Module 1 - Case STRATEGIC PURCHASING MANAGEMENT Assignment Overview Review the following article from Purchasing.com. Hannon, D. (2008). P&G uses Gillette deal to draft the blueprint for post-merg

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Chem ical Buyers: Heed caution signs on road to e-sourcing

Supplier relationships, compliance issues take center stage w hen buying chemicals online.

By Rich Weissman -- Purchasing, 4/10/2008 2:00:00 AM

While e-sourcing has found its way into nearly ever y spend area imaginable today, buying chemicals onl ine requires significantly more attention than most spend

areas. A buyer's need for detailed product specific ations and regulatory compliance information often outpaces the need for speed in sourcing chemicals, and further

emphasizes the need for strong supplier relationshi ps.

Larry Giunipero, the ISM Professor of Purchasing an d Supply Management at Florida State University in Tallahassee sees compliance as the major bottleneck in

easily purchasing chemicals online. "There is an el ement of control in the chemical purchase that may not be so prevalent in other online purchases," says Giunipero.

"Buyers have to be concerned with material safety d ata sheets (MSDS), hazmat issues, and even DOT regu lations for the transportation and storage of chemicals."

As a result, the direct buyer-supplier relationship is even more important when e-sourcing chemicals. "You need to be sure you're dealing with credible, safe,

suppliers that offer end-to-end process controls an d that is why I advocate a direct relationship with chemical suppliers," says Giunipero. "Third partie s, or direct

purchases from supplier websites, may not offer the control that you need to meet compliance issues."

That said, Giunipero sees a steady increase in e-so urcing overall, especially from the younger generation of procurement professionals, which will undoub tedly find its

way to the chemicals market. "While more and more b uyers are gaining comfort in buying online, I see younger buyers really embracing online applications and that

trend will continue to grow," says Giunipero, point ing out that there may be issues around smaller com panies buying online as they tend to depend on supplier sites,

third parties, and procurement cards rather than ap plications such as ERP and spend-management tools. "Smaller companies may be at a disadvantage in online

procurement and that would especially translate int o their online chemical purchases."

The distributor's role

Chemical distributors are continuing to carve out their own niche in the e-sourcing universe. "The bus iness relationship with the customer is the most important part of

the sale," says Chris Jahn, the president of the Ar lington, Va.-based National Association of Chemical Distributors. "Chemical distribution is complex, and while we

see an increase in online transactions, the process is not as simple as buying a book, office supplies or CD online."

And it's that complexity that can give distributors an increased role in e-sourcing, Jahn says, noting that online transactions are a good way to strengt hen a business

relationship with a chemical distributor. "Chemical distributors play a significant role in supporting the customer in both a technical and business leve l, and especially

with online transactions."

Jahn sees the value in the chemical distribution pr ocess as one of managing compliance, regulation, an d risk. He notes that chemicals are coming from around the

world and it is important to have a strong relation ship with the company supplying the product. "Are y ou really buying what you think you are buying?" asks Jahn.

Buyers' view

Buyers have their own view of e-sourcing of chemica ls and it's a cautious one. "I have found that procuring most chemicals is a very volatile operation d ue to the huge

amount of liability put on both supplier and buyer, " says Karl Harward, a purchasing and contracts man ager for the City of Salt Lake City. "I would not recommend

procuring chemicals online unless the buyer has a l ong-term contract and relationship in place."

Harward recommends establishing long-term contracts with chemical suppliers that would allow for negotiated items such as product quality, price, freight and

delivery costs, specialized insurance and any other related product requirements. Harward sees a compe titive landscape of chemical suppliers willing to negotiate if

responding to a formal bid or contract proposal, bu t less so in responding to spot purchases online.

"The chemical buy is very complex, which really imp acts the online sourcing process," says Harward.

Scott Egdahl, a strategic sourcing buyer with Bosto n University warns chemical buyers about an occasio nal lack of accuracy and process controls buying chemicals

online can bring. "Purchasing chemicals online is a n important part of our procurement process and gre atly adds to efficiency, but we often have issues with the

accuracy of transactional information [when buying online]," says Egdahl. "I realize that there are a lot of line items to manage that often need to refl ect accurate and

up-to-date information, but I find I spend a lot of time reconciling contract issues."

Egdahl sees the quality and accuracy of online tech nical information, as excellent on Boston University's dedicated supplier sites, but pricing often leaves something to

be desired. "Our requisitioners often don't know wh en there is a price variance but I do," notes Egdahl. "The mistakes are often in the supplier's favor and that can be

very frustrating. "I still need to police the contr acts."

Aloke Bhandia, senior director of product managemen t for Ketera Technologies, the Santa Clara, Calif.-based e-procurement provider, sees online applicati ons

mutually exclusive to the buyer-supplier relationsh ip. "You can still have solid supplier relationships and still improve the procurement process with e- commerce tools,"

says Bhandia, who emphasizes there is no substitute for a strong supplier relationship. "E-procurement should supplement the relationship, not replace it."

"Chemicals can be extraordinarily complex and the I nternet has significantly allowed the rapid sharing of information in everything from compounds to mol ecular

structure to images of the chemicals themselves," s ays Eric Zoetmulder, the director of supplier network services for Cary, N.C.-based e-procurement firm SciQuest,

which supports the scientific community. "Some scie ntists build their own chemicals." Zoetmulder says that one chemical may have 25 related styles and co mpanies

need to be able to support information on everythin g from proper routing to certificates of compliance.

According to Zoetmulder, purchasing chemicals onlin e is much more than just the actual transaction. "Advanced search tools on online supplier catalogs ha ve enabled

chemical users almost instant access to the informa tion that they need, eliminating a manual and time consuming process." Zoetmulder also sees the automa tion of

workflow as one of the important parts of online pr ocurement, especially when it comes to a company's regulatory compliance.

"The relationship with our chemical suppliers is th e most important part of the purchasing process," s ays Milan, Italy-based Luca Guzzabocca, director of

procurement for GlaxoSmithKline's European operatio ns and a SciQuest user. "We need to make sure there is alignment within the chemical purchase, and that

includes R&D, as well as with the buyer and the sup plier." Supplier compliance, says Guzzabocca, needs to include GSK's requirements as well. "We depend on our

suppliers to support our compliance and regulatory requirements. The actual online transactions are not that big of a deal."

What it Means to Buyers:

Buying chemicals online is not like other commodities—do your

homework up front.

If done right, e-sourcing should supplement supplie r

Chemical Buyers: Heed caution signs on road to e-so urcing - 2008-04-10 ... http://www.purchasing.com/article/227374-Chemical_B uyers_Heed_caut...

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relationships, not impede them.

Chemical distributors can play a role in e-sourcing of

chemicals. Talk with your distributor partners abou t it.

Online sources can provide better access to technic al and

compliance data for chemicals buyers.