What steps in the purchasing process are done electronically versus on paper?

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Read Case Study, Sourcing Process at FEDEX
Answer case questions 1, 2, & 3 and post as a Word doc.
Case Text:
Strategic Sourcing and Supply at Federal Express
Case Questions:
What steps in the purchasing process are done electronically versus on paper?
What type of controls can be used as a result of e-procurement in the sourcing process?
What do you think are the challenges associated with implementing e-procurement in this example
Case Text:
appendix Fed Ex Sourcing141.doc Download appendix Fed Ex Sourcing141.doc
FedEx Corporation is a $20 billion market leader in transportation, information, and logistics solutions, providing strategic direction to the five main operating companies. These include:
FedEx Express: The world’s largest express transportation company. Leveraging its unmatched air route authorities and extensive air/ground infrastructure, FedEx Express connects markets, within just 1 to 2 business days that comprise 90% of the world’s economic activity.
FedEx Ground: North America’s second-largest ground carrier for business-to-business small-package delivery. Provider of innovative new residential delivery service – FedEx® Home Delivery – in key U.S. cities and a pioneer in applying advanced information technology to meet customer needs
FedEx Freight: A $1.9 billion leading provider of next-day and second-day regional LTL freight services. FedEx Freight is comprised of two independent yet complementary operating companies, American Freightways and Viking Freight, known for exceptional service, reliability and on-time performance.
FedEx Customer Critical: North America’s largest time-specific, critical-shipment carrier provides exclusive-use, non-stop, door-to-door delivery throughout the U.S. and Canada and within Europe – 24 hours a day, 365 days a year.
FedEx Trade Networks: A full-service customs brokerage, trade consulting, and e-clearance solutions organization designed to speed shipments through customs using advanced e-commerce programs.
FedEx Services: Provides customer access to the full range of FedEx transportation, logistics, e-commerce and information services by integrating sales, marketing and information technology
FedEx Center-Led Initiative
Prior to the purchase of the Ground, Freight, and other non-express based services, Federal Express had re-organized all of its major indirect spend in information technology, aircraft, facilities/business services, vehicles/fuel/ground service equipment, and supply chain logistics groups under the “Strategic Sourcing and Supply” group, led by Edith Kelly-Green. After the purchase of these different businesses occurred, the supply management function was re-organized into a Center-led Supply Chain Management sourcing model. Over the last two years, FedEx Supply Chain Management has been focusing on leveraging sourcing and contracting for all of the Fedex family of companies. For office supplies, instead of having each company run a contract, SCM has a single corporate contract for all of the negotiation effort, but allowing for different transactional approaches. It has been a gradual migration to getting to a centralized view to how procurement will happen. Procurement is centralized for the larger spend areas and different policy requirements exist for each area.
The Sourcing Process
FedEx established a seven step sourcing process.
Step 1: When a user provides a requisition for an item, the first step is to develop a profile for the sourcing group. When the user provides the requisition, the sourcing specialist or sourcing team must establish whether it is worth putting a strategy around it. This is typically done using return on investment criteria – is the spend large enough to put a significant amount of time into sourcing the product through a full-blown supplier evaluation? For example, if the requisition is for something that turns out to be a $200,000 per year spend, the payback on it may not be worth the resources required to do a full supplier evaluation and selection process. However, if the spend is large enough, the team will conduct an assessment of the category which profiles that industry and commodity. This involves doing a lot of research on the nature of existing purchasing activity – how much is involved, who is it with, what are the issues with existing suppliers. If it is not large enough, the use may be directed to simple purchase order and invoice system using Ariba (Ariba is an online-procurement platform used by many Fortune 500 companies.)
Step 2: Assuming a large spend, based on research conducted in Step 1, the team begins the process to select the sourcing strategy, in essence taking all of the information they have and deciding how they will approach that marketplace. Is a Request for Proposal appropriate? Do they need to maintain existing relationship and re-visit negotiation, develop a strategy regarding the sourcing strategy?
Step 3: Assuming they are going beyond a negotiation, they do an in-depth research with suppliers in that area, including qualification of the suppliers. Can the suppliers satisfy user requirements, service aspects, etc.? The end goal is to develop a list of who they would like to send RFP’s to. The team will conduct a supplier portfolio analysis.
Step 4: A second phase of this implementation pass is to re-visit this strategy, and have the team take another look at it – have they uncovered something that will cause them to change negotiation? – they develop a strategy for negotiation, do they want to use a reverse auction or use a conventional RFP, as well as criteria for supplier evaluation? Is this still something they want to do? If so, they will proceed with the RFP to the selected supplies.
Step 5: After receiving Request for Proposals (RFPs), the team will conduct supplier selection and negotiation process.
Step 6: Once the team has made the selection, they need to do the integration. This is done by applying the Ariba toolset with the supplier, and identifying integration conflicts to be solved to make the contract workable.
Step 7: Benchmark the supply market means on-going monitoring of the supplier(s) through the FedEx Supplier Scorecard system.
E-procurement tools through the Ariba Buyer system plays big role in the process. For example, if a user needs a PC they can select a PC online, and requisition it. Depending on the business rules governing authority threshold, the user may need a supervisor’s authorization, and may need a higher level as well. If the spend goes into capital range, there are another set of approval rules to ensure that people who approve capital purchases are also approving it. It also draws on the business rules established within the IT group, which may be a different set of rules. Business rules are established with Ariba Buyer depending on category of spend taking place. The types of controls made on purchasing will vary. Once those approvals are completed, it releases out to the supplier.
In Ariba, users have an online catalog for contracts that are in place; several thousand office supplies are set up on the catalog. Requisitioners can find what they want, and once submitted; it is bounced against purchase approval policy. Requisitioners can also use a Request for Information (RFI) before they initiate the sourcing process. One of the first thins they will do is get a handle on accounts payable information using Ariba to determine who are the largest suppliers, and establish prior sales to FedEx with information online items. Ariba buyer also tracks receipts. Because FedEx received products and serves at many different locations around the globe, all employees have an obligation to enter a receipt into the system when the shipment arrives or the service performed, which generates an acknowledgement and an invoice matching on the system. If an individual does not receive the product or services, Ariba will develop e-mail reminders that will escalate eventually to senior management if left unattended.
The value of using a single e-procurement system is that if FedEx supply management decides to implement a change on the control levels, it is easy to do across the company using the system. For example, if the CEO mandates a spending freeze (i.e. “No PC’s without VP level approval”), SCM can change the business rules on the system. FedEx also has another information system for temp labor, contract programmers (ELAMS). The ELAMS system allows online requisition for contract programmers or temp labor person based on contracts that are in place: they control the rate and type of individual sent out by the supplier, and can approve the invoices online. They can also ensure that the skill level of temp labor they are paying for is matched to the skill level of the person that they actually pay for – delivering both value and cost savings to the bottom line.
This example illustrates that improving the purchasing process in terms of efficiency and effectiveness requires more that one single system or approach. Purchasing, accounts payable, users groups or departments, and those responsible for handling inventory and materials can all benefit from a systematic approach to improving how goods and services flow into an organization.
Source: Purchasing and Supply Chain Management, Monczka, Trent, & Handfield, 2005, Thompson Southwestern, 3rd edition

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