Chemunity - Pragmatic Procurement of Chemicals

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	Slovnaft: A Middle European refinery’s experience with e-procurement Slovnaft is a refinery and petrochemical company based in Bratislava in the Slovak Republic. Since being privatized in 1992, the formerly state-run company has worked aggressively to modernize and adopt Western business practices, including creating a series of subsidiaries and launching a Strategic Partnership with MOL, one of Hungary’s biggest corporations, in 2000. (8/21/2002) On top of all of this change, however, the company has begun an e-procurement program that now handles about 10% of its annual purchases (excluding crude oil). The program already is cutting Slovnaft's procurement costs and reducing its paperwork requirements. But e-procurement is just the beginning of a larger e-business program envisioned by the company, according to Procurement Director Csaba Kiss. "In terms of e-procurement, there are two major initiatives that the company is pursuing right now," Kiss said. "One is to reduce the cost of items we buy using a variety of auction tools - e-auction or e-RFQ. The other is to improve our flow of paperwork." For e-auctions and e-RFQs, Slovnaft uses three European service providers for non-production goods and services, based in Germany, the Netherlands and Eastern Europe. Slovnaft uses the German service, which offers listings in English, German, French Italian and Spanish, to buy primarily from Western European and international companies. The Eastern European service is used to buy from companies in its own region using local languages. The third service -- the Sourcing Portal of Netherlands-based ChemUnity - is used for purchasing chemicals throughout Europe. ChemUnity offers the major Western European languages plus Slovak and Hungarian, which makes it easy for all of Slovnaft's vendors to use, Kiss said. "The focus with all three services is to get lower prices, but another benefit is the transparency created by putting all of the prices on the Internet," Kiss said. "It makes it very easy for us to reference the entire history of the bid process, which allows us to demonstrate the decision-making process to our shareholders." Herman Rijks, CEO of ChemUnity, has been impressed by Slovnaft's approach to e-procurement. "In my opinion, they are far more advanced in their e-business strategy development than most companies in Eastern Europe; in fact, they are more advanced than many companies in Western Europe," Rijks said. "Our Eastern European office has set up a program, together with Slovnaft, to help gradually introduce new products and suppliers to their catalog. We obviously don't have access to the transaction data, but from the suppliers' enthusiasm to get registered it is clear that very significant volumes are being requested through their Sourcing Portal." Kiss said he is pleased with the results of the company's e-procurement program so far. "The smallest savings was 3% and the biggest was 35%," he said. "That auction ran 5.5 hours, but the last four hours was between just two suppliers. We have found, though, that we must be very careful how we structure our auctions. We also are very careful how we prepare the auction. Preparation is always important but, with an e-auction, the preparation work is much more important and determines the overall success of the auction." Kiss describes e-auctions as "the low-hanging fruit of e-procurement. It is easy to establish. It doesn't require a big investment or a lot of people. The next step is to automate our transactions and paperwork. The third step is to link our ERP to selected suppliers. On the scale of those three steps, I think we probably are at 1.5 right now." In addition to e-auctions, Slovnaft has begun implementing Oracle to manage its transactions and workflow. Oracle will be used to establish online procedures and approval levels to keep transactions flowing through the system and create an electronic history of each transaction. Like e-business pioneers from around the globe, Kiss said one of the biggest challenges of implementing e-procurement at Slovnaft was overcoming the resistance of employees and vendors to change. "Success depends not on the region or the company but the individual personality," he said. "Some people are curious, some are worried, some are open and some are not. It takes time for people to accept change. But many Western companies are invested in Eastern Europe now, and they are bringing this new technology. If we are going to remain competitive, we must adopt it as well. "The very big lesson we learned is that it cannot work without people's motivation and acceptance. In each of my departments, we appointed project managers to coordinate the electronic auctions and RFQs. We also have a coordinating department to assist each of the project managers - explaining how to collect the information, how to work out the strategy, how to communicate with the suppliers. We set clear targets, and we provide incentives for reaching them. "The goals of the program vary by department, but overall I would be happy to reach 15% of Procurement-controlled tenders offered electronically this year. As for the savings we hope to achieve, that depends on the commodity. Of course, when you talk about saving it's also important to agree on what is the baseline, so establishing measurements was very important as well. With established measurements you can prove your savings, and that creates support to use this approach more and more." Source: EyeForChem, 21 August 2002