IBM India e-Procurement Case Study

IBM India

e-Procurement

07.06.2004

deeper

Rahul Pasrija

© Copyright IBM Corporation 2004

IBM India

Contents
e-Procurement
Benefits of e-Procurement
e-Procurement for Public Sector
Case Study

2


IBM India

Introduction
 Procurement is a competitive differentiator
Revenue

100

MARGINS

Shorter Product Lifecycles
10 years
5 years

2000

5
45

External
Expenditures

50

+50%

7.5

0%

45

- 5%

47.5

SQUEEZED

Pressure on Prices

1980 1990

Profit
Other
Costs

Technology Explosion

World Competition

100

3 years

Increased fixed costs
Non Materials
+ Increased
fixed costs
%

1980 1990

3

2000

• Increase sales by 50%
• Reduce overheads by up to 20%


IBM India

Procurement challenges and expectations
Procurement organizations are expected to lower the material cost coupled with
high process efficiencies
Negotiation

Centralized procurement
Vendor Leverage

Material
Material
costs
costs

Prediction
Item standardization
Vendor base rationalization

Process
Process
efficiency
efficiency

4

Activity costs

Eliminate non value adding
activities

Time


IBM India

Procurement process
The opportunities lie across the procurement process
Vendor Base
Rationalization

Conduct
Market
Analysis

Prediction
Models
Centralized
procurement

Develop
Category
Strategy

Complete
Supplier
Evaluation

Select
Suppliers &
Negotiate
Agreement

Supply

Pay

High value buying

Conduct Spend
Analysis &
Determine
Customer
Requirements

Cycle Time

Low value buying

Value

Vendor
Leverage

Item
Standardization

Transaction
Costs

No. of Transactions

5


IBM India

Procurement process
Multiple options are available at various points
Vendor Base
Rationalization

Conduct
Market
Analysis

Prediction
Models
Centralized
procurement

Vendor
Leverage

Item
Standardization

Develop
Category
Strategy

Complete
Supplier
Evaluation

Supply

Pay

High value buying

Conduct Spend
Analysis &
Determine
Customer
Requirements

•
•
•
•

Value

Select
Suppliers &
Negotiate
Agreement

e-Requisition
e-Approval
RFI, RFQ, RFP
Tenders

• Reverse
Auction
• e-PO
• e-Release
• e-Changes
• e-Confirm

• e-documents:
• ASN
• Ship status
• Receipt
• Supplier web
report card

• e-Invoice
• EFT
• Credit auth.
• Debit auth.
• e-Credit/Debit

No. of Transactions

6


IBM India

Procurement process
Multiple options are available at various points

Prediction
Models

• e-Catalog
• Pricing
• Availability
• Commit
• e-Configure

Centralized
procurement
Conduct Spend
Analysis &
Determine
Customer
Requirements

Low value buying

Value

Transaction
Costs

No. of Transactions

7


IBM India

Contents
e-Procurement
Case Study

8


IBM India

eProcurement benefits
Value Drivers

Pain Points

Mitigation/Savings Estimates

1

Improved Process Efficiency

• Long lead times due
to high manual processing,
1/3 time spent reviewing
manual requisitions

2

Reduced Product/Process
Costs

• High transaction costs
• Long supplier negotiations
• Non contract compliance
drives up price

Purchase requisition processing expense reduction up to
73%; price of goods 5%-10%
less on average

• Fragmented data

Data integrity is improved
through contract compliance,
strengthening a company’s
supplier negotiation leverage

3

Improved Compliance

4

Reduced Maverick
Purchasing

5

Reduced Inventory Costs

9

• Unreliable/inaccurate data

Purchase requisition processing time reduction of 70%-80%;
averaging a week faster

• Rampant off-contract spend
(approximately 27% of
indirect spend)

Maverick spending decreases
up to 51%

• Long lead times result in
purchase of large safety
stocks

Inventory expense reduction
between 25% - 50%

IBM India

Contents
e-Procurement
Case Study

10


IBM India

e-Procurement, a significant opportunity within E-Governance
Government – an attractive case for e-Procurement
Probably the “single largest buyer” of goods and services in a state

Serious initiatives underway from AustralAsia to Europe to USA
Important Value Drivers
 Potential savings – aggregated demand
 Cost reduction – process efficiency
 Compliance

Attractive business models – Public Private Partnership (PPP)
As many as 42 states in the USA, in addition to the Federal Government, will
embark on some form of e-Procurement project by 2004 (Gartner)

11


IBM India

Case Study – Public Sector
National Procurement Limited,
Copenhagen-Denmark
Solution
Challenges
Adhere to EU and WTO rules for
public procurement processes
Ensure transparency and
efficiency for both suppliers and
buyers

An open, secure and
scalable e-procurement
solution – Electronic Tender
Handling, Information and
Communications (ETHICS)

Solution caters to around 8200 institutions in EU

12


IBM India

Case Study – Public Sector
National Procurement Limited,
Copenhagen-Denmark

Benefits
Business








Technical

Doubled productivity with same
staff
Knowledge transfer among
employees
Improved vendor satisfaction
Double digit growth in contract
turnover
Reduction in administrative
costs by 40-50%
Increased transaction
transparency and auditing
Improved decision making via
well defined transparent
evaluation process








An end to end, open standards
based tender solution based on
IBM Lotus Domino
State of the art security including
PKI Infrastructure
More user friendly design
questionnaire to help buyer
automate decision making process
A robust, secure decision support
system, based on Lotus
QuickPlace and Sametime,
enabling teams to meet and
collaborate virtually in an online
voting room and gain access to
important proposal related data

Solution caters to around 8200 institutions in EU

13


IBM India

Contents
e-Procurement
Case Study

14


IBM India

Case Study - The IBM Way
In 1993, IBM was in midst of a severe financial crisis

1990

1992

1993

$69 B
10

Revenue
Op. Income

1991
$65 B
4

$ 65 B
3

$ 63 B
-4

IBM Cash Flow

IBM Debt

5
1

2
1990

1991

1992

1993

1993

-3
15


IBM India

IBM adopted a holistic approach to cost reduction which was critical to
its turnaround...

US$ 9
Billion
Saved
$B
120
100

Market Value

80

Revenue

60
40
20

Profit

0
-20

16

'85

'93

'97

'98


IBM India

The approach encompassed strategic, tactical and operational
initiatives as highlighted...

Strategic

Strategic
Sourcing
Global
Sourcing
Aggregated
Sourcing

Supplier
Relations
Management

Value
Engineering
Skills
Upgrading
17

Outsourcing

Tactical

Tax Chain
e-Procurement

Operational

IBM India

Supplier Relations Management (SRM) seeks to map the supplier into
appropriate relationships...

Competitive
Leverage

Preferred
Supplier

Performance
Partnerships

Strategic
Alliances

Relative supplier management skills and effort required
Operational, simple trade offs

Problem solving

Strategic, complex issues

Influence stakeholders

Influencing

Influencing the Board agenda

Trading

Negotiation

Complex, multi-dimensioned

Limited

Team-working

Price testing/quotations
Confrontational
Secure best deal available

18

Market analysis
Behaviour
Values

Cross functional, joint-supplier
Market, competitors, technology
Principled, trust-based
Urgency to prove model works

IBM India

Effective SRM with appropriate technology support paid rich dividends
for IBM...
Before SRM
High and unmanaged

Constant Problem

Slow

19

Part Cost

Design
Cycle Time

Time-to-Market

After SRM
Reduced part cost 15-25 %
Eliminated 50% of parts
Reduced cycle time 75%
Reduced design cycle time 35%
Reduced time to market 70%


IBM India

e-Procurement applications facilitate the transformation process and
enable organisations to sustain the benefits…

Sourcing

Fulfillment

Settlement

20

Internet quoting
Auctions
On-line contracts

Buyers / Requesters

Suppliers

Authentication / Authorization

Information warehouse
Requisition / ERP
Electronic catalogs
"Buyerless" automation
Skills matching
EDI
EFT
e-Invoices

IBM India

IBM realized significant benefits from e-Procurement…
Business Metrics
Acceptable Business Controls
Client Satisfaction
P.O. Processing Cycle Time

Today

30%

<0.5%

40-50%

+90%

40%

Escapes (By Pass)

Early 1990's

>80%

30 Days

1 hour

e-Transaction:

Invoice
Hands Free

??
20%

95%
+80%

Contract:

Cycle Time
Length

6-12 months
40 (+) pages

30 days
6 pages

Cost Savings

>3%

>30%

5%

Suppliers Connected via Web

0

27,000

Savings via Web

0

$380M

Supplier Survey Rating

5

1

Competitive Advantage
Ledger Miscodes

21


We all live under the same sky …
We all live under the same sky …
IBM India
… but have different horizons
… but have different horizons

Thank You
Thank You

deeper


IBM India e-Procurement Case Study

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