|
|
Recall from E-Business the rapid movement toward electronic document interchange (EDI) to improve the business processes between two organizations exchanging goods. The PtoP process is the primary candidate for EDI in major organizations (although they certainly may use this technology in the Order-to-Cash process as well). As noted in Technology Application 12.1, several major companies have implemented EDI systems into the PtoP process, resulting in significant cost savings. An increasing trend among some of these major companies is to require all vendors to use EDI in their business processes with the company. |
TECHNOLOGY APPLICATION 12.1
Uses of Electronic Data Interchange for the PtoP Process
Case 1
Kaiser Permanente of Southern California is a pioneer in trying to cut medical costs. One more way to do that is through the accounts payable and cash disbursements process. The Southern California region alone processes more than 1 million invoices and 800,000 claims with over 500,000 payments. A small cut in the cost of processing each transaction adds up quickly. The solution was to move to EDI for its patient care providers—both inside and outside the managed care program. Kaiser implemented the ANSI X12 837 healthcare claims standard specifically designed for the detailed health care information required for claims processing. In cases where the provider only accepts a check, check processing has been outsourced at a savings of 35%–40%. For vendors who accept electronic funds transfers (EFT), the savings are even greater.
Case 2
John Hancock Mutual Life Insurance Co. spent $337 million in 1997 on supplies needed to run its business. Only 8% of these purchases went through the central purchasing department, though. The result was huge cost compared to prices that could have been negotiated on bulk purchases. Armed with a new intranet system, Hancock Mutual now processes 85% of those purchases through central processing while maintaining zero growth in staffing of the purchasing department. The key is to run all small ticket items such as office supplies and business cards through central purchasing along with big ticket items such as personal computers and contract labor. Employees simply point and click to select items from the intranet Web page displaying available goods and services. Orders route through an automatic electronic approval process based on the individual’s purchasing privileges. Authorized purchases are transferred electronically to central purchasing. Another key to the system is that the intranet is also integrated into the enterprise system to make sure orders pass through back-end processing and to facilitate payment through the EDI system, which further minimizes transaction costs.
Case 3
Cummins Engine Co. is a leader in using EDI to make advances in global markets to sell its products. It shouldn’t come as a big surprise that Cummins also uses EDI extensively to make its own purchases, since the same economies are garnered on both sides of the transaction. The company has found on average that suppliers receive their orders two to three days earlier than they would under the old process. Additionally, the electronic form of the order generally triggers a faster response by the supplier because any manual data entry steps are generally avoided. These small changes in timing allow for more efficient inventory and supplies management, while also providing major costs savings in processing purchases.
Sources: Sharon Watson, “Kaiser Taking Advantage of EDI to Process Claims Online,” Computerworld (August 8, 1997); Carol Sliwa, “Purchasing Via Web to Save Big Bucks,” Computerworld (July 20, 1998): 1, 14; Suruchi Mohan, “Engine Manufacturer Cuts Costs Worldwide,” Infoworld(April 6, 1998).
|
|
You may also recall in E-Business that we discussed the emergence of electronic marketplaces that create a more competitive purchasing market. The introduction of these marketplaces into the business processes of major business organizations is usually the Purchase-to-Pay process. Accordingly, we explore several examples of such marketplaces arising in certain industries as described in Technology Application 12.2. Recall from E-Business, however, that there are many risks also involved in the move towards electronic marketplaces that may limit success in the short-term. |
TECHNOLOGY APPLICATION 12.2
Uses of B2B Marketplaces for the PtoP Process
Case 1
A trend in the B2B electronic marketplaces environment has been a move toward consolidation of the numerous marketplaces that popped up quickly in the early 2000s. One example is the merger between MyAircraft and AirNewco—two early entrants into the electronic marketplaces for supplying aviation-related supplies and materials. MyAircraft was a joint venture by supplier organizations such as United Technologies Corp., Honeywell International, Inc. (which at the time of this writing is in the process of merging with General Electric), and BF Goodrich Co. On the other hand, AirNewco was a joint venture by buyer organizations, including eight major international airlines and the United Parcel Service of America, Inc. The result of the merger is a single major exchange that represents the interests of both suppliers and buyers.
Case 2
In one of the earliest major marketplaces to arise, Covisint quickly gained the attention of the Federal Trade Commission (FTC) for possible limitations on fair trade. Covisint is a joint venture of the Big Three U.S. automakers and so has the potential to change radically the pricing and partnering structures of the three automakers with numerous automotive parts suppliers. The FTC ultimately gave its blessings to the new electronic marketplace in September 2000 after apparently recognizing the enormous cost savings and efficiencies that would likely result from such a venture through sharply reduced sales and distributions costs and through streamlining of purchasing operations at the automakers.
Case 3
An alternative to the creation of a public electronic marketplace such as Covisint is the creation of a private network such as the approach used by Toyota Motor Sales USA Inc. Toyota hopes to decrease about $175 million from inventory levels (roughly 50%) by using a private electronic marketplace to replenish necessary automotive parts supplies from its established suppliers. The reduction in inventory may save $30 million per year once the exchange is operating fully. Toyota is not the only company turning to private exchanges with their own supplier networks. While there are an estimated 600 planned or operating public electronic exchanges, about 30,000 such private exchanges are planned. These exchanges may link as few as a half-dozen suppliers in some cases, but are still expected to provide most of the benefits of larger public exchanges without many of the risks.
Sources: Todd R. Weiss, “Two Aviation Industry B2B Marketplaces Agree to Merge,” Computerworld Online (October 26, 2000); John R. Wilke, “Green Light Is Likely for Auto-Parts Site,” The Wall Street Journal (September 11, 2000): A3; Steve Ulfelder, Members Only Exchanges—Building a Private Business-to-Business Exchange Has its Benefits—and Challenges,” Computerworld Online (October 23, 2000).
- 3556 reads
