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E-business Buy Side Success at H.B. Fuller

Written By: Olin Thompson
Published On: September 11 2001

Company Issue   

H.B. Fuller (www.hbfuller.com) provides adhesive products to a variety of price sensitive markets. To stay competitive, they must continually innovate and cut costs. Because procurement represented a major expense, the company saw the need for smarter, sleeker procurement. They sought a way to increase the effectiveness of their procurement people and procedures while addressing administrative cost.

Company Problem   

Like many traditional manufacturing companies, H.B. Fuller was still using many manual and time consuming procurement processes in a digital world. Given the volume of transactions with suppliers, 20,000 purchases orders per year for direct goods, there were tremendous inefficiencies associated with faxing, paper forms, re-keying, as well as opportunities for errors.

Cutting a purchase order at H.B. Fuller North America, like at most other large companies, has typically involved many steps and numerous "hand-offs." However, because the process tends to be spread across so many people and departments throughout the enterprise, it is very difficult to understand the "fully loaded" cost of this frequent and mundane task. Typically, the true cost is underestimated. Industry averages peg the cost at between $100-$200 per purchase order. For H.B Fuller, it has been estimated that Fuller's cost per purchase order was in the range of $150.

Eliminating cost was not the only objective. James Jorde, H.B. Fuller Materials Management Manager stated, "The less time we spend pushing paper around, the more time we can think strategically about how to buy smart."

Solution   

Today, H.B. Fuller is leveraging a Private Supplier Extranet with a number of its key suppliers. H.B. Fuller first generates a purchase order in its ERP system (PRISM), where it is then "translated" and sent to the Extranet. The supplier is automatically notified of the PO via email, and then goes to the Extranet to retrieve it. Later phases will feature functionality that "pushes" the PO to the supplier and, eventually, functionality that enables the supplier to have visibility into H.B. Fuller's demand patterns to enable the supplier to produce to those forecasts on a Just-in-Time basis (vendor managed inventory). The Extranet is intended to be an interim step, prior to the ERP-to-ERP transactions to be enabled by its e-business supplier, Stratyc (www.stratyc.com).

Work is underway to define and build a direct connection from H.B. Fuller's ERP system into the backend system of one of its major suppliers as a first step to H.B. Fuller's plan to migrate most if not all of its suppliers to electronic transactions. The objective is that by the end of the year the majority of spend transactions will be in the form of ERP-to-ERP transactions. H.B. Fuller's expectations are that this will result in streamlined operations, lower costs, and fewer errors. The end result for both H.B. Fuller and its suppliers will be better information, shorter turnaround time, less manual processing, decreased holding costs and lower processing costs. The ultimate end result will be improved customer service levels, and a stronger relationship between the trading partners.

Value   

H.B. Fuller processes more than 20,000 purchase orders for direct goods each year, at an estimated fully loaded cost of $150 per. The company estimates that online procurement using the supplier extranet will eliminate at least 35% of today's tasks from the process, resulting in tremendous savings in both time and cost.

Later, when H.B. Fuller has achieved Vendor Managed Inventory, it is projected that the time spent processing purchase orders will decrease by 65%. In addition to significant savings for both H.B. Fuller and its suppliers, it will also result in a more strategic use of personnel time.

Online transactions reduce manual processing for the supplier, giving H.B. Fuller additional leverage for pricing discounts. It is estimated (conservatively) that this could result in a 3% discount on at least 10% of its purchases, translating to large overall savings potential on its single most significant expense item, directly impacting the bottom line.

H.B. Fuller's buy-side e-business applications went live in the first quarter of 2001 with payback anticipated after only 5 months. This payback period assumed a gradual supplier adoption over time. As of the summer of 2001, supplier adoption rate is on target relative to dollar volume, and this metric is doubling every month. After the initial payback period, every Purchase Order processed represents a net savings versus the previous method, translating to bottom line profit.

Future planned projects such as vendor-managed inventory (VMI) will result in added efficiencies and more strategic decisions. Fuller is committed to transforming how it does business, and recognizes that its success in this endeavor will depend on how quickly it can begin transacting online with its suppliers. This effort will be an ongoing process, but one that will have tremendous and quantifiable positive impact on bottom line results.

Lessons Learned   

Payback for an e-business project is dependent on how quickly trading partners (in this case, suppliers) are willing and/or able to adopt the new business processes and technology. To improve the success of such programs and speed return-on-investment, companies need to put in place specific programs aimed at gaining rapid adoption. The focus of these programs should be the joint savings potential that can be enjoyed by both parties. For buy side activities, working through the vendor's sales force is important, though not adequate. A program specifically targeting the VP of sales within the supplier organization is required for buy-in and timely cooperation.

The move to buy-side e-business requires investments in internal and external procedures as well as software. If H.B. Fuller had not revised internal procedures and worked with its suppliers to alter their procedures, the benefits could not have been realized.

Full integration to the ERP is key to success. Much of the benefit experienced by H.B. Fuller is the direct result of the full integration between the e-business applications and the back-end ERP system. Accurate, real-time information is able to flow via the Internet, between the ERP system and to the suppliers, for improved turnaround time and immediate issue resolution. Furthermore, it leverages the significant time and expense invested in the ERP system by allowing the data housed within to be "pushed outward" to those who need it, when they need it. As is the case for many ERP systems today, H.B. Fuller's system (PRISM)-though installed less than a decade ago- was ill-equipped to handle the new demands of e-business. Companies are then faced with the decision of scrapping the ERP and taking a large write-off, or retrofitting it for eBusiness with tools specifically designed to integrate with the ERP system ( see The "OLD ERP" Dilemma: Replace or Add-on ).

As with any project, the selection of the technology provider is key. H.B. Fuller believes the key factors of this decision include finding a supplier with knowledge of your industry and ERP systems, to ensure the solution is tailored to your specific business needs and is done right the first time. In the case of H.B. Fuller, because its technology provider (Stratyc) knew its industry and had expertise with PRISM, the solution they gained featured full integration to their existing ERP system, eliminating the need to replace it or build the integration themselves. The net result was a robust eBusiness solution, fully integrated with PRISM, in a fraction of the time it would have taken to build it in-house. There was also the added bonus of a faster ROI.

About the Author   

Olin Thompson is a frequent contributor to TEC on the subject of the Process Industry. He has over 25 years experience as an executive in the software industry with the last 17 in process industry related ERP, SCP, and e-business related segments.He can be reached at Olin@ProcessERP.com.

 
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