Purchasing Organisation Transformation

1. Suppliers
Spend &
Savings Organisational
People
Change
Management
& Adoption
Structure
Design and
Transformation
Process
Systems
George Joseph
Managing Director.
A R I B A® C O N F I D E N T I A L 2009
Table of Contents
Ariba Experience with Transformation
SMS – Ariba Spend Management Services
Transformation
Ariba Approach
A R I B A® C O N F I D E N T I A L 2009 2
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2. There are a variety of organizational transformation initiatives
that Ariba has and continues to deliver to our clients
Typical
Engagement Type Customer Situation Case Examples
• Decentralized organisation where Indirect Customer Profile: NA Retail Company
1 Create/Enhance an goods and services have predominantly Indirect Spend ~ $750m
Purchasing Function been bought by stakeholders.
• Determine Scope of organisation.
• Desire to set up a more formalized Indirect
purchasing function – typically brought on • Develop processes
by change in leadership or economic • Evaluate, hire and train personnel
circumstance. • Provide sourcing execution support for current year.
• Significant Technology initiative • Establish technology roadmap
Improve Organizational • Large multi location corporation. Customer Profile: Global Automotive OEM
2 • Formal sourcing organisation at every Indirect Spend ~ $20b
Capabilities & Effectiveness location buying independently. • Developed category based sourcing hubs.
• Desire to implement common processes,
• Focused on strategic buying and outsourced transactional.
systems and purchased SLA’s.
• Reduced Structural costs by 35%
• Desire to leverage volumes and increase
sourcing effectiveness. • Increased savings performance by 200%
• Significant economic pressures • Established common global processes and approval thresholds.
• Decentralized organization with spend Customer Profile: Global Packaging Company
3 Centralize Purchasing
managed at plant or business unit level Indirect Spend ~$2.9B
• C-Level initiative/directive to make a • Consolidated 23 site purchasing functions across 3 divisions and
significant decrease in costs 10 countries in Europe
• Interest expands beyond sourcing savings
• Effective change management execution lead to positive
through increased leverage to include
reception of new centralized team & clear understanding of roles
organizational optimization and/or
/rationalization. • Created customer-specific, pan-European category strategies
• Significant percentage of supply base Customer Profile: Global Consumer Goods Company
4 Establish an International and/or operations are located in region(s) Indirect Spend ~$2.5B
Purchasing Office (IPO) of interest
• IPO fully operational within 8 months
• Concerned with ability to minimize supply
risk and control supplier quality from • All sourcing & quality processes & templates defined, created,
“across the ocean” and adopted by home office
• Moderate to significant experience sourcing • Technology integrated to enable knowledge retention and 24-
in region(s) of interest hour on demand access to information by home office
A R I B A® C O N F I D E N T I A L 2009 3
Purchasing is continuing to gain recognition as a strategic
function, and expectations are higher than ever before
Expectations of today’s purchasing organizations
Visibility – Transparency of actual spend, visibility into sourcing pipeline
and resourcing requirements
Process Effectiveness – Effective common process applied to all
sourcing activity, with appropriate approvals
Speed – Faster turnaround times and rapid transitions to new supply
bases. Low value transactions moved out and focus on strategic spend
Structural Cost Management – Automation and consolidation into
strategic sourcing hubs leveraging low cost locations
Supplier Management – leveraging supplier expertise and building
sustainable long-term relationships
A R I B A® C O N F I D E N T I A L 2009 4
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3. Table of Contents
Ariba Experience with Transformation
SMS – Ariba Spend Management Services
Transformation
Ariba Approach
A R I B A® C O N F I D E N T I A L 2009 5
Ariba Spend Management Services (SMS) provide a complete
range of solutions that drive both bottom-line results and
enduring enablement for our customers
•Spend •Market •Knowledge
•Savings
Visibility Intelligence Transfer
Results Enablement
•Spend •Compliance •Organizational
under Mgmt. Improvement capability
This is done through three distinct service areas that address all aspects
of spend management
Execution Transformation Knowledge
- Sourcing Services - Structure - Category Assessment
- Low-Cost Country - Process - Category Playbooks and
Sourcing - Systems Knowledge programs
- Demand Management - People - Supply Market
- Supplier Implementation -Change Management intelligence
and Performance Mgmt
-Adoption Services - Strategy and Best
- Sub-Tier Sourcing Practice Benchmarking
-Policy and Compliance
A R I B A® C O N F I D E N T I A L 2009 6
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4. Ariba provides these services through a global delivery
model unique in the spend management industry
Services Overview
Global services organization to support
customers (and their suppliers) in the
right time zone and the right language
Broad and deep category experience
and market intelligence
Results driven, focused on continuously
improving the customer experience
Consultants and Program Managers
focused on customers and sectors
Spend Management professionals
organized by supply market and
functional specialty
Globally located in key supply regions
around the world
Brussels
Chicago
Detroit
Boston London Prague One of the world’s largest spend
Paris
Pittsburgh
DC
NYC Frankfurt Seoul Tokyo management organizations
Sunnyvale Atlanta
Houston Shanghai
Monterrey
Mexico City
Delhi Shenzhen $600 billion sourced to date
Hong Kong
Singapore
Over 100,000 total projects
Sao Paulo Centralized Shared Service Office
More than 500 categories
Melbourne
Program Management Office
Category Management Office
>$60B in identified savings
LCC Center of Excellence
A R I B A® C O N F I D E N T I A L 2009 7
Execution Services
Ariba SMS provides a range of flexible “execution services” where our consultants
and professionals actively drive projects focused on everything from sourcing to
demand management across hundreds goods and services categories
Indirect Category # Projects Direct Category # Projects
Services 945
Logistics 540 Metals 1450
Capex & Construction 708 Electronics / Electrical 723
Paper & Packaging 514 Raw Materials 479
IT 220 Plastics & Rubber 429
• Make vs Buy Analysis • Custom component
• Supply base localization to sourcing
new facility • Raw material hedging
IT
Pla
Ra strategy
sti
w
ls
cs
• Alternative packaging cost Ma
a
et
t’ls
reduction studies
M
• Demand policy
Paper & management
Pkg
• Competitive RFP & Auction Se • Rate card negotiation
cs rvi • Benchmarking
with index pricing isti ce
Log s
Ele
X
PE
ct
• Least cost regression • LCC Sourcing
ron
CA
optimization • Advanced Sourcing
ic
s
• Demand management • Should cost modeling
• Sub-tier sourcing
Benefit: Resources and expertise to help drive more value for your
organization, faster
A R I B A® C O N F I D E N T I A L 2009 8
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5. Ariba’s Transformational Framework
Spend &
Savings
Suppliers
Change
Structure
Due Diligence Implementation
Management
& Adoption
People
Spend Management Life Cycle
Contract Monitor
Process Identify
Opportunit
Develop
Strategy
Source
and and
Invoice
and Pay and
Systems y Negotiat Procure Manage
e
Spend
Savings
Structure Week Week Week Week
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
1 2 3 4
Process
Purchasing Charter & Plan
Systems Develop reporting, compliance mechanism, & savings tracking
PMO
PMO
Ongoing program oversight, resource coordination & effort prioritization
People Change Mgmnt: Vision Workshop, Stakeholder Analysis, Change Planning, Ongoing Execution
Suppliers
Transformation
Org. Assessment
Transformation
Program
Program
Design
Transform: Standard Process Creation, Training, Adoption Plan (Tech & Process)
Execution* Category Assessment
Sourcing
Benchmarking / “Quick Hit” Savings Projects
Execution*
Sourcing
Execution:
Strategy, Demand Mgmnt, RFx, Negotiation, Supplier Management, Compliance
A R I B A® C O N F I D E N T I A L 2009 9
Knowledge Services
Global Market
Overviews
Opportunity
Assessments
Demand Trends
Industry Best
Practices
Supply Trends
Supply Strategy
Sourcing Strategy
Engineering Data
Management Strategy
Benefit: Current, proven market intelligence to inform your
team and improve the results from your initiatives
A R I B A® C O N F I D E N T I A L 2009 10
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6. This combination of services allows our customers to
pursue both rapid results and enablement as their
organization’s capabilities evolve over time at a compelling
ROI
Stage
Value
3
Value Delivered to Organization
Stage
Ariba Support
2
Stage
1
Organizational
Capabilities
Time
Launch and Leverage Expand and Enable Specialize and Sustain
assess needs increase throughput capture more complex areas
define program standardize process build internal capability
get early savings build momentum focus on core competencies
A R I B A® C O N F I D E N T I A L 2009 11
Table of Contents
Ariba Experience with Transformation
SMS – Ariba Spend Management Services
Transformation
Ariba Approach
A R I B A® C O N F I D E N T I A L 2009 12
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7. Organisation Transformation Methodology
Spend &
Savings
Suppliers
Change
Management
Structure Due Diligence Implementation
People
Process
Systems
Activity Description
Application of ARIBA‘s „Transformation Financial Reporting Development and implementation of a financial reporting mechanism to report on
Framework“ (Spend & Savings, Structure, sourcing activity and savings. Creation of standard definitions of savings measurement in
conjunction with Finance.
Process, Systems, People & Suppliers)
Organisation Structure Development and implementation of a structure that supports strategic sourcing activity in
Kick-off Workshop with ALL participants the most effective and efficient manner. The key is to create a globally co-ordinated
category based organisation.
to set expectations, provide the
Spend Visibility Implement a Spend Visibility solution to obtain clarity over spend.
framework & timeline
MOB Development of a Make or Buy analysis for the outsourcing of the transaction centre and
Data collection & analysis (PO data) to support negotiations with Works Councils and other labour related entities.
get visibility into the spend Transaction centre Development of a model for a centralised transaction centre to handle low volume
transaction, selection of a outsourced vendor and implementation of the transfer and
Survey of all Purchasing staff members ongoing management of these transactions.
Process Development and implementation of processes which will simplify operations including
Interviews of Managers and Specialists approval flows, approval authorities, tendering processes etc which will support an
effective and efficient strategic sourcing organisation.
Best Practice Industry Benchmarking Skills Evaluation Develop roles and competencies required in the new organisation structure and conduct
against CLIENT metrics an evaluation of all employees within the organisation in order to select those to be
retained and those to be redeployed.
Analysis & Best Practice Workshops with SPM Develop and implement a structured Supplier Performance Management process.
CLIENT & ARIBA Specialists Technology Platform Lead the implementation of an end to end Spend management platform.
Core team Workshops to derive to Strategic Sourcing Develop and implement a Strategic Sourcing program to achieve aggressive business
savings targets.
recommendations & implemenation plan. Stakeholder Management Develop and implement a structured Stakeholder Management process
A R I B A® C O N F I D E N T I A L 2009 13
Spend &
Savings
Spend – Identification of annual spend and the activities Suppliers
Change Structure
Management
associated with managing the spend People
Process
Systems
Key Questions and Output
How do we spend?
Spend distribution by value
Spend distribution by type
Repetitive
Spend by value 71.5% 15% 10% 2% 1.5%
85000
Consolidation
78 262 288 523
Frame Contracts
28 1,060
80000 2,373
$M $M
$M $M
560
399 433
203
$M
$M
6,987
Strategic Aggregation
184
75000 186
$M
y
187 4,405
# of spot bu
70000 Project
$M 4,443 Total Spend Spot Contracts
65000 171 Unique
$M 13471
43
60000 80161
$M
27 Low Value Transactional
55000
$M
43
50000 Release Orders
46243
Fulfilment
45000
$M
Nominal Value
34
40000
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“Spend Analysis provides the necessary foundation for organizations seeking to make
better, more informed sourcing decisions” Aberdeen, 2009
A R I B A® C O N F I D E N T I A L 2009 14
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8. Spend &
Savings
Spend (cont’d) – Identification of annual spend and the Suppliers
Change Structure
Management
activities associated with managing the spend People
Process
Systems
Key Questions and Output
How much spend do we manage?
On what goods and services do we
spend money?
Where do we spend money?
Are there opportunities to consolidate
contracts across locations?
When do we need to source?
Ariba’s analysis takes a holistic view of the activities involved in the "source-to-settle"
process, including procurement, receiving, payment settlement and management of AP
A R I B A® C O N F I D E N T I A L 2009 15
Spend &
Savings
Savings – Identification of savings opportunities through Suppliers
Suppliers
Change Structure
Management
sourcing or procure-to-pay category enablement People
Process
Systems
Systems
Key Questions and Output
How do we measure savings?
Do stakeholders agree with our Repeat Buy - Any item is deemed to be a repetitive buy if the same item
has been bought by the same or any other entity. In this case there is a
numbers? clearly identifiable historic unit price and savings can be measured
Does Finance agree with our directly with this historic price as reference.
numbers?
How do we translate savings to the Benchmark Items - Any product service which has an standard internal
Company’s bottom line? benchmark unit rate. Eg; Flooring/Roofing/Road surfacing contracts in
Construction.
Budget Items - Any product service which has does not have a historic
price or a benchmark, but has a cost estimate in a project budget or
purchase approval. In some cases we might even use initial quote from a
supplier as the reference price.
“The average savings of leading sourcing organizations is 17%, compared to an
average savings rate of 4% amongst laggards” AMR 2009
A R I B A® C O N F I D E N T I A L 2009 16
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9. Spend &
Savings
Savings (cont’d) – Identification of savings opportunities Suppliers
Suppliers
Change Structure
through sourcing or procure-to-pay category enablement
Management
People
Process
Systems
Key Questions and Output
How much should we be saving every year in absolute terms?
What percentage of savings is achievable Year on Year?
250
Unit Price Reduction
47.19 230.82
Contract Compliance
200
44.94 Spot Market Arbitrage
150
Reducing Spend
Demand Management
7.16
12.13
39.17 Continuous Improvement
100
Working Capital Mgmt
10.47
69.75
50 Sourcing & Contract Mgmt
Reducing SM
Process Costs Transaction Processing & Routing
0
GSS Ind Ind ISS Logistics M&E VSSM Grand
Product Services Total Reducing Technology Ops Costs
“A 7.5% reduction in purchase cost can result in an increase in net income of over
100%” PWC Advisory, 2008
A R I B A® C O N F I D E N T I A L 2009 17
Spend &
Savings
Structure – Assessment of internal design, reporting Suppliers
Suppliers
Change Structure
relationships, and placement in the overall organization
Management
People
Process
Systems
Key Questions and Output
Should there be a
Category or Corporate
Region/BU based
structure? Cat 1 Cat 2 Cat 3
Should we distinguish Reg 1 Reg 2 Reg 1 Reg 2 Reg 1 Reg 2
“strategy setting” and
“sourcing execution”
activities?
Will we differentiate
between Strategic Corporate
Time invested
and Transactional
Region 1 Region 2
spend… and what
impact will this have Cat 1 Cat 2 Cat 3 Cat 1 Cat 2 Cat 3
on the proposed
structure?
It is estimated that the average cost per transaction is $100, with a range between $75
and $250 depending on the level of automation
A R I B A® C O N F I D E N T I A L 2009 18
9

10. Spend &
Savings
Structure (cont’d) – Assessment of internal design, reporting Suppliers
Suppliers
Change Structure
relationships, and placement in the overall organization
Management
People
Process
Systems
Key Questions and Output
How many people do we need?
Where should our people be located? Parameter Consideration Implication on
What activities should be outsourced? Headcount
Spend by Category and # of Supply Management # of FTE based on number of
Supply Market Group groups and # of categories per contracts and length of time to
group establish a contract.
# of contracts per year and # of FTE per Supply Management
time taken for establishing a Group based on spend and number
contract of categories.
Spend by Category and Spend by Transaction and # of # of FTE based on number of
P2P Process Group process groups transactions and length of time to
Low Cost execute a transaction.
Corporate # of transactions per year and
Location? time taken for executing a # of FTE per P2P process Group
transaction based on spend and number of
Cat 1 Cat 2 Cat 3 groups.
# of FTE based on management
structure effectiveness.
Reg 1 Reg 2 Reg 1 Reg 2 Reg 1 Reg 2
Spend by Stakeholder Spend by Functional # of FTE based on stakeholder
Group stakeholder management.
Sourcing Execution Team # of FTE per location to be managed.
Outsource? Spend by Supplier Supplier segmentation matrix # of FTE based on Supplier
management role.
Transaction Processing Team
Process and Systems Optimal number of Processes # of FTE based on the number of
processes and the
Technology Platform and technology/manual execution
capabilities paradigm.
“Organizational structure and development...impacts overall sourcing, and therefore
corporate performance” ChainLink Research, Aug 25 2007
A R I B A® C O N F I D E N T I A L 2009 19
Spend &
Savings
Processes - Process improvement opportunities based on Suppliers
Suppliers
Change Structure
best practices across the Spend Management Lifecycle
Management
People
Process
Systems
Key Questions and Output
What are the key steps in our sourcing process?
What are the roles of purchasing and stakeholders in the entire process.
Validation & Data Collection & KO RFI / RFP Negotiation Implementation &
Spend Management Life Cycle Strategy Transition
~2 Weeks ~2 – 4 Weeks ~4 Weeks ~ 1 Week ~ 4 Weeks
Source Contract Monitor • Review current data • Build and execute • Conduct Post-bid /
Identify Develop Invoice • Provide data collection
Sourcing Process Steps
and and and • Conduct market and RFI / RFP
• Build and execute an negotiation analysis
Opportunity Strategy and Pay templates/guidelines
Activities
Procure Manage esourcing negotiation
Negotiate competitive analysis • Gather technical and • Manage project
OR
• Manage contracting
phase
service requirements milestones
• Match against Goals / • Support collaborative • Create
from all stakeholders • Supplier
Targets negotiation & facilitate implementation &
• Gather and validate management and transition plan
negotiation strategy
communications
Purchasing historic pricing and workshop
volumes
Data
Deliverables
RFP/Q • RFI/RFP • eSourcing negotiation • Project de-brief and
Market/ • Internal spend analysis • Category Review
Collection, Award, and projections • Go-Forward strategy • Proposed Suppliers and management final wrap up session
Spend Supplier RFP/Q OR
Stakeholder Negotiation Implement, and recommendation • Supplier Updates • Negotiation workshop
Analysis & Supplier Outreach Mgmt. Analysis
ID & Kick- & Transition • Post-bid analysis
Strategy ( RFI )
Off
• Support gathering of • Provide input into • Participate in • Support Contracting
Activities
• Provide initial data,
technical & service RFI/RFP structure, collaborative negotiation phase
category sourcing
requirements questions, strategy process • Collaborate during
history, establish goals
• Support identification & • Approve suppliers • Determine Awardee Implementation
Project Plan Milestones
• Initial Project and expectations
validation of historic for participation phase
Assessment • Data & Spend Analysis Spend pricing and volumes
• Regular project • Ongoing supplier
Owner • Forecast future volumes meeting participation performance
• Go-No/Go Decision • Finalize Data Collection
Deliverables
management
• Execute RFI / RFP • Execute RFQ and/or • Milestone – Go/No-Go • Preferred Suppliers
Direct Negotiation • Recommendation Decision • Validate supplier lists
• Answers to business /
• Transition technical questions
• Contracting
Once a sourcing process has been defined, we work closely with our clients in
developing customized tools and templates to support the process
A R I B A® C O N F I D E N T I A L 2009 20
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