Reengineering the Indirect Spend Compaq

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Reengineering the Indirect Spend Compaqs
Business Case for Taking it to The Web

• Paul BoxDirector, General Procurement
• Compaq Computer Corporation

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Todays agenda

• Compaq today
• Procurement overview and opportunity
• Solution selection
• Expected return
• Project rollout status
• QA

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Compaq achieving profitable growth

• Q4 2000 Financial Results
• Revenue was 11.5 billion up 10 percent
  year-over-year
• Gross margin increased 1.5 to 23.7
• Operating expenses down more than a full point
  to 17.1 of revenue
• Operating profit was 757 million, up 80 from
  same qtr last year
• EPS nearly doubled to 30 cents

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Profitable growth being achieved by

• Developing innovative products
• Integrating them into compelling solutions
• Serving a global marketplace

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We were smart enough to recognize the Internet
was not a fad...
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Procurement at Compaq

• Total spend is forecast at 32B
• Indirect goods and services 6B (19 of total)
• 60,000 Employees WW (our internal customers)
• N.A. General Procurement FT staff 50
• 33,000 Indirect Suppliers 80 of Spend with lt
  2000 suppliers
• General Procurement issuing 75,000 POs year
• Benchmarking results - World class at maverick
  buying!

40 of spend (2.5B) touched by General
Procurement
Suppliers generating 336,000 invoices a year for
indirect!
If theres a way around the system, our internal
customers have found it!
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2001 General Procurement Pareto by Commodity
5.7 - 6.1 Billion Total
Software 882M
15
REOS 700M
12
MRO 350M
6
MarCom 1.2B
Travel 300M
21
5
Telecom 250M
4
Uncategorized 232M
4
1
P-card Spend 42M
CHR 1.8B
Other/Misc 30M
1
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All figures approximate based on best available
data
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Estimated Spend by Region
APD
5.7 - 6.1 Billion Total
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AMER
EMEA
65
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Why Procurement automation was needed at Compaq

• Purchasing process paper bound
• Approvals cycle non automated - slow,
  bureaucratic
• No systemic process to point employees to
  preferred suppliers
• Spending outside Procurement with non-contract
  suppliers is a profit leak (6k NPRs a month to
  28k invoices a month!)
• Lack of information warehouse to facilitate
  opportunity identification

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Our reengineering goals

• A self-service, distributed purchasing model to

Automate via a procure-to-pay process - users go
online to locate, request, approve, order
receive, seamlessly linked to A/P Capture all WW
indirect procurement spend utilizing a
single tool - reduce fragmented view of
our total spend Report and Identify savings
opportunities / analyze spend (to whom, when, and
for what) - in UNSPSC defined Commodity
Groupings Reduce supply base, item prices, and
total cost of acquisition Eliminate off contract
spending, rogue solutions, paper processes
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Critical selection elements software
provider/package

• Easy end user operation - lure spenders into
  process
• Robust catalog search / requisition / approvals
• Comprehensive info query and reporting
• Ease of integration with ERP system(s), e-mail,
  HR system(s)
• Allows attachments (Word, Excel, PP) through
  workflow
• Support procurement card strategy
• Support ad hoc purchases (non-catalog items)
• Vision match / collaborative minded

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Path to solution
Review and Analysis - Evaluation Criteria
Ariba Aspect (SAP) Commerce One Elekom
(Clarus) Oracle SAP
RFP Recipients
Roadmap Financial Review
6 Considered Viable Developed / Received RFP
Interviewed 15
Inventoried 30 Providers Selling Solutions
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Resulting recommendation

• is the Solution
• Met RFP requirements
• Solid financials resources for long term
  success
• Vision match - strategic vision
• Committed to delivering optimized NT and Tru64
  performance, tuned to Compaq hardware

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GP Online process flow
Catalog feed from supplier
User logs into GP Online
Compaq Firewall
Catalog updates moved to Compaq server
PeopleSoft SigAuth
Requisition is created by selecting items from
catalog or entering description of
products/services
Hierarchy approval on line
Requisition Approved?
Returned to requisitioner
Cost Center Charge
Catalog items auto sent to supplier. Buyer
creates PO for non-catalog items. PO is sent to
supplier. All PO data is fed into SAP.
P-Card Charge
Supplier XYZ
Product shipped delivered to Compaq
User posts receipts into GP Online
A/P enters invoice in SAP. System matches
invoice to PO and receipt.
Payment made to Supplier
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Create
Search
Monitor
Browse
Review
Punch-out
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Benefit to the bottom line

• Industry benchmarks show that up to 20 of annual
  spend
• can be saved through implementation of a well
  integrated System

Process improvement - Self service procurement
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Aggregation volume buying - consolidation of
vendors contracts
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Contract leakage reduction - enforcement of
available discounts
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Infrastructure support - network computing
architecture
3
Source Savings based on Arizona State University
Center for Advanced Purchasing Studies (Summary
of Aerospace and Defense Industry Purchasing
Benchmarks), 1997
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Implementation status value over time
High
Fully Leveraged
Information
ROI
Integration
S/W Installation
Implementation
Low
April 2000
November 2000
June 2001
Time to Benefits
January 2001
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Implementation status value over time

• Key Milestones
• Proof of concept April 17, 2000 (down rev
  product)
• December 29th live with 100 users
• New technology stack deployed (SSP5, 11i, 8i)
• Rollout to 4000 on January 31st

High
Information
ROI
Integration
S/W Installation
Implementation
Low
April 2000
November 2000
June 2001
Time to Benefits
January 2001
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GP Online goals / objectives
1Q01
Roll out to 4000 US employees 5 catalog
suppliers Automate requisition process for all
P-Card holders
GP Online Goals / Objective
Catalog / non-catalog (ad hoc) requisitions,
workflow driven approvals, auto PO launch Basic
reporting P-Card / CC charging enabled HR,
Supplier, COA Integration Supplier PO ack
Functionality
US
GEO
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GP Online goals / objectives cond.
3Q01
Limited roll out to Canada, EMEA All US indirect
purchasing via GP Online Retire IPA
GP Online Goals / Objective
1Q US functionality for Canada, EMEA SAP Custom
Integration Enhanced reporting across multiple
systems
Functionality
NA, EMEA
GEO
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Catalog content strategy
Suppliers
Direct Supplier with XML, EDI, OBI, etc
Compaq
EC Gateway
Orders Schedules
Receipts Payments
PostedRFQs
Procurement Catalog Server
Supplier Self-Service
Order Mgmt.
Receiving
Sourcing Approval
Pay on Receipt
Invoicing
Financial Reporting
Local Catalog
Source and Procure
Pay
Request
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Utilizing Oracle Exchange
Suppliers

• XML Catalog Feeds to Exchange
• Compaq Contract Pricing
• Volume Leverage Items
• Approved Configurations

End Users
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Compaq Alpha Tru64 Unix system
GPOnline user
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What We Believe...

• The Oracle Internet Procurement suite - a
  standard by which others will be judged
• Management and Development focus is intense
• Financial commitment / depth of resources
  significant
• Vision and thought-leadership
• Collaboration with Compaq on features and
  function

The Compaq Implementation is a Success ! Compaq
- Oracle working relationship excellent Roll-out
accelerating ROI compelling
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