February 1, 2005, 12:00 AM

The new reality of Sourcing

(Page 3 of 3)

A web-based system can also lead to oversights that can hurt the sourcing process, Picarillo says. In one case, he notes, Ahold managers invited only two suppliers to bid on a project because only two had been entered into the Emptoris system. "So we told them to go find more suppliers, as we always would have in the past," he says.

But getting suppliers to participate in a web-based sourcing system can also be a challenge, Picarillo adds, because some resist sharing pricing and other information on the web. "We have to talk them through it," he says, adding that Ahold will let suppliers view mock sourcing sessions to show how they prevent unauthorized access to a supplier`s information by its competitors. "That drives up their confidence."

Ahold`s managers went through about three initial days of training to learn the Emptoris system, followed by meetings twice a month on best practices in using the system to exert better control over the sourcing process. Although some training is done with Emptoris personnel either at Emptoris or at an Ahold facility, much training and ongoing best practice programs are conducted on the job site through web-based conferences.

The training and occasional setbacks, however, don`t take away from the system`s value to Ahold, Picarillo says. At a cost of $1 million to implement, plus about 15% of that per year in ongoing maintenance, the system has already far exceeded its cost in payback through the $350 million in savings. The savings will continue to expand, as Ahold extends the web-based system to its entire indirect goods sourcing as well as to its $1.5 billion-a-year private label sourcing, where it expects to save 5-10%.

Extending the system.

Emptoris may introduce later this year new web-based capabilities that let retailers score suppliers for their ability to provide a broader range of products or services, enabling the retailer to further cut costs by increasing buying power with a smaller universe of suppliers, Potts says.

Meantime, Picarillo will also investigate whether the Emptoris system can be effective in helping to improve the sourcing of branded goods for re-sale. Although it probably wouldn`t apply to major brands that Ahold will always carry under long-term contracts, it may apply to tertiary brands that would compete with cooperative marketing deals and delivery schedules as well as price, he says.

Although the system`s effectiveness would have to be proven for such branded programs, Picarillo says he has no doubt that web-based sourcing will continue to bring rewards. "We made a determination that we would not be as efficient without this web-based technology," he says.



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