e-Sourcing Today

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e-Sourcing Today

• A Perspective on the Role and Scope of e-Sourcing
  and the State of the e-Sourcing Marketplace

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Today we are going to discuss
Agenda

• Importance of Purchasing Decisions
• Strategic Sourcing vs. e-Sourcing
• Describe the e-Sourcing Marketplace
• Business Case Merrill Lynch
• e-Sourcing Lessons Learned
• Taking e-Procurement Globally

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Importance of Purchasing Decisions
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Purchasing decisions directly effect a companys
bottom line, pressuring companies to continually
enhance procurement operations
Significant Impact of Purchasing Decisions
Purchasing decisions increasingly complex
Economic pressure to lower costs
Fortune 1000 spend on external suppliers 3.5T1
Purchasing decisions critical to corporate profits
Changing consumer and corporate buying patterns
1Goldman Sachs. Technology B2B Software
2/23/2001 Source Goldman Sachs, Stephens, Inc.,
Deloitte Consulting
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Improving Procurement Operations
A recent Deloitte Consulting study revealed that
improving procurement operations continues to be
a top priority
Improved Procurement
79
Improved Customer Service and Satisfaction
78
77
Improved Customer Relationships
77
Improved Supply Chain Performance
77
Improved Information/Reporting
OF RESPONDENTS WITH IMPORTANT OR VERY
IMPORTANT SELECTED
Revenue Growth
65
Improved Supplier Relationships
64
56
New / Differentiated Service Offerings
54
Strengthen Existing Competencies
53
Reduce Overall Costs
0
20
40
60
80
Source Deloitte Consulting. Realizing the B2B
Procurement Vision Trends, Challenges, and Best
Practices in e-Sourcing and e-Procurement 2001
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e-Procurement is rapidly becoming a required set
of business practices

• Companies targeted indirect goods and services
  categories for e-Procurement
• These categories offer quick benefits with little
  risk

• 92 of respondents to Deloitte Consultings
  procurement survey said they have implemented,
  are implementing or plan to implement an
  e-Procurement solution

Source Realizing the B2B Procurement Vision
Trends, Challenges, and Best Practices in
e-Sourcing and e-Procurement, Deloitte
Consulting, 2001
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Strategic Sourcing Defined
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The Procurement Process
Procurement operations can be improved by
focusing on either Strategic Procurement or
Operational Procurement processes
Source Deloitte Consulting
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Strategic Sourcing Value Drivers
Instead of awarding a bid to the lowest cost
supplier, strategic sourcing calculates supplier
value to the purchasing value chain

• Consolidation of spend and vendor base
• Improved negotiations and contract

Increased Leverage

• Use of component-based pricing
• Develop pricing standards and rate cards

Uniform Pricing

• Standardized specifications and value engineering
• Understanding business requirements and needs
• Enhanced compliance to standards

Reconfigure Specifications

• Redesigned processes (order, purchase,
  consumption)
• Build new alliances / partnerships /
  out/in-source
• Consortium buying

Partnerships / Alliances
Source Deloitte Consulting
10
Strategic Sourcing Challenges
Although strategic sourcing confers benefits, it
has challenges
Benefits
Challenges

• Requires considerable resources, time and
  capital to manage and execute
• Process is manual
• Tracking and success measurement is manual
• Typical sourcing project takes 3-7 months
• Logistical and reporting requirements steal time
  from value-add activities, e.g., market research
• Difficult to share / analyze information and
  optimize decisions
• Data collected in several repositories
• Tools not designed for sourcing analysis
• SMEs geographically scattered
• Difficult to maintain and leverage institutional
  knowledge
• Knowledge deteriorates over time and personnel
  changes
• Requires archiving and sharing

• Reduces the total cost of ownership through
• Consolidation of spending and vendor base
• Product standardization
• Partnering for volume discounts and improved
  negotiations
• Procurement and vendor process improvements
• Improves supplier relationships and purchasing
  processes
• Considers and compares factors other than price
  in purchasing decisions
• Supplier reputation
• Production capability
• Delivery schedule
• Product quality
• Improves the overall performance of a companys
  value chain

Source Deloitte Consulting
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e-Sourcing Defined
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Emergence of e-Sourcing
Automation of transactional activities helps
purchasing professionals to focus on strategic
supplier relationship management

• e-Sourcing tools are evolving to support the
  entire sourcing process (more than just on-line
  auction tools)
• Sourcing is not a one time deale-Sourcing tools
  can help to institutionalize the process across
  an enterprise
• Many companies who have implemented e-Procurement
  tools are realizing that hard dollar savings are
  linked to sourcing agreements
• Many companies who are considering e-Procurement
  recognize that real ROI is dependent on combined
  e-Sourcing and e-Procurement initiatives

Source Deloitte Consulting
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e-Sourcing enables the sourcing functions of the
purchasing process
Purchasing Process
Enabled by e-Sourcing
Enabled by MRP / e-Procurement

• How Much
• On What
• With who

• Supply allocation
• Make v. Buy
• Category Priority
• Potential Source
• Bundling

• When
• How much

• Request
• Approve
• Order
• Receive
• Pay

• Benchmarks
• Measures
• Feedback
• Improvement planning

e-Sourcing Components
e-Procurement Components

• Analytics and Optimization
• Virtual project workroom
• eRFx RFI, RFQ, RFP
• On-line negotiations
• Auctions
• Contract and Vendor management

• Electronic catalogs
• Document workflow
• Parallel approvals
• Transaction status
• Electronic receipt and invoicing

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e-Sourcing Value Proposition
e-Sourcing is an evolutionary technology,
enhancing strategic sourcing value-added benefits

• Auctions
• Uniform price comparisons across suppliers
• Increased competition through better reach

Price Reductions

• Automated process
• Repeatability / Reusability
• Improved tracking and management

Cycle Time Decreases

• Expanded potential supply base
• Easy aggregation and assessment of potential
  suppliers
• Better supplier / category match

Improved Category Quality

• Standardized and visible sourcing process
• Consolidated data management and analysis
• Pre-built analytics
• Streamlined and standardized communication
  channels

Improved Decision Making
Source Deloitte Consulting
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E-Sourcing is an opportunity for companies to
transform purchasing personnel from information
gathers to strategic decision makers
Role of e-Sourcing

• Strategic Buying
• Establish and maintain long-term relationships
  between buyers and sellers
• Focus on supplier selection and contract
  negotiation
• Reduces the cost of goods sold and general and
  administrative expenses
• Requires data analysis, contract negotiation, and
  relationship building
• Non-routine work

• Transactional Buying
• Process transactions according to pre-established
  contracts
• Place orders with contracted sellers
• Reduces paperwork processing cost
• Requires no specialized skills
• Routine work

Focus and Time of Purchasing Personnel
Current State
e-Sourcing
Source Deloitte Consulting
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Role of e-Sourcing
Ultimately, e-Sourcing enables organizations to
move up the strategic sourcing best practice curve
Source Deloitte Consulting
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The e-Sourcing Market
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Although the e-Sourcing market is in its infancy
its evolution is expected to occur rapidly
e-Sourcing Market Growth Stages
Stages of e-Sourcing Market Growth

• Key Market Growth Drivers
• Low-cost communication infrastructure provided by
  the Internet
• Ability to generate and guarantee bottom-line
  results
• Utilize partnerships to meet customer demand
• Depth of integration and standardization
• Perceived product differentiation

Market expected to mature in three years1
1Stephens, Inc. Strategic Sourcing Applications
to Turn Direct Materials Procurement into a
Competitive Advantage. 1/30/2001 Source Goldman
Sachs, Stephens, Inc., Deloitte Consulting
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The e-Sourcing market is estimated to more than
triple in size over the next four years
e-Sourcing Market Size
Size of e-Sourcing Market Growth
5-yr CAGR 601

• Future Market Trends
• Applications will grow
• Markets emerge for outsourced procurement
  services
• Markets emerge for the aggregation and
  warehousing of supplier information
• Trading exchanges geared toward direct materials
  procurement will become a poor investment vehicle
• Increased pricing pressure for applications due
  to low barriers to entry

1Goldman Sachs. Technology B2B Software
2/23/2001 Source Goldman Sachs, Stephens, Inc.,
Deloitte Consulting
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e-Sourcing Solutions
e-Sourcing applications offer solutions to
strategic sourcing challenges
Challenges
Example Feature Solutions

• Requires considerable resources, time and capital
  to manage and execute
• Process is manual
• Tracking and success measurement is manual
• Typical sourcing project takes 3-7 months
• Logistical and reporting requirements steal time
  from value-add activities, e.g., market research
• Difficult to share / analyze information and
  optimize decisions
• Data collected in several repositories
• Tools not designed for sourcing analysis
• SMEs geographically scattered
• Difficult to maintain and leverage institutional
  knowledge
• Knowledge deteriorates over time and personnel
  changes
• Requires archiving and sharing

• Automated process with built-in PMO tools, e.g.,
  milestone tracking and event alerts

• Pre-built templates and existing documents speed
  up bid creation and RFX process

• Electronic submission over the web, including all
  bid attachments and specifications

• Built-in analytic tools provide real-time answers
  based on consolidated data during the sourcing
  process

• Project management e-rooms, template repository
  and historical archiving allow easy access,
  sharing, learning and reuse

Source Deloitte Consulting
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To date, the market has been dominated by small,
mostly private companies with no single vendor
appearing to offer a complete solution
e-Sourcing Market Players
those companies able to maintain strong
capitalization and enhance advance functionality
(e.g., knowledge management, decision support)
will lead the market
Source CIBC, Deloitte Consulting
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Currently, e-Sourcing companies differ in their
approach, depth, complexity, simplicity, and
breadth of features
A Sampling of e-Sourcing Feature Functionality
Supply Chain Management
e-Procurement
Collaborative Commerce
Functionality Expand e-procurement product
offering to include e-sourcing Vendors Ariba
Key Features Provide e-Sourcing applications to
support depth and breadth of supply chain
management solutions Vendors i2, Manugistics
Key Features Leverage e-Sourcing as part of
enterprise B2B solutions Vendors Agile, Atlas
Commerce
Pure Players
Analytics
Auctions
Key Features Provide only e-sourcing
applications and services Vendors Frictionless
Commerce, B2E Markets
Key Features Focus on decision support through
sensitivity, gap, and scenario analysis,
etc. Vendors Sharemax, Expert Commerce
Key Feature Support on-line reverse
auctions Vendors Free Markets, BayBuilder
Source CIBC, Deloitte Consulting
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Business Case Merrill Lynch

• e Sourcing Lessons Learned
• Taking e- Procurement Globally

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How Do Organizations Take e-Procurement Globally
? A Merrill Lynch Case Study
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Project Background

• Centrally led Purchasing Org. in U.S.
  fragmented globally
• Procurement standards policies existed, but
  BUs not always in compliance policies varied
  widely by region
• Requestors were frustrated, as orders often took
  months to fulfill
• Suppliers were frustrated, as payment often took
  months to process
• 5 separate regional instances of Oracle
  Financials currently exist
• Redundant purchasing programs exist (and others
  are being developed) across our various regional
  locations
• Ariba Buyer is currently implemented throughout
  the U.S.

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e-Procurement Objectives

• Achieve greater efficiency and reduce the overall
  cost of procurement throughout Merrill Lynch
• Standardize the procurement processes on a global
  scale, while simultaneously allowing for specific
  regional requirements
• Implement an e-procurement solution that would
  incorporate best practices and provide an
  immediate ROI
• Focus selection and design efforts on ease of
  use, flexibility, and scalability, all of which
  were critical considerations given the size and
  decentralized structure of the Merrill Lynch
  environment
• Design and implement a solution in the U.S. that
  could be leveraged across Merrill Lynchs
  International Regions

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Defining Success
Once a global system is implemented, Merrill
Lynch will be able to

• Manage the procurement processes of the
  organization within globally consistent policies
  and procedures
• Easily enable all employees to buy from
  established, corporate agreements and reduce
  costs
• Identify efficiencies that were achieved in the
  area of buyer intervention and customer
  satisfaction
• Encourage a one company, one organization culture
• Offer seamless procurement services through a
  common portal
• Operate within a common procurement system
  platform

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Merrills Global e-Business Strategy

• Step 1 Manage our spend and optimize our
  regional procurement processes through the
  implementation of an e-procurement system (Ariba
  Buyer)
• Step 2 Gain access to a more global supply
  base and reduce our enterprise-wide procurement
  costs by leveraging the value of other
  developing e-services (ACSN, e-markets, etc...)
• Step 3 Enable corporate-level strategic
  sourcing, while simultaneously allowing for
  regional local procurement requirements
• Step 4 Extend our e-business efficiencies
  across other parts of the organization by
  integrating separate ERP instances and
  consolidating various applications into a single
  portal

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Global Deployment Plan
U.K. Q2 - 2001
Canada Q2 - 2002
Japan Q2 - 2002
Hong Kong Q4 - 2002
U.S. Q24 - 2001
Australia TBD
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The Application Architecture Dilemma

• On one hand, only centrally managed systems can
  coordinate and serve a worldwide user base and
  provide efficient database management and
  economies of scale
• However, users will demand personalized local
  service consistent with the culture, language,
  time zone, laws, currencies, and business
  practices of their own region

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Our Global Architecture

• Globally defined information
• Common Supplier Codes (DUNS Standard)
• Common Commodity Codes (UNSPSC Standard)
• Roles and Permissions
• Locally defined information
• Accounting information
• Approval hierarchy information
• User and address information
• Workflows approval rules

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Our Global Architecture

• Some information is defined on both the global
  and local level
• Catalog Content
• Units of measure currencies
• Supplier information
• Commodity Codes
• Varying degrees of ERP/legacy system integration
• Reporting will allow for global visibility and
  spend management
• Tax calculations will be handled outside the core
  system
• Custom reports will be generated to facilitate
  back-end VAT calculations

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Global Architecture Lessons Learned

• It is critical that the organization perform a
  vendor consolidation exercise prior to
  implementing a global e-procurement system
• Adopt the DUNS Standard for defining Common
  Supplier IDs
• Attempt to standardized business processes as
  much as possible and pushback on region-specific
  business rules
• To optimize an e-procurement implementation,
  legacy systems need preparation in several
  selected areas
• Supplier Data
• Account Codes
• Commodity Codes
• User and Hierarchy Data

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Implementation Strategy

• Organize a project team designed to handle a
  global implementation
• Complete preliminary data gathering effort to
  identify / assess
• Organizational team / resources
• Key suppliers and commodities
• Required system interfaces
• Regional funding requirements
• Concurrent initiatives / programs
• Determine high-level roll-out strategy and
  deployment plan
• Perform functional requirements gathering /
  analysis
• Complete a pilot implementation for each region

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Change Management
Moving rapidly with an e-procurement initiative
raises the need for a structured change
management program Our experience to date has
identified several key lessons learned

• Understand that the technical implementation is
  the EASY part
• Develop and follow a detailed communications plan
• Anticipate organizational push back and be
  prepared
• Ask the question Why cant this work for you
  ?
• Seeing is very often Believing
• Best Practice isnt always achievable - find
  an effective compromise

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What Weve Learned

• Benefits dont just happen they must be
  deliberately targeted and managed
• Organizational changes will occur - systems
  people become business partners
• Implementing an e-procurement solution is not
  just a technology project
• Benefits and capabilities build over time as
  experience grows
• The one size fits all approach doesnt always
  apply globally
• The quality of the delivered system reflects the
  quality of the resources you apply
• Organizational resistance is often directed at
  the system, but the resistance is really about
  process change

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Questions Answers