April 2004

1
April 2004
Sourcing to Enterprise Spend Management the
Transition at Merrill Lynch
2
Agenda

• Merrill Lynch Background
• Objectives
• Vision
• ESM platform
• Sourcing, Contracts, Invoicing and Analysis
• Future State

3
Merrill Lynch Corporate Facts

• One of the world's leading financial management
  and advisory companies
• Offices in 37 countries, 52000 employees
• Total client assets of approximately 1.4
  trillion
• Global spend approx 5 billion

4
Background the story begins

• Activity Timeframe
• Evaluation of Web-Based Requisitioning Tools
  11/98 4/99
• (Total of Six Tools Evaluated)
• Arthur Anderson Commodity-Based 7/99 9/99
• Workflow Analysis
• Final Package Evaluation (including installing
  December 1999
• Conference Room Pilot)
• Final Package Selection Process January 2000
• Selection of Application Integration Consulting
  January 2000
• Firm to Implement with us and transfer the
• knowledge ML Staff

5
Vision

• Compartmentalized/ Sector based, manual approval
  process

• Single, integrated, firmwide electronic approval
  process

• Fragmented, paper-based requisition/order process

• Uniform, electronic requisition/order process

• After-the-fact invoice approval

• Up-front commitment approval

• Domestic focus

• Global focus

• Fragmented systems

• Integrated systems

• Manual controls

• Automated controls

• Transaction processing

• Performance analysis

• Reacting to trends

• World class practices

6
Why Web-Based Requisitioning?

• Eliminate manual and paper-intensive, no/low
  value added processes
• Eliminate unauthorized and non-contract rogue
  spending
• Concentrate spend on preferred vendors and
  selected contract items
• Increase amount of information available
  regarding MLs purchasing habits

Key Project Statistics

• Initial phases will cover 321 million of 3.5
  billion of MLs U.S. based spend (based on 1998
  spending)
• In 1998, the 321 million created 15,600 paper
  purchase orders
• Estimated annual saving of 10 million due to
• Volume discounts
• Consolidation of spending with a select number of
  vendors
• fewer manual purchase orders
• early pay discounts
• Reduction in rogue spending

7
Our Objectives

• Create a common methodology for the management of
  Non-Compensation Expenses Analysis of spend,
  sourcing, procurement and compliance
• Utilize the workflow engine of our platform to
  create a single point of contact for employees to
  obtain goods and services, managers to analyze
  spend and Purchasing Professionals for their
  daily activities.
• Manage the procurement processes of the
  organization on a single platform within
  consistent policies and procedures
• Better economic value through vendor
  rationalization and sourcing
• Elimination of manual, low value-added processes
  and rogue spending
• Increased contract compliance leading to better
  discounts and shorter invoice cycles
• Enhanced management information available on-line

8
Enterprise Spend Management Vision
Develop ESM Strategy
Analyze Manage
Source
Contract
Procure
Reconcile
Manage Suppliers
Compliance
with enabling web technology to deliver bottom
line results!
Integrating areengineered process.
9
Enterprise Spend Management Platform
Enterprise Spend Management provides an
integrated and automated solution for Analysis,
Sourcing and Procurement to ensure effective
management of the full spend lifecycle from plan
to pay.
Ariba Analysis
Oracle Financials
Ariba Sourcing
Purchasing Online
Contract
Requisition
Order
Invoice
Payment
Interact Receive
ARIBA SUPPLIER N E T W O R K
Supplier Connectivity
10
E- sourcing tool a piece of broader Best Practice
Strategic Sourcing Process
4 DevelopCommodity Sourcing Strategy
Sourcing Services
3 Identify Opportunitiesfor Leverage
2 Profile Categories
1 SpendAnalysis
Analysis
eSourcing
E-Procurement
9 Completingthe Contract
5 Develop RFx
11 Supplier Score carding
8 Negotiate terms Auction
7 Communicating with Suppliers
6 Identify Supply Base
10 Req to Check
11
Spend Analysis and Opportunity Assessment
12
E- sourcing tool a piece of broader Best Practice
Strategic Sourcing Process
4 DevelopCommodity Sourcing Strategy
Sourcing Services
3 Identify Opportunitiesfor Leverage
2 Profile Categories
1 SpendAnalysis
Analysis
eSourcing
Compliance
9 Completingthe Contract
5 Develop RFx
11 Supplier Score carding
8 Negotiate terms Auction
7 Communicating with Suppliers
6 Identify Supply Base
10 Req to Check
13
Sourcing Roll-Out Category Prioritization
Q4
Q1
Q2
Compliance Planning and Execution
US Relocation
Wave 1
Aircraft Maint.
Merchandise
Training
EE Recruiting
Temp Services
Print
Commercial Moving
Wave 2
Commercial Art/Graphic Design
Elevator Maintenance
Landscape Services
Fulfillment
Off Supplies
Black Car/Limo Services
Airlines
Wave 3
Waste
Publication/Subs.
Advertising/Marketing
14
E- sourcing tool a piece of broader Best Practice
Strategic Sourcing Process
4 DevelopCommodity Sourcing Strategy
Sourcing Services
3 Identify Opportunitiesfor Leverage
2 Profile Categories
1 SpendAnalysis
Analysis
eSourcing
E-Procurement
9 Completingthe Contract
5 Develop RFx
11 Supplier Score carding
8 Negotiate terms Auction
7 Communicating with Suppliers
6 Identify Supply Base
10 Req to Check
15
(No Transcript)
16

Organizational Changes
New Tasks
Changed Roles

• Initiate Events
• Data collection and review
• Build RFx
• Supply Base
• Event Execution

• Commodity Manager
• Commodity VP Manager
• Market Maker
• Supplier Coordinator
• Sourcing Manager
• Compliance

17
Procurement Process Overview
Vendor Management
Contract Implementation
RFQ / Contract Award
RFI Process
Commodity Planning
Total Process Cycle
Old
20 days
30 days
45 days
140 Days
45 Days




New
Savings of 52
20 days
20 days
15 days
67 Days
12 Days





18
2003 Major Sourcing Results ( in Millions)
e-Sourced (Reverse Auction)
19
2002 Major Sourcing Results ( in Millions)
e-Sourced (Reverse Auction)
20
Compliance Management is Key to Realizing
Sourcing Savings

• Sustainability of sourcing results is depend on
  connection to contract execution and compliance
  management

21
Contracts

• Entire contract lifecycle managed within a single
  platform - from sourcing to creation through
  execution, into compliance/analysis,
• Improved compliance and process visibility
  through single repository and integration to
  sourcing and execution activities ensuring
  purchases are made within negotiated terms with
  contracted suppliers)
• Initial Implementation - will focus on
  converting recently sourced events into contracts
  and enabling these commodities in buyer.

22
Compliance Management
Features
Benefits

• Enhanced integration to Ariba Sourcing
• Tiered Pricing
• Appendix Routing
• Auto creation of catalog item from approved
  contract
• Improved contract search and compliance reporting

• Better price accuracy to contract terms
• Faster time to benefit from sourcing to buying
  against contracts
• Enhanced contract administration

23
Invoice Processing

• Provide a complete procure to pay cycle - closed
  loop outbound purchasing inbound invoicing
  (and reconciliation between the two).
• Implementation to begin with PO-flip Our
  initial invoice implementation focuses on vendors
  providing facilities services who are enabled on
  Buyer. One area we are still exploring is the use
  of an imaging tool with the invoice module.
• Reduce the overall AP invoice processing costs -
  can save time and costs by reducing manual input
  in data entry, matching, exception and customer
  service costs. ML is a very
• Improve the efficiency and accuracy - through
  electronic data capture, automated matching and
  rule-based workflow invoicing process. Eliminates
  the errors and delays caused by manual data
  entry, manual matching and tedious exception
  resolution. We have seen benefits of matching
  with our current EDI process.
• Process invoices faster to take discounts -
  through shorter invoicing cycle, we are building
  these discounts into our contracts.

24
Accounts Payable Processing Efficiencies

History/Consolidation Effort
ETS Finance (Home Office Telecom
Payables) Consolidated July 2001
Advisory Division Finance (USPC Branch
Payables) Consolidated September 2001
The Payment Center
ML Canada Payables (Canadian Payables) Consolidate
d December 2001
MLIM Payables (3rd Party Payables) Consolidated
June 2002
London Payables (UK Branches Home Office Cost
Centers) Consolidated May-September 2002
July 2001 Jan 2002 July 2002
2001 2003 Results

• Headcount reduced by 62 (140-50)
• Average Cost Per transaction reduced 60 (9-
  3.5)
• Annualized savings 3MM
• In addition, IBK saved 2MM by eliminating the
  Captura platform for TEs

10
25
Travel and Entertainment Volumes US and Canada
This represents a 90 reduction in manual
transactions. Process will be fully automated by
2Q 2003
Cost Per Transaction
9 9 7
2
Cycle Time With CMA
45 days 45 days 30 days
7 days
26
Invoice Transaction Volumes US,UK and Canada
(2003 Estimated)
This represents an 82 reduction in manual
transactions
9 7.5
5.5 3.5
Cost Per Transaction
27
POL/TE Utilization
28
Analysis - Implementation

• Data is pulled from multiple systems including
  Contracts, Sourcing, Invoice and Oracle
  Financials Accounts Payable systems
• Creation of custom dashboards for senior
  executives to increase their ability to track
  spend (especially useful for TE)
• Multiple level drill-down capability based on our
  management hierarchy
• Robust security to restrict access to data.
• Pre-built reports allow viewing of spend by
  commodity, by supplier, by department and by
  supplier.

29
Analysis Implementation

• Spend Visibility automatically pull in
  Purchasing Online and Invoicing data, import data
  from our Oracle Financial instances where we do
  not have POL installed. Critical for TE
  reporting.
• Easy to use view the dashboard, re-run existing
  reports, or create new reports with a point and
  click interface
• Customizable slice dice spend data, customize
  views, and set common report parameters and
  hierarchy roll-ups.
• Portability export data to predefined Excel
  templates and the ability to place frequently
  used reports in public folders.

30
Real Time Analysis of TE Spend CTG
31
Details by Director Level within Division CTG
US Equity Sales
32
Details by Employee by Expense Type CTG
33
Infrastructure Services Procurement Roadmap
Procurable
Implement eTSR
Implement ML I-Messaging (Exchange only)
Implement B2B - Extranet
Implement Knowledge Exchange Enrollment
Implement Web Conf. Enrollment
Implement Blackberry
Implement VPN
Implement Audio Video Conf. Enrollment
Implement Cellular
Implement Wireless LAN
Implement eFax
Implement TSR
Implement Pager
Implement GRAS Enrollment
Implement ADSM Backup
Implement OSARS
Implement IPMTrak
Implement Webmail Enrollment
Migrate Centralized Backup Restore
Implement BURT
Decommission Tops
Implement SecureID Enrollment
Implement OTIS
Decommission MLEMEA SMS Request Form
Implement TESS
Decommission BSSR
Implement PCCM Telecom
Implement Private Lines
Implement Switch Lines
Analyze IDS Services
Prioritize IDS Services
Implement Equipment
Implement IDS Services
2004 ML I-Messaging Archiving,Netplus,
Maincontrol, Angus
Features
Single Sign-on
WorldNet Gadget
eProvisioning
Decommission Function
ADSM Backup
OSARS
Tops
eTSR
Web Conf. Enrollment
Centralized Backup
BURT
GRAS Enrollment
Blackberry (in Tops)
TSR
MLEMEA SMS Request Form
OTIS
Webmail Enrollment
BSSR
TESS
SecureID Enrollment
iPMTrak
Program Management / Status Reporting
Business Case / Benefits Tracking
Change Management, Communication Knowledge
Transfer
Represents an annualized save for support costs
estimated at 14MM
34
Spend Management Platform Extensions

• We have extended the platform and realized
  additional savings through the decommissioning of
  redundant/obsolete systems.
• Elimination of an additional TE systems, a 2MM
  annual save.
• Provisioning for all technology services,
  elimination of redundant systems and staff,
  estimated savings of 15MM annually

35
Ariba Benchmark Results

• Merrill Lynch was in the Top Quartile of Spend
  under Management across all industries. This
  group also includes HP, Dell, Cisco, Motorola,
  Verizon, 3M and JJ.
• Merrills percentage of orders delivered over the
  internet is 2x more than the average Financial
  Services client. (This group includes Morgan,
  Goldman, AIG and HSBC.
• Merrills spend capture is 1.75x higher than the
  Financial Services average.
• Merrill has the largest number of active users of
  any Financial Services company, more than 2x the
  average.

36
Achievements
The GPS transformation started in 2000 and since
then we have made great strides in becoming a
best-of-class procurement department in US and
UK.
2002
2003 (est.)
2000
30
2
2
Order cycle in days
of touch points
5
1
1
Ariba based Spend
82M
2M
500M
E-Catalogs
5
31
50
E-Suppliers
6
387
500
Ariba Utilization
40
75
85
Managed Spend
55
64
75
GPS Staff (Global)
175
120
99
37
Lessons Learned

• Standardize business processes as much as
  possible and push back on BU specific business
  rules and unique workflows
• Ensure that your staff is capable of meeting the
  challenges which they will face, as the nature of
  their work significantly changes
• Identify Business Unit champions early on to
  assist in the rollout to their respective unit
• Develop a communication plan for your vendors and
  potential vendors
• Prepare an extensive marketing plan to get the
  word out, dont be shy about advertising
  successes
• Executive commitment reduces the political
  nature of the resistance to change

38
Lessons Learned

• Expect resistance directed at the system, but the
  resistance is really about process change - be
  prepared to ask Why cant his work for you? and
  answer Its not broken so why change?
• Emphasize online training and provide navigable
  support material (e.g. FAQ, How Do I) - People
  will not attend training but always want the
  phone answered in 2 rings.
• Work with vendors to turn off pre-existing order
  processes
• Seeing is very often Believing