Revolution In The Supply Closet

For Peter H. Roden, an old computer hand at Massachusetts Institute of Technology, the light went on in 1993. That's when he and fellow MIT managers discovered that the school was doing business with about 20,000 vendors of office and laboratory supplies each year. And about 87% of the orders were for less than $500 each. Clearly, they concluded, MIT's purchasing could be made far more efficient with the right information technology.

As could that of most companies. U.S. corporations spend some $300 billion a year on office and maintenance supplies, and many times more on the raw materials and components that feed their factories. Experts estimate that it costs companies $150 or more to process every paper-based purchase order, regardless of whether it's for a $10,000 computer or $10 worth of pencils. And they're all trying to cope with so-called leakage--unapproved purchases that tend to undermine volume-discount plans negotiated with favored suppliers.

All of which makes corporate purchasing easily the ripest opportunity for E-commerce products and services. Companies ranging from General Electric to Netscape, Industry.Net, Fisher Scientific, IBM, Egghead, Thomas Publishing, and a bunch of startups are all scrambling into the game.

While some are selling generic E-commerce software, several companies are using the system as a way to win more of their customers' business. Entex Information Services, a seller of computers and related services, has designed a system just to help its large customers, including Intel Corp. and Motorola Inc., to take the paperwork out of procuring PCs and other gear. "We'll reduce the purchase cycle from 28 days to 5 or 6 days," says Anthony Ibarguen, executive vice-president for field sales and marketing. Entex' system, running over the Web or Lotus Notes, will do everything from getting an order approved by the right managers to wiring Entex' invoice back to the customer.

Thanks to its in-house computer expertise and a high-speed intranet, MIT has one of the most sophisticated purchasing systems anywhere. Staff can order pencils and test tubes by clicking through a Web-based catalog, which makes sure nobody spends more than they're authorized to. Payments are handled with purchasing cards from American Express Co. And MIT has now contracted with two main suppliers-- Office Depot Inc. and VWR Corp.--to deliver most items within a day or two right to the purchaser's desk, not just a building's stockroom.

As for Roden, he has become an E-commerce entrepreneur. He co-founded SupplyWorks Inc. in Lexington, Mass., to commercialize MIT's setup. After visiting 20 large companies to discuss their E-commerce strategies, he reports: "There's an enormous amount of interest in working with anybody who has a clue about [E-commerce]." Opportunity knocks.

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