Robert Shecterle VP/Group Director, SCM, GSM and · PDF fileData Collection and Extraction....

© AberdeenGroup 2007

Value (and Future) of SRMNovember 2008

Robert ShecterleVP/Group Director, SCM, GSM and Retail

2 • © AberdeenGroup 2008

Who is Aberdeen?

Fact Based Research 1200 Reports in 20085500 Document Library

640,000 Primary Benchmarks Conducted35,000 Personal Interviews438,000 Panel Members2.5M Readers

90% Fortune 50075% Global 500

140 Publication Partners withover 14M Readers


PACE – A Research Framework

Pressures: External forces that impact an organization’s market position, competitiveness, or business operations (e.g., economic, regulatory, technology, competitive, etc.)Actions: The strategic approaches that an organization takes in response to industry pressures (e.g. product/service strategy, target markets, go-to-market, and sales strategy)Capabilities: The business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products/services, financing, etc.)Enablers: The key technology/solutions required to support the organization’s business practices (e.g. development platform, applications, connectivity, user interface, training and support, etc.)


Aberdeen’s Research Methodology: The Competitive Framework Key


Supply Chain ManagementGlobal Supply Management RetailManufacturingEnterprise TechnologyService ChainCommunicationInformation TechnologySales & MarketingProduct InnovationEnterprise Administration

Aberdeen’s Research Coverage

Over 5500 On-Line Research Documents are available serving 300,000+ User Sessions / Month


AgendaThe View From Above – Overall DriversThe Supply Management PerspectiveThe Foundation - Spend AnalysisBuilding the Framework – Sourcing & CLMDay to Day Living – ProcurmentPaying the Bills – AP & SettlementPutting the Pieces TogetherQ&A


The Only Constant – ChangeSupply Chain Transformation

Supply Chains Constantly ChangingGlobalization of Supply, Low Cost Country SourcingIncreased Competitive PressuresGrowing Markets Shorter Product Lifecycles/New OfferingsIndustry M&A ActivityCorporate Social Responsibility

What is Driving Transformation Today?800+ Supply Chain Executives Gave us Their Priorities


Supply Chain PressuresTwo-thirds of respondents site cost containment as key pressure for engaging in supply chain transformation

Source: AberdeenGroup

“We needed to reduce procurement operation costs, improve supplier relationships, and locate our people globally near the processes they were managing.” ~ VP Global Purchasing, High Tech Mfg


AgendaThe View From Above – Overall DriversThe Supply Management PerspectiveThe Foundation - Spend AnalysisBuilding the Framework – Sourcing & CLMDay to Day Living – ProcurementPaying the Bills – AP & SettlementPutting the Pieces TogetherQ&A


What’s on the CPO’s 3 Year Agenda?


Increase Spend Under Management

"E-procurement has given us the traction to increase spend under our control and to monitor compliance"

~ VP, Supply Chain Food & Beverage

Industry (Fortune 500 Company)


Improving Supplier Development"We expect to see a severe global economic storm this year. We'll survive but some of our suppliers will not. Every one of my managers asks his team every day:

Who are they (bankrupt suppliers) going to be?

Can we get out of the way?

What's the back-up?"

~ CPO, Global Retailer (Fortune 500 Company)


Procurement Automation"Our plan for 2008 includes a move to a completely centralized department and the design, development, and implementation of an automated solution that extends from spend analytics to AP automation… strategic sourcing and internal collaboration are major areas of focus.

~ Bob Kane, Director, Strategic Sourcing & Supply

Weyerhauser (Fortune 500 Company)


Top People Challenges

"Our credibility suffers every day that I have to put an under-skilled buyer in front of a savvy business customer."

~ Director of Procurement, Technology Industry (Fortune

500 Company)

"Change is happening so fast in the marketplace and in my company that you have to have a talent strategy."

~ CPO, Global Manufacturer (Fortune 500 Company)


Barriers to Procurement Transformation"Critical success factors in transforming the department?

Clearly articulated plan with financial and personnel investments, deliverables, and milestones outlined

Executive buy-off

User community involvement

Continuous and pervasive communication

Celebration of success”

~ John Mayes, CPO, Yale University


Global Supply Management – More Detail

Analyze Source Contract PayProcure

Complex Categories

T&E

Meetings, Incentives, Conferences, Exhibitions

Real Estate & Facilities

Contract Labor & Professional Services

Print/Marketing

Source-to-Settle


The Foundation…Spend Analysis

Imagine that the Chief Executive of a global enterprise….

Had a Chief Financial Officer who…did not know the company's cost of capital and lacked any visibility into calculating its gross margin or quick ratio. Had a Vice President of Sales who… did not know the company's average deal size or win percentage lacked visibility into the current sales pipeline.Had a Vice President of Manufacturing who… did not know the products' total cycle timeslacked visibility into any utilization or quality metrics.


Spend Analysis Program Maturity

"We can run detailed reports that reflect commodity spend by region and by business. This has been our main success within spend analysis, leading to significant global cost reductions."

~ CPO, Small North American Firm


Spend Analysis – The Process

Data Collection and Extraction.Identify the key spend data and develop a planVariety of sources, including e-procurement, accounts payable, ERP, and other back-end or transactional systems.

Data Cleansing and Classification. Assimilated and organized into a usable formatDeleting duplicate entriesOrganizing for both enterprise-level and source systems.

Data Enrichment. Mapping of all data to a standard commodity structure

69% of enterprises participating in our study us a custom structure23% of enterprises utilize UNSPSC

Add or link to other internal and external data sourcesInternal Supplier Performance Management systemExternal supplier information service for diversity or risk measurement.

Access & ReportingStandard reportsAd hocSlice & Dice


SA Automation vs. Average Savings

11%

8%

5%4%

Fully automated,single system

Fully automated,disparate systems

Partiallyautomated

Fully manual


Hurdles to Successful Spend Analysis

43%

45%

51%

55%

Insufficient processautomation

Lack of standardizedprocesses

Too many sources

Poor data quality


The Payoff

Enterprises report an average improvement of 92% in savings from sourcing activities after a spend analysis program is initiated.Enterprises report an average increase in total spend under management of 39.4% after a spend analysis program is initiated.Enterprises report an average increase in contract compliance of 30.6% after a spend analysis program is initiated.


Where is SA Going?

Full AutomationAdditional Classification SchemasIncreased FrequencyMore CommoditiesWeb-based Dashboards and Tools

On Spend Analysis: "Purchase 'Engineers' should aid buyers in investigating potential areas of cost reduction….the scientific, systematic collection of data, by specialists, [should serve] as a basis for purchasing decisions." - Norman F. Harriman, Principles of Scientific Purchasing; 1928


Building the Framework

What is Strategic Sourcing Process?IdentifyingEvaluatingNegotiatingImplementing

Optimal mix of goods and services that best support the objectives of the enterprise


Sourcing Pressures

22%

28%

31%

39%

70%

Decrease sourcingcycle time

Need torationalize/reduce

supply base

Need to improvesupplier capabilities

and performance

Need to develop orimprove category

management strategies

Pressures to reducecosts


Strategic Sourcing Program Maturity

26%

26%14%

6%

8%

12%

8%More than 5 years

2 to 5 years

1 to 2 years

Less than one year

Progarm to start within 12monthsNone, but consideringprogramNone planned


Centralization – Yes; Standardization - No

16%

18%

25%

16%

25%

Standardized atbusiness unit or region

Standardized acrossenterprise

Standardized only formost critical or strategiccommoditiesDecentralized

No formal process


Strategic Sourcing - The Benefits

Performance Area Best-in-Class Industry Average

Laggard

Spend under management 75.0% 42.7% 39.1%

On-contract spend 56.3% 37.6% 35.9%

Identified savings 11.4% 9.6% 4.2%

Realized savings 10.1% 9.3% 3.7%


Where is Sourcing Going?E-sourcing,

Currently utilized by 83% of Best-in-Class enterprisesEarlier in the process – PLMMore categoriesLink to Web-based supplier discoveryIntegration with end to end processes

Fully-automated spend analysisCurrently utilized by 39% of Best-in-Class enterprisesNegotiate more effectively

Contract lifecycle management solutionsCurrently utilized by 61% of Best-in-Class enterprisesPrevents savings leakageLinks sourcing to execution

Supplier performance and risk managementIncreased use of low-cost country sourcing (LCCS)Geopolitical disruptionsComplianceSustainability & Corporate Responsibility


A Little more on CLM – Buy & Sell

Key Elements of CLM ProcessesProposal developmentCreation / authoringAssessment of riskNegotiationsApproval / review (including final signatures)Analysis and reportingAuditing


Pressures Driving CLM

19%

23%

31%

34%

42%

Need to improve sell-side and buy-sidecompliance

Poor visibility into contractual relationships

Increased complexity of enterprise-widecontracts and relationships

Regulatory and reporting requirements

Pressures to better assess and mitigateinternal and external risks


Benefits – Performance & Efficiency

Metric Best-in-Class All Others Procurement contracts 19.7 days 31.3 days

Sales contracts 16.6 days 22.2 days

Other contracts (i.e. NDA, IP, real estate, employment, healthcare, IT, etc.)

14.6 days 25.8 days


Where is CLM Going?

33%

35%

10%7% 6% 7%

Procurement contracts Sales contracts Other contracts (i.e.NDA, IP, real estate,

employment, healthcare,IT, etc.)

Best-in-ClassAll Others

• Single Solution – Buy & Sell• Pre-Approved Terms and Workflows• External Collaboration• SaaS


Maturity of E-Procurement

Average Maturity: 5.3 Years


E-Procurement Delivers

Performance Area Before After

Requisition-to-order costs $51 $26

Requisition-to-order cycle time 9.6 days 3.4 days

Spend under management 42% 60%

Percentage of maverick spend 33% 20%


E-Procurement Trends: 2001 - 2008

Performance Area 2001 2008

Total suppliers enabled 30 326

Total end-users 1,000 1865

User adoption rate 12% 63%

Spend under management 18% 60%


E-Procurement: Improvement

Performance Area 2007 2008

Maverick spend 23% 20%

Requisition-to-order cost $31 $26


User adoption rates 52% 63%

E-Procurement delivering Year-over-Year Value


Successful Procurement Performance

Performance Metric Best-in-Class Industry Average Laggards

Requisition to order cycle cost $23 $27 $30

Average time to on-board a new supplier into system

12.4 days 18.2 days 21.5 days

Average time to process and implement a catalog change

3.1 days 10.1 days 11.6 days

Percent of suppliers enabled to receive and deliver electronic transactions

27% 22% 17%


Procurement Outsourcing

10%

23% 22%

45%

Full procurementoutsourcing

Incremental - Byprocurement

process

Incremental - Bycategory

Incremental - Bycategory andprocurement

process


Expected Outsourcing Benefits

44%

46%

46%

47%

56%

Improved spend visibility

Market & supplier intelligence

Headcount reduction

Lower procurement costs

Improved pricing


Where is Procurement Going?

Complex Categories!Continued Centralization & StandardizationContinued Supplier RationalizationImproved VisibilityOutsourcing


T&E Spend: A Rising Wave

Source: AberdeenGroup May 2008

14% average increase!

80%

7% 6% 9%

Increased Remained thesame

Decreased Don't know


Which T&E Expenditures Are Affected?

Source: AberdeenGroup April 2008

88%78% 76% 73% 73%

66% 65%


Top ACTIONS to Control T&E Spend

Source: AberdeenGroup April 2008

28%

33%

39%

48%

49%

50%

54%

Regular communication and education aboutcorporate travel polices

Strategically source different T&E categories

Establish a list of preferred suppliers for each area ofT&E

Consolidation / centralization of travel & expense management programs

Establish formal T&E policies and processes

Direct deposit for T&E reimbursements

Audit T&E expense reports


Aberdeen’s MICE Framework

Strategic Meetings Management


Strategic Meetings Spend

2006 2007

Average meetings and events spend per year $15.8 M $17.3 M

Meetings and events spend as a percentage of revenue 2.7% 2.8%

Source: AberdeenGroup, February 2008


Strategies for Cutting Costs on Print

18%

31%

44%

35%

37%

46%

59%

60%

Rationalization of marketing materials andservices supplier base

Establishing standardprocesses and policies forpurchasing and managing

print

Aggregating spend andleveraging for volume

discounts

Applying procurementprinciples to print spend

No Collaboration Collaboration


Contract Labor Technology Usage

53%

47%

40% 40%39%

18%

24%

15%

Payrolling service Automated requistion-tracking system

Portal for candidates andapproving/hiring

managers

Workflow managementprogram

North AmericaEurope


REFLM – Pressures & Savings

23%

28%

29%

31%

38%

Improve workplace productivity

Rising costs of facilities maintenance costs

Better manage and prioritize capital spending

Improve or maintain competitive position inmarket

Rising REFLM costs

5.2%5.6% 5.8%

7.0%

2.7% 3.0%

4.0%

2.4%

Total cost ofoccupancy

Cost per squarefoot leased

Maintenance costper square foot

Cost peremployee to move

Best-in-ClassAll Others


AP Hub – Conversion of Interests

Internal & external service support

Best-in-Class A/P Departments cite higher levels of collaboration with Procurement, Finance, and Suppliers.

Approvals & Inquiry

Invoice receipt & handling

Settlement

Validation & Reconciliation

A/PDepartment

SuppliersDeliver goods and servicesInvoice & receive payment

Procurement Finance

Spend under ManagementSource to Settle ProcessSupplier Perf. Mgmt.

KeyA/P

Processes

Financial Reporting Cash Flow Mgmt.Visibility

ContractsSOX

Compliance

Internal & external service support

Best-in-Class A/P Departments cite higher levels of collaboration with Procurement, Finance, and Suppliers.

Approvals & Inquiry

Invoice receipt & handling

Settlement

Validation & Reconciliation

A/PDepartment

SuppliersDeliver goods and servicesInvoice & receive payment

Procurement Finance

Spend under ManagementSource to Settle ProcessSupplier Perf. Mgmt.

KeyA/P

Processes

Financial Reporting Cash Flow Mgmt.Visibility

ContractsSOX

Compliance


Priority Assigned to Improving AP

65%

27%

8% Critical/HighModerateLowNot important (0%)


ePayables Framework

Invoice & Expense Report PayA/P DepartmentA/P DepartmentBlack HoleBlack HoleReceipt Settlement

Validation &Reconciliation

Approval &Inquiry

• Reporting & Analytics• Integration

"The greatest impact on our AP department has been the implementation of an invoice imaging and workflow solution. This has given us visibility into invoice status, as well as given us the ability to assign accountability to the processes that are holding up payment. We need to have an automated payment solution put in place."

~ Karen Apps, Finance Manager, Gate Petroleum, North America


A/P Automation Impact on Processing Costs

Invoice Type Manual Electronic Incremental Improvement 1

Purchase Order (PO) $13.53 $8.67 36%

Non Purchase Order (Non-PO) $15.62 $9.19 41%

Other $12.98 $8.70 33%


1 Average incremental gains achieved by 120+ survey respondents

Automation Results


A Key Approach: Card ProgramsTop Pressures for Implementing Card ProgramsAll Users


0%

10%

20%

30%

40%

50%

60%

70%

Expenditurecost savings

Process andtransaction

cost savings

Improvedvisibility intocash flow

Employeeproductivity and

convenience

Supplieracceptance &ease of use

Providereporting data

North America Asia/Pac Europe Latin America


Card Programs – Moving into SCMSupply Chain Categories & Card Programs

Currently Use

Maintenance, repair, and operating (MRO) supplies 84%

Plan to Use

Semi-custom and custom production materials, parts and assemblies 54%

Temporary labor 51%


Current & Planned Usage in Traditional Supply Chain


Aberdeen Research: Card Programs

“Paying via Card Programs versus on invoice saves us approximately $18 for every transaction that is processed.” Purchasing Card Manager, Fortune 100 company

Transaction Costs Savings for Mature Programs



AP Outsourcing Activity

“Outsourcing costs us half of what we would spend on automating internally and has lowered our processing costs are now one-third lower. We’ve also streamlined our department by reducing out headcount by about the same.”

~ Director of Finance, Large Medical Devices enterprise


Pressures Driving AP Outsourcing


AP Outsourced Processes

Current Planned


Performance after Outsourcing


Where is AP Going?

AutomationEIPPScan & OCR

Supply Chain FinanceDynamic DiscountingCard ProgramsOutsourcing


Priority & Expectations of Supplier Enablement


Enablement Actions

48%52%

45% 48%

67%

32%

15%

32%24%

17%

38% 36%

XML EDI EIPP SupplierNetworks

P-Cards Electronicfund transfer

Currently Use Plan to Use


Benefits of Supplier Enablement

Performance Area Before After Spend under management 44% 51%

Percentage of maverick spend 28% 19%

Requisition-to-order cost $37.43 $28.58

Invoice-to-payment scheduled cost $32.38 $22.55


Invoice-to-payment scheduled cycle time 26.0 days 18.3 days


Where is Supplier Enablement Going?

Automation – Break Today’s Long CycleUse of Supplier NetworksSimplified Integration


Putting the Pieces Together

Supply Chain and Expense Management TrendsDemands to continue to lower costs Increasing volumes – transactions & $$Manage complex spend categories – T&E, MICE…Outsourcing to lower costs and focus on core

Approaches to Assemble a Complete SolutionEnd to end process automationBetter data – improved insight & controlDrive existing tools into new areas

© AberdeenGroup 2007

Thank You

www.aberdeen.com

Robert [email protected]

617-854-5369

http://www.aberdeen.com/

mailto:[email protected]

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