CASE STUDY No. 9720

KEY WORDS PURCHASING SYSTEM, PAPERLESS; ELECTRONIC FORMS

Silicon Graphics
2011 N. Shoreline Blvd.
Mountain View, CA 94043

Contact: Ben Gardner, Manager, Corporate Purchasing.
Tel: 415-960-1980. Fax: 415-967-8538. 

Summary

By replacing a paper-form-based purchasing system to a system using electronic forms on the World Wide Web, the company eliminated 2-1/2 tons of paper and reduced costs $200,000 in the first year. It anticipates savings of $2.1 million in the second year as system capability is expanded to related corporate management areas.

Background

In 1994, Silicon Graphics, a computer manufacturer employing 11,000 people, began to seek alternatives to its purchasing system. Based almost entirely on paper forms, the system was straining under heavy loads. In a two-year period, the number of purchasing transactions had increased 90%, to about 19,000 a year. The purchasing manager concluded he would either have to hire more administrative staff or re-engineer the system. He chose to research opportunities in electronic commerce and, eventually, to totally revamp the company system.

The project took more than a year and a half to complete. To begin, the purchasing group visited some 20 other companies to observe best practices in purchasing a benchmark study. Concurrently, the company surveyed commercially available software for electronic transactions. Unable to locate software to meet its needs, Silican Graphics decided to develop its own comprehensive purchasing system based on the World Wide Web and the company' internal network. Planning for the new system was informed by focus groups of employees and suppliers. The intent was to ensure that employees would find the new system more effective and that it would be compatible with supplier systems and procedures.

The Web-based system has led to a reduction in the number of purchasing steps from 15 to three, and it has reduced order-filling time for many products from three weeks to 24 hours. A number of cumbersome and time-consuming steps have been eliminated, including the manual search of printed catalogs, preparation of a written request for approval, logging operations, form routing, supplier order forms, invoices, and receipts. Now, employees browse vendor-supplied electronic catalogs, input an electronic order form, route the form by e-mail for approval, then transmit it to the supplier by EDI--electronic data interchange.

Based on its experience, Silicon Graphics offers this advice to other companies interested in converting to a paperless purchasing system:

  1. Study your paper-based system thoroughly. Know every step in the process, start to finish.
  2. Look at the entire chain of people involved in purchasing, both customers and suppliers.
  3. Listen to everyone's suggestions and concerns, and incorporate key ideas.
  4. Don't be intimidated by initial start-up costs. Once the infrastructure is in place, the system can be expanded to target other areas where forms are processed, providing opportunities for additional savings.

Payback

Although conversion of the purchasing system cost about $1 million, the company expected to reduce costs $200,000 the first year and $2.1 million the second, yielding payback within an acceptable time.

 

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