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E-Purchasing in Canada

A Case Study

by Nicholas Seiersen

A previous article discussed the state of E-Purchasing in Canada. In this article, some pioneers tell their story – the brave souls that are playing “Chicken.” What are the challenges they have overcome, what learnings can they pass on?

Counter-intuitively, getting the back-end to work is “easy.” Integrate the systems (this has its own set of challenges, but they are resolved in the initial implementation project), then get the buyers to use these new capabilities effectively (usually quite easy because they relieve so much of the tedium of purchasing work). Business-to-Business E-Commerce is easy, right?

Not so fast! Interviews with some the Canadian pioneers highlighted some residual obstacles. A major challenge has been user adoption. But user-interfaces are so simple. So how could anyone not want to use these new tools? Let me count the ways.

• It’s too easy today. Pick up the phone and ask someone to do it for you. It has taken years for office automation to eliminate some secretaries and the internet is inexorably, and very slowly, killing travel agents.

• Adequate infrastructure may not be in place. It’s difficult enough to get a cell-phone signal in cottage country or at the airport. Imagine what its like North of the 50th parallel when you need high-speed access to drawings to select the right item. The toughest user to serve is the mobile worker, whether on the shop floor or in the wild. Industrial wireless networks that often require “line-of-sight” are subject to interference, and cost serious money to install and operate. In remote areas there is limited and spotty access to cable and high-speed dial-up. Satellite links are very expensive, and the equipment is cumbersome. So the user is tethered to a “land-line.”

• User interfaces are still immature or at least unfamiliar. Palm pilots and Blackberries are not a challenge to highly educated and technologically-fluent, yuppies. While computer and internet usage is very high in Canada, many experienced workers have not made the move online for important job-related things. Why? It’s still too confusing. In cell phone M-Commerce (using web-ready cell phones to do business), research found that 200 buttons had to be pushed to setup an M-Commerce account, and a further 90 were required to place a second order. Who has the patience for that when there is real work to be done?
• It gets worse before it gets better. This is the toughest nut to crack; adoption of new ways of ordering will involve a learning curve that means that the process will be slower, before it gets faster! Helping purchasers get to the point that they are efficient with a new electronic ordering system takes time, patience, and the occasional prod to get some action. Companies must hang in for the long haul, even if things are apparently getting worse.

• Rudimentary catalogue quality. If the fancy new system is more difficult or tedious to use than the old ERP system, where is the progress? When CN, for example, rolled out Ariba, the heavy users requested changes to make it easier for them to do their jobs. This involved templates where frequently ordered items can be ordered with three clicks and mini-catalogues, where they find the things they use most often, without browsing the whole catalogue. The promise of these new systems has been vastly improved visual presentation and technical information about the products available. If the initial content loaded is dumped from the ERP, this promise has been flouted.

The reality is that front-line people and processes are working to catch up with the capabilities of the technology. Many of these obstacles will be eliminated as younger, more tech-savvy users take over in the workforce. In the meantime, CN, for example, has almost 900 active users, buying about $80 million annually. To achieve this, training on Ariba was required, as well as a comprehensive definition and explanation of the benefits. And, a little gentle persuasion was used; When users go outside the system, they dilute CN’s buying power, or disqualify the E-Purchasing discounts and this is charged back to the user’s budget.

Another challenge that is less daunting than originally feared is supplier readiness and willingness to adopt. This may be because the pioneers found like-minded souls amid their key suppliers. More cynically, it may be the old adage – “he who pays the piper, calls the tune.” Many suppliers are discovering that E-Business is their future business, and they will welcome the opportunity to get onboard, as soon as their customers are ready.

CN and Ackland’s Grainger:
An Overview of E-Procurement Implementation

When CN started out on their E-Purchasing voyage in 1999, the first vendor to load their catalogue and transact on-line was Acklands-Grainger, Inc.(AGI). For CN, having such a significant supplier on-line so quickly was a major win, and it drew users to spend through the new Ariba system. AGI built on a substantial business already won from years of strategic MRO sourcing at CN, minus the data-keying errors, the clerical efforts, and new, more cost effective fulfillment processes. More specifically, they foresaw these benefits:

• Elimination of order-entry tasks. Pick-tickets go directly through to AGI printers in the location selected for fulfillment of this item.

• No translation issues for product requirements. The customer gets what they ordered themselves, from the online catalogue.

• An ability to customize catalogues and pricing. CN has a CN specific Safety catalogue and a general supplies catalogues, with approved items and the preferred pricing.

• The catalogue directs users to AGI Product brands. This meets CN’s cost-reduction objectives and builds volume on “private label” items that are frequently more profitable.

• It directs the end user to AGI as the only preferred vendor for MRO.
• AGI gains experience as an e-participant to share with other customers.
• It gives AGI the ability to map the order to the most efficient servicing location or fulfillment process.

• It standardizes ordering method from CN to AGI.
AGI recognized that this new business channel would have a lower cost-to-serve, and they offer a special, distinct, E-Purchasing discount.
So the E-Purchasing proposition is attractive for suppliers. It is, however, neither straightforward, nor easy.

• Product information and catalogue management and maintenance is a large part of any E-Procurement initiative and is regularly overlooked as a significant cost of ongoing operations. It is also one of the most vital steps. Without accurate data, problems are passed downstream and can result in major accounting issues such as invoice matching problems.

• Connectivity, namely, the supplier connecting to marketplaces and/or directly to customers, is also never as easy as it seems. The multitude of people throughout many different organizations that need to be involved in testing resulted in very slow progress in developing connections between buyers and marketplaces and/or suppliers. And, XML-file transfer is not as simple as it is often described, as the CN story clearly illustrates.

CN Case Study

Insights From CN’s Sameh Fahmy, vice president of Supply Management, and Nick Lesey, supply manager of General Supplies and Services, CN.

E-Purchasing is the same as any new technology. It will require seven years to become broadly accepted. At that point, in three or four years, as it started in around 1999, it will become difficult to find a company in Canada that will not be performing Business-to-Business transactions online with their suppliers.

The tools used may have capabilities that we have not yet imagined today. In the early days of ATMs, many people were frightened to use them. Now, even senior citizens pay their bills on these robots. In the early days on Interac, there were interminable arguments over who would pay for the terminals, who would pay the transaction fees. Now everyone has one, no sum is too small. No one thinks twice about taking an elevator. When that happens, it will too late to get on board. You will be playing catch-up. The time to start is now.

There is value for everyone in E-Purchasing. CN sees value through lower buyer costs as the user buys against pre-sourced catalogues, and there are lower invoice mismatches, greater savings through maverick buys channeled to preferred vendors and standardization. The spend data, for example, enabled CN to drive users to three safety vests from 132 different vests.

Suppliers, such as AGI, see value based on eliminated data-keying errors, reduced clerical efforts and more cost effective fulfillment processes. But even small companies, or minor CN suppliers that are not otherwise engaged in E-Purchasing, see value in error-free transactions that they can receive, as they want. They also benefit from catalogues that they can refresh as often as they want and, for which there is EPIRA (a rail industry EDI standard)-enabled back-end invoice and payment processing, that gets them their receivables faster. One supplier is 100 percent E-Purchasing, with five employees and one computer. CN pays the Ariba transaction fees, so there is no barrier to coming on-line. It is almost as simple as if the preferred supplier base is another division of CN.

User acceptance is about common sense. On a recent tour in the field, a manager was still using the old way of buying supplies to get his job done. They trained him on the tool as he had slipped through the cracks and showed him how the system would save him the half-day he spent each week on manually coding and approving invoices. Advice from the heart: when you embark on your E-Purchasing endeavor, don’t lose your head. Do not get carried away and don’t be tempted by the sirens of “.com.” Move forward with prudence, common sense and seek pragmatic, true business value.

Some of the other and most salient applications of E-Purchasing at CN have their roots in E-Procurements’ origins at CN. E-Procurement began in 1999 at CN during a Christmas party and with a discussion with a friend from Bell Canada. By January, a project was launched. In August, a pilot was live. But by April, CN was already in discussion with the other major rail carriers in North America, such as BN, UP, CSX, NS & CP. Today, the resultant Railmarketplace.com provides a platform for strategic sourcing and spend consolidation where appropriate. (But that will be the subject of another article).

After an intense month of business models and spreadsheets, it was clear that CN could not build a separate marketplace by itself. With the objective of looking at new ways and means for strategic sourcing, they engaged a dialogue with the other five major railways.

Today, where possible, all six carriers aggregate their buying power (office supplies, tires, etc.) In many cases, the combined buying power of these carriers is such that anti-trust laws, or the specificity of their requirements, do not allow them to aggregate their purchases.

Nevertheless, Railmarketplace.com still provides a unique site for railway online RFI/RFP and supplier (reverse) auctions. The suppliers know the site, the functionality and the style. Plus they have been pre-qualified by the other carriers. The buyers know the site’s capabilities and limitations and have faith that it is an effective window to their supplier community. The bulletin board of upcoming events allows members to join other carriers’ sourcing events, or to obtain insight into new supplier qualifications. At a recent auction, a Czech vendor was introduced by CN, against the existing Japanese, French and U.S. suppliers. The very attractive pricing was buttressed by an intense pre-qualification, with extensive lab analysis of products. Global fulfillment might present a challenge for some carriers or their suppliers. For others, it is an opportunity to provide inventory holding and product finishing services that have a ready buyer at CN.

Global sourcing also represents an opportunity to broaden the sourcing market and thus deflect the anti-trust market concentration constraints.

Auctions are highly appropriate for small value highly substitutable commodities, such as fasteners. Traditional RFP processes are far too cumbersome to be cost or time effective for these organizations. There is limited value from the incumbent relationship, and savings can be very substantial. The Clarus auction tool used at Railmarketplace.com allows several criteria to be weighted in the auction formula, and existing relationships is one of them. The site also allows pre-qualification for complex RFP through RFI. The suppliers know the site, and know how to use the tool. These options help address the legitimate concerns a long-standing supplier, with extensive relationships, would have over betting their business or their profit margin on a 45-minute gamble.

So what is the message from the E-Purchasing pioneers in Canada? There is significant value for both the buyer and the seller, and by implication, for the entire supply chain. Many have already embarked on this profitable voyage. It is time for you, too.