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
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.
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.
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."
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).
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.
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.
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.
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.
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.
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.
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.
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.
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 ).
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.
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.