution in October 1999, providing a simple, fast, and economical method of placing orders and managing inventory. StaplesLink currently serves nearly 10,000 organizations and more than 2.6 million customers, offering real-time inventory availability on more than 80,000 products, company-specific contract pricing, and line-item shipping status.
For a company with as many disparate procurement processes as sites, StaplesLink offered the simplest and most efficient solution for Radiant.
“Rolling it out to all 43 sites was relatively painless,” notes Mizer. “StaplesLink is set up so that when I create or change an account for a specific site our purchasing managers automatically get an email notification of their account information.”
“There is one master bill, broken down by a cost center that we designate—each site gets its own bill, approves it, then forwards it on to accounts payable for processing,” he adds.
The simplistic, stripped-down design of the site enables users to place orders faster and more efficiently, says Lisa Hamblet, vice president, business-to-business e-commerce, Staples.
“We have tried to streamline the site so that it really is a mechanism for ordering supplies. Customers can log onto the site, quickly place an order, and get back to business.
“To facilitate this, we have a lot of easy-to-use product search tools, including quick-order functionality that allows the customer to enter in an item number and add it to their cart; a shopping list functionality that enables the end user to have a shopping list for themselves or shared throughout their organization; and workflow approval—multiple levels of users who have different spend limitations.”
The functionality of the site is similarly designed to help corporate purchasing managers decentralize office supply procurement while at the same time centralizing and controlling costs.
“My senior management, for example, might say to me ‘we want to allow the sites to purchase x number of standard lay-purchased items. But anything over and above that number, we want them to go through you to purchase that type of product,'” says Mizer. “The web site is set up for us to handle those demands. Each site can purchase 4,000 of the common lay-purchased items—anything over and above that then kicks out to me and I place the order for them.”
By bringing some discipline to the procurement process, Radiant can proactively manage what its sites’ needs are and what they are purchasing without compromising efficiency. “We’ve consolidated what we’re ordering and we’ve also made it so that the sites have some control over what they want to order,” he says.”As long as it is within those parameters they can go right ahead and proceed.
“I can run reports on the system to see what my sites are ordering and how much money they are spending on office supplies,” Mizer says. Individual sites can now be held accountable for their purchasing decisions.
Soft Cost Savings
Soft Cost Savings n added benefit of having greater control of the procurement process is being able to reduce the number of smaller orders and ultimately consolidate shipments.
“We originally started off with a process where we set a minimum order of $25,” says Mizer. “We did this for several months and we saw a few orders for more than $25. But most of the orders were in excess of $50. So Staples approached us with putting in a $50 minimum and if we agreed to that they would rebate additional funds to us at the end of the year.”
As a result of this incentive, “we’ve cut costs approximately 10 percent,” Mizer adds.
Much of the success Radiant has achieved in the past year can simply be attributed to its ability to consolidate its vendors and integrate the procurement processes of all its sites.
“A lot of our customers value and identify that consolidation of suppliers is what has been helping them to drive costs down in their organization,” notes Hamblet. “They realize that by buying in volume they are able to drive down the product cost as well as achieve greater control over what their end users are buying. They also can reduce maverick spending.”
Inventory Management ecause Staples can deliver orders received by 5 p.m. the next business day, its B2B portal enables companies to better manage inventory flow and streamline the supply chain. Matching supply to demand has become the mantra of every supply chain-conscious organization. Now, companies are applying this same fundamental logistics strategy to procurement. Holding surplus non-income producing inventory is inefficient and eats up time, space, and money.
“I can place an order today and have it delivered the next day,” notes Mizer. “Being able to reduce inventory carrying costs has been an added benefit.”
StapleLink users can similarly view inventory status when they place an order to makes sure that the products they are looking for are in stock.
To that end, managing exceptions and returning shipments has become a much easier task. Staples Contract Division has witnessed a 30 to 35 percent reduction in product returns for customers that buy office supplies online.
An Eye to the Future
An Eye to the Future early 70 percent of Staples Contract customer orders are placed online and in Q2 2002, 95 percent of its new customers were using the B2B portal.
Given the soft economy, companies such as Radiant have been forced to automate outdated manual processes and consolidate suppliers. But, despite the ominous fiscal uncertainty, there is a golden opportunity for companies large and small to invest in and implement e-procurement solutions today to reap greater efficiencies tomorrow
Thanks to Staples, Radiant Research’s tomorrow was only a year away.