Heinz plans to conduct 60 per cent of its European purchasing negotiations through online auctions as part of a major cost-reduction strategy.

The food group expects the value of its European eprocurement to have reached $1bn by 2004, with cumulative savings forecast of five to 10 per cent.

Further benefits are predicted with the use of new software tools and an effort to drive online purchasing adoption up to 60 per cent.

'Over 40 per cent of direct and indirect spend will be through e-sourcing, but we plan to completely migrate 60 per cent of manual negotiation activities over to an electronic process by 2006,' said Rob Hemsley, general manager Heinz European Procurement, at the annual Chartered Institute of Purchasing & Supply conference in London last week.

Heinz began its global eprocurement programme in March 2000 with a pilot scheme. In September 2001 it embarked on the global rollout of supplier Freemarket's QuickSource online self-service tool so buyers could electronically negotiate prices.

'It sits in front of buyers on the internet,' said Hemsley. 'We don't have a piece of software that we own. It would not be the right thing to do as the technology would develop a long way. We have not invested in our own software and wouldn't want to.'

Hemsley says the uptake of online purchasing was dramatic.

'However, you can have all the technology you want, but if you want to drive it through, you must engage people,' he said.

'Giving a mandate to suppliers telling them they must use e-sourcing is a great start, but to get 40 to 60 per cent penetration, you need a regular dialogue with suppliers and buyers to get acceptance through persuasion.'

To achieve greater adoption, Heinz uses education and training, holds regular workshops and rewards achievements with recognition.

'Emails are sent to purchasing individuals across Europe outlining what savings have been achieved through each event,' said Hemsley.

Heinz scrapped a site-based purchasing approach that had responsibilities spread across Europe, to create a European buying team with commodity-specific purchasing in multiple locations.

'E-sourcing is only part of the purchasing process. It is not a strategy in any way and must be adapted to support a strategy,' said Hemsley.

Around 95 per cent of the 700 purchasing events conducted by Heinz since 2001 have been through reverse auctions, where suppliers make offers on price and items are split into lots.

'A lot of buyers think you get the best price out of suppliers by bluffing but the less bluff, the more transparency and the more suppliers respond to competitive pressures,' said Hemsley.

In the future, Heinz plans to pilot new tools 'as technology develops at the rate of knots.'

Eprocurement will develop by optimising auctions to manage variables other than just price.

'Optimisation leads to a more dynamic process where it is made easier for suppliers to offer the best deals, increasing savings,' said Hemsley. 'The question becomes how many suppliers do you want.'