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E-procurement Excellence -Mohammed Naved Khan Industry Analysis Fast, reliable, and time-definite delivery of documents, packages and freight is a critical success factor in the industry FedEx operates in. The major competitors of FedEx include UPS, TNT, DHL and Parcelforce. DHL is the world's largest international air express carrier, with a 40% market share, while UPS is the world's largest package distribution company. FedEx recognized service reliability as the most important piece of the picturebelieving that if the delivery did not reach its destination on time, all other issues simply faded away. The company did not necessarily strive to be the cheapest service provider, but rather emphasized on its superior quality of service, global coverage and easy service availability. This clearly shows how FedEx differentiated itself through strong brand building. In fact, the company's focus on the quality aspects of its services has fetched it many awards. To keep itself ahead of its competitors, FedEx invested heavily in latest IT solutions and leveraged IT as a strategic tool. Defining Business at FedEx Using Derek Abell's concept of business definition, we can define FedEx's business along three dimensions viz., customer group (who is being satisfied?), customer function (what is being satisfied?) and alternative technologies (how the need is being satisfied?) [Refer Figure 1]. FedEx has been successful because it has been able to identify its customers' needs and used IT effectively to meet them. The company's use of innovative electronic technologies has made shipping easier, more productive, and it has been able to avoid the need to hire thousands of additional employees. All this meant that it could deliver superior customer service at considerably reduced costs. In fact, FedEx came to be widely regarded as one of the leading strategic users and trendsetters in the use of IT. The e-procurement program implemented was another example of the effective use of alternative technologies to get an edge over the competitors. This initiative had the potential to radically redefine the rules of the game (vis--vis customer satisfaction). Reasons for Implementation of e-procurement Solution FedEx expected the e-procurement solution to emerge as a key strategy for automating and streamlining the procurement process to keep all levels of operations in working order. There was also a need to overhaul business processes

and the IT infrastructure to reduce overall purchasing cycle time, consolidate purchases, gain an upper hand over suppliers, attract new suppliers and create competition for original suppliers, track spending patterns, curb unauthorized spending and administrative costs thereby leading to internal efficiency and direct cost savings. E-procurement systems bring productivity gains by unburdening workers from tedious, time-consuming, and inefficient manual methods of processing purchase orders; employees can work more quickly and focus their attention on more strategic tasks. Most of the time savings come from the reduced need to re-enter information, from streamlining the interaction with suppliers and from having a central repository for data. Return on investment (ROI) comes via reduction in the expense of procuring items. This is because items are cheaper when purchased through Internet marketplaces. FedEx also could reduce the cost of processing transactions by eliminating the need for paper documentation. It improved organizational effectiveness as it gained more control over what was being ordered and who was doing the ordering. Selecting Ariba: A Strategic Decision FedEx evaluated various e-procurement solutions available before finally selecting the Ariba platform because it matched FedEx's vision of leveraging technology to streamline operations and allowed it to turn the efficient management of operating resources into a strategic tool. Ariba's platform provided for seamless integration of FedEx's PeopleSoft financial and human resources software system running on an HP-UX V-Class server and at the same time allowed FedEx to electronically connect to its suppliers as well as leverage network payment capabilities. It also provided buyers with the automated `picks and shovels' they needed to integrate with ERP systems, process approvals, route invoices and perform other tasks. The web-based user friendly front-end allowed authorized individuals to work on FedEx's behalf to order easily. E-procurement Architecture e-procurement systems consist of three parts: 1. Server-based software at the buyer's end. It is usually accessed by browser front-ends from within the organization. It automates the procurement process. In FedEx's case, it consists of Ariba's central Operating Resource Management System (ORMS) interface. 2. The supply side is effectively a mirror image of the buyer's end . It usually involves catalogue preparation, password access and workflow for making approved purchases, and trading history, credit agreements, discount arrangements and so on. 3. In between these two applications is the most powerful feature of the e-procurement market the trading portal. The leading vendors have moved towards a portal model. The trading portal could ultimately become the place where all secure or workflow-oriented business transactions take place. FedEx is using a combination of Ariba's Market Suite, Internet Business Exchange service and the Commerce Center applications. Implementation of E-procurement Solution at FedEx The implementation of e-procurement solution at FedEx has been completed broadly in three phases:

Phase I: Pilot implementation of Ariba's e-procurement solution that included installation of e-commerce platform along with Ariba Buyer technology. Phase II: Rollout of `Ariba Buyer' to around 7000 IT division

employees. The managers were given charge of producing the business requirements, documents and project plans.

Phase III: An over-all plan was developed to bring out each commodity whose major supplier had electronic catalogs.

Critical Analysis Ariba's ORMS showed an ROI three times the benchmark FedEx used for approving an IT project. Since at FedEx much of the ordering process through electronic invoices and e-mail approval had already been automated, the ROI from Ariba's product came mostly from the savings generated by its online cataloging function. That function centralized and consolidated the purchase to a select few vendors, eliminating the need for employees to pick up the Yellow Pages or drive to a store to search for the items they need. Further, due to the implementation of company-wide strategic sourcing initiatives, the number of suppliers was reduced by about 50%. Ariba enabled those suppliers (75) that represented FedEx's largest volume buys. The success of the implementation was further established when FedEx was awarded Aberdeen's `Best e-procurement' practices award in early 2002. Problems and Prospects With customers in the US (as well as overseas), increasingly shopping online, analysts predict that worldwide revenues from online retailing would rise to more than $10 bn in the next few years. Further, business-to-business Internet commerce is expected to grow to an astronomical $327 bn. All this would mean explosive growth in FedEx's business (and that of competitors too) and also changing customer demands. To address these, FedEx needs to continue the initiatives in the area of human resources, systems and technology. It needs to sustain the pace of innovation and rapid growth. FedEx needs to be cautious with respect to a number of issues. The inability to move e-procurement beyond inexpensive, indirect goods purchases can have negative implications in terms of economic viability. One of the biggest challenges could be to integrate its technology with employee competencies and their ability to deal with anonymous vendors. Another issue that needs to be addressed by FedEx is encouraging the suppliers to migrate to the e-procurement platform. FedEx needs to note that several of its pioneering services, have been deployed with alarming regularity by competition down the line. To capitalize on the `first mover' advantage, speed of execution is critical. And the learning curve may help FedEx achieve scale economies faster, while competition would still be busy catching up. In an industry where saving time is essential to improve profitability, the need is to deploy new technologies (for e.g. wireless) to accelerate operations, transform customer service, and snatch market share. The author is Senior Lecturer, Department of Business Administration, Faculty of Management Studies & Research, Aligarh Muslim University, Aligarh, India. Reference # 14-04-01-04 << Back