Post on 26-Mar-2015
e-Sourcing Today
A Perspective on the Role and Scope of e-Sourcing and the State of the e-Sourcing Marketplace
Today we are going to discuss…
Agenda
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
Importance of Purchasing Decisions
Purchasing decisions directly effect a company’s bottom line, pressuring companies to continually enhance procurement operations
Significant Impact of Purchasing Decisions
Purchasing decisions critical to corporate
profits
Purchasing decisions
increasingly complex
Economic pressure to lower costs
Changing consumer and corporate
buying patterns
Fortune 1000 spend on external
suppliers = $3.5T1
1Goldman Sachs. Technology: B2B Software 2/23/2001 Source: Goldman Sachs, Stephens, Inc., Deloitte Consulting
Source: Deloitte Consulting. Realizing the B2B Procurement Vision: Trends, Challenges, and Best Practices in e-Sourcing and e-Procurement 2001
Improved Procurement
Improved Customer Service and Satisfaction
0 20 40 60 80
56
54
% O
F R
ES
PO
ND
EN
TS
WIT
H “IM
PO
RT
AN
T
OR
VE
RY
IMP
OR
TA
NT
” SE
LE
CT
ED
64
65
77
77
78
79
77
Improved Customer Relationships
Improved Supply Chain Performance
Improved Information/Reporting
Revenue Growth
Improved Supplier Relationships
53
New / Differentiated Service Offerings
Strengthen Existing Competencies
Reduce Overall Costs
Improving Procurement Operations
A recent Deloitte Consulting study revealed that improving procurement operations continues to be a top priority
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
Strategic Sourcing Defined
Procurement operations can be improved by focusing on either Strategic Procurement or Operational Procurement processes
The Procurement Process
Source: Deloitte Consulting
Instead of awarding a bid to the lowest cost supplier, strategic sourcing calculates supplier value to the purchasing value chain
Strategic Sourcing Value Drivers
Redesigned processes (order, purchase, consumption)
Build new alliances / partnerships / out/in-source
Consortium buying
Consolidation of spend and vendor base
Improved negotiations and contract
Use of component-based pricing
Develop pricing standards and “rate cards”
Standardized specifications and value engineering
Understanding business requirements and needs
Enhanced compliance to standards
Increased Leverage
Uniform Pricing
Reconfigure Specifications
Partnerships / Alliances
Source: Deloitte Consulting
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
Benefits Challenges
Strategic Sourcing Challenges
Although strategic sourcing confers benefits, it has challenges
Source: Deloitte Consulting
e-Sourcing Defined
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
Emergence of e-Sourcing
Automation of transactional activities helps purchasing professionals to focus on strategic supplier relationship management
Source: Deloitte Consulting
e-Sourcing enables the sourcing functions of the purchasing process
SpendAnalysis
SupplyStrategy
RFXNegotiation,Contracting
OrderPlanning
OrderExecution
SupplierMonitoring &Improvement
Purchasing Process
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
Enabled by e-Sourcing
Enabled by MRP / e-Procurement
e-Sourcing Components e-Procurement Components
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
e-Sourcing is an evolutionary technology, enhancing strategic sourcing value-added benefits
e-Sourcing Value Proposition
Price Reductions
Auctions
Uniform price comparisons across suppliers
Increased competition through better reach
Cycle Time Decreases
Automated process
Repeatability / Reusability
Improved tracking and management
Improved Category Quality
Expanded potential supply base
Easy aggregation and assessment of potential suppliers
Better supplier / category match
Improved Decision Making
Standardized and visible sourcing process
Consolidated data management and analysis
Pre-built analytics
Streamlined and standardized communication channels
Source: Deloitte Consulting
E-Sourcing is an opportunity for companies to transform purchasing personnel from information gathers to strategic decision makers
Role of e-Sourcing
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
Foc
us
and
Tim
e of
Pu
rch
asin
g P
erso
nn
el
Current State e-Sourcing
Source: Deloitte Consulting
Sourcing Practice Analysis
EMERGENT
Ad
op
tio
n R
ate
0%
100%
Leading-Edge
Best Practices
Required to do Business
MATURE
Established category sourcing plans
Levered know ledge/ sourcing database
Rationalized product/spec base
Established contracts by category/supplier
Consolidated category spending
International/ national supplier searches
Preferred supplier listing
On-line negotiations
Standardized RFx processes
Program approach to sourcing
Cross-functional purchasing teams
e-Sourcing Enablede-Sourcing Requirede-Sourcing Enablede-Sourcing Required
Bundled supplier spending
Outsourced RFx processesAutomated
approvals
Vendor management and measurement
Total cost purchasing
Auctions
eRFx
Joint strategy/ product planning
Cross-company buying consortiums
Integrated RFx w ith order and contract mgmt
Category what-if analysis
Award & allocation optimization
Role of e-Sourcing
Ultimately, e-Sourcing enables organizations to move up the strategic sourcing best practice curve
Source: Deloitte Consulting
The e-Sourcing Market
Although the e-Sourcing market is in its infancy; its evolution is expected to occur rapidly
e-Sourcing Market Growth Stages
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
Stages of e-Sourcing Market Growth
1Stephens, Inc. Strategic Sourcing: Applications to Turn Direct Materials Procurement into a Competitive Advantage. 1/30/2001Source: Goldman Sachs, Stephens, Inc., Deloitte Consulting
Market expected to mature in three
years1
The e-Sourcing market is estimated to more than triple in size over the next four years
e-Sourcing Market Size
$0.30
$0.70
$1.40
$1.70
$2.00
$2.40
$0
$1
$1
$2
$2
$3
$M
illio
ns
2000 2001e 2002e 2003e 2004e 2005e
Year
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
5-yr CAGR = 60%+1
1Goldman Sachs. Technology: B2B Software 2/23/2001Source: Goldman Sachs, Stephens, Inc., Deloitte Consulting
Size of e-Sourcing Market Growth
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
Challenges Example Feature Solutions
Automated process with built-in PMO tools, e.g., milestone tracking and event alerts
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
Pre-built templates and existing documents speed up bid creation and RFX process
Source: Deloitte Consulting
e-Sourcing Solutions
e-Sourcing applications offer solutions to strategic sourcing challenges
To date, the market has been dominated by small, mostly private companies with no single vendor appearing to offer a complete solution…
e-Sourcing Market Players
…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
A Sampling of e-Sourcing Feature Functionality
Currently, e-Sourcing companies differ in their approach, depth, complexity, simplicity, and breadth of features
e-Procurement Supply Chain Management
Collaborative Commerce
Pure Players Analytics Auctions
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
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
Business Case: Merrill Lynch
e –Sourcing Lessons Learned
Taking e- Procurement Globally
How Do Organizations Take How Do Organizations Take e-Procurement Globally ?e-Procurement Globally ? A Merrill Lynch Case StudyMerrill Lynch Case Study
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.
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
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
Once a global system is implemented, Merrill Lynch will be able to:
Defining Success
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
Global Deployment Plan
CanadaQ2 - 2002
U.S.Q24 - 2001
U.K.Q2 - 2001
JapanQ2 - 2002
AustraliaTBD
Hong KongQ4 - 2002
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
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
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
Our Global Architecture
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
Global Architecture Lessons Learned
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
Change Management
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
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:
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
Questions & AnswersQuestions & Answers