Review of Commerce One Helps Eastman Chemical Make Procurement a Strategic Advantage

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Case History Review

Title: Commerce One Helps Eastman Chemical Make Procurement a Strategic Advantage

Company: Eastman Chemical Company, Inc., Kingsport, TN, (Headquarters)

Case History Source: http://www.commerceone.com/customers/ATT64846.htm

Case History Author(s): AberdeenGroup, Inc., funded by Commerce One, Inc.

Application: Using a central Market site purchasing portal to control leakage (off contract buying) on Maintenance, Repair, and Operating (MRO) supply Volume Purchasing Agreements.

As-Is Process: Eastman initially attempted to automate the requisition process for MRO purchases by channeling purchase requests through SAP R/2. Although this solution improved control over MRO purchases, that control came at a high cost. Orders routed in this manner often required approval/intervention by a procurement professional, cost an average of $115 to administer, and took approximately 19 days to fulfill from order request through product delivery. Such costs made SAP R/2 impractical for use with low-dollar orders, which
accounted for the bulk of Eastman Chemical's purchase transactions. In fact, Eastman reports that purchases of $1,000 or less represent more than 85% of its MRO transactions - but only 3% of its MRO expenditures.
As a result, Eastman supplemented its SAP R/2-based procurement process with a strategy that enabled frontline employees (or "requisitioners") to place orders of $2,000 or less with suppliers directly using a corporate procurement card. All purchases were loaded into the SAP R/2 system to complete the payment cycle. Individual requisitioners were responsible for reconciling orders with their purchasing card statements at the end of the month.
This corporate procurement card program reduced the level of effort required by procurement and accounts payable personnel to support low-dollar transactions. However, the process did little to encourage the use of Eastman's preferred suppliers or compliance with corporate contracts. The project team's review revealed that many requisitioners were using procurement cards to order directly from local, non-contracted suppliers. For office supplies alone, Eastman found that as many as half of its purchases were off-contract. This high incidence of maverick purchases limited the amount of business Eastman transacted with its primary suppliers, reducing the company's negotiation leverage and, in some instances, resulting in higher prices.

To-Be Process: Eastman established rules within Commerce One BuySite to:

automatically translate any purchase requests below $2,000 into formal purchase orders (POs). These POs are automatically transmitted over the Internet to Commerce One MarketSite. In this scenario, MarketSite acts as a transaction hub, managing the delivery of orders and other communications to the appropriate Eastman supplier in the specific communication protocol and format that each supplier has requested.

Eastman established system-to-system interfaces between BuySite and Eastman's internal procurement card system, which, in turn, passes this information to SAP R/2 for account distribution. All orders generated in BuySite create records in Eastman's procurement card system and R/2 to manage payment. However, the company continues to manage invoice reconciliation manually by requiring that requisitioners match invoices to line items on their procurement card statement each month. Eastman is currently evaluating whether to enable BuySite functionality that automates the invoice-matching process.

To-Be Technology:

Commerce One BuySiteTM Electronic Procurement Application for supplier content, and,

Commerce One MarketSiteTM B to B Marketplace Portal for transaction-management and value-added services

How-To Process: Eastman worked with Andersen Consulting to develop the business case for Internet Procurement and identify the solution providers that were best capable of supporting Eastman's unique business requirements.
Commerce One has handled much of the grunt work required for catalog management. Suppliers distributed catalog content (and any subsequent updates) to Commerce One MarketSite, where the information was rationalized, categorized, and normalized. Eastman Chemical downloaded this "cleansed" catalog content and, after offline testing, loaded the data into an internally hosted master catalog.
After completing a brief, Web-based training course developed by Commerce One, Eastman employees were able to access Commerce One BuySite to search this aggregated master catalog using a keyword, manufacturer name, manufacturer's part number, internal Eastman part number, or hierarchical product/attribute category.
With assistance from Andersen Consulting and Commerce One, Eastman was able to get the Commerce One Solution into production in relatively short order, moving from project inception to pilot in four months.
In January 1999, the company began conducting transactions through the system in a limited pilot that included 50 requisitioners at its Kingsport, TN, headquarters and a customized version of the office supply distributor's catalog containing 18,000 of Eastman's most commonly ordered office supply products. By July, Eastman had extended access to 700 requisitioners across its four U.S. sites and had enabled a customized version of VWR's catalog containing 250,000 items. However, the company made an internal decision to restrict access to the office supplies catalog - at least in the
short term - to the Kingsport site, where the bulk of the company's office supply purchases initiate.

ROI: All told, Eastman realized a 126% return on investment (ROI) on the Commerce One Solution in just 10 months. The main monitary returns were:

Lowered administration costs - Eastman did not assign a hard dollar measurement to the cost of processing purchase orders through the Commerce One Solution; however, since implementing the solution, the company has been able to eliminate two full-time employees (FTEs) in the purchasing department (through attrition), netting an estimated annual savings of $100,000. Eastman expects additional FTE reductions (or reassignments) in its purchasing, receiving, and accounts payable departments.

Improved inventory practices - Since implementing the Commerce Chain Solution, Eastman has been able to reduce inventories of lab supplies, for total savings of $250,000. (Eastman did not stock inventory for office supplies.) The company expects further inventory gains through its supply channel initiative.

Aberdeen believes these estimates are conservative in that they include all product fees, as well as implementation and other services provided by Commerce One.

Other Benefits: Other Benefits to Client:

Material price reductions - Through the use of Commerce One BuySite, Eastman was able to realize a 5% reduction in prices paid for office supplies by bringing more purchases onto contract, taking advantage of existing volume price discounts, and reducing the supplier's order processing costs through MarketSite.net. Eastman expects to achieve similar material price reductions with VWR; however, the company had not validated such benefits at the time of Aberdeen's review.

Shortened order cycles - Eastman reduced order cycles - from request through fulfillment - from a week or more to 24 hours on critical commodities and 48 hours on most other items.

Rating:

Editor's Choice

Comments: A well documented example of using a web e-commerce portal to control maverick, off-contract purchases, while simplifying the interface to the suppliers.

Company Contact: Not Available

Technology Contacts: Eirik Prosser, Manager of PSR Group, Commerce One, Inc., 1600 Riviera Avenue, Suite 200, Walnut Creek, CA 94596 U.S.A., Ph: 1-800-308-3838 or 925-941-4586, F: 925-941-6060, Email: eirik.prosser@commerceone.com

Title:	Commerce One Helps Eastman Chemical Make Procurement a Strategic Advantage
Company:	Eastman Chemical Company, Inc., Kingsport, TN, (Headquarters)
Case History Source:	http://www.commerceone.com/customers/ATT64846.htm
Case History Author(s):	AberdeenGroup, Inc., funded by Commerce One, Inc.
Application:	Using a central Market site purchasing portal to control leakage (off contract buying) on Maintenance, Repair, and Operating (MRO) supply Volume Purchasing Agreements.
As-Is Process:	Eastman initially attempted to automate the requisition process for MRO purchases by channeling purchase requests through SAP R/2. Although this solution improved control over MRO purchases, that control came at a high cost. Orders routed in this manner often required approval/intervention by a procurement professional, cost an average of $115 to administer, and took approximately 19 days to fulfill from order request through product delivery. Such costs made SAP R/2 impractical for use with low-dollar orders, which accounted for the bulk of Eastman Chemical's purchase transactions. In fact, Eastman reports that purchases of $1,000 or less represent more than 85% of its MRO transactions - but only 3% of its MRO expenditures. As a result, Eastman supplemented its SAP R/2-based procurement process with a strategy that enabled frontline employees (or "requisitioners") to place orders of $2,000 or less with suppliers directly using a corporate procurement card. All purchases were loaded into the SAP R/2 system to complete the payment cycle. Individual requisitioners were responsible for reconciling orders with their purchasing card statements at the end of the month. This corporate procurement card program reduced the level of effort required by procurement and accounts payable personnel to support low-dollar transactions. However, the process did little to encourage the use of Eastman's preferred suppliers or compliance with corporate contracts. The project team's review revealed that many requisitioners were using procurement cards to order directly from local, non-contracted suppliers. For office supplies alone, Eastman found that as many as half of its purchases were off-contract. This high incidence of maverick purchases limited the amount of business Eastman transacted with its primary suppliers, reducing the company's negotiation leverage and, in some instances, resulting in higher prices.
To-Be Process:	Eastman established rules within Commerce One BuySite to: automatically translate any purchase requests below $2,000 into formal purchase orders (POs). These POs are automatically transmitted over the Internet to Commerce One MarketSite. In this scenario, MarketSite acts as a transaction hub, managing the delivery of orders and other communications to the appropriate Eastman supplier in the specific communication protocol and format that each supplier has requested. Eastman established system-to-system interfaces between BuySite and Eastman's internal procurement card system, which, in turn, passes this information to SAP R/2 for account distribution. All orders generated in BuySite create records in Eastman's procurement card system and R/2 to manage payment. However, the company continues to manage invoice reconciliation manually by requiring that requisitioners match invoices to line items on their procurement card statement each month. Eastman is currently evaluating whether to enable BuySite functionality that automates the invoice-matching process.
To-Be Technology:	Commerce One BuySiteTM Electronic Procurement Application for supplier content, and, Commerce One MarketSiteTM B to B Marketplace Portal for transaction-management and value-added services
How-To Process:	Eastman worked with Andersen Consulting to develop the business case for Internet Procurement and identify the solution providers that were best capable of supporting Eastman's unique business requirements. Commerce One has handled much of the grunt work required for catalog management. Suppliers distributed catalog content (and any subsequent updates) to Commerce One MarketSite, where the information was rationalized, categorized, and normalized. Eastman Chemical downloaded this "cleansed" catalog content and, after offline testing, loaded the data into an internally hosted master catalog. After completing a brief, Web-based training course developed by Commerce One, Eastman employees were able to access Commerce One BuySite to search this aggregated master catalog using a keyword, manufacturer name, manufacturer's part number, internal Eastman part number, or hierarchical product/attribute category. With assistance from Andersen Consulting and Commerce One, Eastman was able to get the Commerce One Solution into production in relatively short order, moving from project inception to pilot in four months. In January 1999, the company began conducting transactions through the system in a limited pilot that included 50 requisitioners at its Kingsport, TN, headquarters and a customized version of the office supply distributor's catalog containing 18,000 of Eastman's most commonly ordered office supply products. By July, Eastman had extended access to 700 requisitioners across its four U.S. sites and had enabled a customized version of VWR's catalog containing 250,000 items. However, the company made an internal decision to restrict access to the office supplies catalog - at least in the short term - to the Kingsport site, where the bulk of the company's office supply purchases initiate.
ROI:	All told, Eastman realized a 126% return on investment (ROI) on the Commerce One Solution in just 10 months. The main monitary returns were: Lowered administration costs - Eastman did not assign a hard dollar measurement to the cost of processing purchase orders through the Commerce One Solution; however, since implementing the solution, the company has been able to eliminate two full-time employees (FTEs) in the purchasing department (through attrition), netting an estimated annual savings of $100,000. Eastman expects additional FTE reductions (or reassignments) in its purchasing, receiving, and accounts payable departments. Improved inventory practices - Since implementing the Commerce Chain Solution, Eastman has been able to reduce inventories of lab supplies, for total savings of $250,000. (Eastman did not stock inventory for office supplies.) The company expects further inventory gains through its supply channel initiative. Aberdeen believes these estimates are conservative in that they include all product fees, as well as implementation and other services provided by Commerce One.
Other Benefits:	Other Benefits to Client: Material price reductions - Through the use of Commerce One BuySite, Eastman was able to realize a 5% reduction in prices paid for office supplies by bringing more purchases onto contract, taking advantage of existing volume price discounts, and reducing the supplier's order processing costs through MarketSite.net. Eastman expects to achieve similar material price reductions with VWR; however, the company had not validated such benefits at the time of Aberdeen's review. Shortened order cycles - Eastman reduced order cycles - from request through fulfillment - from a week or more to 24 hours on critical commodities and 48 hours on most other items.
Rating:	Editor's Choice
Comments:	A well documented example of using a web e-commerce portal to control maverick, off-contract purchases, while simplifying the interface to the suppliers.
Company Contact:	Not Available
Technology Contacts:	Eirik Prosser, Manager of PSR Group, Commerce One, Inc., 1600 Riviera Avenue, Suite 200, Walnut Creek, CA 94596 U.S.A., Ph: 1-800-308-3838 or 925-941-4586, F: 925-941-6060, Email: eirik.prosser@commerceone.com