If you're an industrial distributor and still have no Internet-based or direct-connect, e-commerce selling system, you are well behind the times. You're also in the majority. According to several studies, fully enabled e-procurement is available from only eight percent of industrial distributors. Other industries, like retail and electrical distribution, have higher percentages but remain under 15 percent across the board.

Without question, a key measure of success will be the distributor's ability to prove overall savings to the customer. In the case of e-procurement, that means being more automated and having the ability to service customer locations with standardized product listings.

A lot of questions remain about standards, disparate technologies and languages, and costs. Software and application service providers found that many small- and medium-sized distributors could not afford to buy systems that may or may not answer all their needs.

Sellers – and customers — argue that the face of the business is moving toward e-commerce and other automated, interactive programs and away from the telephone and fax machine. Industrial buyers are insisting on more automated choices from suppliers, big and small. Distributors must make a choice: either join the fray in e-commerce or expect to eventually become obsolete.

According to Sue Eckel, director of e-procurement for AMETEK, Inc., her buyers are looking for an edge to save money, reduce bureaucracy and get more value from what they spend. Buyers at the company, which makes electronic instruments and electric motors, are no longer looking primarily at the piece price of a product as the benchmark, Eckel says.

The total cost of goods and services is a set of figures scrutinized by the shrewd eyes of professional buyers. By the fall of 2002, nearly all of AMETEK's plants were tied into a centralized, automated procurement system based on Oracle Corp.'s 11i architecture.

"About two years ago, we decided to consolidate our operations. They were very decentralized, costing far more than any savings we could achieve by normal buying methods," Eckel says.

Many plants – the company has 33 of its 37 on the centralized, automated procurement system – were previously buying with no attempt to consolidate order quantities, violating a basic buying policy, she says. So the company put a major spending and labor effort behind a total rebuilding of its purchasing environment.

The company's growth plan includes acquisitions, alliances, and operational excellence. As part of the latter, purchasing executives put in place a strategic process centralization plan in 2000.

The motor plants use more traditional, standard MRO products to service their facilities and production equipment. The electronic instrument plants are more diverse in their needs. Because MRO buying is by nature more unstructured than direct materials buying, needs are more complex to predict and subject to more emergencies.

Putting in an e-procurement system starts with goals, Eckel says. Two years ago, the company had 10,000 suppliers. As a purchasing organization, Eckel's department had to begin showing significant procurement savings. The company currently connects directly to seven suppliers, six of which are distributors.

"We began by taking a snapshot of the amount of purchases for indirect materials and slicing that into categories," she says.

She and her colleagues then decided which category to aggregate. Next, they went after the best national contract total cost. Where the rubber meets the road for distributors – and the point at which many of them must bow out – is the ability to directly connect databases with her automated system, Eckel says.

"We have been lucky in that the people that we have wanted to work with have been able to work with us," she says. "Most importantly, we now have standard purchased items across some 33 sites, where in the past we may have had similar items under several different part numbers."

According to Eckel, the company's investment in e-procurement allowed it to consolidate buying and save money in areas managers didn't know about. In some cases, products were so closely related that they were virtually interchangeable.

"Standard description means we can buy at the right quantity nationally," she says. "We didn't know enough about our own information to know we used a part in many places, but under several different descriptions."

One of AMETEK's direct-system suppliers is MSC Industrial Direct Co., Inc. Through its Oracle 11i interface, AMETEK "punches out" to MSCdirect.com, meaning that the purchasing department connects to the distributor through its computer interface, selecting items to buy from a tailored catalog. The order returns electronically to the Oracle system to apply a purchase order number and get approvals, if necessary.

While that isn't the only use of the automated procurement systems, it is the most important. MSC's director of customer solutions, Julie Tilenius, works with customers to find ways to streamline their procurement processes. MSC can accommodate direct purchasing using Ariba, Commerce One, Oracle and SAP, among others.

"We have several companies, particularly within the Fortune 1000, who have invested in e-procurement and must get a return on their investment. Our national accounts team works with customers to begin the integration process," Tilenius says.

MSC will set up a platform in order to meet a customer's needs. Direct systems automate the process and allow customers to track their MRO spend and control maverick buyers more closely than in the past, she says.

"Each customer represents a unique opportunity," Tilenius says, noting that uniqueness is also part of the challenge distributors face when setting up integrations to the various platforms.

"You would like to think of integrations as being standard, but they really aren't," she says. "Each setup is a little different. You can't say there is a 'standard' direct procurement customer model."

Kaman Industrial Technologies recently enhanced its Internet system to enable integration with enterprise procurement systems like Ariba, Commerce One and SAP. Brian Lombardo, director of eBusiness for the Windsor, Conn.-based distributor, says that these proprietary systems are fast becoming the entry to doing business with national contract customers.

Customers using e-procurement systems can contact Kaman directly online to check inventory, order status, or shipment status, and to place orders.

"Companies are investing in e-procurement as a means to reduce costs associated with inefficient processes and errors that cause delays and cost money," Lombardo says.

An important aspect of Kaman's system is that it uses the company's centralized business system as a starting point for item numbers and customer-specific pricing, Lombardo says. That information is stored in the company's legacy software system and continues to be updated there. Real-time answers to customer inquiries come directly from that source.

When the process is done electronically using direct e-procurement, through the entire purchasing/shipping/billing cycle, external errors are eliminated, or greatly reduced, Lombardo says. In addition, customers are less likely to duplicate their buy because they see their orders instantly.

"Our customers are able to realize significant savings by using the same information gained from our site … through the entire purchasing/billing cycle," he says.

The integration platform, by WebMethods, allowed Kaman to begin trading with new customers almost immediately, he says. And, direct procurement increases the efficiency of customer service programs immediately because standard sets are employed wherever the national contract has effect. It takes discipline in the purchasing process and flexibility on the part of the distributor.

Sony Corp. is on the leading edge of refining procurement systems for efficiency, speed and accuracy. The Sony Master of Arts Procurement System was designed to help manage the MRO buy for four Sony businesses on the campus of the Sony Technology Center-Pittsburgh, at Mt. Pleasant, Pa., and at the San Diego, Calif., facility. Beverly Bortz is a resource leader for Site MRO Purchasing at STC-P.

Site MRO Purchasing was formed about three years ago to strategically consolidate commodity purchasing, Bortz says. The reasons for its development closely resemble those of AMETEK: to protect contract leakage and assist internal customers with budget management through automation, which frees purchasers to pursue other tasks. The system is based on Ariba Buyer.

"Now, buyers can spend more time negotiating contracts and aggregate-buy pricing, rather than spending valuable time on the phone or placing fax orders," Bortz says.

Buyers don't see orders for contract items that are in the standard catalog, saving a lot of time. Suppliers interface with the system using a standard Internet browser. However, Sony puts a strong emphasis on the distributor's technical expertise and capabilities.

"Our distributors help identify duplications and point out possible savings. On a quarterly basis, we meet with distributors for detailed reports about savings and other issues," Bortz says.

Sony's system is connected to the electronic catalogs of several distributors and manufacturers including Grainger, xpedx, Stauffer Glove & Safety and Boise/Cascade, and plans to add Applied Industrial Technologies and VWR International.

STC-P reduced vendors in the commodity segments they have reworked by 50 to 60 percent. The natural process was to work on the segments with the highest dollar volume first, then work down, Bortz says. The facility is also participating in an increasing number of online reverse auctions. They level the vendor playing field by offering a Q&A board for suppliers to ask questions and by supplying contract criteria, capabilities and other criteria that all bidders can see up front.

"Supplier relationships are extremely important to us and we spend lots of time on communication and understanding their concerns about the process," Bortz says.

Electronic procurement of indirect materials is becoming a supplier-oriented business, and suppliers are "thrilled with it," Bortz says. The use of electronic catalogs ensures better compliance with the contract, resulting in supplier and buyer satisfaction, she adds.

"Everyone involved in these procedures wins," she says. "Buyers can do more strategic planning and suppliers are involved without incurring large, new costs. After all, the costs would eventually have to come back to us – the customer."