If you've done the heavy lifting for someone, surely you can handle the easier stuff. That's probably not how Dow Chemical Company executives phrased it when they went looking for a provider to help them automate MRO procurement, but that's essentially the way things worked out. Dow turned to Elemica, which for several years has successfully managed the automation of the chemical company's direct procurement spending. And by all accounts, that's a much more complex operation.
Dow's product and service lines reach deeply into a diverse range of industries, including wire and cable, plastics, packaging and films, oil and gas/chemical processing, home and personal care, and health and medical. It's also involved in flooring, electronics and appliances, fiber/textiles, coatings and adhesives, building and construction, automotive and transportation, and food and agriculture. Now, it's augmenting its products and customer footprint with business that the recently acquired Rohm and Haas has brought.
While the product line is the face of the company, MRO - maintenance, repair and operations - isn't particularly exciting. The 'M' and the 'R' are fairly obvious. After that, 'O' is paper clips, computers and what-have-you. Nothing unique to the chemical industry. But given the size of a major player like Dow, indirect procurement is fairly large, and efficiency and cost containment are everyone's mantra.
In fact, some areas of indirect procurement were slightly automated before Elemica stepped in, says Mark Farley, global procurement technology leader at Dow. For instance, autofaxing sent order-create messages and purchase orders to suppliers, he says, but the level of automation was not what managers desired.
So, transitioning to full automation with Elemica began in earnest in 2007, with implementation getting under way late in the year.
Elemica was founded in 1989 by 22 companies in chemicals and oil, but it's independent and has its own management. The backbone it provides is designed to integrate disparate business systems and processes into a unified network comprising customers, suppliers and third-party service providers. This so-called business process network eliminates or overcomes transactional and communication barriers, says Rick Bushnell, Elemica's vice president of sales and marketing for North America.
Doing away with communications barriers was crucial for Dow, says Farley. A significant amount of messaging volume was transitioned over to the Elemica hub. "Within that volume, there was a variety of different communications going on," he says. "In addition to the faxing, we had EDI transactions that we were sending, and we had some messages that were already XML-based transactions that were going by another hub. We consolidated all of that activity and channeled it through Elemica."
Obviously, the most manual transactions were the least optimal. But Dow didn't want to maintain long term any scenario that had varying levels of automation.
Data error was a key driver in the transformation, says Farley. The more manual the activity, the more error-prone. Too much keypunching was required, especially on the suppliers' end.
And the number of suppliers only multiplied the potential for mistakes. Farley says the initial phase called for migrating 100-plus suppliers to Elemica. The project continues to hook them all up to the Elemica hub, but it's difficult to pinpoint the precise number of suppliers involved. "If you take into account the raw material and packaging suppliers that we have that were already connected to Elemica, I would say you're pushing at least 300."
Farley notes that the relationship with Elemica on the direct spend side began as early as 2000 and ratcheted up to full speed the following year. "A key point to note," says Farley, "is that the long-standing relationship with Elemica has been both on the buy and sell side, so while we were procuring items through their hub we were actually sending sales orders out through Elemica as well."
Farley says a major part of the MRO initiative was being able to leverage the capability that Elemica brought to procurement management of raw materials and packaging. "Being able to use that functionality and extend it to things outside of that direct spend, that was a key element that I think some folks questioned before going into this."
The direct side is more complex for at least two reasons, Bushnell says. First, you have a lot more suppliers to deal with. Second, there are more releases per purchase order.
Heavy manufacturing industries are very similar in that regard. He feels that Elemica is highly capable at handling the more robust business processes that are required, so it was able to leverage that expertise into the indirect spend categories.
"That was probably the biggest benefit of the previous relationship," says Bushnell.
Implementation on the indirect side went efficiently, says Farley. He credits both sides with having highly talented teams that enabled a smooth transfer that only encountered one hiccup.
The hurdle occurred when it was learned that some of the messages used a different XML version from that used by Elemica. "We thought it was going to be a straightforward exercise," Farley says, "but what we found was that it caused some issues in terms of the mapping."
Elemica solved the problem by translating the messages. "We navigated that gracefully and were able to map over [the different version] and in some cases were able to make that transparent to our suppliers."
When Dow managers did the numbers following the implementation, they were quite impressed. Errors dropped by 75 percent, Farley says. "We tracked activity through the Elemica hub, and that increased as much as 500 percent in less than a 12-month period. That's significant because part of this effort was driven by Dow's strategy to lower our overall unit messaging costs across the enterprise. So, taking procurement messaging volume, sales side volume and supply chain volume and achieving an economy of scale -- I can tell you as a result of the consolidation of this activity, we have been able to lower our unit messaging costs, and that was the objective."
Dow's problem was hardly unique, Bushnell says. "Their biggest challenge was that they had multiple business processes they were trying to manage, so the cost of ownership was high for them. I see this a lot in the chemical industry, trying to unify the business processes, and Elemica was able to do that for them. We brought it together on the indirect, which we had been doing with direct materials before."
The results as Bushnell sees them are multiple. First, Dow has reduced the cost of getting contracted items from suppliers. Second, efficiency has increased in procurement, operations, IT and over into accounts payable. "This is good synergy that you get in the process, and you reduce the amount of manpower that you need to do this basic business in your value chain."
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