EProcurement Innovation Procurement Innovation Using Technology

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E-Procurement InnovationProcurement Innovation
Using Technology

• Michael Kirk
• The Faculty Management Consultants
• CIPSA 2nd Annual Conference
• 18th October 2006

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Agenda

• Introduction
• Thoughts on general innovation
• E-Procurement State of the Nation
• Examples of innovation in E-Procurement
• Tips for implementing innovation
• Next steps

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The Facultys Experience

• The Faculty has completed projects including
• Procurement benchmarking with many leading
  companies
• Development of E-Procurement strategies for
  corporate and government clients
• Development of Procure to Pay strategies
• Research into P-Cards for major Australian bank
• Review of E-Procurement demonstration projects at
  Australian Government Agencies
• E-Procurement and E-Sourcing surveys of leading
  companies
• Involved in implementations of Oracle, Ariba, SAP
  E-Procurement systems at multiple companies
• Frontline experience in strategic sourcing and
  procurement

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What is Innovation?

• The act of introducing something new, something
  newly introduced
• The introduction of something new

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Examples of Innovation
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Diffusion of Innovation
Government, Military
Major corporations institutions
New diffusion
Smaller organisations
Traditional diffusion
Increasing Cost
Consumers
Increasing Availability
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E-Procurement Innovation

• Process innovation
• Core processes tend to stay the same
• Classic purchasing process is alive and well
• Requisition to Cheque
• Interface innovation
• From paper to electronic systems
• ERP systems integrated view of the whole
  enterprise
• E-Procurement applications
• Interconnection innovation
• EDI networks
• Exchanges and the Internet
• Direct Connection and Supplier Portals

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Technology and the Procurement Process
E-Procurement The automation of any part of the
Procure to Pay process with electronic tools

• Transaction
• ERP Systems
• Catalogues
• Electronic POs
• Automatic workflow
• Vendor Managed Inventory (VMI)

• Sourcing
• RFQs / RFPs
• Reverse Auctions
• Tender Evaluation Tools

• Payment
• EFT
• P-Cards
• Expense Management Systems (EMS)
• Evaluated Receipt Settlement (ERS RCTI)

• Manage
• Contract Management
• Supplier Relationship Management
• Collaboration and Innovation
• Supplier Development

• Analysis Plan
• Spend analysis
• Stakeholder requirements
• Market analysis

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Innovation in Spend Analysis

• Obtain a consolidated view of the data
• Segment by supplier spend and transaction volume
• Snapshot versus continuous view
• Dependent on source data systems and compilation
• Visualise the data
• Spend analysis for sourcing versus procure to pay
  purposes

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Typical Supplier Spend SegmentationSizes of
bubbles indicative of number of suppliers in
segment
Majority of suppliers have low spend and low
invoices
High
Spend 2M plus
Spend 200K to 2M
Spend 20K to 200K
Spend by Supplier
Spend 2K to 20K
Spend 0 to 2K
Low
1 to 5 Invoices
6 to 10 Invoices
10 to 50 Invoices
50 to 100 Invoices
100 to 500 Invoices
500 plus Invoices
Transaction Volume by Supplier
High
Low
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Typical Invoice Spend SegmentationSizes of
bubbles indicative of number of invoices in
segment
Small number of suppliers generate large number
of invoices at top end
High
Spend 2M plus
Spend 200K to 2M
Spend 20K to 200K
Spend by Supplier
Spend 2K to 20K
Spend 0 to 2K
Target for Automation
Target for P-Cards / One Time Vendors
Low
1 to 5 Invoices
6 to 10 Invoices
10 to 50 Invoices
50 to 100 Invoices
100 to 500 Invoices
500 plus Invoices
Transaction Volume by Supplier
High
Low
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Typical Total Invoice Amount SegmentationSizes
of bubbles indicative of size of spend in segment
Spend is not necessarily correlated with invoice
numbers
High
Spend 2M plus
Spend 200K to 2M
Spend 20K to 200K
Spend by Supplier
Spend 2K to 20K
Spend 0 to 2K
Low
1 to 5 Invoices
6 to 10 Invoices
10 to 50 Invoices
50 to 100 Invoices
100 to 500 Invoices
500 plus Invoices
Transaction Volume by Supplier
High
Low
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Innovation in Sourcing
Ongoing Management
Analyse Market
Strategic Sourcing Process
Develop Sourcing Strategy
Award and Implement
Go to Market
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Spectrum of Electronic RFX Usage
Low
High

• Email RFX document as PDF to suppliers
• Receive supplier responses electronically via
  email
• Analyse responses in Excel

• Notify suppliers of RFX via online website
• Suppliers can download RFX documents and their
  details are logged
• Supplier review RFX documents
• Paper or email submission by suppliers

• Suppliers notified of RFX via online website
• Suppliers login to RFX website and review
  requirements online
• Suppliers complete RFX questionnaires online and
  submit responses
• Online tool assists with analysis of supplier
  responses

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Influencing Factors for E-RFX

• Number of Suppliers responding
• Complexity of responses
• Total volume of sourcing activities
• Qualitative versus Quantitative responses
• Frequency of sourcing individual categories or
  jobs
• Technology access and comfort level from supplier
  base

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Innovation in Transactions

• E-Procurement and ERP you can have both
• Select appropriate tools for Direct / Indirect
  procurement activities
• Dont let your ERP vendor prevent you from
  running a proper sourcing process!

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E-Procurement Transaction Matrix Select the
right tool for the job
High Value / Low Volume Electronic
P/Os EFT Recurring Payments Address Governance
High Volume / High Value Electronic P/Os ERS /
RCTI Direct Connect Systems Focus
High Volume / Low Value Electronic
Catalogues Electronic P/Os P-Cards Reduce
Overhead
Low Value / Low Volume P-Cards Expense
Management One Time Vendors Minimise Nuisance
Activity
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Use E-Procurement to unlock the power of your ERP
system
ERP Super Users
Occasional Purchasing Users
Core ERP System
Business Purchasers and Approvers
E-Procurement System with Catalogues
Email and Occasional Usage
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E-Payment Innovation

• Eliminate invoices where possible
• Consolidated invoicing
• Evaluated Receipt Settlement
• P-Cards instead of Invoices
• Digitise the invoices
• Electronic invoicing
• Scanning and Optical Character Recognition
• Streamline supplier interactions
• Supplier portals

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On Demand E-Payment Tools
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Management Innovation

• Supplier Management Tools
• Simple online survey Health check of suppliers,
  internal stakeholders
• Statistical, quality based supplier management
  tools measuring KPIs
• Procurement PMO Concept
• Standardise process and ensure it is consistently
  applied
• Coaching and mentoring of staff is essential

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Contract Management Tools Spectrum
Low
High

• Electronic log of all signed contracts
• Manual management of expiry dates, renewals, Key
  Performance Indicators
• Contracts may be stored on file server or as
  paper copies

• Database driven system to capture contract
  details
• PDF contracts uploaded and stored in system
• Expiry dates and key milestones tracked and
  notified via email
• Some KPIs may be tracked online but bulk are
  outside of system

• Online contract management system for
  constructing contracts
• Clauses and requirements can be combined to
  create contract
• Contracts stored in database system with full
  tracking of milestones
• Integration with ERP system for performance
  monitoring and thresholds

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Key Success Factors

• Do something now!
• Keep it simple
• Focus on tangible, incremental benefits
• Understand your stakeholders and their day to day
  needs
• Prioritise efforts on those items that will
  deliver the most benefit
• Dont create barriers to success

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Barriers to Innovation Sources of complexity

• Organisational rules
• Cost centres, cost accounts
• Rules and regulations
• Lack of market competition for internal projects

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Innovation The Future

• Ongoing interface improvements
• Web 2.0 technology for consumer style shopping
  interfaces
• Community generated content
• Wikipedia for Procurement
• True seamless interconnections
• The P/O as Email metaphor
• Increased usage of On Demand software models
• What if your E-Procurement software was free?

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Next Steps

• The Faculty can assist with
• Procurement technology strategy review and advice
• Procurement Benchmarking
• E-Procurement Tools and Techniques reports
• E-Procurement strategy development available
• Current state analysis and audit
• Opportunity identification
• Spend analysis, category prioritisation
• Visit our website for more information
• www.thefaculty.com.au