Business-to-Business E-Commerce: Streamlining Foundry Purchasing.

In order to realize the full potential of their purchasing and selling efforts, foundries must explore the benefits offered by electronic procurement to increase efficiency.

The buzz surrounding e-commerce has piqued the interest of professionals in virtually every profession. The ability to conduct business electronically--most commonly through the Internet--promises to revolutionize many business practices. For example, e-procurement, the purchasing of products and services electronically, could make it easier for foundries to forge and maintain relationships with suppliers that offer the best price, business terms, quality and delivery.

E-procurement streamlines purchasing by replacing many time-intensive, paper-based processes--from requisition to receiving--and replaces them with more efficient electronic processes. Instead of relying on paper, facsimile and telephone communications, foundry purchasers can work with their suppliers to source, execute, fulfill, track and evaluate their purchases via the Internet. As a result, redundant activity, the cost of purchase orders and the cost of invoicing could be reduced. For foundries, the potential savings and business advantages are staggering.

All this promise has Norb Gross, like several other professionals in the foundry industry, wondering, "What can e-commerce do for my business?" Gross, procurement manager, Griffin Pipe Products Co., a centrifugal and green sand casting ductile iron pipe company headquartered in Downers Grove, Illinois, has been investigating e-commerce options and has composed a wish list of procurement improvements he'd like to bring to his foundry.

Topping Gross' list is streamlined procurement. He wants to increase the efficiency of material and supply purchasing as well as the associated record-keeping by transferring these processes from the company's older Enterprise Resource Procurement (ERP) system, which integrates all facets of the organization's purchasing functions, to a more user-friendly and faster site on the Internet. High on his list, too, is access via the Internet to a geographical index of scrap prices.

In short, Gross is looking to become active in the growing world of e-commerce, specifically electronic procurement. Yet, like many foundry professionals, he is skeptical that the switch would be worth the time and money.

"You have to have good reasons to go to an Internet system" Gross said. "You want to gain efficiencies or other returns. We're kicking the tires, but we're not totally convinced we'd be better off with an Internet system."

In addition to explaining the areas in which e-procurement can optimize a foundry's materials and supply purchasing as well as their customer transactions, this article will help foundries decipher which online solution can work best for them.

E-Commerce Options

Gross' first wish--streamlined procurement--is currently possible through many of the available e-commerce technologies. Streamlined procurement could lead to a host of other advantages such as clearing away mundane record-keeping tasks, freeing up employees for more productive activities and creating more productive, cost-cutting partnerships between suppliers, foundries and their customers.

However, jumping on the e-commerce bandwagon just for the sake of following the crowd could be a wrong move. Doing so could lead to purchases of e-commerce services and technologies that are not the best for a business, or that are unproven, or even on the edge of extinction. That's why it is important to evaluate e-commerce options carefully, making sure that you are choosing the alternative that will allow your business not only to receive the best pricing on products and services but also create efficiencies by automating the full procure-to-pay cycle for all the materials and services that go into the production of metal castings.

The first step in evaluating e-commerce options is assessing which solutions align with your business objectives. Do you want to buy, sell or operate more efficiently? Second, what types of products do you want to buy or sell? Materials fit best with a request for proposal (RFP) or request for quotes model, which allows for a flexible definition of attributes. The third step is to assess the overall cost benefit, including software, hardware, hosting and transaction fees as well as the internal costs to deploy. Last, you should evaluate your ability to personally and adequately represent yourself and your buyers' representation in the marketplace, such as adding company descriptions, photographs, URLs and similar features.

The optimal e-commerce solution, however, will allow foundries to leverage a broad range of e-procurement applications that touch each stage of the purchasing process. Such a broad range of applications will create powerful competitive advantages based on process efficiencies, product savings, data visibility and productivity improvements. In fact, a study of activity and costing at a cross-section of eight foundries revealed that 75-85% of procurement time is spent on non-value-added paperwork such as tracking requisitions, purchase orders, shipping orders, receiving documents and invoices.

Attempts to Automate

Procurement professionals have long realized that automation could have a positive effect on purchasing operations. But for years foundries have met many roadblocks when trying to automate their procurement functions. Limited resources have forced many to invest available capital in production technologies, instead of investing in ERP information systems. As a result, these foundries are left with many disconnected, non-integrated, stand-alone internal systems. In some companies, the same data is entered manually on six different entry screens. Searching for new vendor and product information often is performed manually or, in some cases, through individual suppliers' electronic catalogs. In some cases, negotiation, transactions, tasking and performance monitoring may be cumbersome and manual. Intra-company data flow and coordinated purchasing are not occurring nearly as much as they should.

Connections to external trading partners are, for the most part, in even worse shape. Today, except for the cumbersome electronic data interchange (EDI) interfaces between foundries and certain large suppliers, little data is passed electronically between trading partners. EDI deployment has been limited because of the enormous expense of supporting the variety of platforms and connection technologies.

The Internet, though, is providing a conduit that will allow all metal-producing supply chain participants to play. The Internet--or "the new EDI"--costs as little as a local modem connection and a modest subscription fee, requires little-to-no onsite technical support, is accessible by all participants, provides multiple points of access to the same data, and lets anyone--even those who can't read computer codes--grasp an incoming message.

Mining Gold in Procurement

The benefits of e-procurement add up quickly. First, e-commerce's transparency--or the relative ease with which buyers can use the Internet to check pricing among suppliers, and suppliers can gain the broadest markets for their products--will eventually drive a true market or the right price. Both buyers and sellers will have great access to information about available products, product attributes, quality and company attributes such as service levels and lead times. Suppliers will find buyers who place optimum value on products, and buyers will find suppliers who better match their needs.

The right price also will emerge for volume buyers who have not had the tools for coordinated buying activity with a single supplier. Buyers finally will have access to the product mixes they need without being hindered by local supply and demand inefficiencies.

This does not mean, however, that suppliers will see diminishing profits. Even though unit prices might drop, e-procurement could lead to a higher realized revenue per ton for the seller, as excess inventories and opportunistic purchases get sold directly to buyers when they are needed and do not languish in a yard or warehouse, only to be sold as excess or seconds. Further, sellers might find new buyers who need their products more than their current buyers.

Procuring materials at the best price is just the tip of the iceberg, though. Business-to-business (B2B) websites also can eliminate costly inefficiencies in buying, selling and related functions such as maintenance. Performing these functions online is more time-efficient than the "old" methods of fax and phone. Most companies do not inventory maintenance and repair items even though they have a lot of money invested in them. Sophisticated maintenance and repair packages for small and mid-size companies do exist, but are fairly expensive to own. Online procurement services now have access to newly developed packages, which include equipment maintenance, work order management, inventory tracking and replenishment of spare parts used in preventive and corrective maintenance.

In addition, online interaction results in better communication and more accurate record-keeping. For example, while negotiating an RFP, a transaction is time-stamped not from memory but from actual records. Amendments also are electronically captured and stored in memory. Information is communicated more frequently and quickly to a broader number of trading partners, allowing for improved response time and service levels. To varying degrees, B2B websites can economically produce virtually seamless transaction records. Communications that are captured by the computer eliminate missed messages and misunderstandings and fill other gaps. As a result, conflicts, errors and other "holes" in records and communications are eliminated.

For example, histories of deliveries quality measurements, equipment breakdowns and other events become more visible to foundries, their suppliers and their customers in an online environment. This allows foundries to work online with suppliers and customers interactively to:

* ensure just-in-time deliveries of materials and supplies;

* maintain lower inventory costs;

* track machinery breakdowns and deliver replacement parts before they are needed;

* free up sales staff by eliminating mundane tasks (i.e. responding to routine requests for information or tracking the status of orders) and enabling staff to devote more time to customer service and other value-added activities;

* work more closely with supply chain partners to squeeze out excess costs and raise margins.

Choosing the Right E-Commerce Tools

Making the decision to use the Internet to streamline purchasing is just the beginning for foundry purchasing professionals. Foundries then have to decide exactly how they will employ Internet technologies (see sidebar "Citation Discovers an Online Procurement Solution"). They can choose from a variety of options (see sidebar "E-Business Is Just a Click Away").

Vertical application service providers (ASPs) offer a solution for highly complex metal-producing businesses. As opposed to horizontal ASPs, which aggregate multiple information technology solutions in one central web location but do not focus on one individual industry, vertical ASPs focus on the concerns of one industry. This makes it easy for users, such as foundries, to deploy multiple business-specific software applications, without having to invest in and maintain each application individually. For example, foundries could use an ASP not only to purchase materials but also to conduct research, track shipments or source materials.

By focusing on one industry, a vertical ASP recruits, educates and brings the bulk of buyers and suppliers in the foundry marketplace onto the application and customizes generic e-business tools to meet the needs of this specific community. This creates a liquid market, where a good portion of suppliers (or customers) are accessible in one online location.

Because the ASP maintains the hardware and software, users simply need a computer and browser to gain access to the online applications. As such, users can access their own data via the ASP but do not have to draw on internal resources to keep the applications up and running.

The vertical ASP offers advantages to a business looking to utilize the most up-to-date technology without having to constantly reinvest the time and money to keep internal systems current. ASPs offer foundries:

* rapid and easy application scalability;

* access to comprehensive security, backup, disaster recovery and support services;

* reduced "total costs" of information technology (IT) ownership;

* ability to speed up the delivery of new products and services to market;

* greater predictability of IT costs;

* simplified data entry.

In the final analysis, the Internet and the B2B transactions flying across it are the next step in the evolution of commerce. B2B is snowballing. Forrester Research, Inc., Cambridge, Massachusetts, predicts that B2B e-commerce will reach a value of $2.7 trillion in 2004. The metals industry's slice will not be insignificant. And, as Forrester points out, companies that make the transition to e-procurement will harvest the most benefits by making transactions "hands-free."

Coming to Terms: An E-Commerce Glossary

The entry into e-commerce has one big obstacle: jargon overload. To help foundry professionals get up-to-speed, here is a quick run-down of some common e-commerce terms:

E-commerce involves buying and selling via electronic means, most commonly through the Internet. Everything from auto zinc now is available to purchase electronically.

B2B refers to the extension of the Internet commerce model into the business world. There are many variations to the models and they continue to evolve.

Horizontal sites link users to generic services that cut across all business and industries (i.e. office products, accounting services or electrical power).

Vertical sites serve specific industries. In metals, for example, a vertical site could connect foundries to sources of raw materials, tools, and equipment and replacement parts.

Aggregators post goods or services at fixed prices.

Auction sites host online bidding of products or materials. Auctions can be of two kinds. Forward auctions operate by the traditional model, with buyers bidding against each other for goods or services from specific sellers. Reverse auctions work the other way, with sellers competing by bidding down the prices of their products, materials or services.

Electronic catalogues present goods, materials and services along with prices online.

Application service providers, or ASPs, are online collections of software that cover a variety of functions, including office productivity, procurement and financial applications. By outsourcing to ASPs, businesses can connect, through the Internet or a private network, a number of remote sites to high-performance computing and application software. Rather than purchasing, maintaining and upgrading these applications, users typically pay a fixed, monthly subscription fee. ASPs can deliver applications to any device assistants, mobile phones and other personal handsets, to PCs and other Windows or non-Windows-based terminals. ASPs enable companies to focus on core competencies, instead of upgrading and maintaining software applications.

Citation Discovers an 4 nline Procurement Solution

Mike Stovall, procurement director Citation Corp., headquartered in Birmingham, Alabama, gained a new appreciation for the Internet when in the middle of the night,, one of his company's foundries ran out of a critical, yet rarely used, raw material.

"The plant had to change its production schedule overnight," said Stovall. When the plant's purchasing manager came in the next day, he devoted a couple of hours, using his fax and phone to locate the needed material.

If he had been online instead of shopping the old fashioned way, he could have sent a broadcast message to all the usual suppliers to promptly locate the needed material right away." said Stovall "Or with a more advanced state of technology he could have searched the suppliers' inventory to locate and order the material."

This experience added to Stovall's interest interest in the benefits of business over the Internet via a B2B site that ties his company's operations right to those of his suppliers and customers.

"We started checking out sites last year," Stovall said. "In this case, many of them came to us. Our problem was that our internal structure doesn't allow for information to flow from our plants as freely as we'd like. What we buy, how much we pay, the frequency of orders, supplier performance--all those things are at the plant level, and they don't automatically flow up to headquarters. We often have to request that information from the plants."

"We needed a single package for buying all goods and services," he continued. We could do this with an Oracle system (a hardware and software solutions supplier to the metals industry) located on in-house hardware, but we elected not to. For one thing, that's a very costly solution. So we are moving towards Internet-based applications as the way to do business in the future. We want our system to be on a common communications platform-- 'out there.'"

Stovall spoke with representatives of various B2B sites. "We talked with them to analyze whether what they had was what we needed. Bu we found only a few sites that focused on the foundry business. They offered very narrow selections rather than an across-the-board purchasing solution. Many didn't offer what we needed. We currently are focusing on the 'buy-side,' arid we don't need an online catalogue service. We don't sell commodity products."

In September 1999, Stovall hooked up with MetalMaker, Inc., an ASP. "We provided some detail [about how we do business and what we buy, and the service used that information to refine their concept, said Stovall Citation agreed to become a design partner with the ASP, and several of Citation's purchasing employees provided input during phone calls and meetings in the service's Chicago office.

In August the first pilot tests were conducted which linked Citation's Castwell Products' Inc., a green sand iron and steel foundry in Skokie, Illinois and three other foundries with an array of suppliers. Participating from the foundry were Stovall and Castwell's purchasing manager Rod Lopez.

Rod placed the first order said Stovall and we found the system was fairly easy to use You page to the order, screen fill in the specific purchase-order details and hit the send button."

Despite what Stovall sees as the benefits of "the ASP solution," he plans to integrate it with other sites, which would offer an even broader range of options and prices.

"I think the Internet is where purchasing is going," said Stovall. "The phone system grew up with all the lines connecting to form a vast communications network with set standards. Business communication on the Internet is going to evolve the same way."

E-Business Is lust a Click Away

The following websites provide foundries with an array of e-procurement solutions for their operation.

Full service

MetalMaker, Inc.

(www.metalmaker.com)

* An application service provider that offers commerce functions and information to foundries and their suppliers. Online applications and services including catalogs, RFPs, auctions, demand collaboration and supply chain solutions for all materials (consumables, maintenance, repair and operations, and equipment) purchased by a foundry.

Catalog 

Metal Origins

(www.metalorgins.com)

* Trading site providing negotiations and catalogs for metals and alloys.

Auctions

MaterialNet

(www.materialent.com)

* Hosts reverse auctions by linking metals buyers to a network of 30 suppliers required to bid within a deadline.

Ferrous Exchange

(www.ferrousexchange.com)

* A marketplace for buyers of steel products as well as services and tools used in the steel industry. Products include finished and semi-finished steel, pig iron, billets, coated steel and bars.

Bulletin Boards and Exchanges

Coremarkets

(www.coremarkets.com)

* Marketplace for ferro-alloys and bulk ores.

MetalShopper

(www.metalshopper.com)

* A bulletin board site that lists prime and excess metal from mill producers, service centers, machine shops, fabricators and importers, Listings for aluminum, brass, copper, nickel alloys steel and steel alloys, stainless steel, titanium and secondary materials.

MetalWorld

(www.metalworld.com)

* An information-trading site that offers buy/sell/trade bulltein-board listings of copper, brass and bronze aluminum, magnesium, zinc, tin, lead, iron, steel and exotic metals. Buyers and sellers negotiate via email.

Spot Metals Online

(www.spotmetals.com)

* Offers for-sale and for bid sections posting steel aluminum and other metal products.

Metal Suppliers Online

(www.suppliersonline.com)

* A database of chemistry, mechanical and, physical properties from more than 2500 producers and service cen tars covering 17,000 ferrous and nonferrous metals Buyers search supplier catalogues or bid in auctions. The site offers a variety of metals industry utilities.