2 Buying Channel Summary Buying channel - is a process to specify a need, locate the supplier of that need, determine the terms of acquiring the need and executing an agreement for the supplier to fulfill the need. An efficient and effective procure to pay process contains processes and buying channels that are designed to “fit” different situations and circumstances encountered by end users of the P2P process .Buying channel analysis examines requester need, material type, location, transaction cost, supplier, PO count and size ($).Balances transaction cost, responsiveness, tracking and risk to identify the right channel mix.
3 Transaction Cost per Channel NATCO = 0NATCO = 0NATCO Currently48,000 PO / YearAve Cost: $150 / POCost per PO = $10-15Cost per PO = $40-60NATCO = 0NATCO = 100%Cost per PO = $5-10Cost per PO = $150 plus
4 Transaction Cost per Channel NATCO = 20%NATCO Currently48,000 PO / YearAve Cost: $150 / PONATCO = 40%Cost per PO = $10-15Cost per PO = $40-60NATCO Objective48,000 PO / YearAve Cost: $106/ PONATCO = 30%NATCO = 10%Cost per PO = $5-10Cost per PO = $150 plusNATCO Savings48,000 PO / Year20 man years
5 Procurement Capacity Benchmarks NATCO Currently48000 POs per yearFTEs on Org Chart = 14(not including Engineers time)My Estimate – 650 POs per FTERequiring 74 FTEs to process(Not including AP)Today = 3428Ouch!Very painfullyWith current processUsing a lot of Engineers’And others timeThe Last Unautomated Frontier: How Technology Is Streamlining The Invoice-To-...Scott Dunlap, AFP Exchange; Jan/Feb 2005; ABI/INFORM Global pg. 14.The Purchasing Card Benchmark Report, Aberdeen, March 2005.3/31/2017
10 Detailed Buying Channel Results Supplier Integration - implementation of e-catalog or e-connectivity with a supplier that is currently a major Natco strategic supplier.$50 million($33/yr) in spend with 4 vendors, 8999 POs (6000/yr)Savings 1-2 man years in procurement, $2-5 million in payment discounts
11 Classification Benchmarks UN/SPSC CodeUniversal Standard Product and Service Classification Code. A Global commodity standard - 10 digit, hierarchical code used to consistently classify products and services The UNSPSC is a hierarchical classification with five levels. These levels allow analysis by drilling down or rolling up to analyze expenditures. Each level in the hierarchy has its own unique two-digit code:An example follows:Code: ,Segment: 43, Information Technology Broadcasting and telecommunicationsCommunications Devices and Accessories.Family: 20, Components for information technology or broadcasting or telecommunications Computer Equipment and Accessories.Class: 15, Computers Computer accessoriesCommodity: 01 Computer switch boxes Docking stationsBusiness Function:14, Retail
14 Medium Freq Medium Value High Freq High Valuee-candidatesLow Freq High ValueBuyer assistedMedium Freq Medium ValueE-catalog or pcardpcard
15 Buying Channel Results pCard implementation – implement a pcard program for small value transactions, single transactions with a supplier or field transactions in order to reduce transaction costs and improve requester responsiveness.