May 01, 2000

More comfortable walking a trail made out for you than bashing your way through the forest? Then perhaps doing e-procurement via the tried-and-tested method - electronic data interchange (EDI) - is for you. By building a value added network (VAN) between selected partners, you can electronically transfer business documents such as orders, confirmations and invoices between your partners.

But mind you, it is not going to be a painless task. The upfront software cost of building a VAN can be anywhere between US$10,000 to US$20,000. On top of that, you have to pay S$0.25 to S$0.50 (US$0.15 To US$0.30) for each kilobyte of information every time you send an electronic document over to your partners and vice-versa.

However, companies such as communications and computer peripheral manufacturer Unico Technology Berhad has gone ahead, and both they and their partners have been able to justify the cost, as well as see ROI rolling in.

Unico laid the foundation for EDI in 1997 and according to its CEO, Dr Sam Quah Sin Chye, the company kicked off the project with three suppliers. Today, seven key suppliers are on the list, providing critical components needed for the mid-sized corporation's production and manufacturing activity.

Their traditional suppliers, he added, are confined in countries such as Taiwan, Hong Kong and Malaysia. They provide between 600 and 700 parts and components to the Penang-based company.

Unico manufacturers PCMCIA card, motherboards, a range of telephones including the digitally enhanced cordless telephones, answering machines and a host of communication and networking devices.

"We studied e-procurement practices for three years and we looked at our master scheduling system carefully before implementing it for our fast moving items," said Quah.

He added that it was "tough going" when convincing suppliers to accept the very idea of purchasing products electronically and why they needed to invest in such a facility. "Many suppliers viewed it as a cost and not investment. They asked: 'Where am I going to get RM100,000 (US$26,350) to set this up' and not 'How much I will save in future with such a system in place,'" Quah said.

Dollars and Cents

Unico recovered its RM300,000 (US$79,000) investment within the first year of its implementation, he disclosed. Judging by the quality of the link-up offered through EDI, Quah said that the initially sceptical suppliers were pleased to have adopted it.

E-procurement through EDI has proven to be a very dynamic tool for the mid-sized corporation. The difference with them is that investment made was recouped in sales that translated into efficiency and large savings over the years.

"There are no misses in our electronic purchasing activity. Business is dynamic, the products we buy are replenished automatically," said Quah.

In the long run, the only other cost for EDI is administrative, meaning the evaluating and maintenance of the system to ensure it worked smoothly. Logistics improved markedly and they were also able to cultivate a good working relationship with their suppliers.

Quah explained that they were able to increase their efficiency and that not only did it reduce unnecessary cost, they were able to increase customer satisfaction. "This (improving business process efficiency) gives us competitive edge and we interpret that as customer retention. We are able to reduce administrative cost over the long run and improve the customer satisfaction index," said Quah.

He added that it has also helped the organisation to make intelligent decisions faster that translated to sales. "Making a wrong decision affects the business process and it works out to be a cost factor."

Published in Intelligent Enterprise Asia, May 2000