"Purchasing Organization Optimization and Business Transformation" SIG annual conference 2010, USA.

1. A Look into Purchasing Organization
Optimization and Business Transformation
Spend &
Savings
Suppliers
Change
Structure
Management
& Adoption
People
1st April, 2010
Process
Systems
Barbara Whittaker
(Executive Director Global Purchasing, General Motors – Retd)
George Joseph
(Managing Director, Ariba Inc.)
A R I B A® C O N F I D E N T I A L 2010
General Motors Vision
To be the world leader in transportation products and related services”
Global sales leader for 76 years
GM does business in 140
countries
Produces products in 34
countries
Over 8 million vehicles sold in
2008
Employs 204,000 people
GM purchases over $40 billion
per year
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2. Introducing Ariba
Most-Used Spend Management Software Suite
Over the past year, customers used Ariba to:
• Source $340B across 450 categories
• Enrich more than $240 billion of spending
• Manage over $170B in spend transactions
• Manage more than 2 million expense reports
• Manage more than 3 million contracts
• Generate over $30 billion in savings
Global Services and Expertise
700 global consultants
400 Spend Management specialists
Four global service centers
Open Global Network
168,000 transaction-enabled suppliers (>250,000 total suppliers)
21.5M POs, $110B annually
10M Invoices, $60B annually
>1,000 customers of all industries, sizes, geographies
Including more than half of the Fortune 100, including 18 of the F20
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Table of Contents
1. Objectives of the program
2. Partner selection criteria.
3. The challenges facing the team initially.
4. The methodology that was applied.
5. The initial findings and recommendations.
6. The real life challenges faced and
compromises made implementing the change.
7. The end results of the change
A R I B A® C O N F I D E N T I A L 2010 4
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3. General Motors Indirect Purchasing’s Evolution to Transformation
Pre 1992 Post 1992 2006 Future State
Local Purchasing with World Wide Purchasing “ Act as One GM” Approach Less tactical and
Buyers at each GM created New GPSC organization transactional work
division and facility
Beginning of global Broader scope of purchases Buyers manage strategic
(BOC,CPC,GMPT, sourcing initiatives Marketing & Advertising and business critical
GMTG,SPO, Opel AG, spend
Vauxhall, Holden, etc)
More influence on Mature global network but low
supply base and spend transparency to data More use of e-auctions
Low influence on
and spend analysis tools
supply base or spend
Clear need to drive to Substantial influence on
bottom line savings supply base and spend One global purchasing
Mostly tactical and
system
transactional activities
Reduced focus on
transactional activities Focus on Return on
Procurement Investment
Use of e-auction tool (ROI)
GFIMS (SAP) defined
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Vision
Global operations that leverage both supply base and GM purchasing resources in
execution of the procurement of goods, services, and equipment required by the
company at the best value and on-time.
Segmentation Characteristics
Characteristics Enablers
Enablers Results
Results
Segmentation
• High Risk, Complexity, APV • Global CT Leadership • Best in class Supply base
• High Risk, Complexity, APV • Global CT Leadership • Best in class Supply base
• Global or Regional Commodities • Global Pipeline Tool, SAP • Standardized Global
• Global or Regional Commodities • Global Pipeline Tool, SAP • Standardized Global
Strategic • Strategic Engagements- Supplier, • Internal Customer alignment
• Internal Customer alignment
Specs
Specs
• Strategic Engagements- Supplier,
Internal Customers • Highly skilled Project Buyers • Maximize Value (Total
Internal Customers • Highly skilled Project Buyers • Maximize Value (Total
• Governance Structures Cost outlook) vs. just Cost
• Governance Structures Cost outlook) vs. just Cost
• Benchmarking Reduction (Package Cost)
• Benchmarking Reduction (Package Cost)
• Medium Risk, Complexity, APV • Global CT Leadership •Rationalized Supply base
• Medium Risk, Complexity, APV • Global CT Leadership •Rationalized Supply base
• Global or Regional Commodities • Local/Regional Buyers •Cost Reduction due to
• Global or Regional Commodities • Local/Regional Buyers •Cost Reduction due to
Tactical • High Interaction with Suppliers and • Spend Visibility for bundling aggregated volumes
• High Interaction with Suppliers and • Spend Visibility for bundling aggregated volumes
Customer opportunities (SAP) •Transparent and shorter
Customer opportunities (SAP) •Transparent and shorter
• Extensive use of E-Auctions Sourcing leadtimes
• Extensive use of E-Auctions Sourcing leadtimes
• Benchmarking
• Benchmarking
• Low Risk, Complexity, APV • Centralized, Outsourced
• Low Risk, Complexity, APV • Centralized, Outsourced • Reduced Structural Costs
Transactional • Highly Transactional • Reduced Structural Costs
• Highly Transactional Operations • Satisfied customers
• Low Supplier, customer interaction Operations • Satisfied customers
• Low Supplier, customer interaction • Self-Service capabilities • Reduced Spot buys
• Self-Service capabilities • Reduced Spot buys
• Common coding (SAP)
• Common coding (SAP)
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4. Why Transformation ?
Savings performance over time had
flatten.
Number of resources had grown
disproportionately to the spend by
region. (GME 178 vs. NAO 139)
Numerous purchasing systems with
little integration.( SAP, Olympic,
OLAS)
Company Challenged to cut
structural cost and control spending
Repeated regional attempts to
restructure yielded modest results
Heighten awareness of the need for
internal controls.( internal audit, SOX
requirements)
I
Increased performance Imperative
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Table of Contents
1. Objectives of the program
2. Partner selection criteria.
3. The challenges facing the team initially.
4. The methodology that was applied.
5. The initial findings and recommendations.
6. The real life challenges faced and
compromises made implementing the change.
7. The end results of the change
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5. The importance of the right relationship
Selection criteria?
Needed a strong external change agent with organizational credibility.
Important that analytical tools were readily available.
Ability to broaden scope and be flexible on timing.
Approach presented fit organization strengths and weaknesses.
What did Ariba bring?
Excellent on site leadership jointly selected.
Extensive category management expertise.
Strong analytical capabilities.
A methodology to drive results.
An understanding of our business
Positive past performance with auction support etc.
A R I B A® C O N F I D E N T I A L 2010 9
Table of Contents
1. Objectives of the program
2. Partner selection criteria.
3. The challenges facing the team initially.
4. The methodology that was applied.
5. The initial findings and recommendations.
6. The real life challenges faced and
compromises made implementing the change.
7. The end results of the change
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6. Challenges to Face
Track record for always meeting/
exceeding targets IME Employee distribution: Global Total- 544
Unstable economic environment GMNA- 190
Size and Scale GME - 175
Sweden -12
Number and disbursement of IME employees
Indirect spend $1,666 per /vehicle
Over 470,000 Items ( excluding service) Canada - 8 U.K.- 12
Germany- 83
25,000 Suppliers globally
Spain-12 Austria -8
179 plant sites plus headquarters Japan -1
USA- 165 Portugal - 5
China- 8 Korea - 54
Customer acceptance and increased
Egypt -7
demands Mexico- 20 Dubai- 2 APO- 125
Thailand- 9
Venezuela -8 India -22
Leadership understanding and support Columbia-4
throughout the company Equador-4
Brazil -31
Language and cultural differences
LAAM- 73 Australia- 18
Organizational alignment i.e. Global
Manufacturing South Africa- 7
Chile -4
Argentina- 6
Lack of spend analysis and visibility Global Purchasing and Supply Chain
Resistance to change 5
Rev. 04OC05, Joe Kushuba
Skill assessment of employees
Disparity of systems
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Table of Contents
1. Objectives of the program
2. Partner selection criteria.
3. The challenges facing the team initially.
4. The methodology that was applied.
5. The initial findings and recommendations.
6. The real life challenges faced and
compromises made implementing the change.
7. The end results of the change
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7. Our Organisational Design & Transformation framework provides
the foundation upon which engagements are executed
• Spend & Savings – Identification of yearly spend and the activity distribution to
manage the spend. Furthermore, identification of savings opportunities through sourcing or
procure-to-pay category enablement.
• Structure – Evaluation of the spend management organization’s internal design, reporting
relationships, place in the overall customer organization, and the identification of opportunities
for greater efficiency or effectiveness.
Spend &
Savings
• Processes – Identification of process improvement opportunities based on best practices
across the phases of the Spend Management Lifecycle.
Suppliers
Change
• Systems – Review of current spend management platform (applications, infrastructure
Structure and support) for opportunities to support more categories / spend under management and to
Management
People improve internal customer service.
Process • People & Culture – Evaluation of the organization’s performance and potential
Systems through the assessment of roles / responsibilities, training, professional development,
communication and change management. Identification of the appropriate metrics and
measures that firmly connect the organizational performance to strategies / goals.
• Suppliers - How do we manage our relationship with suppliers, How do our suppliers
rate us as a counterparty to do business with, how do we leverage the expertise of our
suppliers in our business.
• Change Management – Assess the extent of Change required across above
dimensions and all functional groups, stakeholders and internally within the Purchasing
team. Generate awareness, understanding and positive perceptions of the Strategic Spend
Management Team. Address necessary actions to improve state of readiness for change.
Engage and gain commitment from all sponsors, users & stakeholders to lead the change
process. Develop a Change management plan.
A R I B A® C O N F I D E N T I A L 2010 13
There are two key phases: Due Diligence and Implementation. Taken
together, they average 24 months to deliver.
Due Diligence – 3/6 months and 5 Sourcing events
Implementation – 18/24 months – Subject to Output from Due Diligence.
Due Diligence Implementation
Spend & Spend Management Life Cycle
Savings Identify
Opportunit
Develop Source Contract
and
Invoice Monitor
and
Strategy and and Pay
y Procure Manage
Suppliers Negotiat
e
Spend
Change Structure
Management Savings
People Jan ‘10
Week 1
Jan ‘10 Jan ’10
Week 2 Week 3 Week 4
Jan ’10
Feb Mar Apr May Jun Q3 ‘10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11
Structure
Purchasing Charter & Plan
Process Process Develop reporting, compliance mechanism, & savings tracking
PMO
PMO
Ongoing program oversight, resource coordination & effort prioritization
Systems Change Mgmnt: Vision Workshop, Stakeholder Analysis, Change Planning, Ongoing Execution
Systems
AS IS Benchmark Plan
People
Transformation
Transformation
Program
Data Analysis
Data Analysis Best in Class
Best in Class
Program
Spend Management
Spend Management
Transformation
Transformation
Roadmap
Roadmap
Qualitative Assessment
Qualitative Assessment Gap Analysis
Gap Analysis
Suppliers Transform: Standard Process Creation, Training, Adoption Plan (Tech &
Process)
Category Assessment
Execution*
Sourcing
Execution*
Benchmarking / “Quick Hit” Savings Projects
Sourcing
Execution:
Strategy, Demand Mgmnt, RFx, Negotiation, Supplier Management, Compliance
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8. Table of Contents
1. Objectives of the program
2. Partner selection criteria.
3. The challenges facing the team initially.
4. The methodology that was applied.
5. The initial findings and recommendations.
6. The real life challenges faced and
compromises made implementing the change.
7. The end results of the change
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Total Spend
Spend under management (reported) was substantially
lower than actual spend (variance in excess of 150%)
Spend Tracked for Performance - $X
Spend Based on data Analysis - $ 2.1X
Spend back calculated by Finance - $ 2.6X
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9. Purchasing organisation completely bogged down by low value transactions,
substantial spend fragmentation. Significant potential to increase savings by
focusing on larger spend, consolidation & aggregation.
Base Data
Sourcing 226,973 Orders
Activity Av $207k 100% of Spend
Frame Contracts Spot Buys Release Orders
3,655 Contracts 100,208 Orders
18.11% 19.24%
Spot Buys < 12.5K
Spot Buys > $12.5k 86,639 Orders
Rush Orders
10,157 Orders 6.55%
46,604 Orders
74.46% 0.67%
Transactional Activity
80% of transactions
Emergency Orders
712 Orders
0.67%
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Number of GME´s current active suppliers: 15,396
$3.500.000.000 10% of all active suppliers represent 90% of the total spend (3.1bn U$)
$3.000.000.000
$2.500.000.000
Spend U$
$2.000.000.000
$1.500.000.000 13,961 suppliers represent only 299 Mio U$ of total spend
Ø $21,416 / Supplier
$1.000.000.000
$500.000.000
$0
1
606
1211
1816
2421
3026
3631
4236
4841
5446
6051
6656
7261
7866
8471
9076
9681
10286
10891
11496
12101
12706
13311
13916
14521
# of suppliers
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10. Recommendations
There is a significant untapped opportunity within GME.
Move from a tactical to a strategic Purchasing Organization. Re-organize sourcing organisation using
current commodity groups.
Aggregate and Reduce Sourcing events
Increase percentage of spend in frame contracts
Increase size of negotiated contracts by aggregation.
Increase time spend on establishing sourcing contracts
Create a transaction centre in a low cost region and push low value transactions to this centre.
Implement a process/ system to get more visibility into your spend.
Deploy a process management system with workflows, templates/knowledge-supporting tasks and
on-line approval schemes
Rationalise approval process and thresholds.
Ensure compliance to Frame contracts.
Rationalise Supplier base and reduce low volume suppliers. Identify Strategic Suppliers and roll out
SPMP over time
Invest in Stakeholder Management.
Implement a Talent Management program. Clearly outline, define and communicate roles &
responsibilities across the Purchasing organization
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Table of Contents
1. Objectives of the program
2. Partner selection criteria.
3. The challenges facing the team initially.
4. The methodology that was applied.
5. The initial findings and recommendations.
6. The real life challenges faced and
compromises made implementing the change.
7. The end results of the change
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11. How we made a “ Win- Win”
Organizational acceptance a pre-requisite to success
Key sponsorship from the top ( Global Executive Director and Region VP )
Regional leadership approval (Strategy board member communications and buy-in cross functionally, Works Council discussions by country
gained support)
Clarity of mandate
Establish a set of metrics with customer buy-in.
Set baseline through data collection and cleansing.
Alignment to current organization out of synch
GFIMS delay in implementation required segregation of resources
Functional changes in Manufacturing resulted in country hub structure
Optimal location of transaction center not in line with GPSC hub
Ability to assess skills and talent inhibited due to work rules
Conducted global talent reviews to establish crucial skills
Appointments based on performance and needs.
Challenges to off shoring solution not fully anticipated.
Timing adjustments made to allow adequate training
Metrics were reassessed and revised to focus on customer turnaround
Management oversight was extended to allow for support
Key to overcoming implementation challenges
Ariba change management process
Real time data and metrics to assess status
Timing of resource redeployment allowed deployment flexibility
Quick early wins secured organization support
A R I B A® C O N F I D E N T I A L 2010 21
Table of Contents
1. Objectives of the program
2. Partner selection criteria.
3. The challenges facing the team initially.
4. The methodology that was applied.
5. The initial findings and recommendations.
6. The real life challenges faced and
compromises made implementing the change.
7. The end results of the change
A R I B A® C O N F I D E N T I A L 2010 22
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12. Ariba Snapshot
Transformation Implementation Highlights
Transparency of actual spend (higher than tracked)
Improved visibility into sourcing pipeline and re-sourcing
requirements.
Low Value transactions moved out allowing focus on Strategic
Buying
Strategic Buying hubs established (High Cost & Low Cost location).
Faster turnaround time and improved efficiency
Clarified Global common approval process
Reduced Complexity in approval levels and process
Reduced Structural costs by approx 35%.
A R I B A® C O N F I D E N T I A L 2010 23
Significant Impact on Savings Performance
Savings performance
160
140
135
140 Start of 127.4 130.3
124.5 124.3
Transformation 120.58 117.9 118.4
111.1 113.7
120
106.4
100.2 101.8 101.7
100 92 91.9
83.3
$ Million
78.3
73.5 73.9
80 68.5 69.7
63 12 63.4 65.3
55 54.7 52.8 54.5
60 48.1
44.9
40 40.3 38 38.7 39 39.3 39.6 39.8
37.3 34.2 36.4 34.3 35.9
40 30.7
25.6 25.9
18.4 20.2 38.5 38.9 39.4 41.3
15.6 16.1 32.9 35.4
20 27.3 27.8
22.5 24.9
20.8
15.2 16.1 Before Transformation
0
ITB Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2004 2005 2006 2007 2008
A R I B A® C O N F I D E N T I A L 2010 24
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13. Contact Information
Barbara Whittaker - barbwhitt@comcast.net
Executive Director Global Purchasing (Retired),
General Motors Corporation.
Cell: +1 (586) 899 1309
Office: +1(248) 3351943
George Joseph – gjoseph@ariba.com
Managing Director, Spend Management Services
Ariba, Inc.
Mobile: +1(908) 635 4732
Office: +1(412) 297 8081
A R I B A® C O N F I D E N T I A L 2010 25
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