Driving Buyer-Seller Collaboration Through E-Sourcing

B Driving Buyer-Seller
Collaboration through
E-Sourcing
Sundar Kamakshisundaram – Ariba
Alexandre Sayre – Schindler Corporation
Jacob Larsen – Maersk
Alex Romera – Staples

© 2012 Ariba, Inc. All rights reserved.

Agenda

Introduction

Panel Discussion
Schindler Corporation – Alexandre Sayve
Maersk – Jacob Larsen
Staples – Alex Romera
Q&A

2 © 2012 Ariba, Inc. All rights reserved.

There’s Savings…and Everything Else

Top 2 CPO Pressures
Source: Ardent Partners, 2011

Collaboration Is King

Top 2 CPO Strategies
Source: Ardent Partners, 2011

What Are Analysts Saying about
Sourcing? Source: “Strategic Sourcing in the Mid-Market Benchmark”, Aberdeen Group.

But can you balance this against your current level of performance?


Evolution of Sourcing
Community
Technology
Capabilities

Collaborative
Business Sourcing
Value

Strategic
Sourcing
eSourcing

Manual Sourcing
Timeframe


E-Sourcing
Alexandre Sayve
Global eProcurement & eSourcing Manager
Schindler Group AG


Schindler Purchasing Excellence

Alexandre Sayve
Corporate Purchasing

© Schindler | MAN | Alexandre Sayve | Page 8

Schindler Lucerne 1874
Founder Robert Schindler

Plant 1900

Controller 1930
Drives 1954 Cars 1890

Lift boy

Our Product Is Mobility
Hotels Office buildings Hospitals Airports

Factories Ships Residential Shopping centers
buildings


We Move 1 Billion People Every Day
Leadership through customer service

2011 Stats:
Turnover = CHF 7.9 B
EBIT = CHF 780 Mio / 12%

Schindler Purchasing
Excellence


eSourcing and Supplier Collaboration
– Spending on purchased goods & services can represent up to 70%
of company’s cost, which obviously makes purchasing a critical
and strategic priority for improving company’s bottom-line results

– Automated sourcing process & solutions have enabled
organisation to eliminate cumbersome & manual processes,
shorten time cycles, better management of supply chain and
cost reduction

– As a consequence, the sourcing function is much more strategic
and acknowledged as such.

– The problem is some purchasing professionals still have a
single-minded focus on price, where suppliers are squeezed for
price reductions and policies are made to restrain maverick
spending, which creates tensions with supplier responsible for the
innovation and product/ service improvement making collaboration
very difficult or impossible.


Requirements for eSourcing & Supplier Collaboration
– Robust Procurement process with correct classification of products and services used globally within
the organisation
– Robust spend analysis in order to get full visibility on volume engaged with suppliers
– Define a clear strategic sourcing roadmap by commodities (direct/ indirect) starting with the low hanging
fruit and quick win savings to then more complex commodities.
– A number of factors drive where & when to begin quite often the decision is driven by another
question… How much do you want to save?
– A differentiator also being tendered via RFX and/ or eAuction?
– RFX drive process efficiencies vs. eAuctions drive best value!
– You can tender everything… not so eAuction
– Choose an area where real desire / need exists to improve or maximise best value.
– Always keep in mind speed to market
– Make sure you own the award / decision process
– Avoid areas with known supply chain difficulties or volatility
– Avoid significant change management / internal political issues (KISS)
– Pick a commodity or service that is straightforward for which you can provide a
watertight specification

Select Suitable Commodities & Services
Example of check list / qualifying questions
Score low / med / high & look for most highs
– Level of your current purchasing influence - Compliance

– Level of expected support from key stakeholders

– Do you have exact specifications?

– How many potential competent suppliers <3, 4-8,>9+

– Type of buy: Spot, Single source contract, Frame agreement

– Value of spend: less than, equal to or higher than market norm?

– Can you roll into 2 or 3 year contract? Increase supplier appeal?

– Regional / National / International supply?

– Is now a good time to buy?

Historic eAuction Areas Yielding Significant Returns

– Both direct and indirect areas where a large supply base
exists preferably with 1st & 2nd tier supply option
– Remember …COMPETITION (real or perceived!) is key
– No.1 Stationery including Paper
– IT from Hardware to Software & Consumables
– Commercial Print
– Facilities Management
– Logistics / Courier Services / Freight
– Fleet & Insurance
– Utilities
– Telephony - inc. mobiles
– Clothing / Workwear
– Temporary Labour / Recruitment / Training
– Professional Services – Travel / Travel Management
– Data Storage – System Integration

Sweet Spots…

– Renewing existing contracts

– Securing new consolidated spend opportunities

– Improving value from spot purchases

– Maintaining best market price

– Keeping the incumbent in check!


Benefits of e-RFX
Ideas for you to consider
– Expedite negotiations more effectively
– Reduce time with the evaluation process & scoring
– Efficiently request / exchange of information with market
– Can fully automate RFX rounds
– Provide greater clarity & consistency for all parties
– Easier to track & journal all communications to repeat through time
– Aids electronic data capture & knowledge sharing within Schindler
– Common standards / compliance on T&Cs, Code of Conduct…
– Drive negotiations from weeks & months into days & hours!
– Easier internal liaison with your stakeholders
– Improved & streamline workflow process
– Easy roll over into eAuctions for final terms and price negotiation
– More and more of your larger suppliers prefer to do business this way
– Improves purchasing control

Benefits of eAuction
Constructing Lot for Maximum Return

– Before deciding lot strategy decide on best type of eAuction
(i.e. Forward / Reverse, Dutch, Japanese or blind bids? etc.) This is key to a
successful event
– Identify the core component costs (stationary):
– Volume purchase 200 to 300 line items (reverse)
– Rest of catalogue start not per item but as % discount off all items in catalogue
lot (50%) – (forward)
– Credit terms line item– start at 30 days (forward)
– Consider supply base i.e. allow regional suppliers to compete with national suppliers
by dividing supply requirements up into regions
– Even complex requirements such as the Audit can be auctioned as a single line item,
provided buyers have very good specifications pre the event
– Buyers often still seek to extrapolate key cost components as part of the basket / lot
in line item format i.e. cost of printing the annual report …once this is known it is
possible to decide if the PS fee to produce this as part of the service represents
good value?
– Often it is not and the printing can be sourced directly by the buyer (negotiating the
cost out of the overall audit fees)

Steps to running a successful event
– PLAN…Not to Plan is to Plan to Fail!
– Avoid commodities or services which have significantly escalated in price or that
are strategic to your business or are volatile
– Keep the auction simple & if it is a first request support
– Make sure you have a competitive environment…sufficient value / supply base
– Double check everything & agree a strategic game / event plan
– Appoint an internal auction lead / event owner
– Select a commodity or service where you have a real demand…& award control!
– Select something which has at least 3 suppliers capable of bidding competitively
– Choose a suitable tool / platform with appropriate event decrements / increment
capabilities along with type of event options / functionality
– Maximise the appeal of the eAuction to suppliers… the greater the value the better…
ensure you have water tight SLA’s if consolidating or amalgamating contracts!
– Create a competitive environment / buying options
– …increase your negotiation power and the dynamic of competition between your
selected suppliers
– …provide direct feedback to your suppliers where and how to improve their cost structure
– …reduce your negotiation time, effort and cost significantly
– …are handled with fairness, guaranteed by supplier trainings and by providing same
chance and information to all participants


Steps to running a successful event

– Decide on your other selection criteria & go through an RFP process prior to the auction
– Eliminate Suppliers who you would not select for technical, functional or other
commercial reasons prior to the price auction. Implement killer Qs
– Spend time training your bidding suppliers
– Make sure your suppliers are commercially prepared - i.e. they have internal bid support
and key position holder for price decrease
– Consider advising all suppliers that you may not award the contract to the lowest bidder
& may award based on “best overall value proposition”
– Make sure you have a technical helpline available to all your bidders / participants
– Make sure you have a trained backup to your auction lead…and a contingency in the
event of power failure, etc.
– Establish a start price and historic price to compare savings driven during the event
– Allow Suppliers to increase their bids in a reverse auction
– Charge Suppliers to participate to an auction
– Allow Suppliers into the auction who you are not prepared to award the contract to
– Squeeze more out of the best two suppliers by inviting them in!
– Ask too many suppliers to participate!
– Bid yourself to encourage a lower price


Steps to a Successful Event…

The simple key to success with
eAuctions is PREPARATION!


Therefore Plan Your eAuction Strategy

Key Decision Points
– Which suppliers to invite?
– Those who can bid for all vs. some lines (Qualify)
– Those who have met all the pre-qualification criteria

– How to structure your auction
– Single or multiple line / lots
– Price or price & attribute weighting?
– Careful planning settings, auto extension, bid decrements…

– Award criteria
– Weighting from pre auction evaluation
– Stick to the T & Cs…Use already published approach


Turning Suppliers into eSourcing Champions
– Keep suppliers informed of your planned actions be they eTender or eAuction
events…No red curtain moment!
– Train suppliers
– Engage suppliers…ask for feedbacks on the process and areas of improvement
– Establish event rules document them and forward them inc. event timings,
preview etc.
– Establish a lead supplier contact – head honcho! As pricing will go way beyond
a Sales Exec. or Account Managers authorisation obtain contact details
– Provide potential suppliers with sufficient time to respond / prepare…this differs
by product / service / commodity / region & country
– Establish an opening bid price preferably prior to the event opening and ask
they enter this.
– Be prepared for the immediate reaction “We do not participate in eAuctions” !
Especially from the incumbent…Shame because 60% of the time they win
– Provide a bidding buddy to cajole / coax / act as an internal reference point for
all suppliers in the negotiation
– Allow surrogate bidding - subject to conditions
– Sell the event to them… but avoid advice on bidding!


After the Event

– Remember you will potentially have more losers than winners! Speak to all within
24 /48 hrs
– Ask all participants to confirm details / final submission via email in writing
– Stick to your notification re award / negotiation decision – event debrief - as
published prior to the eAuction
– Seek feedback …Ask what they liked? did not like? (learn from the experience)
– Keep them warm as you may want to re-engage them next time around!
– Key to a successful buyer / supplier relationship is communication…do not be
afraid post award to explain at a high level the reason behind the award decision.
Take care if using a combination of weighting & price in an event as you may
legally have to substantiate weighting or transformational imbalances. These are
often subjective and open to scrutiny!
– Often eAuctions in particular are cited as being useful only once…NOT SO… they
will always extract best price at the time you go to market (if constructed carefully)
as suppliers can see what it is they have to do to win your business…so no more
sucking teeth or huffing & puffing!
– We still need the buyer to determine when is a good time to go to market
…remember the technology is simply a tool! Use it wisely!


Common Mistakes!

– Poor technology
– Insufficient Planning – expertise
– Not thorough enough with pre-selection criteria
– Did not have buy in – control over order!
– Cherry picking – Wanted more off?
– Overly complicated event – process
– Inappropriate weighting / scoring
– Can’t back up transformational bidding
– Too many / few suppliers!


Lessons Learned and Results
 The Ariba Sourcing solution was successfully rolled out in our 4 main regions as planned:
North America, Latin America, Asia Pacific and Europe
 Comments and feedbacks from our team were extremely positive
Managed a survey under Ariba Sourcing with an average score of 4.2 out of 5
 In total 100 buyers and commodity managers were trained and transferred onto
the new tool
 12 projects already managed around the 4 zones since training including two
fully completed
 Further training will be required around the world in order to overachieve CHF 690 Mio
Sourcing target per year, increase traction and momentum
 In addition advanced Sourcing training and tactics including Full TCO approach with cost
model transparency to be delivered -> Sourcing 2.0
 Planning on developing the template library extensively in order to share knowledge
across the region as we have a fragmented organised
 Ultimately the goal is to rollout the other modules by 2012-2013 along with a special focus
on Spend Visibility first, followed by SPM and CM.

Key to Success
 Strong support from Top Management (From CEO to CPO)
 Detailed communication plan on project
 Implication of Buyers and Category Managers at zone & group level during the
preparation and implementation phase to improve processes and create
momentum
 Strong training program including super admin training of regional coordinators
in order to support other buyer locally in case of issues / problems on top of
Ariba support
 Plan additional training later on to increase traction and increase use of tool and
more importantly use of advanced functionalities
 Avoid implementing all modules / functionalities at the same time if the
organisation is not ready
 Creating the perfect system from Day 1 is almost impossible – your process and
tool will evolve with time and your user community


E-Sourcing
Jacob Larsen
Global eProcurement & eSourcing Manager
Maersk


Buyer-Seller Collaboration
at Maersk


Company Overview


Organisational Overview


Maersk E-Sourcing Program


APMM E-Sourcing Strategy


Key Take-ways for Buyer-Seller
Collaboration in E-Sourcing


E-Sourcing
Alexa Romera
Staples


Q&A

Contact info:
Sundar Kamakshisundaram: sundar@ariba.com


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