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Mon 26 Feb 2001 04:00 AM

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Procuring Online

Everyone is talking of huge savings, but it appears that many local businesses have yet to be convinced. cataloguing, culture shock and legal issues present significant local hurdles.

Introduction|~||~||~|It’s paper intensive; often complex, fragmented and difficult to manage — there are few companies out there that don’t stare these issues in the face when they study their supply chain. The ability to deliver products cost effectively and on time depends on having the components at hand ready to assemble. Equally, controlling the inventory level is an art form in itself — not enough in stock and you let down customers, too much and it costs the business money every minute it sits in the warehouse.The ultra efficient production models of Cisco and Dell are often used as examples of what can be achieved if the metrics of the supply chain are mastered. The ability to share accurate information throughout the entire process has helped both vendors climb to the top of their respective fields. “Companies aren’t competing against companies, products versus products — it’s supply chains competing with supply chains. When you look at the success of Cisco and Dell, they didn’t do it by their products [alone],” says Gartner Group, research director, Maria Jimenez.Slashing at the inefficiencies within an internal organisation with the deployment of a procurement application is only going to bring incremental savings. Those procurement applications must be integrated with the core business applications. However, the real challenge is take internal efficiencies and transport them beyond the firewall to suppliers, ultimately enabling, what Gartner describes as ‘collaborative commerce’ — the sharing of production data up and down the supply chain for greater efficiency and lower operating costs. Vendors, such as i2, Ariba Commerce One and Oracle are working to deliver an all encompassing vision of the supply chain, either through partnerships or acquisitions. “[Vendors] have made moves towards making it possible to integrate all the fulfilment and the planning with the procurement,” says Jimenez. In the future companies won’t just be procuring, “but they will also be able to commit on delivery and product availability. We think [collaboration] is becoming reality. We’re seeing from a vendor point of view a lot of consolidation,” as they move to build comprehensive solutions.Jimenez expects market consolidation to continue at pace as best of breed players attempt to build product offerings, and the ERP players add more supply chain functionality into their existing product sets.In the last 12 months the whole supply chain issue has climbed onto the regional IT agenda, driven there by the impact of electronic marketplaces in the US, the loud arrival of e-procurement players — such as Commerce One and most recently Ariba — in the region and the launch of several online exchanges, most notably Tejari.com. All of these players are quoting US statistics, stating that e-procurement can save organisations anywhere between 15 and 30%, of their procurement costs. At Ariba’s press launch, held in conjunction with IBM and local partner GBM, rapid return on investment (ROI) was high on the agenda. “Many companies are faced with a broken supply chain, with a blockage of information and transactions,” says Ariba’s B2B specialist, Ihab Hashwa. “We’ve been watching the Middle East for a while and we believe organisations are ready for this technology.”The region’s bigger organisations are already investigating ways to streamline the supply chain. Back in February 2000, ARAMCO began the process of educating its suppliers about e-procurement. Similarly, SABIC is thought to be standardising on SAP R/3 throughout its 15 business units, primarily to create a streamlined supply chain, which a central procurement body will reside over. In the UAE, 60 partners — including big name organisations such as Emirates Airlines, Al Futtaim Universal Trading and Al Tayer Group — have signed up to do business with Tejari.com — the de-facto procurement portal for Dubai’s local government. Many companies, which have signed for Tejari, are in the process of deploying procurement applications, to enhance their own back office before transacting on the exchange. “The large organisations are going first,” says Oracle’s local manager, marketing technology solutions, Ayman Abouseif. “These are the organisations that have the most to gain from e-procurement,” he adds.||**||Page 2|~||~||~|Dubai Duty Free (DDF), was amongst the initial wave of companies to sign up for Tejari.com. Since January it has been working on an extensive Oracle ERP rollout, including iProcurement. Towards the end of the year, DDF plans to start transacting with suppliers through Tejari. Although the senior manager for systems & information, Ramesh Cidambi, can’t put an accurate figure on how much money the retailing operation will save through the exchange, he’s confident that automating the procurement process will generate significant savings internally, and in its external relationships with suppliers.The 14 module Oracle deployment will enable DDF to make considerable savings just through more efficient processes. For example, DDF make between 20,000 and 30,000 purchase orders each year, and any saving in that process is going to be substantial.More efficient processes will enable DDF’s buyers to shift to a proactive footing, finding and securing better deals for the company, managing more accurately blanket purchasing agreements and quotation processes. “Buyers will move their work content from a transaction orientated work to a qualitative, strategic sourcing function,” says Cidambi. “If we can manage the quotation process better, if we can manage blanket agreements better, if we can use electronic catalogues, if we can give a better visibility of the stocks and the supply chain, you can dramatically improve the process.”Regardless of moves by large organisations to embrace online procurement, the majority of businesses in the region haven’t begun to focus on procurement or supply chain issues. In a poll on www.itp.net, only 29% of respondents said that e-procurement was a top priority for 2001. KPMG, which worked closely with Tejari to promote the exchange, hasn’t seen much interest in the supply chain amongst its customer base in the region. “We had some initiatives here to try and bring supply chain management consulting to the region, with a relatively low level of success,” says Mohsen Zia, director for KPMG Middle East. “We react to the needs of the market, and those needs fall into two main areas, one is ERP implementation, which is still very high in the minds of some [companies]. The other area is strategic studies into e-business and e-commerce [opportunities],” he adds.However says Zia, the majority of KPMG’s strategic studies don’t get very far before it becomes apparent there isn’t an obvious ROI, or critical mass in terms of market audience, says Zia. The reluctance of many companies to tackle e-procurement, at least at the moment, isn’t that surprising. Due to the trading/distribution nature of many regional businesses, the supply chain of many companies is very short — they receive finished goods and sell them. Also there are very few manufacturing companies in the region. “There aren’t that many [manufacturing plants here], and secondly many of them are still tackling basic issues in terms of running their base operations rather than thinking about adjustments to the supply chain,” explains Zia.Due to the immature nature of the market, Zia believes that much of the region’s businesses won’t be ready to talk to the likes of i2, Ariba, Commerce One or Oracle for the next nine to 18 months. Abouseif adds, “you need strong initiatives, reduced deployment times and a rapid rollout model, before many of the smaller companies move towards e-procurement.”Tejari has provided this incentive for many trading groups to sign up for the exchange. The list of either government owned companies or agencies is extensive and more will follow when they have sorted their backend systems out. “The people behind Tejari, like the Dubai Government are suggesting that all government departments do all their purchasing through Tejari,” says Zia. “Major organisations went on to [Tejari] because the Dubai Government is supposed to be there and a number of other private sector companies are supposed to be there,” comments Zia.||**||Page 3|~||~||~|In many Gulf countries the government is easily the largest potential buyer in the market. In the absence of copycat initiatives from other governments, vendors have been trying to sell procurement and exchange solutions to the private sector — this hasn’t proven easy. Commerce One has spent the last 12 months attempting to put together consortiums across the region, which would form private trading exchanges. “It’s taken longer than we would have liked,” admits Helen Ritchie, partner marketing manager, EMEA for Commerce One (C1). “But we’re almost there. There has been a lot of education, we’ve had to explain what exchanges are and how they work,” Ritchie explains.At the time of going to press, C1 still has only announced one consortium based in Kuwait, but expects to announce another seven consortiums in the coming weeks. Each consortium will consist of prominent trading families from their respective countries, and the exchanges will facilitate horizontal trading, explains Ritchie. “When those exchanges are up and running we’ll be able to attract the small and medium businesses online,” adds Abdul Kader Bibi, marketing director for C1’s Middle East operations.But those organisations that are moving towards e-procurement are already facing cataloguing difficulties. Tejari is handling many of the cataloguing tasks for its suppliers, in an effort to accelerate the volume of trades on its exchange. “The cataloguing process can be challenging,” says Lubna Al Qasimi, managing director of Tejari.com. “But it’s a time intensive element of running a successful market place,” she adds.Catalogues may be crucial, but they are also time consuming, complex and costly processes. “Having the software to run exchanges is one thing, but having the people to manage that is another… There is room for organisations to come in and offer [cataloguing services] to these companies,” says Abouseif. As more exchanges come online in the region, you’re going to see more organisations outsource these activities.”In the interim, many of those first movers to Tejari have been cataloguing the top 20 or 30 products they have, says Zia. There is a reluctance to catalogue their whole product range, because of the absence of standards. What’s to say that the standards used by Tejari, will be used by another exchange? Is a company expected to maintain different catalogues for different exchanges?“Because of the sheer volume of the goods that have to be catalogued, many companies have been doing this partially,” says Zia. “[Suppliers] haven’t really gone the whole [way] in terms of putting their catalogues online based on Tejari’s standards. [Standards] is a problem that needs to be tackled for the whole region. But [getting] everybody to coordinate across all the countries in the Gulf to use the same standards is a huge challenge,” predicts Zia.The speed of cataloguing could also be indicative of the level of ‘anxiety’ that particular companies feel about joining an exchange. Gartner Group’s Jimenez, warns that culture shock shouldn’t be under estimated when rolling out a procurement strategy — both internally and externally. “[E-procurement] it is going to impact what data they share with their trading partners, how they organise themselves internally and how they measure themselves,” she explains. “Organisations often don’t see that.”Ramesh Cidambi reports, facing ‘anxiety’ on the part of suppliers, when discussing with them the benefits of online procurement. “As with any new technology you have several levels of anxiety,” he says. “The suppliers may be anxious about what they’re going to have to invest in terms of cataloguing or subscriptions to the exchange.”However, Cidambi believes there is a degree of inevitability about exchanges, and when DDF has it’s own e-procurement backend in place, it will be in a better position to illustrate the benefits to its suppliers.Compounding the technical and cultural difficulties of setting up exchange sites and deploying e-procurement, the Middle East is also facing legal issues. A key benefit of any online exchange is that offers the buyer a wider choice of suppliers and conversely the supplier gets an opportunity to sell to a wider customer base. Obviously, critical mass will only be achieved when these exchanges start operating pan Gulf. However, this challenges localised agency agreements, not to mention the trade barriers that still protect countries in the region. For example, one of Commerce One’s main selling points is that through the use of shared XML schemers of its Global Trading Web (GTW), members of a Kuwait exchange will be able trade seamlessly with suppliers on other exchanges. Although that offers buyers and suppliers greater reach and solves standards issues on catalogues, the question is, will private trading companies agree to trade pan Gulf, threatening their traditional power-base — the agency agreement?Also, although Tejari has won companies to its exchange, it has still to win buyers and suppliers from other Gulf countries. It is more likely that over governments in the region will set up their own procurement portal and focus their purchasing power within their own national boundaries. If organisations want to join them it’s likely to mean a whole new catalogue. As Zia said, setting up pan Gulf catalogues is going to be a huge challenge.||**||

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