McKinsey’s  Journey  to  Digital  Excellence  in  Source-­to-­Pay  (S2P)Mauro  Erriquez  – McKinsey  PrincipalTeresa  Liptak  – McKinsey  ExpertAmit  Duvedi – Coupa  VP  of  Business  Strategy

May  2016

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McKinsey  &  Companyis  a  global  management  consulting  firm,  deeply  committed  to  helping  institutions  in  the  private,  public  and  social  sectors  achieve   lasting  success.  

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90  years  of  experience

85%of  our  consultants  hold  advanced  degrees

180  areas  of  cutting-­edge  expertise  across  22  industry  sectors  and  8  functional  areas

80%McKinsey  serves  more  than  80%  of  Fortune  magazine’s  list  of  the  Most  Admired  Companies

500dedicated  specialists  in  data  analytics

1,800knowledge  professionals    who  provide  relevant  research,  analytics  and  expertise  to  support  consultants

2,000+clients  in  the  past  5  years,  including  93  of  the  top  100  corporations  worldwide

30,000  former  consultants  in  120  countries

400+Information  technologists  with  deep  expertise  in  user  interaction,  data  visualization,  architecture,  and  software  development

$500+Minvested  in  knowledge  and  capability  building  annually

61 countries

17%of  our  consultants  have  PhD,  MD  or  law  degrees

~10,000  consultants

130  languages  are  spoken  by  our  consultants  who  represent  100+  nationalities

116  offices

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We  have  over  10,000  professionals  supporting  the  Firm…    Firm Functions are responsible for administering Firm-wide programs and providing services that bridge geographies.

▪ Benefits▪ Communications▪ Personnel▪ Finance & Accounting▪ Information Technology▪ Knowledge Management

▪ Legal▪ McKinsey Learning▪ Procurement▪ Real Estate▪ Recruiting▪ Other

Story

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McKinsey  S2P  team

Global  team

50+experienced  procurement  professionals

Centers  of  Excellence  (COEs)

5+

Shanghai,  China

Chennai,  India

Prague,  CZSourcing

Procurement   Ops

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8

Tokyo,  JapanSourcing 1

New  York,  NYSourcing 6

Miramar,  FLSourcing 6

Procurement   Ops 11

Analytics   and  Systems

5

Sourcing

Procurement   Ops

2

2

Procurement   Ops

Accounts   Payable 72

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Poznan,  PLAccounts   Payable      9

Manila,  PhilippinesProcurement   Ops

SingaporeSourcing

San  Jose,  Costa  Rica

Procurement   Ops 4

Analytics   and  Systems

3

5

1

COEs

70+experienced  accounts  payable  professionals

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Ambitious  journey

2000  -­ 2007 2008  -­ 2015

Get  the  basics  right

Go  for  skill  and  scale

Be  distinctive

2016  -­ 2020

Digitizing  the  S2P  process  is  a  cornerstones  of  our  2020  vision

▪ Setup  new  organization▪ Create  a  foundation  for  S2P  through  standard  processes  and  use  of  technology  

▪ Introduce  procurement  guidelines  and  procedures  to  North  America

▪ Focus  on  talent  up-­skilling  and  external  hires

▪ Cover  new  spend  areas  and  geographies

▪ Plan  for  more  sophisticated  sourcing  strategies

▪ Evolve  vendor  partnerships

▪ Create  a  digital  environment  unrivaled  by  any  of  our  competitors

▪ Support  Firm  to  be  entrepreneurial  and  mobile

▪ Enable  a  growing  external  workforce

▪ Increase  transactional  efficiency

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S2P  performance  diagnostic  

Source  to  Pay  maturity  framework

Organization  design  and  centralization▪ Centralization   of  activities▪ Organization   design

Lean  processes▪ Comprehensive   S2P  scope▪ Efficient   end-­to-­end   process▪ Standardization   of  work  ▪ Segmentation   by  complexity▪ Workload  balancing▪ Feedback   loops▪ Proactive   management   of  process  ▪ Continuous   improvement

Strategy  and  value  expectation▪ Expectations   around   value  creation▪ Clear  strategy   and   vision  for  S2P▪ Demand   management

IT  systems  and  tools▪ Architecture▪ Master  data   management▪ System  functionality▪ User  friendlinessGovernance  and  performance  management▪ S2P   cross-­functional   governance▪ Policy  adherence▪ Leadership   role  modeling▪ Performance   management▪ Vendor   management

Roles  and  capabilities▪ Roles  and   responsibilities▪ S2P   staff  capabilities▪ S2P   staff   training▪ Business   user   training  on   S2P  tools▪ Coaching  

Outsourcing  and  offshoring▪ Evaluation   of   in-­house   vs.  outsourced   model▪ Level   of  offshoring▪ Management   of  BPO S2P  partners

McK  diagnosticTop  quartile

Source  to  Pay

IT  systems  and  tools

Strategy  and  value  

expectation

Lean  process

Organization  design  and  centralization

Outsourcing  and  

offshoring

Roles  and  capabilities

Governance  and  

performance  management

0

1

2

3

4

5

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Pain  points  identified

1 3Spend  leakage Cumbersome  

processes  built  around  manual  work

IT  systems  and  tools  architecture  was  complex

2

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IT  systems  and  tools  architecture   for  S2P

1998

20002001

2005

2006 2008

2013

2013

2014

2013

ERP -Financials

P2P

ContractManage-

ment

SourcingProject Manage-ment & Vendor Management

ERP -platform upgrade

ERP – HR

Imaging &Digital

WorkflowTravel andExpense

eRFx

Travel spend reconciliation

tool

Vision

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Vision

Deliver  a  distinctive  and  effective  digital  S2P  platform  – the  Firm  continues  to  redefine  itself  and  lead

Attract  and  retain  world  class  procurement  professionals  – people  are  our  competitive  advantage

Keep  knowledge  current– do  as  we  do

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Value  we  could  get  by  fixing  what  is  broken

Opportunity

US$,  millions

Optimize  payment  process  by  pursuing  early  payment  discounts    

15-­32

Reduce  overpayment  by  ensuringinvoiced  price  matches  order  price

Reduce  FTEs  through  increased  efficiency  of  procurement                        

0-­2

TOTAL  savings  (US$,  millions)

0-­5

Reduce  purchase  prices  by  increasing  usage  of  catalogs 10-­15

Reduce  purchase  prices  byincreasing    usage  of  contracts

0

5-­10

BC

E

A

D

ILLUSTRATIVE

14Source:  Coupa

Global  Rationalization  Project

Cost  Reduction  /  EPS

M&A  or  DivestitureShared  Services  Initiative   Going  Public

Supply  Chain  Friction

Top  Line  Initiatives

Compliance  /  Risk  Event

Customer  Service

Liquidity  /  Credit  worthiness

Strategic  objectives  beyond  quantifiable   savings

Changing  mindsets  is  a  big  job

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Our  objective  was  to  save  money,  improve  customer  service  and    digitize…  

…still  we  were  facing  a  few  challenging  questions  from  internal  stakeholders.

The  key  questions  were…  

…why  do  anything?

…why  now?

…why  not  current  ERP? Socialization  with  executives

Demonstrating  experience

TCO

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Why  not  current  ERP?

Alignment  with  IT▪ Developed  best  possible  understanding  of  how  others  found   the  user  experience  and  implementation of  current  ERP to  be

▪ Built  a  realistic  TCO model:– 10+  modules  or  add-­ons  were  needed  to  support  the  Firm’s  end-­to-­end  P2P  requirements  in  current  ERP

– 3+  interfaces  likely  needed to  manage  contracts,  contingent  labor  and  imaging/queue  management

– Still   some  unknowns  and  anticipated  hidden  costs

▪ Score  card  results:– Current  ERP scored  69 out  of  100– Coupa scored  86 out  of  100  

Approach§ Validate  five  areas  of  concern  with  current  ERP’sprocurement  solution1. User  interface  and  experience2. Functionality3. Total  cost  of  ownership  (TCO)4. Implementation  and  time  to  value5. Integration

§ Conducted  interviews  with  ~20  current  ERP users  across  the  Firm, leveraged  insights from  the  consulting  practice,  and  spoke  to  client  references

§ Evaluated  ~20  use  cases  through  system  demos

Future

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Design  principles  for  the  future  state

Organization  design  and  centralization▪ Maintain   existing  org  design  

and   level  of  centralization

Lean  processes▪ 3-­click   self-­serve   buying▪ 2-­day  delivery  guarantee▪ Dynamic,   adaptable   approval   rules▪ Mobile  approvals   and  receiving▪ Dynamic  workflow  and   order  

management▪ Eliminate  trivial,  manual   work

Strategy  and  value  expectation▪ Align  with  new  stakeholders   in  the   Firm▪ Improve  platform   and   increase   adoption▪ Implement   in  difficult   markets  first▪ Increase   customer  service   levels

IT  systems  and  tools▪ Configuration   – no  customizations▪ Mobile…Mobile…Mobile▪ Simplify  integration▪ Increase   eCatalogs and  eInvoicing▪ Automated   PCard reconciliation

Governance  and  performance  management▪ Real-­time  visibility  and   insights   for  

operation   and   strategic  KPIs▪ Track   spend  under  contract

Roles  and  capabilities▪ Improve  end-­user   capabilities▪ Repurpose   quality  assurance   role  to  

more  strategic,  high   impact  role

Outsourcing  and  offshoring▪ Maintain   existing  offshore   COEs and   shared   service  

centers   (SSC)

IT  systems  and  tools

Strategy  and  value  

expectation

Lean  process

Organization  design  and  centralization

Outsourcing  and  

offshoring

Roles  and  capabilities

Governance  and  

performance  management

Source  to  Pay

excellence

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How  Coupa  will  drive  our  future

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What  we  have  achieved  already

Q1 Q2 Q3 Q4

▪ UK

Contracts  – global

▪ Mexico

Activity

Supplier  InformationManagement  (SIM)

P2P  – phase  1

Sourcing  – global

▪ China

▪ Czech  Republic

Go-­Live

Implementation  insights▪ Choose  your  starting  point  wisely

▪ Be  open  to  co-­innovate  and  change  existing  processes

▪ Pick  Partners  who  can  co-­innovate  with  you

▪ Focus  on  governance,  success  metrics,  change  management

Implementation  timeline,  2016

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Coupa  perspective:  Success  metrics

Source:  Coupa

Potential  Success  MetricsValue  Driver

Reduce  purchase  prices  by  increasing    usage  of  catalogs

Reduce  purchase  prices  by  increasing    usage  of  contracts  and    improve  spot  purchases

Reduce  overpayment  by  ensuring  invoiced  price  matches  order  price

Improve  PO  processing  efficiency

Improve  Invoice  processing  efficiency

▪ Suppliers  per  $B  indirect  spend▪ Spend  under  contract  as  %  of  addressable  spend▪ %  of  Negotiated  Savings  Lost  to  Maverick  Buying▪ %  purchasing  transactions  compliant  with  contracts

▪ %  of  Invoices  with  inaccuracies▪ %  Contract  leakage

▪ Processing  cost  per  PO▪ Requisition   to  Purchase  Order  (PO)  cycle  time  (hours)▪ %  of  Purchase  Orders  sent  electronically

▪ Pre-­approved  spend  as  %  of  addressable  spend▪ Spend  through  catalogs  as  %  of  addressable  spend▪ %  User  adoption  with  Coupa▪ %  Supplier  adoption   with  Coupa▪ %  of  Addressable  Spend  through  mobile   devices

▪ Processing  cost  per  Invoice▪ Invoice  OK  to  Pay  cycle  time  (hours)▪ %  of  Invoices  received  electronically

ILLUSTRATIVE

Vision Encounters  challenges

Emergeswith  plan