January 26, 2009, 10:34 AM — General Electric's supply chain is not simply enormous. It's a byzantine web of sourcing partners, touching all corners of the globe: 500,000 suppliers in more than 100 countries that cut across 14 different languages. Each year, GE spends some US$55 billion among its vast supplier base.
Long-time GE CIO Gary Reiner knows this problem all too well, since, among his other duties, he is responsible for how the $173 billion conglomerate spends that $55 billion, utilizing GE's Six Sigma practices and taking advantage of its hefty purchasing power. (GE, for instance, buys $150 million in desktops and laptops each year from a single supplier, Dell, at "a very low price," Reiner has said.)
For years, GE's Global Procurement Group faced a challenging reality: trying to accurately track and make sense of all of the supply chain interactions with half a million suppliers-contracts, compliance initiatives, certifications and other critical data, which needed to be centrally stored, managed and made accessible to thousands across the globe. GE was using what it called a Global Supplier Library, a homegrown system that, Reiner says, had "rudimentary capability."
Reiner and his staff knew that GE needed something better, but they didn't want to build it. They wanted a supplier information system that was easy to use and install, could unite GE's sourcing empire into one central repository, had multilanguage capabilities, and also offered "self-service" functionality so that each of its suppliers could manage its own data.
But to get there, Reiner and his IT and procurement teams took a different route. In 2008, GE bought the application of a little-known software-as-a-service vendor that would ultimately become the largest SaaS deployment to date.
Software-Buying As Usual for GE
Reiner's decision to purchase Aravo's Supplier Information Management (SIM) SaaS product seems to be just like any other software decision that he and his team have made during the 13 years he's been GE's CIO.
"When we judge a solution, we are indifferent to whether it's hosted by a supplier or by us," Reiner says. "We look for the functionality of the solution and at the price." And that, he claims, has been the way they've always operated. Reiner says that his group doesn't see a big difference in cost and in capabilities between on-premise and SaaS products. "And let me emphasize," he adds, "we don't see a big difference in cost either from the point of view of the ongoing operating costs, or the transition costs."
Furthermore, Reiner says that when looking at implementation costs, "they're largely around interfacing with existing systems, process changes and data cleansing," he says. "Those three costs exist regardless of whether GE hosts that application or whether the supplier hosts that application."
According to survey data, at least, many of Reiner's peers aren't as open to SaaS options. Forrester Research's 2008 surveys of software IT decision-makers found that just 16 percent of respondents said they were already using or currently piloting SaaS applications. Conversely, more than 80 percent were still on the sidelines-curious, for sure, but not yet completely sold or running SaaS apps right now: Forty-six percent said they were interested in SaaS or planning to pilot; 37 percent said they were "not at all interested."
SaaS concerns range from integration and total cost of ownership to security and pricing, according to the Forrester data.
Did the sheer scale of GE's needs, combined with the Aravo technology platform, which was untested at GE's level of requirements, and its just 20 or so customers concern Reiner? "We were concerned about that," he concedes. "But that would have been a concern if we had hosted the software on our own servers. We knew [Aravo] could handle it."
Plus, Reiner says that no other supply chain vendor offered the type of functionality that Aravo's SIM product offered, and Reiner and his team reasoned that it was much cheaper to buy than build. "We'd much rather work with them," he says, "than build it on our own." (One GE sourcing manager told Aravo that GE's ROI on the project is not just positive, "it's massively positive.")
As to any lingering security concerns, Reiner says that GE "takes our security very, very seriously. We would never put virtual data outside the firewall unless it was secure." When asked how he knows for sure that GE's supplier data is secure outside his firewall, he says, somewhat ominously: "Audits."
One of Biggest SaaS Rollouts Yet
Reiner downplays it in an interview, but the ripple effects of GE's SaaS embrace spread far and wide.
"They're using SaaS for 100,000 users and 500,000 suppliers in six languages: that's a major technology deployment shift," says Mickey North Rizza, research director at AMR Research. She says that the sheer volume of transactions, combined with the fact that GE supply chain and procurement employees around the world can now access the same sourcing partner information, all from the same central spot, is significant not only for the supply chain management space but also for the SaaS and cloud computing world.
"Finally we have a very large company tackling the [data] transparency issue by using a SaaS product," North Rizza says. "It's a huge deal."
So far, the thorny issue of data quality in GE's supplier data has been improved, because suppliers now use the self-service capabilities in the SaaS system to manage their own data. GE has 327,000 employees worldwide, and its sourcing systems have more than 100,000 users. There is still more work to do to the SIM platform-for example, GE sourcing employees will add more workflows and new queries to the system; more languages might be added as well (six are operational now).
Reiner says that GE is committed to working with Aravo for the long term and that the system has performed well so far. And SaaS, as an application delivery mechanism, appears to have a bright future at GE.
The company has experimented "quite a bit" with Google Docs, and "we like what see so far," Reiner says. "Though the predominant approach is still that we host it, we're a big company, and you'll find something of everything with us."