eSourcing: Picking up where ERP and eProcurement Fall Short

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e-SourcingPicking up where ERP and
e-Procurement Fall Short

64157 ??????????? ????????? 2002 Spring, Week 4-1
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June 1, 2001
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Todays Painful Reality

• The first time you hear about a big purchase is
  when you see the invoice.
• Purchasing is considered the enemy by your
  business units.
• Best practices are for people with more time.
• Cycle time for sourcing projects can be as long
  as 6 months.

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Agenda

• What is Strategic Sourcing?
• Automating the Enterprise
• e-Sourcing
• e-Sourcing Solution
• Integration Putting it all together
• IT e-Sourcing

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What is Strategic Sourcing?

• Strategic sourcing is a disciplined process which
  organizations implement to more effectively
  purchase materials and services from suppliers.
• The process generates savings by reducing product
  and operations costs through consolidation of
  purchases, elimination of duplicate and
  functionally equivalent parts, and rationalizing
  suppliers to the right number of partners.

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Why Strategic Sourcing?

• 73 of potential purchasing savings are in
  sourcing.
• Resulting in savings of 2-4 overall going
  right to the bottom line
• Some commodity areas can save more than 20

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Evolution of Strategic Sourcing Solutions
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Why an Enterprise Automation Software Solution?

• An Enterprise Automation Solution
• is a new class of product that complements (not
  replaces) existing enterprise systems.
• can be integrated with other enterprise systems
  for maximum value (more on this later).
• gives unprecedented visibility into the sourcing
  process including sensitive expenditure data.
• supports a consistent, disciplined process for
  sourcing.
• empowers the people you have.
• promotes enterprise-wide collaboration.

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Where does Strategic Sourcing fit?
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Strategic Sourcing is distinct from Transaction
Execution
Demand Generation
Strategic Sourcing
Transaction Execution
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Automating the Enterprise
ERP
e-Procurement
e-Sourcing
SFA / CRM
Top-line Sales Revenue
Operating Costs Efficiency
Bottom-line Cost Savings
Only e-Sourcing focuses squarely on bottom-line
cost savings (the 73 of purchasing savings
opportunity). It is estimated that every 1 saved
in sourcing is worth 5-25 in increased sales.
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Automating the Enterprise
ERP
e-Procurement
e-Sourcing
SFA / CRM
Percent of Transactions
90
10
20
80
Percent of Spend

• Most applications are focused on the 90 of
  transactions that only represent about 20 of my
  costs. E-Sourcing, however, is focused on the
  10 of my transactions that make up about 80 of
  my costs. You tell me which is more important
  for my business?
• Roy Anderson, Director of Purchasing, John
  Hancock Financial
• Services (20 years of corporate purchasing
  experience)

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Automating the Enterprise
ERP
e-Procurement
e-Sourcing
SFA / CRM
The usual order of implementation follows the
emergence of these advanced technologies.
e-Sourcing automates more than putting paper on
the web it automates human negotiations and
decision making.
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Agenda

• What is Strategic Sourcing?
• Automating the Enterprise
• e-Sourcing
• e-Sourcing Solution
• Integration Putting it all together
• IT e-Sourcing

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A Process Viewpoint
Sourcing, thenRequisition to Pay Process
Delivery Warehousing Traffic Logistics
Inventory
Requisitioning
Payables
Sourcing
Buying
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What is e-Sourcing?

• Sourcing is the identification, evaluation,
  negotiation, and configuration of new
  products/suppliers.
• Typically used for the negotiation of blanket
  contracts, strategic goods.

• An online sourcing tool that allows buyers and
  strategic sourcing specialists to obtain closed
  bids (and/or conduct reverse auctions) in a way
  that
• Gives consistent automated RFx creation,
  management and analysis
• Increases efficiency by standardizing work
  processes
• Qualifies new vendors and updates
  data/information on existing suppliers

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e-Sourcing Process
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Defining the e-Sourcing Framework.
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Sourcing cycle provides the greatest opportunity
for procurement savings.
Sources CRPS, The Wacht Group, AT Kearney
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However, sourcing remains a long, tedious process
at most organizations.
Source Aberdeen Group
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Multiple Internet models target the sourcing
cycle.

• Requirements/supplier identification/evaluation
• OpenRatings, Thomas Register, TPN Register,
  WorldPreferred.com, etc.
• e-Marketplaces
• BizBuyer, Chemconnect, e-Steel, National
  Transportation Exchange, PlasticsNet, PartMiner,
  Ariba (SupplierMarket.com), etc.
• Auction/exchange software
• Commerce One (CommerceBid), Moai, OpenSite, Ariba
  (TradingDynamics), etc.
• Aggregation/outsourced purchasing
• AlphaDog, Demandline, EDS/CoNext, ICG Commerce,
  etc.
• Sourcing solutions/services
• Agile, eBreviate, Emptoris, FreeMarkets, Mindflow
  Technologies, ShareMax, Webango, etc.

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How Internet sourcing can benefit your
organization.

• Reduction in prices of materials/services (5 -
  20)
• Rapidly establish competitive bidding space
• Access new suppliers
• Expand geographical reach
• Shorter procurement cycles (25 to 30)
• Automate the RFP/RFQ process
• Streamline order-to-pay processes
• Reduce administration costs
• Improve buyer productivity
• Reduce/eliminate paper-based processes
• Improve ability to create/manage optimal supply
  base
• Improved market data
• Minimize demand peaks

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Early sourcing solutions focused on dynamic
pricing.

• Traditional pricing Prices set by hypothetical
  forecasts and cost plans.
• Dynamic pricing Prices established in real-time
  by existing market conditions (i.e., actual
  supply and demand.)
• From buyers point of view Reverse Auctions
• Effective for standard/commodity products
• Oil, gas, electricity, broadband, excess assets,
  inventories, etc.

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Business negotiations need to determine the
Lowest Total Cost solution.

• The most effective companies will be those that
  can establish the most efficient global supply
  chains at the lowest TOTAL COST.
• Includes sum cost of price, quality, technical
  expertise, delivery, etc.
• Negotiations and sourcing decisions based on
  multiple parameters to deliver the lowest total
  cost supply chain.

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Key negotiation functionality required for
effective support of true B2B interactions.

• Multivariable negotiations
• Negotiations based on multiple parameters beyond
  just price, including quality, delivery,
  warranty, and financial terms.
• Multi-stage negotiations
• RFI RFP RFQ Award
• Multi-threaded negotiations
• Back and forth buyer-supplier interactions
• Synchronous supply chain negotiations
• Ensuring purchases are not made without due
  consideration of availability/cost of services
  required to use and deliver these products

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Selecting an e-Sourcing framework.

• Company large enterprise
• Strategy purchase a negotiated commerce or
  e-Sourcing application.
• Company mid-size
• Strategy outsource sourcing of particular
  products to procurement service provider.
• Company small
• Strategy leverage dynamic trading platform and
  supply network of e-Market/exchange.

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Strategic Sourcing Categorization
HIGH
Leverage Purchases Capital Plant
Strategic Purchases Direct Materials
Dollar Value
Marginal Purchases Indirect Materials
Tactical Purchases Indirect Materials
LOW
LOW
HIGH
Transactional Volume
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Purchase Category - Examples
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Approach Capital Purchases
HIGH
Capital Purchases
ERP Procurement
Dollar Value
LOW
Transactional Volume
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Approach Direct Purchases
HIGH
Direct Purchases
ERPConnection
Dollar Value
HIGH
Transactional Volume
30
Approach Marginal Purchases
Dollar Value
Marginal Purchases
LOW
LOW
Transactional Volume
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Approach Tactical Purchases
Dollar Value
Tactical Purchases
Web Buyer
LOW
HIGH
Transactional Volume
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Web Buyer Function Tactical Purchase

• Portal to communicate how to purchase supplies
  and materials.
• On-line web-based ordering for many of these
  (using Web Buyer style) primary use is for
  tactical purchases (usually consumables)
• Cost savings created by
• - Lower transaction costs
• - Compliance to leveraged agreements
• - Data to create better deals and monitor
  compliance
• - Supplier base consolidation
• - Broad deployment globally

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Agenda

• What is Strategic Sourcing?
• Automating the Enterprise
• e-Sourcing
• e-Sourcing Solution
• Integration Putting it all together
• IT e-Sourcing

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Requirements for an e-Sourcing Solution

• A complete, holistic solution includes
• Expenditure Analysis
• Project Management
• RFP / RFQ
• Reverse Auctions
• Contract Management
• Vendor Management
• Sourcing Workbench
• Ideally, all modules are integrated and designed
  to work together

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A Frictionless Sourcing Example
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RFP Proposal with Scoring Decision Support
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E-Sourcing Software

• QuickSource
• QuickSource is the only e-sourcing solution
  designed for sourcing professionals by sourcing
  professionals. This comprehensive full-featured
  e-sourcing platform is local for automating,
  streamlining and providing visibility into the
  sourcing processes. Based on the industry leading
  e-sourcing technologies developed by FreeMarkets,
  QuickSource contains a robust set of features
  that allow buyers to create and conduct online
  auctions right from their desktops

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E-Sourcing Software

• QuickSource
• Create re-usable templates for Requests for
  Information and Quotations (RFxs)
• Collaborate with and manage suppliers
• Create and run a wide variety of real-time,
  competitive bidding and negotiation activities
• Conduct offline negotiations

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E-Sourcing Software

• QuickSource Add on Services
• Market Operations Services
• E-Sourcing Support Desk
• QuickSource Supplier Training

• QuickSource Rapid Implementation and Deployment
• 15 Days to e-sourcing process
• QuickSource website readiness
• QuickSource team readiness
• QuickSource launch preparation

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E-Sourcing Services

• FullSource
  (E-Sourcing Acceleration Program)
• 19 average savings per contract for direct and
  indirect goods and services
• 30-50 cycle time reduction in the sourcing
  decision process
• Average return on investment of more than 20 to 1
  
• An average of nine more suppliers per negotiation
  for greater pricing competition

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• FullSource
  (E-Source Acceleration Program)
• Industry-specific program management driven by a
  dedicated, experienced team who will help design
  and implement a unique e-sourcing program for
  each customer
• Expert e-sourcing services in hundreds of spend
  categories
• Information and knowledge about specific
  commodities and supply market dynamics
• FreeMarkets' industry-leading, real-time,
  advanced e-sourcing technology
• 24-hour technical and operational support in over
  30 languages

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• FullSource
  (E-Sourcing Software )
• Transformation bidding
• Index bidding
• Net Present Value (NPV) bidding
• Multiple Offering bidding
• Rank-Only bidding

FreeMarkets is the only e-sourcing solution
provider willing to share responsibility with an
organization to meet its strategic sourcing
objectives.
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• FullSource Global Market Operations
• FreeMarkets' Global Market Operations Centers
  (GMOCs) are located in Singapore, Brussels, and
  Pittsburgh to service customers across world
  markets
• Coordinate and test events Develop and enforce
  market rules
• Proactively monitor bidder connections and
  bidding activity
• Provide surrogate bidding for any bidders that
  experience technical difficulties
• Train and support all participating suppliers
• Provide real-time event support

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• Asset Management
• Fast, market-based pricing when selling surplus
  assets
• Quick, easy access to needed assets for buyers
• A variety of sales venues, including Online Asset
  Auctions and Onsite Asset Auctions
• Support by dedicated customer service teams
• Ability to create a fair, neutral marketplace
  with equal access for all participants
• Public or private access to a global asset
  database and trading environment
• FreeMarkets Online Asset Auctions
• FreeMarkets Onsite Asset Auctions

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Future Functions

• FreeMarkets continues to develop end-to-end
  enterprise e-sourcing platform code named Sierra
  Nevada
• Functions of Sierra Nevada
• 1) Collecting and analyzing data
• 2) Developing sourcing strategies
• 3) Locating, managing, and evaluating suppliers
• 4) Creating requests for information, proposals,
  and quotations
• 5) Selecting price discovery methods and
  executing negotiations
• 6) Analyzing price discovery responses
• 7) Awarding contracts and tracking implementation
• 8) Managing awarded contracts and supplier
  performance
• Release of Sierra Nevada in summer of 2002

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Intelligent Trading Networks.
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OnSite General Motors

• Background
• 1 automobile manufacturer
• Expenditures 87 billion/yr.
• 30,000 suppliers worldwide
• e-Sourcing strategy
• 64 reverse auctions (Nov. 99 Sep. 00)
• Representing 500 million-plus of transactions
• Including 10 million via forward auctions
• 25 different commodity types
• Primarily commodity/low-engineered parts
• Events involved 470 suppliers

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OnSite General Motors

• Results
• Typical savings of 3 to 30
• Reduced process cycles to 3 to 4 weeks.
• WARNING Bid transparency is not always to
  buyers benefit
• Future plans
• Multi-variable RFQ/evaluations
• Multi-currency
• Extend to more complex products

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Agenda

• What is Strategic Sourcing?
• Automating the Enterprise
• e-Sourcing
• e-Sourcing Solution
• Integration Putting it all together
• IT e-Sourcing

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Systems Integration

• Many e-Sourcing modules can add immediate value
  without any enterprise systems integration.
• However, large incremental value is realized with
  each integration including your ERP,
  e-Procurement, e-Catalog, data warehouse, and
  other enterprise systems.

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Systems Integration Points
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Agenda

• What is Strategic Sourcing?
• Automating the Enterprise
• e-Sourcing
• e-Sourcing Solution
• Integration Putting it all together
• IT e-Sourcing

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IBM e-Sourcing Business Hosting
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What is IBM e-business Hosting

• e-business hosting includes a full spectrum of
  services that a customer may acquire from an
  external provider to support the deployment and
  operation of their business processes and
  applications on the web.
• The service might range from the basic
  provisioning of secure data centre facilities,
  redundant network connectivity and equipment rack
  and floor space (co-location), to varying
  degrees of standard managed services through to
  our focus on highly customised solutions
  delivering enterprise applications over IP
  networks.
• e-business hosting is comprised of modular
  service elements that may be selected by
  customers at any time in the life of the service
  engagement as their hosting needs evolve.
• Do more business up front, and secure your future
  business growth

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Why Customers Choose Hosting

• Business Drivers

• Technical Drivers

• Freedom to focus on running

• Access to specialised skills

• your business

• Performance optimisation

• Faster time-to-market

• High-bandwidth Internet

• Maximise ROI potential

• connectivity

• Flexibility to respond quickly to

• Enhanced security

• market changes

• Enhanced reliability

• More cost-effective than

• Reduced risk

• in-house

• Why

• Cost Savings

• Lack of Expertise

• Companies

• Not Core Competency

• Choose

• Reliability

• Hosting Over

• Responsiveness

• In-House

• Time Savings

• Source Forrester

• Lack of Technology

• Research, May 2000

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The Continuum of Hosting Services
Complex
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Hosting Services

• 15.1

• IBM Global Services

• Exodus

• 34.4

• Verio

• 15.1

• Next 10

• Qwest

• Digex

• Global Center

• 4.2

• PSI Net

• 1.4

• Genuity

• 3.8

• 11.1

• WorldCom

• 2.3

• 3.0

• 2.7

• EarthLink

• 3.7

• 3.1

• Other

• Source IDC,

• 4/2001

• IBM's Web Hosting Revenue Share as of 12/31/2000

• Recognised Leadership in the Market, and in the
  scope of its e-business Hosted Solutions

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Some of IBMs Customers

• Financial Services

• Travel/Transportation

• Industrial

• Wingspan Bank

• ICSA T

• iStarXchange

• Citigroup, Inc.

• Allied Holdings

• Sony Electronics, Inc.

• JP Morgan

• Danone

• Calberson

• Moody's Investors Service

• Thomson Multimedia

• Retail/Services

• NYSE

• Aventis

• Scoot

• TAHO Commerce

• Kellogg

• Wimbledon

• Group, LLC

• BP

• Roland Garros

• Cahoot

• Telemarine

• IKON Office Solutions

• Communications

• Public Sector

• Infrascope

• GRAMMY Awards

• Macy's

• US Navy

• Energy Argus

• Sears Roebuck

• GovernmentJobs.com

• Telecom Italia

• Company

• American School

• Bouygues

• Victoria's Secret

• Directory

• ISP/ASP

• Foundation for

• Tinde

• Economic Development

• Alerio

• Health Care

• ASP-One, Inc.

• Eli Lilly

• Catapulse

• I-TRAX.com

• Expansionet

• CareTouch

• Pragmatix

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Universal Server Farm Architecture

• The Universal Server Farm v3

• Internet

• Internet

• User

• architecture delivers...

• Secure customer separation

• Switch and Firewall

• Switch and Firewall

• Multi-layered firewalls

• Consistent architecture

• Web Layer

• Web Layer

• worldwide

• Enhanced scalability,

• rapid change

• Switch and Firewall

• Switch and Firewall

• Option for dedicated

• environment

• Data Layer

• Data Layer

• Logical design to enable

• change via software from

• remote locations

• Switch and Firewall

• Switch and Firewall

• Cisco and other industry

• products, and proprietary

• management tools

• Private

• Customer

• Networks

• Premise

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e-business Hosting - a Fully Managed Service

• Account Support Structure
• Security
• Keynote, SurfAid

• Standard Hardware Platforms
• pSeries (RS/6000), AIX
• xSeries (Netfinity), NT, Linux
• Sun, Solaris
• Standard Application Servers
• WebSphere
• Domino
• Microsoft IIS
• Netscape
• Granular Service Components
• Custom Services
• Systems Management
• Performance Management
• Backup and Recovery
• Applications Siebel, Broadvision, SAP, Oracle,
  Websphere

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Multiple-ISP Internet Access Architecture

Level 3 VLAN Architecture Optional Redundant
Connections

• Bandwidth Control
• DOS Attack Monitor

CUSTOMER WEB ENVIRONMENT
Optional Cross Connect
e-business Hosting Center
POTS
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Delivering Applications over an IP Network
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Application Hosting Services
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Hosted Applications

• Alliances with market-leading

• Fully managed infrastructure for Buy

• application providers

• and Supply, CRM, BI

• IBM's Websphere

• Industry-leading hosting for

• e-marketplace applications

• Ariba Technologies

• Seamless data flow for B2B

• i2 Technologies

• transactions

• SAP, Siebel, Broadvision, Oracle,

• World-class support

• Trading Partner enabling

• Single point of contact

• Global e-business presence

• 500k worldwide EDI-enabled

• partners

• Customers in 160 countries

• IBM hosts many of the world's

• leading e-markets

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The Future Building from Superior e-Hosting
Capabilities to e-Sourcing

• Capacity On Demand
• Applications
• Infrastructure

MIPS on Demand
Storage on Demand
Bandwidth on Demand
Hosting Center Architecture
Hosting Facilities
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Advantage in Hosting

• Provide your clients with the safest, most secure
  and complete application hosting offering
• Enhance your chances of Winning
• Deliver a better service to your client
• Secure the on-going business
• Many competitors are experiencing financial
  difficulties
• Troubled providers need to raise capital to fund
  operations
• Downsizing can affect client service
• Too much is at stake to take a chance at being
  there when "the lights are turned off"

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What does e-Sourcing bring to?

• Work Processes For
• RFx Creation and Development
• Customizable Templates
• Supplier Qualification / Vendor Management
• Electronic Transmission of Specs, Documents,
  Drawings Etc.
• E-bidding
• Sealed Bid
• Reverse Auction / Forward Auction
• Expenditure/Bid Analysis

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Conclusion

• 73 of the potential cost savings are in sourcing
  yet today, sourcing is done completely
  manually.
• If youre a large enterprise with a sophisticated
  purchasing group, enterprise software is the
  right choice.
• If youre choosing enterprise software, you need
  a holistic solution that addresses the entire
  sourcing process.

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Efficient Effective Procurement

• Everyone on the same platform (intellectually
  physically)
• Global scope
• Choosing using e- tools to help enable improved
  work process
• Supplier consolidation / leverage
• Avoiding the maverick purchase
• Measure results