by Paul V. Arnold

At America’s hippest e-company, you won’t find a 20-year-old CEO. Employees don’t zip around hallways on scooters or skateboards. There are no nap rooms or unisex bathrooms, no one with the job title "Partnering Poobah" or "Black Ink Evangelist." And, no department meeting ever erupts into a Mountain Dew commercial.

Dot-com debauchery? The extreme company? That’s so 20th century. Welcome to the real world. Welcome to substance. Welcome to e-business at work. Welcome to General Electric.

Destroy Your Business
GE — the 121-year-old megacorporation and stereotypical Old Economy company — just may be the poster child for the New (Internet-Based) Economy.

In less than three years, GE has gone from a corporation seeing the Internet as a threat to one that lovingly embraces it.

"The Internet makes the old, young; makes big, small; makes slow, fast. It is truly the elixir that big companies need," stated then-CEO Jack Welch in June 1999.

The quote came a few months after Welch rolled out his Destroy Your Business initiative, where he asked business units to envision how the future could hurt them. The goal was for unit teams to present GE’s top brass a hypothetical, Internet-based business plan that a competitor could use to erode the firm’s customer base. 

"In the end, they understood the Internet wasn’t a threat; it was an opportunity," says Lee Garbowitz, a GE Corporate Initiatives Group (CIG) manager. "They discovered this tool was essential to help us grow and make us more efficient."

The Internet is electrifying and revitalizing General Electric, and it is paying off. In 2001, GE will realize $1.6 billion in operating margin improvements as a result of e-business activities.

E-procurement as savior
The swift, striking results at General Electric are due, in no small part, to the Internet’s new role in the procurement of MRO/indirect supplies. With direction from Garbowitz and fellow CIG manager Pete McCabe, GE supply chain professionals use the Web to:

• access sourcing information;
• aggregate their purchases with GE business units around the globe;
• host auctions to find the best total-cost suppliers;
• compile and access online catalogs of preferred suppliers; and,
• verify shipment receipt and process electronic invoices.

Contract auctions for indirect and direct materials alone will save GE $600 million this year. Digitization of back-office, tactical work will eventually save the company an extra $1 billion. The cost to process a purchase order will be $5, instead of $50.

"Any company, old or new, that does not see this technology literally as important as breathing could be on its last breath," said Welch at a shareholders’ meeting last year. This is "the greatest opportunity in our history. The excitement is like nothing we’ve ever experienced."

Connecting the chain
Since 1999, General Electric has fundamentally changed the structure of its supply chain organization through use of the Internet. 

In the past, GE resembled a chain of islands. Business units and individual plants did not readily share information, suppliers or purchasing opportunities with GE brethren. No animosity was involved; it was just the GE way.

"Our businesses have a tremendous amount of autonomy. We’re very decentralized," says McCabe. "We hate the idea of a big, bureaucratic, corporate organization. On the other hand, we need to take advantage of our size."

The Web pulls the units and plants together and, while it still allows plenty of autonomy, helps the company maximize its size.

The electronic toolbox
The heart of GE e-procurement is its intranet portal, sourcing.ge.com. Here, the community and potential are born.

Every employee involved in sourcing creates an information profile in the system. The profile includes the person’s specific location and business unit, and the product categories he or she is responsible for procuring.

Once registered, the doors open.

The overarching portal tool is sourcing workflow management, which walks a buyer, step-by-step digitally, through the overall sourcing process. It directs the buyer to underlying tools such as:

Strategic sourcing data warehouse: GE compiled a full history of its purchasing spend. "Everything we’ve ever bought is there," says Garbowitz. "Now, we know what we buy, who we buy with, which businesses buy what." Data can be searched by supplier, commodity and time period.

Demand aggregation: If GE Lighting needs to buy $1 million of janitorial supplies in two months, it posts its purchasing requirements. This triggers an e-mail alert to all GE buyers whose profile lists responsibility for janitorial supplies. The buyers outside of Lighting can add their own requirements and get in on the action. Increasing the buy’s size leads to incredible buying power, especially when the buying opportunity is placed in an auction environment.

Corporate aggregation mainly works with categories or products deemed as commodities. Specialized MRO products used by a specific business unit or by a specific plant are purchased at either of those levels. An example is aircraft bearings used by Aircraft Engines plants.

"Any time you have a strategic supplier, we aren’t going to auction that," says Garbowitz.

E-auctions: The aggregated requirements move to a GE extranet application called Source Bid. 

Site-level leaders for that commodity communicate and decide how to auction that buy, and invite targeted, "qualified" suppliers to participate. Suppliers bid for the business that is up for grabs. GE uses its discretion to decide the winner.

"We are very up-front with our suppliers," says Garbowitz. "The system allows suppliers to bid on price, but we always tell our suppliers that there are other attributes that lead to the final decision, such as quality, service, our history with that supplier. That can change whom we award the business to. We understand where the price equation falls, and then we evaluate the total cost of ownership."

(To learn more about GE's relationship with suppliers, click here.)

GE’s first auction was Dec. 15, 1999. Since then, it has held more than 15,000 auctions for indirect and direct materials. Last year, it did $6.4 billion of business in this manner. This year, that figure will reach $15 billion.

Besides saving money, auctioning saves time for supply chain pros.

"We can now consider suppliers we traditionally wouldn’t have time to consider," he says. "A sourcing agent only has so many hours in the day. This allows us to understand if any sort of opportunity exists."

Garbowitz and McCabe believe 40 to 50 percent of GE’s $20 billion annual spend on indirect products is auctionable. In the first half of 2001, GE auctioned 42 percent of that indirect products business.

E-catalogs: Appropriate corporate-contract commodities become part of GE’s e-catalog. When a buyer or empowered plant employee needs a product, he or she visits the catalog, searches for the item and finds it with GE’s contracted price through the contracted supplier. The purchase is completed, quickly and easily, and the purchase order is sent electronically to the supplier. This has greatly reduced maverick (off-contract) spending.

"We don’t have bad people out there. They don’t want to buy on a maverick basis," says Garbowitz. "Sourcing just didn’t make it easy for them to do the right thing. This guides them in the right direction."

E-invoice: GE’s goal is for an entirely electronic process. When the supplier ships the product, GE receives it electronically via a bar code. Scanning the code assures the item was received and triggers an electronic payment to the supplier.

Fifty-three percent of invoices are currently handled electronically.

‘I’ (information) before ‘e’
On top of sourcing workflow management, GE’s Web portal is an incredible information resource for supply chain employees.

When a buyer needed help or information in the past, he or she was limited to co-workers at that site or business unit, or outside acquaintances.

Today, Support Center — GE’s information hub — provides documents on company strategies and practices (for example, its formal policies on e-auctions). It is divided into more than 800 subject matter areas. Each area provides phone numbers and e-mail and chatroom links for GE subject matter experts. 

The spokes of Support Central are Quick Places, mini-communities where employees can post, review and share information.

"You can create your own intranet site around any subject," says Garbowitz. "It’s not any more difficult than creating a PowerPoint document. You set it up, give access to certain people and start sharing documents. Your profile gives you a heads-up to Quick Places of interest to you."

You can do it, too
Garbowitz and McCabe say more than 2,000 GE supply chain leaders are using the e-auction tool and employees have created more than 15,000 Quick Places. Everyone is living and breathing the Internet.

This is massive mobilization by a massive organization. What does all this Webification mean to you?

"You don’t have to be GE, or even a big company for that matter, to make this happen," says McCabe.

The framework for Source Bid, the e-auction tool, was developed at GE Transportation Systems in 1999 for an initial cost of $20,000.

"The tools are out there. Even the vision is not radically innovative," he says.

Adds Garbowitz, "It’s no longer the big ERP module that you’re going to spend $50 million to $100 million deploying over a three- to five-year period. These are $50,000 Internet applications that you can deploy overnight. If you don’t want to go that route, you can hold an auction with an auction service company for $50 to $100. The price point for these things is very, very low. There’s no reason that even the smallest companies can’t take advantage."

Even with the benefit of software and Internet applications, many companies’ e-procurement projects never reach their full potential.

Garbowitz and McCabe stress that execution and process design are the real keys to e-success.

For GE, execution is the result of its Operating System, a year-round process of turning ideas into action.

"When a good idea becomes an initiative, we roll it out through the corporation, put top players in very high levels in all of the companies, get the religion going quickly and leverage our culture of executing," McCabe says. "There is no skating, no getting around an initiative, because you are measured and the business is measured in terms of how this initiative is taking hold. There’s no faking it. It’s taking hold or it’s not. If it’s not, you take actions. You continually test it to make sure it’s breathing."

GE uses the Six Sigma quality/continuous improvement methodology to map and correct process design.

"Nail down the process, with Six Sigma or whatever language your company uses," says McCabe. "Software is not the solution.

It’s your process design and how you execute against it; software is your control mechanism. The software is out there; it’s almost a commodity. Many people make the mistake of buying software and thinking, ‘Poof! I’m going to be digital.’ It doesn’t happen and it wastes a lot of money. They don’t understand their processes up front. Once you streamline, simplify and fix your processes, then use digitization to lock it into place."

A paperless future
Just 2 1/2 years ago, the Internet frightened General Electric. Today, it’s as much a part of the company as light bulbs, Welchisms and Six Sigma. What does tomorrow hold?

Because of the Internet, Garbowitz firmly believes GE will have a 100-percent paper-free procurement process in late 2002.

"There is not a printer within 100 feet of my office," he says. "There is no need for one."

There will also be enhancements to e-auctions that take a supplier’s full range of abilities into account.

"Multi-variant auctioning will allow us to auction not only on price, but also delivery, quality terms and more, all in one environment," he says. "Today, we have a tool that helps us on the price equation, and we do the rest of the evaluation after the auction. In the near future, it will be part of one auction."

GE will move forward with the same approach that brought it to this point.

It knows that e-business is not about in-your-face style, sock-puppet mascots or Generation X.

It’s about common sense. It’s about measurable results that impact the bottom line.

It’s about time.

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