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E-Sourcing Today A Perspective on the Role and Scope of e- Sourcing and the State of the e-Sourcing Marketplace.

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Presentation on theme: "E-Sourcing Today A Perspective on the Role and Scope of e- Sourcing and the State of the e-Sourcing Marketplace."— Presentation transcript:

1 e-Sourcing Today A Perspective on the Role and Scope of e- Sourcing and the State of the e-Sourcing Marketplace

2 Today we are going to discuss… Agenda Importance of Purchasing Decisions Strategic Sourcing vs. e-Sourcing Describe the e-Sourcing Marketplace Business Case: Merrill Lynch e-Sourcing Lessons Learned Taking e-Procurement Globally

3 Importance of Purchasing Decisions

4 Purchasing decisions directly effect a companys bottom line, pressuring companies to continually enhance procurement operations Significant Impact of Purchasing Decisions Purchasing decisions critical to corporate profits Purchasing decisions increasingly complex Economic pressure to lower costs Changing consumer and corporate buying patterns Fortune 1000 spend on external suppliers = $3.5T 1 1 Goldman Sachs. Technology: B2B Software 2/23/2001 Source: Goldman Sachs, Stephens, Inc., Deloitte Consulting

5 Source: Deloitte Consulting. Realizing the B2B Procurement Vision: Trends, Challenges, and Best Practices in e-Sourcing and e-Procurement 2001 Improved Procurement Improved Customer Service and Satisfaction % OF RESPONDENTS WITH IMPORTANT OR VERY IMPORTANT SELECTED Improved Customer Relationships Improved Supply Chain Performance Improved Information/Reporting Revenue Growth Improved Supplier Relationships 53 New / Differentiated Service Offerings Strengthen Existing Competencies Reduce Overall Costs Improving Procurement Operations A recent Deloitte Consulting study revealed that improving procurement operations continues to be a top priority

6 e-Procurement is rapidly becoming a required set of business practices 92% of respondents to Deloitte Consultings procurement survey said they have implemented, are implementing or plan to implement an e-Procurement solution Companies targeted indirect goods and services categories for e-Procurement These categories offer quick benefits with little risk Source: Realizing the B2B Procurement Vision: Trends, Challenges, and Best Practices in e-Sourcing and e-Procurement, Deloitte Consulting, 2001

7 Strategic Sourcing Defined

8 Procurement operations can be improved by focusing on either Strategic Procurement or Operational Procurement processes The Procurement Process Source: Deloitte Consulting

9 Instead of awarding a bid to the lowest cost supplier, strategic sourcing calculates supplier value to the purchasing value chain Strategic Sourcing Value Drivers Redesigned processes (order, purchase, consumption) Build new alliances / partnerships / out/in-source Consortium buying Consolidation of spend and vendor base Improved negotiations and contract Use of component-based pricing Develop pricing standards and rate cards Standardized specifications and value engineering Understanding business requirements and needs Enhanced compliance to standards Increased Leverage Uniform Pricing Reconfigure Specifications Partnerships / Alliances Source: Deloitte Consulting

10 Reduces the total cost of ownership through: Consolidation of spending and vendor base Product standardization Partnering for volume discounts and improved negotiations Procurement and vendor process improvements Improves supplier relationships and purchasing processes Considers and compares factors other than price in purchasing decisions: Supplier reputation Production capability Delivery schedule Product quality Improves the overall performance of a companys value chain Requires considerable resources, time and capital to manage and execute Process is manual Tracking and success measurement is manual Typical sourcing project takes 3-7 months Logistical and reporting requirements steal time from value-add activities, e.g., market research Difficult to share / analyze information and optimize decisions Data collected in several repositories Tools not designed for sourcing analysis SMEs geographically scattered Difficult to maintain and leverage institutional knowledge Knowledge deteriorates over time and personnel changes Requires archiving and sharing Benefits Challenges Strategic Sourcing Challenges Although strategic sourcing confers benefits, it has challenges Source: Deloitte Consulting

11 e-Sourcing Defined

12 e-Sourcing tools are evolving to support the entire sourcing process (more than just on-line auction tools) Sourcing is not a one time deal…e-Sourcing tools can help to institutionalize the process across an enterprise Many companies who have implemented e-Procurement tools are realizing that hard dollar savings are linked to sourcing agreements Many companies who are considering e-Procurement recognize that real ROI is dependent on combined e-Sourcing and e-Procurement initiatives Emergence of e-Sourcing Automation of transactional activities helps purchasing professionals to focus on strategic supplier relationship management Source: Deloitte Consulting

13 e-Sourcing enables the sourcing functions of the purchasing process Spend Analysis Supply Strategy RFX Negotiation, Contracting Order Planning Order Execution Supplier Monitoring & Improvement Purchasing Process Analytics and Optimization Virtual project workroom eRFx: RFI, RFQ, RFP On-line negotiations Auctions Contract and Vendor management Electronic catalogs Document workflow Parallel approvals Transaction status Electronic receipt and invoicing Enabled by e- Sourcing Enabled by MRP / e- Procurement e-Sourcing Componentse-Procurement Components How Much On What With who Supply allocation Make v. Buy Category Priority Potential Source Bundling When How much Request Approve Order Receive Pay Benchmarks Measures Feedback Improvement planning

14 e-Sourcing is an evolutionary technology, enhancing strategic sourcing value-added benefits e-Sourcing Value Proposition Price Reductions Auctions Uniform price comparisons across suppliers Increased competition through better reach Cycle Time Decreases Automated process Repeatability / Reusability Improved tracking and management Improved Category Quality Expanded potential supply base Easy aggregation and assessment of potential suppliers Better supplier / category match Improved Decision Making Standardized and visible sourcing process Consolidated data management and analysis Pre-built analytics Streamlined and standardized communication channels Source: Deloitte Consulting

15 E-Sourcing is an opportunity for companies to transform purchasing personnel from information gathers to strategic decision makers Role of e-Sourcing Strategic Buying Establish and maintain long-term relationships between buyers and sellers Focus on supplier selection and contract negotiation Reduces the cost of goods sold and general and administrative expenses Requires data analysis, contract negotiation, and relationship building Non-routine work Transactional Buying Process transactions according to pre- established contracts Place orders with contracted sellers Reduces paperwork processing cost Requires no specialized skills Routine work Focus and Time of Purchasing Personnel Current Statee-Sourcing Source: Deloitte Consulting

16 Role of e-Sourcing Ultimately, e-Sourcing enables organizations to move up the strategic sourcing best practice curve Source: Deloitte Consulting

17 The e-Sourcing Market

18 Although the e-Sourcing market is in its infancy; its evolution is expected to occur rapidly e-Sourcing Market Growth Stages 1. Deepening product functionality 2. Broadening product functionality 3. Competition from and acquisitions by ERP, SCM, and e-Procurement 4. More concentrated consolidation state 5. Emergence of a few winners and one leader TODAY! Key Market Growth Drivers Low-cost communication infrastructure provided by the Internet Ability to generate and guarantee bottom-line results Utilize partnerships to meet customer demand Depth of integration and standardization Perceived product differentiation Stages of e-Sourcing Market Growth 1 Stephens, Inc. Strategic Sourcing: Applications to Turn Direct Materials Procurement into a Competitive Advantage. 1/30/2001 Source: Goldman Sachs, Stephens, Inc., Deloitte Consulting Market expected to mature in three years 1

19 The e-Sourcing market is estimated to more than triple in size over the next four years e-Sourcing Market Size Future Market Trends Applications will grow Markets emerge for outsourced procurement services Markets emerge for the aggregation and warehousing of supplier information Trading exchanges geared toward direct materials procurement will become a poor investment vehicle Increased pricing pressure for applications due to low barriers to entry 5-yr CAGR = 60%+ 1 1 Goldman Sachs. Technology: B2B Software 2/23/2001 Source: Goldman Sachs, Stephens, Inc., Deloitte Consulting Size of e-Sourcing Market Growth

20 Requires considerable resources, time and capital to manage and execute Process is manual Tracking and success measurement is manual Typical sourcing project takes 3-7 months Logistical and reporting requirements steal time from value-add activities, e.g., market research Difficult to share / analyze information and optimize decisions Data collected in several repositories Tools not designed for sourcing analysis SMEs geographically scattered Difficult to maintain and leverage institutional knowledge Knowledge deteriorates over time and personnel changes Requires archiving and sharing Challenges Example Feature Solutions Automated process with built-in PMO tools, e.g., milestone tracking and event alerts Electronic submission over the web, including all bid attachments and specifications Built-in analytic tools provide real-time answers based on consolidated data during the sourcing process Project management e-rooms, template repository and historical archiving allow easy access, sharing, learning and reuse Pre-built templates and existing documents speed up bid creation and RFX process Source: Deloitte Consulting e-Sourcing Solutions e-Sourcing applications offer solutions to strategic sourcing challenges

21 To date, the market has been dominated by small, mostly private companies with no single vendor appearing to offer a complete solution… e-Sourcing Market Players …those companies able to maintain strong capitalization and enhance advance functionality (e.g., knowledge management, decision support) will lead the market Source: CIBC, Deloitte Consulting

22 A Sampling of e-Sourcing Feature Functionality Currently, e-Sourcing companies differ in their approach, depth, complexity, simplicity, and breadth of features e-Procurement Supply Chain Management Collaborative Commerce Pure PlayersAnalyticsAuctions Functionality: Expand e- procurement product offering to include e-sourcing Vendors: Ariba Key Features: Provide e- Sourcing applications to support depth and breadth of supply chain management solutions Vendors: i2, Manugistics Key Features: Leverage e- Sourcing as part of enterprise B2B solutions Vendors: Agile, Atlas Commerce Key Features: Provide only e-sourcing applications and services Vendors: Frictionless Commerce, B2E Markets Key Features Focus on decision support through sensitivity, gap, and scenario analysis, etc. Vendors: Sharemax, Expert Commerce Key Feature: Support on-line reverse auctions Vendors: Free Markets, BayBuilder Source: CIBC, Deloitte Consulting

23 Business Case: Merrill Lynch e –Sourcing Lessons Learned Taking e- Procurement Globally

24 How Do Organizations Take e-Procurement Globally ? Merrill Lynch Case Study How Do Organizations Take e-Procurement Globally ? A Merrill Lynch Case Study

25 Project Background Centrally led Purchasing Org. in U.S. … fragmented globally Procurement standards & policies existed, but BUs not always in compliance … policies varied widely by region Requestors were frustrated, as orders often took months to fulfill Suppliers were frustrated, as payment often took months to process 5 separate regional instances of Oracle Financials currently exist Redundant purchasing programs exist (and others are being developed) across our various regional locations Ariba Buyer is currently implemented throughout the U.S.

26 e-Procurement Objectives Achieve greater efficiency and reduce the overall cost of procurement throughout Merrill Lynch Standardize the procurement processes on a global scale, while simultaneously allowing for specific regional requirements Implement an e-procurement solution that would incorporate best practices and provide an immediate ROI Focus selection and design efforts on ease of use, flexibility, and scalability, all of which were critical considerations given the size and decentralized structure of the Merrill Lynch environment Design and implement a solution in the U.S. that could be leveraged across Merrill Lynchs International Regions

27 Manage the procurement processes of the organization within globally consistent policies and procedures Easily enable all employees to buy from established, corporate agreements and reduce costs Identify efficiencies that were achieved in the area of buyer intervention and customer satisfaction Encourage a one company, one organization culture Offer seamless procurement services through a common portal Operate within a common procurement system platform Once a global system is implemented, Merrill Lynch will be able to: Defining Success

28 Merrills Global e-Business Strategy Step 1: Manage our spend and optimize our regional procurement processes through the implementation of an e-procurement system (Ariba Buyer) Step 2: Gain access to a more global supply base and reduce our enterprise-wide procurement costs by leveraging the value of other developing e-services (ACSN, e-markets, etc...) Step 3: Enable corporate-level strategic sourcing, while simultaneously allowing for regional & local procurement requirements Step 4: Extend our e-business efficiencies across other parts of the organization by integrating separate ERP instances and consolidating various applications into a single portal

29 Global Deployment Plan Canada Q U.S. Q U.K. Q Japan Q Australia TBD Hong Kong Q

30 The Application Architecture Dilemma On one hand, only centrally managed systems can coordinate and serve a worldwide user base and provide efficient database management and economies of scale However, users will demand personalized local service consistent with the culture, language, time zone, laws, currencies, and business practices of their own region

31 Globally defined information: Common Supplier Codes (DUNS Standard) Common Commodity Codes (UNSPSC Standard) Roles and Permissions Locally defined information: Accounting information Approval hierarchy information User and address information Workflows & approval rules Our Global Architecture

32 Some information is defined on both the global and local level: Catalog Content Units of measure & currencies Supplier information Commodity Codes Varying degrees of ERP/legacy system integration Reporting will allow for global visibility and spend management Tax calculations will be handled outside the core system Custom reports will be generated to facilitate back-end VAT calculations Our Global Architecture

33 It is critical that the organization perform a vendor consolidation exercise prior to implementing a global e-procurement system Adopt the DUNS Standard for defining Common Supplier IDs Attempt to standardized business processes as much as possible and pushback on region-specific business rules To optimize an e-procurement implementation, legacy systems need preparation in several selected areas Supplier Data Account Codes Commodity Codes User and Hierarchy Data Global Architecture Lessons Learned

34 Implementation Strategy Organize a project team designed to handle a global implementation Complete preliminary data gathering effort to identify / assess: Organizational team / resources Key suppliers and commodities Required system interfaces Regional funding requirements Concurrent initiatives / programs Determine high-level roll-out strategy and deployment plan Perform functional requirements gathering / analysis Complete a pilot implementation for each region

35 Change Management Understand that the technical implementation is the EASY part Develop and follow a detailed communications plan Anticipate organizational push back and be prepared Ask the question … Why cant this work for you ? Seeing is very often Believing Best Practice isnt always achievable - find an effective compromise Moving rapidly with an e-procurement initiative raises the need for a structured change management program Our experience to date has identified several key lessons learned:

36 What Weve Learned Benefits dont just happen; they must be deliberately targeted and managed Organizational changes will occur - systems people become business partners Implementing an e-procurement solution is not just a technology project Benefits and capabilities build over time as experience grows The one size fits all approach doesnt always apply globally The quality of the delivered system reflects the quality of the resources you apply Organizational resistance is often directed at the system, but the resistance is really about process change

37 Questions & Answers


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