Internet sales help cut cost of materials orders

TI Group, the global specialised engineering group, has selected the Ariba B2B Commerce Platform to help cut spending on indirect materials – such as stationary and packaging – in Europe and the US.

The move will involve annual spending of up to £150m, and is expected to generate savings of up to 5% on purchasing within 18 months.

But moves to source direct materials via the web (supplies used as components and materials within TI products) are at least two years away. These now cost about £1bn per year, and about 25% of this value – the commodity components – could be sourced via internet bids.

`There’s been a lot of talk of the threat of e-economy to so-called old economy business, but for us it shows a tremendous opportunity,’ said a TI spokesman at the group’s London HQ.

Savings from internet sourcing of direct supplies could be as high as 10% according to independent analysts, mainly by finding new low-cost suppliers through `reverse auctions’.

The deal with Ariba will apply mainly to commodity purchases. For example, if TI wants to procure two million paperclips, it would publicise that on an industry portal site. It would then specify a timeframe, say one hour between 3-4pm on a given day, when any company can bid for that business.

Suppliers register their bids, and the lowest cost bidder wins. Typically though, a new lowest-cost supplier could win only a part of the contract, say a third, thus minimising risk to the purchaser from an untried supplier.

`These systems also eliminate waste from `rogue purchasing’, TI’s spokesman said. The Ariba system allows people to order commodity supplies from their desktop directly through the main group web-based supply chain or to preferred suppliers, thus taking advantage of bulk purchasing deals, rather than taking more expensive options locally. This is of particular interest to companies such as TI, which employs 40,000 people at 450 sites in over 40 countries.

The Ariba platform – which is used by 20 of the Fortune 100 biggest US companies – interfaces with the open Ariba Commerce Services Network, including auctions and reverse auctions, electronic payments, logistics, supplier enablement and content services, streamlined transaction routing services and information and analysis services.

Ariba has recently signed similar agreements with BMW, Bank of America, Kraft, Unilever and Dana Corporation.

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