Corporate Spend Under Pressure

1
Corporate Spend Under Pressure

• Presented by
• Michael Lynch
• Commodity Manager Travel
• ICG Commerce

2
Q What is Indirect Spend?
A The goods and services required to operate
an organization that do not contribute to the
cost of goods sold.
3
Indirect Spend A Source of Untapped Value for
Many Companies

• Indirect purchases represent up to 35 of
  expenditures but are typically under resourced
• Large number of buying categories
• Highly disbursed across company locations spend
  not leveraged
• High volume of low-dollar purchasing transactions
• Cost reductions drop straight to the bottom-line
• Significant opportunity to reduce costs via more
  effective sourcing and order processing

Transpor
-
tation
Contract
Labor
IT/
Telecom
Marketing
Packaging
MRO
Steel/
Metals
Utilities
Travel
Etc.
Direct
Indirect
Spent
Spend
65
35
4
Historic Practices in Indirect Spend

• Current
• Strategic role with high level organizational
  ownership
• Center-led global organization with strategic and
  operational spend control
• Automated systems enforce policies and processes
  drive compliance to preferred suppliers
• Measurements designed to communicate
  organizational performance and value
• Strategic sourcing as a practice and discipline
  involving quantifiable results

• Past
• Tactical, administratively focused function
• Decentralized local organization with limited
  spend control
• Highly manual processes with limited ability to
  enforce policies or compliance
• Limited spend visibility and measurement
• Long-standing relationships without ability to
  validate decisions

5
Where Does the Responsibility for Travel Fall
Within Companies?
Represents ICG Commerce customer base
6
Shift from Tactical to Strategic Role and Focus
Tactical, administrative focus
Need Identified
Expert Selects Vendor
Procurement Executes Contract
Examples

• Consulting project
• Major IT program
• New engineered part
• Business change, i.e., satellite TV in airplane

Strategic role and higher-level ownership
Need Identified
Expert Crafts Functional Spec or Statement of
Work
Procurement Sources with Expert Input
Team Selects Vendor
7
Center-led Organization with Strategic and
Operational Spend Control
1
3
4
2
Decentralized
Coordinated
Center-Led
Centralized

• Completely decentralized
• None
• All direction-setting, decision-making and
  transactions

• Establishment of a formal group to coordinate
  corporate buy-needs on a periodic basis
• Facilitation, as required
• Same as decentralized plus supplies coordinating
  group mentors

• Permanent corporate organization sets direction
  for multi-divisional purchases informally leads
  all purchasing functions
• Strategic direction
• Retains decision making for division-specific
  purchases, executes transaction

• All decision-making and procurement
  responsibility with corporate
• Decision-making divisional control
• Transaction execution

Model Description
Corporate Role
Division Role
Best Practice
8
Systems and Processes Improve Compliance and
Effectiveness
Processes
Impact

• More spend addressed - additional savings
• Higher savings realization
• Better user experience leading to higher adoption
  
• Better, more reliable spend performance data

Skilled Professionals
Competitive Quoting
Centralized Transactional Procurement Group
Compliance Management
Procurement Help Desk
Service Focus
Policies Procedures
Order Processing
Invoice Reconciliation
Automated Tools
9
Measurements Focus on Organizational Performance
and Value

• Spend Under Management
• / Spend Sourced
• / Spend Fully Managed
• Weighted Average Sourcing Savings
• / Sourcing Savings by Category vs. Baseline
• / Sourcing Savings by Category vs. Index
• Transactional Efficiency Effectiveness
• Orders per Purchasing FTE
• Service Levels
• Compliance Savings Realization
• Spend with Preferred Suppliers vs.
  Non-preferred
• Compliance by Category
• Supplier Performance
• Quality Performance
• Transaction Accuracy
• User SatisfactionSuppliers and Procurement

Measure Results vs. Goals and vs. Prior Year
10
Shift from Long-standing Relationship-based
Sourcing to Objective Strategic Sourcing
Strategic Sourcing Process Advances
Spend Visibility /Control
Supplier Cost Reduction
Dynamic Bidding/Price Transparency
Total Cost of Ownership

• Leveraged Negotiation

Strategic Sourcing
Trends/ Strategies
Long-TermContracting

• eSourcing tools
• Optimization/Decision Support

Structured Negotiation

• Global Sourcing
• Supplier Collaboration

eProcurement

• The X Step Process
• Deeper Analytical Rigor

• RFPs
• 1st/2nd Tier IntegratedSupply

• Internal/ Industry Aggregation - GPOs
• Competitive bidding - RFQs
• Corporate Agreements

• SRM
• Spend Analytics
• Contract Management

• Reverse Auctions
• Industry Exchanges / Marketplaces

• Getting to Yes
• Karass

• Should-cost Modeling
• TCO modeling
• ABC

Tools/Techniques

• Supply-chain Re-engineering
• Supplier Development

1984
1990
1992
1994
1996
1998
2000
2002
2004
1986
1988
2006
11
Leverage best practices to quickly establish a
world-class, indirect procurement capability
Company Situation
Best Practices Applied

• Industry 4B Telecommunications
• Objectives
• Drive savings by broadening the spend managed and
  influenced by procurement
• Increase compliance and ROI from existing
  technology investments
• Apply best-practices to transactional procurement
  processes to maximize and sustain compliance and
  increase end user satisfaction
• Formalize category management capabilities to
  improve supplier performance and year-over-year
  continuous cost reductions
• Expand procurement impact and influence beyond
  policy enforcement
• Standardize procurement processes across
  geographies

• Approach
• Develop center-led organization to support for 7
  key commodity groups
• Implement centralized procurement transaction
  group to proactively manage 900MM in
  transactions per year including 40 business
  processing 30,000 POs per year
• Partnering with business to deliver measurable
  savings using standardized strategic sourcing
  methodologies and gain organizational credibility
  
• Deployed end-to-end processes - Sourcing, Legal,
  Commodity Management, Initiative Management,
  Supplier Enablement
• Leveraging internal and external data and market
  insights to sustain and improve cost reductions
• Results
• Addressing 60 more spend, with an average
  savings rate of 19.5
• 97 of indirect spend is processed through Ariba
  
• 85 of identified savings targets are realized
• Operating costs are in line with value delivered
  and have been slightly reduced even while
  capabilities expanded

12
Use best practices to extend reach into new
buying regions
Company Situation
Best Practices Applied

• Industry 2B Heavy Equipment Manufacturer
• Objectives
• Increase/accelerate the full utilization of SAP
  EBP
• Reduce expenditures on indirect goods and
  services globally
• Improve the speed and impact of strategic
  sourcing
• Promote collaboration and visibility across
  business units
• Drive compliance, cost savings, and ongoing
  improvement
• Automate a heavily manual purchasing process
• Augment existing resources for indirect
  categories
• Move from relationship-based contracts to
  strategically sourced contracts
• Improve compliance on national supplier contracts

• Approach
• Establish center-led indirect procurement
  organization
• New category teams provide sourcing and category
  management across key indirect categories (Office
  Supplies, MRO, Travel, Temporary Labor,
  Facilities, Marketing, IT/Telecom and
  Transportation)
• Automate transactions and built content to
  increase adoption and accelerate ROI of SAP EBP
• Implement new policies and processes across 5
  major buying regions
• Streamline approval and payment processes
• Implement services procurement solution to
  improve control and visibility for specialized
  temporary labor spend
• Results
• 8 - 25 savings on strategic categories
• Private catalogs built in 8 - 10 weeks
• Strong executive sponsorship and category adoption

13
Center-led strategy and sourcing standards power
new indirect organization
Company Situation
Best Practices Applied

• Industry 2B Packaging Company
• Objectives
• Significantly drive down the cost of indirect and
  some direct material expenditures
• Automate the purchase-to-pay process, moving from
  manual to automated invoice processing
• Significantly increase historical purchase data
  to allow for better management of expenditures

• Approach
• Establish center-led indirect procurement
  organization
• Using standardized Strategic Sourcing
  methodologies identified cost-saving
  opportunities, rationalize suppliers, and improve
  contracted supplier service levels.
• Deploy automated procurement solution across the
  system in over 60 plants to gain access to
  detailed compliance, spend and savings
  information
• Use additional transactional information along
  with market index data and benchmarks to drive
  continuous cost and service improvements
• Results
• Actively managing a significant portion of the
  companys indirect expenditures
• Driving solid savings and value-driven
  opportunities from 5 36
• Achieving 90 compliance target.

14
Thank You!

• Questions?
• Contact
• Mlynch_at_icgcommerce.com
• 484-690-5044