Achieving Excellence in End-to-End Supply Management
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Transcript of Achieving Excellence in End-to-End Supply Management
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 1
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Breakout Session # 207
Michael P. O’Hara, General Manager – Services Industry, Nextance, Inc.
Tuesday, April 27, 2004
2:45pm – 3:45pm
Achieving Excellence in End-to-End Supply Management
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 2
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
“What makes Dell and Wal-Mart successful? It’s thebusiness model, and supply chain is an enabler. That’s why you’re seeing this growing importance of supply chains. People realize this is the weapon of the future”
Robert Moffat Vice President, Supply ChainIBM
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 3
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
The end-to-end approach to the supply chain is now seen as a competitive edge, a feature so sexy it inspires extra ogling on Wall Street. Dell Computer and Nokia already get higher valuation because of their superior operations.
Forbes MagazineOctober 13, 2003
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 4
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Supply Chain is a Strategic Lever in Services Organizations
Methods
ALIGN …
Procurement with organizational demand
EXECUTE …
Strategic sourcing
Contractual agreements
MANAGE …
Supply Chain performance
OPTIMIZE …
Internal and external Supply Chain
Goal
Delivering the right products andservices at the right cost:value and at the right time
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 5
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Supply Chain
No longer just a term relegated to the manufacturing industry – but a discipline driving organization’s to greater efficiency, reduced expenses, reduced risk and increased organizational responsiveness to rapidly changing business landscape.
Comprises the entire end-to-end process of planning, sourcing, selecting, acquiring, receiving, paying, managing and disposing of goods and services
The opportunity - Organization’s still maturing their supply chain practices Significant opportunity to gain greater supplier leverage and
dramatically reduce operating expenses The right technology is a key enabler in the process
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 6
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Where are we today?
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 7
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
The Supply Chain Continues to MatureCurrent stateCurrent state The result of incremental
improvements
Driven by rapid changeDriven by rapid change Technology Competition Consolidation Internet
““Big Picture” Big Picture” perspective missingperspective missing
Focus on narrow opportunities(e.g., sourcing savings)
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 8
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Islands of Automation and Process
Pockets of innovation exist but lack maturity of manufacturing sector
pCardeprocure
-ment
Exchanges
Ware-houses
SpendData On-
lineRFx
Reverse auctioning
Contract Systems
Consortiums
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 9
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Strategic sourcing
Online RFx
Contract management
Supplier management
Spend optimization
Integrated supply chains
Demand management
Performance management
Compliance
Integrated tools
Trends in the Services Sector
Web applications
e-Procurement
ExchangesPortals
1995 1998 2000 2005
Inside and Outside Organization
MARKET
Birth of Supply Chain Management for services industries
Where is the integration of Technology and
Process, of People and Information?
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 10
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Companies are Still Laggingin Getting to a World Class Supply Chain
• Abundance of Technology/Absence of Technology
• Incorrectly Applied Technology
• Lack of an Established Business Model
• Lack of Well-Defined Processes
• Not Understanding the “Big Picture”
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 11
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Titanic and the Rudder
• State of the Art
• Incorrectly Applied Technology
• Lack of Well-Defined Processes
• Absence of Standards (W.J. Lovett)
• Didn’t understand the big picture (ship is the lifeboat)
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 12
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Rapid Advancements in Technology have caused Supply Chain “Gridlock”
• Innovation is coming in waves – in some cases, the rising tide isn’t lifting all ships– A large part of that innovation targets specific problems in
lieu of looking at the whole picture• We’re coming from behind – pressure to catch-up, stay
competitive by implementing piecemeal solutions• Prior investment in technology is substantial – organizations are
hesitant to change• Some newer technologies have over-promised and under-
delivered– Some organizations are wary of unproven tools, some
choose to wait it out
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 13
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Technology
Strategic Sourcing
Sourcing analytics
Supplier evaluation
RFx & auctions
Contract management
Strategic Sourcing
Sourcing analytics
Supplier evaluation
RFx & auctions
Contract management
Supplier Enablement
Supplier portal
Supplier connectivity
Supplier Enablement
Supplier portal
Supplier connectivity
Content
Content consolidation
Catalog content management
Content
Content consolidation
Catalog content management
Operational Procurement
Self-service procurement
Plan-driven procurement
Services procurement
Asset Management
Operational Procurement
Self-service procurement
Plan-driven procurement
Services procurement
Asset Management
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 14
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Big Picture
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 15
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Some of the Top Issues Facing Supply Chains in Services Organization
Information/Tools Lack of single contract repository Inability to capture and reuse data Inaccessible, lack of visibility to data Non-standardized naming conventions Lack of Demand Planning/Demand Mgmt Tools
Process Manual, fragmented contract development Application’s inability to accommodate process flexibility and provide
process structure as needed Lack of scalability Disparate processes, tools, and information Lack of well-defined processes (playbook) Tug of war for process ownership
Performance Poor supplier performance measurement and management Limited visibility into consumption and spend analytics Weak industry, market, commodity, and supplier intelligence Poor demand management
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 16
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Lack of Single Contract Repository
No single capture point for contractual information
Contracts executed on paperNo aggregate view of third-party
relationships, liabilities, performance
Problem
Inconsistent management of supplier and spend base
Lost leverage opportunities Increased expenses Maverick spend Risk for regulatory compliance issues Supplier stability and operational
continuity
Impact
Centralized contract management system
Capture detailed contract terms and conditions
Integration with existing systems to enhance logical processes
Best Practice
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 17
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Manual, Fragmented Contract Development
Contract development using multiple forms
No standardized templates Deferring to vendor contracts
Problem
Risk of noncompliance of legal, regulatory, and internal compliance
Risk of overlooking key favorable protections and terms
Impact
Automated Application-based,
structured approach Technology can drive
contract type, clauses, fallback
Paper-based Commodity-specific
contract templates approved by legal department
Strict version control, legal review, and approval
Periodic audit of executed contracts for compliance to standard benchmark terms
Best Practice
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 18
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Inability to Match Invoices to Contract
Inability to match invoices to contractual terms, pricing, and conditions
Inability to isolate maverick spending by matching contracted supplier to paid supplier and contracted good and services to paid goods and services
Problem
Missed potential for a cost reduction by ensuring that invoices match contracts
Impact
A “No P.O./No Pay” policy helps with matching invoice to contracted terms
Systems that can load and match invoice to contracts and send an “OK to pay” to the Accounts payable system
Best Practice
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 19
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Foundational Underpinnings – Contracts as the “Rudder”
Contract Management and it’s related processes sit at thecenter of an effective and efficient supply chain
• Sourcing and Contract Automation is a best practice driving:– Standardized contract templates – Reduced cycle time from business unit engagement to contract
execution– Maintaining legal integrity and corporate intent behind contractual
agreements through structured development processes– Integrated sourcing processes and integrated sourcing information– Effective supplier management– Enhancing the ability to mitigate risk– Reducing Expenses in several aspects of the end-to-end process
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 20
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Return on Investment
Contract Management & Automation
• Effective contract development and management looks holistically at sourcing and procurement approaches the process of engaging suppliers, developing structured agreements and managing and enforcing compliance across the entire spend base. ROI on effectively managing the entire supply chain can be 3-10% of an organizations entire spend. Other key factors such as operational risk can be greatly mitigated
• Organizations deploying e-sourcing solution can potentially realize gains from 3-10%, sometimes more, sometimes less based on the commodity. Unless the e-sourcing event is a spot-buy, it still is susceptible the same problems as a typical sourcing event. Did the organization get the savings?
E-sourcing
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 21
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Automation … • Capture paper-based contractual information into an
electronic repository• Utilize standard contract templates to maintain legal
integrity in accordance with corporate objectives, workflow to ensure proper review and controls
• Reduce cycle time to execute contracts – streamline the engagement and interaction necessary with suppliers (automated RFx/electronic document exchange and import)
Manage
Engagement … • Captures the needs of the
organization in a standard, accessible template that can be used by sourcing
• Drives compliance, reduces maverick spend
• Creates organizational awareness around supply chain/sourcing
Automation and compliance … • Generate requisitions from executed
contracts, streamlining process, eliminating handoffs, reducing cycle time, driving compliance
Catalog creation … • Generate catalogs for e-procurement or ERP
systems from executed contracts
» Source
» Procure » Pay»Plan
Spend leverage, payment automation, and compliance … • Matching contracts suppliers to “paid” suppliers is a
critical sourcing requirement to leverage spend and reduce maverick suppliers
• Reconciling invoices to contracts can drive compliance and reduce payment errors; critical to organizations when substantial payments do not have a matching requisition
Performance management, compliance, cost reduction – captured contractual detail captured is critical to being able to effectively scorecard/manage supplier performance to contract terms and conditions. Accessibility to contracted supplier information matched to spend is critical to managing leveraging the supply base as well as measuring usage, risk mitigation and internal adoption
Spend leverage … • Visibility across existing contract base,
commodities, products, and services• Via extensive search capabilities, quickly find
existing contracts or opportunities to leverage existing agreements and arrangements
End-to-End Sourcing and Procurement Management
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 22
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Inability to Capture and Reuse Data
Key supply chain data capturedin nonelectronic format
Contract data can be used by other systems and processes, but is not readily available
Problem
Lack of data integrity Inability to match supply chain inform-
ation to original contract terms and conditions
Inability to gain ready access to contractual detail
Inability to view aggregate contractual data
Impact
Centralized contract management system
Robust capture of detailed contract terms and conditions
Integration with existing systems to enhance logical processes
Aggregated data warehouse of key supply-chain information
Best Practice
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 23
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Poor Supplier Performance Measurement and Management
Organizations have poorly documented handoffs to internal clients
Without supplier performance data organizations do not know if suppliers and products perform as stated in the agreement
Problem
Savings do not materialize and uncertainty arises around actual costs of provided goods and services
Risk of operational stability and increased expenses and lost productivity
Impact
Clearly defined performance metrics
Train supplier managers to assess and measure suppler performance
Scorecarding process Key performance
indicators
Best Practice
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 24
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
• You can’t change what you don’t manage
• You can’t manage what you can’t measure
• You can’t measure what you don’t know
Functional Truths
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 25
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Technology, Process and People are the Keys to Success
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 26
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Organizational “Golden Threads”
Common themes and issues relevant to organization’s today
• Expense Management• Revenue Growth• Shareholder Value• Increased Productivity• Risk Mitigation• Customer Retention and Customer Satisfaction• Operational Stability• Regulatory Compliance
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 27
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Organizational “Golden Threads”Common themes and issues relevant to organization’s today
• Expense Management• Revenue Growth• Shareholder Value• Increased Productivity• Risk Mitigation• Customer Retention and Customer Satisfaction• Operational Stability• Regulatory Compliance
Directly impacted by the organization’s supply chain
Influenced by the organization’s supply chain
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 28
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Best P
ractices
ToolsProcess
The Four Enablers
People Process Tools
Find, Define, Implement and Integrate the Right Practices, People, Processes and Tools
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 29
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Consider the Airline Industry – Two prevalent business models exist:
Efficient vs. Effective
Low Fare Airlines Major Airlines
One type of Aircraft
Point-to-Point
Standardized Service
Low Cost
Profitable
Average time in air per day : 11.5
Focus on efficiency and effectiveness
Multiple Types of Aircraft
Hub System
Differentiated Service
Variable Costs
Unprofitable
Average time in air per day : 8.6
Focus on efficiency
Low-Fare airlines realized that several factors make success for an airline, moving people quickly, while providing a standard level of service at a low-cost is their goal. Other airlines tried to vary the offering and looked for efficiency in moving passengers by funneling customers through a “hub”. Focusing on one aspect of efficiency and assuming that gain would outweigh other shortcomings proved disastrous. They lost focus on the total picture and assumed efficiency would equate to profitability. Southwest, realized the simple concept, planes make money when they are in the air. What looked like an effective model for the major airlines, simply wasn’t.
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 30
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Why is the end-to-end process important to you?
Value Drivers Business Initiatives Results
Productivity& Efficiency
ExpenseControl
ManagedRisk
Adoption &Compliance
Sourcing and Supply ChainAutomation
Standardized processes
Supplier Enablement
Contract Development Efficiency
Supplier Rationalization
Demand Visibility
Effective Supplier Management
Alignment to Corporate Goals
Supplier Risk Assessment
Supply Risk Management
Contingency Planning
Process Controls
Policies and Procedures
Metrics and Measures
Supplier Performance
Organizational Compliance
Spend Reduction
Increased adoption & compliance to contract terms and conditions
Decreased cycle time
Increased efficiency
Reduced Risk
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 31
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Creating a World Class Supply Chain
Scale, adapt, and extend Right People, Processes, Practices and ToolsBuild flexibilityBuild flexibility
Create game planCreate game plan Understand your supply chain
Define processes
Get organizational commitment
Extend supply chainExtend supply chain Optimize internal supply chain
Enhance supplier capabilities
Manage supply chain Manage supply chain performanceperformance
Create dashboard
Measure compliance
Learn from experienceLearn from experience Transactions into informationTurn Information into knowledge
Continuous improvement
NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 32
April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL
Predictions – One Day We’ll See…..
• Standardization – Information, Processes and Technologies
• Integration of People, Processes, Tools and Information
• Rising Value of Supply Chain – Organizations will view the strategic and operational value of supply chain equally with Finance, Marketing, Product Development and other critical business operations