An interview with Richard Laub

Q. What is this new e-procurement venture?

A. Andersen Consulting has established a strategic relationship with Sun Microsystems that will be powered by products from Sun and iPlanet E-Commerce Solutions, a Sun/Netscape alliance. The venture will provide Web-enabled procurement of indirect goods and services like office supplies, computer equipment, and airline tickets. We expect to create a new electronic marketplace that will rapidly accelerate the cost savings we can deliver to our customers. As our client base grows, we expect to achieve increasingly favorable pricing.

Combining the complementary skills and expertise of Andersen Consulting, Sun, and iPlanet enables us to provide a full-service, net-sourced solution. Andersen Consulting expects to contribute critical sourcing capabilities, business integration skills, e-procurement experience, outsourcing expertise, and experience in developing sourcing strategies and managing supplier transactions. iPlanet's e-commerce tools are expected to help drive greater value into the procurement process with simplified requisitioning, contract placements using reverse auctioning tools, a portal providing greater ease of use to customers and suppliers, and improved spend reports using data warehousing and mining. Sun's family of servers and storage products is expected to provide reliability, availability, and scalability and to enable the venture to build out the infrastructure necessary to handle tremendous transaction volume.

Q. What is different about this e-procurement solution?

A. We have positioned ourselves at the full-service end of this market, providing a full net-sourced service that delivers the smartest spend in the marketplace. Our service offers four important advantages: First, it provides Web-enabled procurement to provide a streamlining capability that can cut the administrative costs associated with indirect procurement by more than 50 percent. Second, it is a completely outsourced, full service, end-to-end solution that allows for the spending volume to be aggregated, delivering lower costs through even larger bulk purchasing. Third, it relies on a cadre of experienced sourcing specialists deployed locally around the world. Fourth, it addresses every major category of indirect purchasing.

Q. When will clients see results?

A. Typically, savings of 8 to 12 percent on commodities purchases may be achieved from the date a client transfers its procurement spend to the venture. For a company with $2 billion in indirect spend annually, this can translate to savings of approximately $1 billion over five years. We expect to begin operations with $20 billion in purchasing power, which will enable us to extend favorable pricing to our customers. Savings will continue to improve as we move toward our goal of managing $200 billion in spend in 2004. Savings in transactional costs will kick in after we have a full Internet solution up and running in the fall. Enabling software can then be distributed to all authorized personnel who have access to the Web, and authorized transactions can begin immediately thereafter.

Q.Does the venture currently have any customers?

A. Currently, we have secured commitments from customers that, once contracts are final, will add up to more than $20 billion in aggregated spend. These major companies cross both geographies and industries, including financial services, automotive, telecommunications, chemicals, and food products.

Q. How does this venture relate to the many trading exchanges that are developing in the vertical markets?

In addition to direct and indirect spend categories, many vertical exchanges aim to include a broad range of functionality in their services, including collaborative supply chain planning, collaborative design, and reverse auctioning. Our service is more narrowly focused on outsourcing the contracting process of all indirect spend categories and on leveraging initially the iPlanet e-requisitioning functionality. In addition, we are horizontally focused and serve all industries. We believe that as vertical exchanges mature, they will have opportunities to collaborate with our venture to handle the indirect aspect of their exchanges. We will have the infrastructure, scale, and skills to handle the volume of indirect spend aggregated from their customer base. Such a collaboration will enable the vertical exchanges to more sharply focus on their categories. In effect, our e-procurement service is positioned to provide a horizontal connection between vertical exchanges.

Richard Laub is vice president of supply management operations for the new Andersen Consulting/Sun Microsystems venture and a former partner with Andersen Consulting.