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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 Today we are going to discuss… 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 Significant Impact of Purchasing Decisions
Purchasing decisions directly effect a company’s bottom line, pressuring companies to continually enhance procurement operations Purchasing decisions increasingly complex Economic pressure to lower costs Fortune 1000 spend on external suppliers = $3.5T1 Purchasing decisions critical to corporate profits Changing consumer and corporate buying patterns 1Goldman Sachs. Technology: B2B Software 2/23/2001 Source: Goldman Sachs, Stephens, Inc., Deloitte Consulting

Improving Procurement Operations A recent Deloitte Consulting study revealed that improving procurement operations continues to be a top priority Improved Procurement 79 Improved Customer Service and Satisfaction 78 Improved Customer Relationships 77 Improved Supply Chain Performance 77 Improved Information/Reporting 77 % OF RESPONDENTS WITH “IMPORTANT OR VERY IMPORTANT” SELECTED Revenue Growth 65 Improved Supplier Relationships 64 New / Differentiated Service Offerings 56 Strengthen Existing Competencies 54 53 Reduce Overall Costs 20 40 60 80 Source: Deloitte Consulting. Realizing the B2B Procurement Vision: Trends, Challenges, and Best Practices in e-Sourcing and e-Procurement 2001

6 e-Procurement is rapidly becoming a required set of business practices
92% of respondents to Deloitte Consulting’s 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 The Procurement Process
Procurement operations can be improved by focusing on either Strategic Procurement or Operational Procurement processes Source: Deloitte Consulting

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

10 Strategic Sourcing Challenges
Although strategic sourcing confers benefits, it has challenges Benefits Challenges 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 company’s 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 SME’s geographically scattered Difficult to maintain and leverage institutional knowledge Knowledge deteriorates over time and personnel changes Requires archiving and sharing Source: Deloitte Consulting

11 e-Sourcing Defined

12 Emergence of e-Sourcing
Automation of transactional activities helps purchasing professionals to focus on strategic supplier relationship management 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 Source: Deloitte Consulting

13 e-Sourcing enables the sourcing functions of the purchasing process
Spend Analysis Supply Strategy RFX Negotiation, Contracting Order Planning Execution Supplier Monitoring & Improvement Enabled by e-Sourcing Enabled by MRP / e-Procurement 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 Spend Analysis – How much, on what, with who Strategy – Make versus buy, category prioritization, type of buy (contract / spot), allocation, bundling, supplier selection, method of negotiation Order planning – when and how much Order execution – req through pay Monitoring & improvement – benchmarks, measures, feedback, improvement planning e-Sourcing Components e-Procurement Components 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

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

15 Focus and Time of Purchasing Personnel
Role of e-Sourcing E-Sourcing is an opportunity for companies to transform purchasing personnel from information gathers to strategic decision makers 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 State e-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 e-Sourcing Market Growth Stages
Although the e-Sourcing market is in its infancy; its evolution is expected to occur rapidly Stages of e-Sourcing Market Growth 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 Market expected to mature in three years1 1Stephens, Inc. Strategic Sourcing: Applications to Turn Direct Materials Procurement into a Competitive Advantage. 1/30/2001 Source: Goldman Sachs, Stephens, Inc., Deloitte Consulting

19 Size of e-Sourcing Market Growth
e-Sourcing Market Size The e-Sourcing market is estimated to more than triple in size over the next four years Size of e-Sourcing Market Growth 5-yr CAGR = 60%+1 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 1Goldman Sachs. Technology: B2B Software 2/23/2001 Source: Goldman Sachs, Stephens, Inc., Deloitte Consulting

20 Example Feature Solutions
e-Sourcing Solutions e-Sourcing applications offer solutions to strategic sourcing challenges Challenges Example Feature Solutions 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 SME’s geographically scattered Difficult to maintain and leverage institutional knowledge Knowledge deteriorates over time and personnel changes Requires archiving and sharing Automated process with built-in PMO tools, e.g., milestone tracking and event alerts Pre-built templates and existing documents speed up bid creation and RFX process 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 Source: Deloitte Consulting

21 e-Sourcing Market Players
To date, the market has been dominated by small, mostly private companies with no single vendor appearing to offer a complete solution… …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 Supply Chain Management Collaborative Commerce
A Sampling of e-Sourcing Feature Functionality Currently, e-Sourcing companies differ in their approach, depth, complexity, simplicity, and breadth of features Supply Chain Management e-Procurement Collaborative Commerce 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 Pure Players Analytics Auctions 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
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 BU’s 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. Centrally led P-Org … was well-established in the U.S., but newly formed regional outposts required development Procurement standards & policies existed, but most business units were not familiar with their content and therefore, not always in full compliance Requestors were frustrated with their inability to determine the status of their orders, which often took months to fulfill because (for most commodities), the requisitioning process cycle times were extended due to extraneous activities Redundant technology solutions were being developed by various organizations (i.e. online tech requests), especially the technology support organizations, which have stand-alone asset management systems that needed to be integrated

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 Lynch’s International Regions

27 Once a global system is implemented, Merrill Lynch will be able to:
Defining Success Once a global system is implemented, Merrill Lynch will be able to: 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

28 Merrill’s 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
U.K. Q Canada Q Japan Q Hong Kong Q U.S. Q Australia TBD

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 Our Global Architecture
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

32 Our Global Architecture
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

33 Global Architecture Lessons Learned
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 Preparing Legacy Systems: To optimise the an e-procurement implementation, legacy systems need preparation in select areas. Many companies are performing a “harmonization” of all the existing legacy systems, which standardizes data across the organization. All companies should at a minimum perform data cleanup. Harmonization and data cleanup should include: Supplier Data Standardize naming and numbering conventions – Have consistent standards or cross-references and the processes to maintain these standards Remove any duplicates – Eliminate the IBM, I.B.M., Int Bus Mac, problems in the system (if existing) Create a proper hierarchy - Capture the relationships in your supplier data, especially division of companies. These could be used in leveraging better discounts Remove outdated suppliers Add a DUNS number to each supplier   Account Codes Ensure account structures are in place so a valid account combination in Ariba is also valid in the ERP system. Cleanup account codes and remove duplicate codes, if any exist. Commodity Codes Remove unnecessary commodity codes. Ensure correct description and remove duplicates. User and Hierarchy Data Load all users into the source system; ensure all users in the source system are still employed. Load approval hierarchies into ECS Cleanup addresses, phone numbers and s

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 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: 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 can’t this work for you ?” “Seeing” is very often “Believing” “Best Practice” isn’t always achievable - find an effective compromise Completing the Technical Implementation is often the EASY part … without an effective Change Management program the Project will never truly succeed Anticipate “Push Back” and remain committed to implementing “Best Practices” Ask the question … “Why can’t this work for you ?” instead of asking … “What will work for you ?” “Seeing” is often “Believing” … Create Demo’s and Presentations that are tailored to your audience Sometimes “Best Practice” is not immediately achievable and an effective compromise must be reached (i.e. Distributed Tech Example)

36 What We’ve Learned Benefits don’t 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 doesn’t 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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