The Hindu Business Line : Buying right

GEOFFREY Moore in his book "Crossing the chasm" talks of how, to be accepted in the market, every technology has to pass a certain `chasm' — the stage where this technology is between the niche markets (early adopters and innovators) and the mass market (early majority plus late majority).

Market dynamics in IT has been changing continuously in the last two decades. The industry is now witnessing more demanding customers, shrinking product life-cycles, heavy price erosion and decrease in the percentage of revenue on purchased product and services. Such changes are becoming more apparent in the manufacturing industry and this has turned the focus on procurement, once considered a backwater function. Reducing procurement costs is one of the most effective ways to increase profitability as any reduction in the costs of direct or indirect material adds to the bottom line of the company, say industry watchers.

Today the industry is fast moving into the next stage — where players have to move away from just providing reverse auction services to procurement consultancy and solutions.

According to Pradeep Bahirwani, Head, Solutions and Business, Wipro 01, a manufacturing organisation spends anything between 50 and 55 paise of every rupee on purchase of direct materials. Hence the main concern of any CEO would be to look for ways to reduce this cost and optimise the procurement process in the bargain.

Any large purchase in an organisation is a complex procurement process, says Bahirwani. The process begins with identifying the requirement for the organisation and then finalising the specifications of the procurement. That is, it moves from the end-user to the purchase department which comes up with the required specifications. These are then communicated to the suppliers which is followed by discussion with the suppliers, the offerings of the suppliers and the deviations in any form from the specifications. This is again followed by the detailed negotiation phase, with the net result that companies end up wasting time and energy on these discussions.

Making it better

"This is where procurement software comes into play. It reduces the procurement time as it is almost always online,'' says Bahirwani. Wipro 01 has developed a software, procure to pay, for such transactions, he says. The company, which was into services, has now branched into consulting and solutions. "Right now, we have a couple of customers in the consulting segment and two in the solutions segment and another client in Singapore. The project is ongoing and we expect to complete the first phase in December this year," he says.

The E-Sourcing solution has been developed using SEI CMMi methodology. It has multiple layers of security and uses 128-bit encryption to prevent the misuse of logins and passwords. Moreover, the solution is modular in nature and can be easily customised to meet the specific requirements of the customers. The modules that have been developed include the revenue auction module, process to pay module, tendering module (usually for the Government and public department) and cost data management. The price for each module would be close to Rs 25 lakh and is usually given as a corporate licence with unlimited users.

The question remains as to how long can a company can survive by just providing reverse auction services to its clients. Thesolution is one of moving up the value chain but "the Indian industry lags'', says Bahirwani. However, now there is some movement. "When we started the 01market place in November 2000, we had about seven clients in the next six months and now we have about 50 clients for the year ended March 2002. Though this has been the trend, the industry acceptance is still not much and the industry is lagging much behind as compared to the developed countries."

Bahirwani feels that for this kind of venture to be sustainable, there are two aspects that have to be catered to: one is the customer side and the other the supplier. "We have to cater to both these sides without any bias as suppliers are also as important as the customers'' he says. However, the focus on customers will be more of controlling revenue and controlling cost. "Cost sensitivity is coming in,'' he says. It has become a matter of concern especially since the IT industry has been witnessing a downtrend, he says.

"Companies are turning towards cost control. With e-procurement, companies are finding it easier to cut cost by reducing inefficiency. "It is basically more of tightening the belt but it should be noted that costs are cut from both the customer as also the supplier end and the axe does not fall on any single side,'' says Bahirwani.

E-sourcing is emerging as an effective procurement tool for organisations since the present business environment is exerting intense pressure to cut costs, he says.

rsavitha@hotmail.com

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Up hill and down dale

On the job, looking for one

People make the difference

Buying right

Illegal function

Defragmentation hitch

Got the staying power?

Single window serves best

Future vision Future...

All that e-glitters...

Quiz

Cartoon