Wheres your e-catalog?

Thats what Pharmacia & Upjohn asked suppliers in an effort to take costs out of the procurement process. A handful of distributors are now set up to accept orders via the Internet. And the list is growing.

by Richard Vurva

Seventy percent of the things we buy on purchase orders are under $1,000, says Robert Stoops, procurement and auditing manager for Pharmacia & Upjohn in Kalamazoo, Mich. We cant afford to have traditional legacy systems and the associated costs to buy nuts and bolts.

Thats the dilemma the pharmaceutical maker faced in 1996 when it started to look at ways to revamp its procurement processes. One of the solutions was to develop an electronic mall, or Procurement Marketplace, on the companys intranet. Any Pharmacia & Upjohn employee who needs to locate and purchase lab supplies, shipping supplies, office products, laboratory and chemical supplies, PVF and power transmission products can do so with a few simple keystrokes and mouse clicks.

Theres no need to fill out a purchase order. Theres no reason to call purchasing and get bogged down with filling out requisitions. Instead of trying to verify over the phone that, yes, he needs a 3-foot long section of half-inch calcium silicate pipe insulation, not three-quarter-inch, the mechanic can check the specifications himself and make sure hes ordering the right part.

This is the best of all worlds, Stoops says. The supplier saves a significant portion of their order entry cost and we save a significant portion of our purchase order costs.

Stoops says Pharmacia & Upjohns cost per p.o. (just to requisition, receive and pay for an order) drops from $50 to $3 using the Internet. This doesnt transfer work and costs, it eliminates it for both parties, he says.

Stoops adds that the effort is in line with Pharmacia & Upjohn CEO Fred Hassans initiatives focusing on innovation, streamlining and effectiveness.

Suppliers meet the challenge
VWR Scientific Products Corporation, a distributor of laboratory supplies, chemicals and equipment, and Unisource Worldwide, a distributor of stretch film and other packaging materials, were the first companies to go on-line at P&U in 1996. Other distributors recently added to the system were power transmission distributor Applied Industrial Technologies and the Bertsch Company, a pipe, valves and fittings distributor.

I envision this mall of 15 companies comprising a significant portion of our transactions, Stoops says.

James Gunderson, director of marketing and sales in Michigan for Unisource, says about 50 percent of its sales to P&U are directed via the electronic mall. (For a demonstration of how the system works, point your web browser to www.unisourcewwi.com, click on ordering catalog and click again on demo catalog.)

Pharmacia & Upjohn was the first Unisource customer to request an electronic catalog. After setting up a server to handle the system, Gunderson says hes now marketing the service to other customers.

Were processing 1,000 transactions a month from this server, he says. It represents more than $1 million in sales to a half-dozen customers with custom databases.

The site Unisource built for P&U maintains about 200 items. Products P&U currently buys from Unisource are identified by a P&U logo. By tagging the items they buy, a user can go right to what hes been using, yet he can still see a broader range of whats available, Gunderson says.

Start small, then build
Gunderson says its possible for a distributor to set up a custom catalog with ordering capabilities with an investment of between $10,000 and $20,000.

If you want to see a much larger range of products and you needed a full electronic catalog where customers could buy anything available, youre talking about a big project, he says. Gunderson estimates that Unisource spent about $25,000 to develop an order basket system that allows customers to select and order products and another $25,000 to develop a custom database, complete with scanned images of products and specifications that customers can browse.

If the manufacturers you represent are on the Internet, you can link to the manufacturers site, he says. Such links, Gunderson says, make the most sense because they place the product specifications on the manufacturers system instead of on the distributors server.

If I have duplicate data on my server, and so does every other distributor in the United States, it represents a lot of waste, Gunderson says. Product specifications need to be at the originating point, which is the manufacturer. The custom database (what the customer buys) should be on the distributors server.

Gunderson says the Unisource e-catalog is not yet linked to its legacy system. The back-end connection can be done in stages, he says. You dont have to do it all at one time. Some of the larger expenses can be done later, when youve proved the concept.

Rick Waters, vice president of the Western Michigan region of the Bertsch Company, says his company began a pilot test of its e-catalog with Pharmacia & Upjohn on December 1, 1998.

He says the system will give approved customers real-time access to Bertschs system.

Theyll basically be acting as one of our inside salespeople, he says. They can look at account status, inventory status, pricing, delivery and back orders. They can jump to products we represent and look at vendors we support.

Bertsch utilized its legacy system vendor, NxTrend Technologies, for help in developing the system, which Waters estimates took about three months to complete.

We wanted something that would be very customer-friendly but at the same time interface with our existing system, he says.

Waters anticipates the system will have a positive impact in reducing order entry errors and returns. Adds Stoops, Returns are the absolute most expensive transaction both we and the supplier bear. This helps us reduce returns because were more likely ordering the right thing the first time.

In addition to the pilot system under test with P&U, Bertsch has already set up similar custom e-catalogs with two other customers.

This isnt going to be for everyone, Waters says. The thing with any of these progressive efforts is the willingness of people at the top to make a change.

Gunderson agrees that top-level commitment from a customer is necessary before a distributor should go to the trouble and expense of trying to market an electronic catalog. Its unlikely that youll sell the concept of an electronic catalog to customers with a traditional bid/buy mentality, Gunderson says. Most companies where this works have a champion that can see the larger picture of total cost and the gumption to get it done, he says.

This article originally appeared in the January/February 1999 issue of Progressive Distributor. Copyright 1999.

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