Dramatic costs savings enjoyed by media group in B2B project

South African operations with multiple yet decentralised subsidiaries can benefit substantially from successful business-to-business procurement projects.

That's the message to be learnt from a global media holdings group, Bertelsmann that has recently implemented SAP Business-to-Business Procurement (BPP) in 200 subsidiaries to underpin its global B2B initiative.

The group, which went live with the project in July this year, will achieve cost savings of 170 million DM per annum in Europe, 6% of the yearly MRO (maintenance and repair operations) volume in the Group.

The Bertelsmann Group has 76 300 employees, more than 400 decentralised companies and a turnover of 32,4 billion DM. The Group consists of Random House, the largest English book publisher; BMG entertainment, a major music company; Bertelsmann Springer, a science book publisher; Bertelsmann Direct, an online book club business in Europe and the US; newspaper publishers Gruner + Jahr; broadcasting and TV through a 37% stake in the RTL Group; and Arvato, consisting of a logistics services company and seven large printing houses. The Group has a major presence in the areas of content, communities and commerce.

"Procurement within the group has always been decentralised," says Andreas Staudigel, Vice President, of Bertelsmann mediaSystems and responsible for the worldwide rollout of Bertelsmann's B2B initiative. "All our companies have their own procurement systems, most based on SAP R/3, but also some third party systems."

Staudigel was recently in Johannesburg to address delegates at the SAPPHIRE 2000 South Africa conference, based on the successful global conferences and exhibitions held by SAP in America, Asia and Europe. These events aim to update SAP customers and delegates on global IT trends impacting business, as well as on developments within SAP. They provide a key forum for SAP customers to interact and share their experiences.

"Our B2B goal was to install one common system for all business units," he says. "It would be used by 5000 procurement clerks in Europe, and would link all materials management. To achieve this, we implemented SAP BBP - not to replace the existing purchasing systems, but to sit above them, like an umbrella. We therefore have centralised BBP in a totally decentralised organisation. The result is a collaborative B2B business model."

Further dramatic cost savings are expected due to a number of factors, including increased negotiating power.

"We bundled all our European MRO goods, and were then able to negotiate good prices with suppliers based on volume," says Staudigel. "In the office supply area, for example, we now only have a single European supplier."

He says savings are based on four key elements:

• Group participation is guaranteed. All business units will use the system for office supplies, merchandising materials, marketing materials and printing services. The position of Chief of Procurement, reporting directly to the Board, was created to ensure this.

• The introduction of new selection and purchasing procedures. The Group is achieving additional potential savings by using online auctions and online searches for suppliers.

• Reduction of transaction costs as a result of leaner processes and procedures.

• A sophisticated procurement platform has been set up, with optimal sourcing strategies. The company chose SAP BPP after a detailed evaluation process.

"We had to obtain buy-in from all our European companies, so had an independent evaluation partner on board during this process," says Staudigel. The evaluation criteria included factors from content and strategic supplier direction to total cost of ownership and long term platform viability.

The new system enables procurement clerks to order MRO requirements from an electronic catalogue, managed and approved by a professional buyer. Following authorisation, a shopping basket is created, and after confirmation, workflow - based on SAP's workflow engine - begins. The desktop user passes the order to the supplier, who may use a content provider to provide and manage the content.

When goods are received, they are confirmed by the desktop user and the vendor creates an invoice.

Bertelsmann is making good use of bidding and auction processes. Bids are managed by professional buyers, and the Group uses mainly closed auctions with pre-defined suppliers. Suppliers obtain offers directly into the B2B system, which can handle selection of the offer, e-mail notification of cancellation of bidding, and purchase order creation.

The components of the B2B system include the desktop front end, Web, e-procurement components and the backend system which links both the Group's SAP R/3 systems and the e-procurement systems.

The project, which began in March 2000, involves 5 000 B2B users. Implementation was done by a team comprising both Bertelsmann and SAP consultants. The commodities involved in the first phase were office supplies, which went live on 1 July and then IT equipment on 10 July.

"We are currently planning further rollouts," says Staudigel. "The implementation time is amazingly short due to the Internet compatibility of the mySAP.com platform. Our next step is to implement further commodities, and we will soon run pilots for merchandising, print and marketing material."