Verizon applies business intelligence to dodge procurement problems

Times are tough in the telecommunications industry. The effects of deregulation coupled with the economic downturn hitting all business sectors has made belt-tightening and increased efficiency the order of the day.

Verizon Communications, a New York-based telecommunications powerhouse, is no exception. Every dollar saved helps the bottom line, and every expenditure must be scrutinized to ensure the best value for the money. To accomplish that goal, the company has deployed e-procurement and business intelligence software.

Verizon's first e-procurement move was to implement Ariba's Ariba Buyer, an application that helps automate the procurement process by tracking expenditures and helping the company ensure compliance with negotiated contracts. Verizon's installation of Ariba Buyer, which went live in January 2001, runs on two clustered HP-UX-based Hewlett-Packard N4000 servers in the company's Blue Hill, N.Y., data center.

Ariba Buyer gave Verizon's analysts more detailed transaction-level data about what the company's employees were buying--information the company never was able to gather before. But the Ariba system was pulling information from the company's production database, which caused problems. "We couldn't have people running queries against Ariba while other people were trying to enter data into the system," says Brian McMillan, Verizon's director of supply chain order management systems. "It's very easy for one person to run a query that locks the whole database up. We needed a way to do this offline."

To solve the problem, Verizon engineers, in concert with consulting firm ProLink Services LLC, of Falls Church, Va., chose to extract data from the Ariba application and send it to a separate data warehouse developed on the MicroStrategy 7 platform. Because Verizon had previously used business intelligence software from MicroStrategy to analyze spending data on a similar project, it felt comfortable turning to MicroStrategy's technology again.

The MicroStrategy data warehouse, which runs on a collection of IBM eServer xSeries 230 servers in the Blue Hill data center, went live in January 2002. The system allows for both basic and enhanced reporting. At the basic level, the system provides purchasing managers with purchase-order detail that identifies which Verizon employees are ordering supplies and what they are ordering. Enhanced reports allow analysts to correlate the company's accounts payable data with purchasing data and price compliance reporting. By marrying the data, analysts can determine whether they are indeed receiving the negotiated prices or whether they are paying more than they should based on previously agreed-upon terms.

The next phase, which was due to kick off in May and be operational by August, will allow analysts to perform what McMillan calls "bypass analysis," to determine who is buying against Verizon's prenegotiated contracts and who is buying the same products from non-contracted suppliers--something that happens quite frequently, McMillan says.

"We may have a contract with Staples listing 3,000 preferred items, so it's important to know who is going to Office Depot to buy their office supplies," he explains. "We also want to know, for those people buying from Staples, if they are buying the items we have under contract or not. This is the type of information that allows our sourcing folks to negotiate better deals."

McMillan's team also plans to use the business intelligence system to help rein in travel costs. "When we negotiate a deal with a preferred carrier and negotiate preferred rates on certain routes, we need to know if people are actually flying those routes," he says.

McMillan says the early returns look promising. He estimates the Ariba and MicroStrategy software stand to save the company a significant, but unspecified, amount of money.

Once the current phase is completed, McMillan says analysts will develop queries and analyses around contract compliance reporting. The goal, he says, is to provide sourcing process managers with the ability to analyze existing contracts and use the information to negotiate more favorable and effective types of contracts.

"Based on what we find, we might choose to negotiate a contract where we get rebates at certain purchase levels rather than a contract that emphasizes discounted unit pricing," McMillan explains. Using the system for contract compliance reporting also will help analysts take better advantage of negotiated product warranties--something that often gets overlooked in a situation where the asset volume is so large and difficult to track, he says.

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