IACCM Americas 2004

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Addressing Corporate Governance and Risk
Management throughEffective Contract Management
Leigh Ann Vernon Assistant Vice president,
Strategic Sourcing The Burlington Northern and
Santa Fe Railway
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Burlington Northern Santa Fe
Network Map
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Burlington Northern Santa Fe

• Each Year BNSF Moves
• Enough sugar to make more than 3 million batches
  of cookies a year.
• Hauls enough coal to generate nearly 10 of the
  nations electricity.
• Enough wheat for bread to feed 900 million people
  
• Enough lumber to build 500,000 homes

• General Statistics
• 33,000 route miles covering 28 states 2
  Canadian provinces
• 36,000 Employees
• 9.0 Billion annual revenue
• 5 Billion annual spend

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History of Contract Managementat BNSF

• Pre-system approach
• Manual processes
• Paper-based
• No central repository
• No control over documents and processes
• eCommerce Strategy was developing
• e Procurement
• e Sourcing/RFP
• e Auctions
• e Contracts
• e Travel
• e Asset Disposal

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History continued a turning point

• Why invest in e-Contracts and automate Contract
  Management?
• Contracts central to many other processes
• Part of overall eCommerce and supply chain
  management strategies
• Mandate to streamline sourcing and procurement
• Integrate with finance (Fast Track eAP) to ensure
  accurate payments
• Streamline operations, reduce manual processes
• Needed better controls for audit and operations
• Regulate and standardize templates and documents
• Automate contract request, creation and
  management processes
• Reduce clerical staff requirements
• Provide better response and visibility to
  stakeholders
• Monitor and manage compliance and performance

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Business Case for a new System

• BNSF identified the following general benefits
• Cost reductions
• Streamlined operations and reduced manual
  processes
• Integration with financial systems to ensure
  accurate payments
• Improved stakeholder visibility and participation
• Automation of the contract request process
• Automation of event management and review and
  approval workflows
• Provide better response
• Web system would provide better access and
  visibility
• Electronic interaction with suppliers and
  customers
• Reduced staffing
• Reduce clerical requirements
• Reduced business risk
• Standardization of contract terms and conditions
  through templates
• Monitor and manage compliance and performance
• Improved audit controls and compliance
• Integration into supply chain management strategy
  
• Build versus Buy?

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Challenges in the Contract Management System
Deployment

• Paradigm shifts
• manual process to automated
• change to involve only those that need to be
  involved, not the whole hierarchy
• Getting away from paper
• Centralizing buying move to strategic sourcing
• Getting field staff and contractors online
• Existing contract and template conversion
• Integration between all key systems
• old legacy systems, FastTrack eAP, etc.
• Customer/contractor acceptance and adoption
• Customer/contractor training to obtain their
  high-level of comfort with the new system

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Implementation Approach

• Internal project system identity
  ContractSource
• Cross Functional Implementation Teams
• Close supplier relationship and involvement
• Pilots with manageable groups and specific scope
• Minimize product customizations where possible
• Pre-implementation customer/contractor
  involvement
• Integration between the key systems
• ContractSource, ERP, FileNet, Fast Track eAP,
  etc.
• easiest ones first to get early wins
• Conversion of existing contracts to establish the
  baseline
• Service contracts first, then review other
  contract types
• Plan future growth of the solution and
  integration requirements

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Early Benefits in Service Contracting

• Full ROI in 62 days!!!
• 72 reduction in contract management effort
• Consolidation of contracts and related data
• Reduction in manual processes
• 16 steps to 7-step automated process
• Clerical positions reduced
• Contracting process streamlined
• New contract cycle time reduced from 30 days to
  11 days
• Online contract access and request
• Accessible 7/24
• Email notification of contract status
• Ability to preview newly created contracts

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Ingredients for Initial Success

• Sponsorship at senior levels
• Separate projects to contain scope and accelerate
  benefits
• Cross functional project teams
• Clear project plans and objectives
• Focus on user community
• Early User Involement
• Ensure extensive user training
• Communicate, Communicate, Communicate
• Strong business-supplier partnership
• Great relationship with our solution vendor
• Win-win relationship
• Flexibility to add functionality to the core
  product to avoid customizations

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Continuing Down the Track

• Expanding use of ContractSource into more
  business units
• Continually seek customer/user feedback
• Participate in suppliers functional improvement
  programs
• Continuous review and improvement of business
  processes
• Further support for Sourcing and Procurement
• Roll-out RFX functionality
• Other sourcing and procurement functionality
• Expand system integration

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Growing Benefits

• Continuing benefits in contracting
• Additional benefits in
• Improving Sourcing and Procurement
• Improving supplier performance
• Improved management of business risk
• Support for corporate governance initiatives
• Financial management advancements

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Improving Sourcing Procurement

• Improved tracking of buying and contracting
  activities and habits
• Better item cost and spend analyses
• Better overall supplier management
• Enables vendor comparisons

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Managing Contract Compliance and Performance

• Consistency of contract terms and conditions and
  contracting processes enables creation of
  comparative metrics
• Compliance monitoring and tracking
• Integration with insurance compliance service
• Inspections
• Define and track supplier performance
• Delivery
• Performance metrics

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Managing Business Risk Risks, Drivers Events

• Ability to define and track
• Business risks
• Risk drivers
• Related events
• Compliance monitoring and tracking capabilities
  help reduce risk
• e.g. Integration with insurance compliance
  service
• Reporting on risk-related issues and events

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Corporate Governance Support

• Enforced compliance of defined business processes
  and workflows
• Involvement of approval authorities and groups
  (e.g. legal) with minimum bureaucracy
• Improved tracking and audit capabilities for
  defined processes
• Tracks what and who, including sign-off events
• Greater visibility for all stakeholders
• Portal view, automated notifications and
  reporting inform people appropriately
• Supports corporate governance requirements
• Segregation of duties
• Approval audit records
• Defined business controls
• Regulatory compliance (e.g. Sarbanes-Oxley Act)

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Financial Management Improvements

• Automated review and qualification of
  transactions
• Validate item quantity price to contract
• Ensure discounts are obtained
• Improved tracking and audit capabilities for
  review and approvals processes
• Tracks what and who, including sign-off events
• Greater visibility for all stakeholders
• Automated notifications and reporting inform
  people appropriately
• Supports corporate governance and regulatory
  compliance efforts

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Summary

• Advanced contracting and contract management
  capabilities
• Huge value ROI in 62 days!
• Additional benefits
• Sourcing and Procurement
• Contract performance
• Risk management
• Corporate Governance
• Financial management

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Questions / Contact

• BNSF
• www.bnsf.com
• leighann.vernon_at_bnsf.com
• Vendor - Upside Software
• See them in the sponsors exhibit area
• www.upsidesoft.com
• info_at_upsidesoft.com