Having found that electronic purchasing doesn’t necessarily speed up the pace of business, General Electric Co. this year plans to automate much of the back-office paperwork that’s putting a drag on its e-commerce efforts.
While GE’s operating companies can buy goods and services electronically, the work of reconciling purchase orders, supplier invoices and shipping documents with one another so bills can be paid is still a time-intensive manual process at many parts of the Fairfield, Conn.-based conglomerate.
By year’s end, though, GE plans to launch a portal application that will automate the reconciliation, or settlement, process through its electronic data interchange (EDI) subsidiary, GE Global Exchange Services Inc. (GXS). Gaithersburg, Md.-based GXS will translate EDI, Web-based and spreadsheet documents into an XML data format and then make them available online to suppliers and GE’s buyers.
GE is acting as a beta-test site for the settlement service, which GXS plans to offer to other companies outside of GE starting in the second quarter. Data translation, workflow rules and database hosting will all be handled by GXS, which hasn’t set pricing yet.
The idea is to add speed to the purchasing process, enabling companies to achieve the quick-payment discounts and lower inventory costs that were expected from e-procurement projects. But for GE, implementing the new settlement system won’t be simple.
“It’s a Herculean effort, I’m not going to kid you,” said Michael McGettigan, a manager in GE’s corporate initiatives group. “This cuts across purchasing, finance and manufacturing. It’s a complete change in the way we approve and settle purchasing.”
John Hagerty, an analyst at AMR Research Inc. in Boston, said purchase order and invoice settlement is still a labour-intensive process at most companies. “When we’ve been talking about e-commerce over the past few years, we’ve really been focused on simple buying and selling,” he said. “This whole (payment) process has been sitting off to the side.”
GXS and San Diego-based rival Peregrine Systems Inc. both already offer the ability to create EDI-based invoices directly from purchase orders, a service that also can automate the settlement process. But that’s primarily limited to users who buy products under negotiated contracts that set prices in stone.
For example, the U.S. Army’s Tank-Automotive and Armaments Command (Tacom) implemented an EDI-based settlement system in 1993 and added Web-based procurement capabilities through Peregrine’s EDI and online exchange three years ago.
Tacom, which manages 3,200 weapons systems for the Army and buys US$6.7 billion worth of goods annually, claims that it has cut its invoicing time from 28 days to one and virtually eliminated inventory backlogs. “When we did it, no one was looking,” said Pat Dempsey-Klott, e-business program manager at Tacom. “But it’s that (invoice) processing time which really saves you money in the end.”