Amit Kalyani, CTO, Bharat Forge (Right) & Manish Gupta, VP (IT Business), Kalyani Group: It's easier than what the diagram suggests

Vilas Panse never thought this would be possible. But right before his eyes on a recent August afternoon, aggressive vendors in a relatively competition-free industry were undercutting each other to supply industrial fuel to the Rs 2,500-crore group's three companies: Bharat Forge, Kalyani Carpenter, and Kalyani Brakes. By the time the 45-minute online reverse auction session ended, the Associate Vice President (Materials) of Bharat Forge, which is the project's prime mover, had saved his group $130,000 (Rs 63.70 lakh) on an annualised basis. "Even a year ago if somebody had said that this kind of savings is possible, we would have laughed at him," says Panse.

Nobody may be laughing at eProcurement anymore at the Pune-based group, but just a floor below from where Panse sits, there's a young man who's quietly smiling-but for a very different reason. Amit Kalyani, the 27-year-old son of Group Chairman Baba Kalyani and Bharat Forge's Chief Technology Officer, is smiling because the conservative group's 'digital conversion' has happened faster and more thoroughly than he had hoped. And that's not just because Kalyani Jr has been personally hauling up the reluctant converts.

It started in August last year with the group deciding to move offline purchases online in a bid to lower costs that, in turn, would allow it to sell cheaper to vehicle manufacturers in India and elsewhere, and yet protect its own margins. The first phase of the project is over, and that has seen $32 million (Rs 156.80 crore) worth of spend from five group companies (the other two are Kalyani Lemmerz and Kalyani Steel) get managed over the group's eProcurement network. The savings thus far: $2.78 million, or Rs 13.62 crore. Says Amit Kalyani, a mechanical engineer from Bucknell University (Pennsylvania, USA), who kickstarted the initiative after returning to the family business in 1999, inspired by a Dell Computer seminar on e-buying and e-selling: "The common problem is that sometimes technology becomes more important than people. But once you recognise that people are your real assets and technology is only an enabler, you get the technology apple-cart right."

Wiring Out Costs

But as the group is discovering, technology is allowing it to tap into the potential of its people like never before. The problem with traditional, offline sourcing is that it's both time-consuming and inefficient. Often, companies are unable to locate newer and better sources of supply because there's no cost-effective "discovery process". In fact, most purchase officers spend more time chasing orders they have already placed than finding better vendors or better ways of buying. Yet, typically, 70 per cent of a manufacturing organisation's spend is on things like raw materials, components, and sub-assemblies. Says Manish Gupta, Vice President (it Business), Kalyani Group: "If you can get even marginally better deals in terms of price or value, the savings go straight to the bottomline."

To that end, Kalyani's eProcurement objectives were clear. It wanted to reduce procurement prices by 10 per cent, crunch sourcing lead time by 30 per cent, and cut the cost of purchase paperwork by 70 per cent (See Stretch Targets). Being on the internet allows group companies to identify the best source in any part of the world.

So far, Bharat Forge has been the most aggressive user of eBusiness in the group, and hence has struck the most gains. But more savings across a larger number of sister companies will be realised as the group moves into Phase two of the project, integrating eProcurement of all group companies, building a common pool of market intelligence. At the moment, only e-sourcing and supply chain management are being leveraged. Says Amit Kalyani: "We don't have to sell this technology to our people anymore. That's done. Now, it's a question of spreading it across the group."

The group's eProcurement network (called ProNet), designed and implemented by group company Synise Technologies, is internet-based and hooks up with the erp system. It has more than 8,500 prequalified suppliers and covers two broad areas: sourcing and supply management. There are different tools to handle different kinds of spend. For example, components that are large volume, non-technically complex, have a fragmented supplier base, and where the switching cost is not high, are bought via reverse auction. Parts that are technically complex, low volume, and where the cost of moving from one vendor to another is high, are procured through an RFQ (request for quotation) module. Finally, standard off-the-shelf components like fasteners and bearings can be purchased via electronic catalogues, which are still to go live. Typically, 40 to 50 per cent of the spend is via reverse auction, 30 to 40 per cent is by RFQ, and the rest is potentially catalogue purchases.

Thanks to ProNet, savings are surfacing in almost all areas of sourcing. At Kalyani Steel, for instance, the purchase team managed to save more than Rs 1 crore on refractories worth Rs 15 crore. Even in items like purchasing material, lubricants, and office supplies, savings range from 3 to 12 per cent. One reason for that is aggregation of purchases. Not only does that increase the group's negotiating power, but it actually helps the vendor lower costs on the back of greater volumes. "Some of the quotes that we are getting from our vendors would never have been possible earlier," says Abhijit Kulkarni, Assistant Manager (Materials Management), Bharat Forge.

More importantly, it allows the buyers in Kalyani to connect with suppliers real time and engage in online dialogues. For example, after going through the quotes from various suppliers, the buyer can set up and conduct multi-threaded negotiation with short-listed suppliers to thrash out price, payment terms and delivery schedules. Even drawings and documents can be attached with RFQs.

The result is that the group's purchase officers, who earlier were busy chasing vendors, now have time to do more value-added work like finding better suppliers. Of course, there's also greater transparency in terms of dealings and visibility in terms of inventory.

But what about the vendors themselves? Are things like reverse auction forcing them to slit each other's throat? Not quite, says Atul Arvind Tilve, Branch Manager, TaeguTec India, a cutting tools supplier: "Initially, we were worried that only the lowest-cost vendor would win the bids, but the group assured us that other factors like quality and reliability would be taken into consideration before awarding the bids." That, then, is an important feature of the procurement system. It actually allows the buyer to assign weights to parameters based on their importance. The software automatically arrives at an overall score for each bidding vendor, based on the data provided.

The supply management solution, which is the other part of the eProcurement network, is currently enabled only for Bharat Forge and Kalyani Carpenter, who manage everything from purchase order to payment online. Says Gupta, who doubles up as the CEO of Synise: "In supply chain management, 90 per cent of the headache comes from parts that account for only 10 per cent of the spend and vice versa."

But now, changes in raw material inventory is reflected real time at the concerned supplier's end. So, there are no desperate phone calls from either the supplier or Kalyani. The result: earlier the companies used to stock up 18 to 20 days of raw material inventory. Today, it's down to eight days.

Over the next three years, the group plans to move nearly $350 million (Rs 1,715 crore) worth of spend on to ProNet. If it manages to save even 5 per cent of that spend, that's Rs 85 crore in free money. No wonder Amit Kalyani is smiling.