WorldCity Business Magazine

At the source

by Mary Dempsey

Carlos Rojas says companies pushing to improve their bottom line used to have two choices: boost sales to make money or cut costs to save it. His company, Advance Sourcing International, with a new office in Miami, maintains that they can do both.

The company is so confident of its ability that it calculates its fee as a percentage of the money it saves for customers. If it can’t get them a better deal than the one they have, there’s no bill.

“They don’t have much to lose by trying us,” says Rojas, CEO of the Colombian company which, in August, started the process of transferring its corporate headquarters to South Florida. Although back-office work will remain in Bogota, Rojas says a base in Miami will let the company tap a key market: the Latin American regional offices of multinational companies.

“We help companies save significant amounts of money in their supply chain. Companies have always been careful about optimizing sales, looking for more profits. But purchasing and sourcing have been left behind,” Rojas says. “They have been trying to save money but only in their internal processes. Companies now need to look for new frontiers for additional savings.

“Sometimes those savings are very large,” he adds. “There’s a lot of money in the supply chain.”

Rojas says the data-mining technology tools used by Advance Sourcing International offer good results for large and complex purchases. That means targeting companies with multiple plants, several product items and several suppliers. He maintains that the Latin American divisions of some companies do not have adequate resources to take apart and restructure their procurement systems. Nor do they have cutting-edge procurement processes in place. That’s where Rojas’ company comes in.

Global sourcing, or offshoring, started as a move to drive down corporate costs. But the practice has evolved beyond simply procuring supplies more economically, and its impact on the bottom line has grown dramatically in importance.

Technology research company Gartner predicts that global sourcing in the field of technology alone will reach $50 billion by 2007.

In this competitive arena, players like Advance Sourcing International use software systems to analyze whether a company should buy or rent equipment, buy new or used, buy now or later. They crunch numbers to determine whether it is more cost efficient to broaden, or even narrow, the base of suppliers. They can factor in company philosophies, including a preference for local suppliers or the use of certain security measures, to reveal how much the practice costs or saves.

In Latin America, Advance Sourcing International operates under the name ServiceUno. One of its longest and steadiest customers has been Hocol, a Colombian oil and gas exploration and production company. The first contract ServiceUno arranged in 2001 saved the energy company 14 percent on a single line item.

“They have very advanced software. It allows you to play with historical information about the company, market intelligence and auction information. We are calculating total costs, something we didn’t do before” says Alejandro Mejia, Hocol’s supply chain manager. “For us to purchase that software on our own and analyze the results would be very expensive.”

Mejia says Hocol has seen average savings of 15 percent behind the analysis and advice of ServiceUno. When it comes to pipelines, one of the oil company’s largest purchase categories, it saves 20 percent.

Hocol’s initial contract with ServiceUno used a reverse online auction one of the first in Colombia to contract temporary workers for the energy company. “Our first auction was in 2001, scheduled for 10 a.m. on 9/11,” recalls Rojas. “Then the bidders started calling, saying I cannot participate, my sister is in New York.’”

The auction was delayed for several days. In the end, Hocol not only saved money, but it did so by re-contracting with its old suppliers. Those suppliers had competed in the auction, revamping the terms of their past agreements so they could hang onto the oil company’s business.

But technology-based procurement isn’t the beginning and end of the story. Advance Sourcing International also markets to niches that are underserved and keeps its own costs low.

“This is a cost-conscious company. Just look around the offices. They are not extravagant,” says Yuda Saydun, president of Genventure Corp., a corporate-strategy consulting firm. “They are also able to lower their own cost base by keeping their backroom in Latin America, where the cost of software or even of a consultant is less expensive than in the United States.”

Saydun, a supporter of technology-focused entrepreneurs, has taken an interest in the Colombian enterprise and serves as president of its fledgling Miami office. “The software they have access to is very cutting edge. That’s what I found so interesting,” he says.

Miami is slated to become Advance Sourcing International’s corporate headquarters next year. South Florida puts the company in closer proximity to Latin American regional offices, but it also offers the promise of access to capital as the company expands. Entrepreneurs in many Latin American countries complain about their lack of access to capital and the high cost of borrowing when it is available.

Rojas, an industrial engineer, had worked with Andersen Consulting, the branch of accounting company Arthur Andersen that later became Accenture, in Bogota. He left the company to start Procalidad, a business-management consultancy he owned with his father, before he launched ServiceUno. His partners in ServiceUno are established figures in Bogota’s business community, including Hugo Estrada and Gabriel Remolina, who run business management consulting company Remolina Estrada, and Occidental Petroleum President Steve Newton.

ServiceUno’s initial focus was on reverse Internet auctions, then an innovative tool that established a system for pre-selecting qualified bidders who would have a fixed amount of time to tender bids online for contracts. “The Internet created a new transparency. Suppliers could change bids as many times as they wanted within the allotted time of the auction. They could see what everyone else is bidding,” Rojas says. “The competition was important. You can run a 100-meter dash by yourself, but if you run against a group you make a better effort.”

Printing companies, banks and electric utilities counted among the early adopters of the new procurement strategies. But ServiceUno started to feel constrained in the auction niche. “That mechanism, online auctions, means being fully focused on prices and fees. That works well, particularly for commodities and non-core products and when a company isn’t concerned about long-term relationships,” Rojas explains. “An auction is a tool to be used where it makes sense. But it’s not the only tool.”

ServiceUno recognized that more complex solutions could yield even more impressive results. It started looking offshore, at China, India, Vietnam, Turkey and elsewhere in Latin America to set up alliances.

“And we wanted to get more into each business. We wanted to go beyond just sourcing. We wanted to analyze strategies, look at best practices,” Rojas says.

For a ceramic tile company, it improved the quality of the packaging to reduce losses from breakage, centralized the purchasing system and encouraged long-term agreements. The result was an annual savings of $1.5 million.

Another large company hired the sourcing experts for help with cardboard box purchases. “They had 1,500 cardboard box line items. Imagine what was involved in negotiating all those items separately,” says Rojas. “So we decided to negotiate on the basis of overall square meters of cardboard. We reduced the price list from 1,500 to 20 items.”

Among its latest challenges, Advance Sourcing International is helping companies source their own aircraft.

Rojas says there are times when they forget about simply trying to cut costs, item by item, and seek a supplier’s suggestions about radical changes. “You go to the supplier and say, Here’s my sourcing situation. Give me ideas. Quote all the different scenarios for me,” he says. “Many times the suppliers are more knowledgeable than the buyers when it comes to what’s available.”

As the company grows, it is remaining dedicated to its home region—at least for now. “Our main focus is Latin America,” says Rojas. “We’ve established ourselves as a leader in advance sourcing in Latin America. We would like to expand within the United States eventually, but for now we want to continue working within the region for companies, including those who have their Latin American offices in Miami.”