Direct Materials Sourcing and Procurement
Strategies to Drive Accelerated Savings
and Improved Risk Mitigation
Speakers
• ...
Agenda

•
•

Introduction
Panel Discussion
Thought Leadership Insights from IDC
–
–

Overview of Direct Materials Sourcing...
The Panel Team
Speakers:
• Heather Ashton – IDC
• Colleen Rowley – ITW

Moderator:
Sundar Kamakshisundaram

3

© 2014 Arib...
Direct Materials Sourcing and
Procurement Strategies - Accelerating
Savings and Improving Risk Mitigation
Heather Ashton, ...
Agenda

•

•
•

Overview of Direct Materials Sourcing – Business Drivers
and Challenges
Identifying and Improving Risk Mit...
The Productivity Imperative

Platform 2 –
Client/Server to
Internet
Platform 1 –
Mainframe to
Client/Server

6

Source: US...
Business Productivity – The Next Wave
•

•

•

Source: 2013 IDC Vertical View Survey, n=3,700
7

© 2014 Ariba – an SAP com...
The Third Productivity Platform

Trillions

Social
Big Data/
Business
Analytics
Cloud
Mobile
Broadband, Devices Services
&...
Five Critical Capabilities Enabled by the
3rd Platform
•

The 3rd Platform creates the underpinnings for business process ...
Resilient Supply Chains
Resilient Systems –
“The ability to adapt to changing circumstances
while maintaining a central pu...
The Resilient Supply Chain

•

Improved inventory
management and supply chain
visibility require closer ties to
direct pro...
Resilient Supply Chain and Collaborative
Commerce Networks
Value of
Transformation

3D
Supply
Chains

Resilient SC
Strateg...
From Our 2014 Manufacturing Commerce Predictions

#4: Direct procurement becomes a key
strategic skill for brand owners

•...
Direct Procurement: A Delicate Balance

•
•
•
•
•

14

Drivers
Reduce costs
Increase automation
Control spend
Increase rev...
Sourcing Success: Procurement and
Finance Work Together
PLAN

Product
Design Input

Demand
Input

Source: IDC Manufacturin...
Assessing Risk in Direct Materials
•

•

•
•

Strategic Items – High profit
impact, high supply risk, high
sourcing diffic...
Risk Mitigation in Direct Materials
•

•

•
•

Strategic Items – Give most
attention; cultivate supplier
relationships; ap...
Using Technology to Mitigate Risk
•
•
•

•

E-procurement and catalog management
help manage non-critical items
E-sourcing...
Essential Guidance
•
•
•
•

19

While tempting to extract every last drop of cost from the procurement process,
with direc...
IDC’s Core Value Proposition


50 years of experience in the technology market
intelligence business




Rigorous resea...
IDC’s IT Executive Programs
IDC's IT Executive Programs consists of a family of research programs intended to help today's...
Thank you!


Have you joined our IDC Insights Community?
http://idc-insights-community.com
It’s Free!
Features Include:
–...
Direct Materials e-Sourcing at
Illinois Tool Works (ITW)
Colleen Rowley, Program Manager, e-Sourcing, ITW

#AribaLIVE
@ari...
ITW at a Glance

•

•
•

•
24

Illinois Tool Works Inc. (NYSE: ITW) is a Fortune 200 company with
100 years of history
We ...
ITW Business Segments

Segment

% of ’13F
Revenues

25

Automotive
OEM

Test &
Measurement
and Electronics

Food
Equipment...
ITW Primary Brands
Test & Measurement and Electronics
Automotive OEM
Polymers & Fluids
Food Equipment
Construction Product...
Strategic Sourcing at ITW


Embed sourcing as a key capability

Sourcing teams in place



Ahead of year one targets


...
Ariba Sourcing

Ariba Resource Review

New supplier identification.
ITW creates posting based on business need.
Have abili...
e-Sourcing Team Reach

29

© 2014 Ariba – an SAP company. All rights reserved.
Project Kick-off
•

•

30

The checklist helps
guide project development
and provides teams a
general timeframe
It reviews...
Direct Material Project Characteristics

•

Typically a large number of suppliers (100+)
Requires multiple Ariba events

•...
Bid Sample – Excel (Sheet 1 of 5)

32

© 2014 Ariba – an SAP company. All rights reserved.
Bid Sample – Excel (Sheet 2 of 5)

33

© 2014 Ariba – an SAP company. All rights reserved.
Bid Sample – Excel (Sheet 3 of 5)

34

© 2014 Ariba – an SAP company. All rights reserved.
Bid Sample – Excel (Sheet 4 of 5)

35

© 2014 Ariba – an SAP company. All rights reserved.
Bid Sample – Excel (Sheet 5 of 5)

Supplier responds to price request with breakdown

36

© 2014 Ariba – an SAP company. A...
Building Scenarios

37

© 2014 Ariba – an SAP company. All rights reserved.
RFP Analytical Capabilities (1/2)

38

© 2014 Ariba – an SAP company. All rights reserved.
RFP Analytical Capabilities (2/2)

39

© 2014 Ariba – an SAP company. All rights reserved.
Lessons Learned
•

Supplier Communication is Key
For example:
–
–
–

•

Invited 36 suppliers to a chemical bid
25 of the 3...
Lessons Learned: Supplier Training

41

© 2014 Ariba – an SAP company. All rights reserved.
Lessons Learned: FAQs

42

© 2014 Ariba – an SAP company. All rights reserved.
Lessons Learned: Supplier Participation
Challenges

•

Supplier Confusion
Ariba Profile % questions causes supplier concern
Confusion with Lot Selection
Custom Do...
Summary - Wrap Up

Balance Cost Reductions with
Risk Mitigation

Build Collaborative Relationships with
Suppliers for maxi...
Thank you

Q&
A

Contact information:
Sundar Kamakshisundaram
Sr. Director – Global Solutions Marketing
E: sundar.kamak@sa...
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Direct Materials Sourcing and Procurement Strategies – Accelerating Savings and Improving Risk Mitigation

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As Procurement organizations optimize and automate sourcing and procurement processes to handle Indirect Spend, there is a renewed focus to extend the same automation to Direct Material Spend. With increased globalization, outsourcing and raw material cost inflation, controlling Direct Material spend is key to driving sustainable savings and improve risk mitigation.

Join this session to hear from IDC Manufacturing and key Ariba customers who leverage extensive collaboration and automation to capture more direct & indirect spend and drive sustainable savings and risk mitigation in their supply chains.

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Direct Materials Sourcing and Procurement Strategies – Accelerating Savings and Improving Risk Mitigation

  1. 1. Direct Materials Sourcing and Procurement Strategies to Drive Accelerated Savings and Improved Risk Mitigation Speakers • Heather Ashton – IDC • Colleen Rowley – ITW • Sundar Kamakshisundaram – Ariba, an SAP Company #AribaLIVE @ariba
  2. 2. Agenda • • Introduction Panel Discussion Thought Leadership Insights from IDC – – Overview of Direct Materials Sourcing – Business Drivers and Challenges Identifying and Improving Risk Mitigation – Guidance Direct Materials Sourcing @ITW • 2 Q&A © 2014 Ariba – an SAP company. All rights reserved.
  3. 3. The Panel Team Speakers: • Heather Ashton – IDC • Colleen Rowley – ITW Moderator: Sundar Kamakshisundaram 3 © 2014 Ariba – an SAP company. All rights reserved.
  4. 4. Direct Materials Sourcing and Procurement Strategies - Accelerating Savings and Improving Risk Mitigation Heather Ashton, Research Manager, IDC @HeatherAsh_IDC March 2014 #AribaLIVE @ariba © 2014 Ariba – an SAP company. All rights reserved.
  5. 5. Agenda • • • Overview of Direct Materials Sourcing – Business Drivers and Challenges Identifying and Improving Risk Mitigation – Guidance A Closer Look at How Ariba Customers Are Managing Direct Materials Sourcing ITW • 5 Questions and Answers © 2014 Ariba – an SAP company. All rights reserved.
  6. 6. The Productivity Imperative Platform 2 – Client/Server to Internet Platform 1 – Mainframe to Client/Server 6 Source: US Government Data © 2014 Ariba – an SAP company. All rights reserved.
  7. 7. Business Productivity – The Next Wave • • • Source: 2013 IDC Vertical View Survey, n=3,700 7 © 2014 Ariba – an SAP company. All rights reserved. Process productivity – at least half of all corporate standard processes will have automated data acquisition. At least a quarter will have selfcorrection capabilities. On board service revenue will become at least 5% of total industry revenue. Ecosystem productivity – companies should add 200 basis points of profitability by eliminating coordination waste in their ecosystem. Management productivity – companies should be able to double their revenue without adding any net new management personnel.
  8. 8. The Third Productivity Platform Trillions Social Big Data/ Business Analytics Cloud Mobile Broadband, Devices Services & Apps of “Things” Billions of Apps 2011 of Users Millions LAN/ ClientInternet Server Hundreds of Millions PC of Users Tens of Thousands 1986 of Apps Millions 8 © 2014 Ariba – an SAP company. All rights reserved. Thousands of Users of Apps
  9. 9. Five Critical Capabilities Enabled by the 3rd Platform • The 3rd Platform creates the underpinnings for business process transformation…and in some cases, business model transformation • Businesses will be able to transform:   How they innovate  Their resiliency  9 The speed at which they deliver their products and services  • How they engage with customers The reliability of their operations With such high stakes, the business is increasingly taking a front seat in technology initiatives © 2014 Ariba – an SAP company. All rights reserved.
  10. 10. Resilient Supply Chains Resilient Systems – “The ability to adapt to changing circumstances while maintaining a central purpose”  Simple at the core, diverse at the edges  Tight feedback mechanisms.  Ability to marshal resources (swarm) DISORDER Alignment with only the closest neighbors produces … nothing but a disordered swarm.. 10 © 2014 Ariba – an SAP company. All rights reserved. TORUS Raise the alignment and the chaotic swarm swirls into a doughnut shape called a torus FLOCK Maximize alignment across the flock and the torus shifts; everyone travels in the same direction
  11. 11. The Resilient Supply Chain • Improved inventory management and supply chain visibility require closer ties to direct procurement efforts • Companies leverage big data insights to drive greater efficiencies throughout closed-loop product cycle © 2013 IDC Manufacturing Insights 11 © 2014 Ariba – an SAP company. All rights reserved.
  12. 12. Resilient Supply Chain and Collaborative Commerce Networks Value of Transformation 3D Supply Chains Resilient SC Strategic Partner Management Digitally Executed Data Driven Collaborative Commerce Networks Optimized Customer Experience Integrated Planning Demand Oriented Segmentation © 2013 IDC Manufacturing Insights Now 12 © 2014 Ariba – an SAP company. All rights reserved. 5 Year Horizon
  13. 13. From Our 2014 Manufacturing Commerce Predictions #4: Direct procurement becomes a key strategic skill for brand owners • • 13 Brand owners seek to manage vendors, contracts, and services more holistically Key suppliers are engaged during innovation and product development stages © 2014 Ariba – an SAP company. All rights reserved. Buy Now!
  14. 14. Direct Procurement: A Delicate Balance • • • • • 14 Drivers Reduce costs Increase automation Control spend Increase revenues Respond to market opportunities © 2014 Ariba – an SAP company. All rights reserved. Risks • • • • Supply volatility Compliance Requirements Supplier Reliability Global supply base
  15. 15. Sourcing Success: Procurement and Finance Work Together PLAN Product Design Input Demand Input Source: IDC Manufacturing Insights, 2014 15 © 2014 Ariba – an SAP company. All rights reserved. PLAN PLAN PLAN Make/Build Deliver
  16. 16. Assessing Risk in Direct Materials • • • • Strategic Items – High profit impact, high supply risk, high sourcing difficulty, long-term contracts, executive visibility Leverage Items – High profit impact, low supply risk, medium level visibility, focus on price competitiveness Bottleneck Items – Low profit impact, high supply risk, high sourcing difficulty Non-critical Items – Low profit impact, low supply risk, low sourcing difficulty, low level visibility, transaction focused Source: Kraljic’s Portfolio Matrix 16 © 2014 Ariba – an SAP company. All rights reserved.
  17. 17. Risk Mitigation in Direct Materials • • • • Strategic Items – Give most attention; cultivate supplier relationships; apply strategic sourcing/analytics; contingency planning Leverage Items – Spend aggregation, flexibility to substitute suppliers/products, place high-volume orders Bottleneck Items – Stock-up when item is available, seek alternative sources, find ways to control vendor Non-critical Items – Automate as much of this spend as possible Source: Kraljic’s Portfolio Matrix 17 © 2014 Ariba – an SAP company. All rights reserved.
  18. 18. Using Technology to Mitigate Risk • • • • E-procurement and catalog management help manage non-critical items E-sourcing and Category Management are key tools for leverage items Strategic Sourcing Tools are appropriate for effectively managing strategic items Supplier Management is a focal point for bottleneck items eSourcing Category Management eProcurement Catalog Management Source: Kraljic’s Portfolio Matrix 18 © 2014 Ariba – an SAP company. All rights reserved. Strategic Sourcing Tools Supplier Management
  19. 19. Essential Guidance • • • • 19 While tempting to extract every last drop of cost from the procurement process, with direct materials risk mitigation and sustainable supply become more critical focus areas Use tools like e-procurement and catalog management where possible to drive efficiencies through automation – especially in areas of low strategic value Tools like Supplier Management can also provide supplier transparency, a key capability for resilient supply chains Don’t forget to properly analyze the risks and rewards associated with each lever you move in your source-to-pay process © 2014 Ariba – an SAP company. All rights reserved.
  20. 20. IDC’s Core Value Proposition  50 years of experience in the technology market intelligence business   Rigorous research methodology standards  Unparalleled market and technology segmentation  Fact-based analyst insights and actionable advice  © 2014 Ariba – an SAP company. All rights reserved. Unique vertical industry focus and research  20 Largest global network of expert analysts Strong customer relationship focus
  21. 21. IDC’s IT Executive Programs IDC's IT Executive Programs consists of a family of research programs intended to help today's time-constrained technology professionals and influencers make more effective technology decisions. The program offers actionable and timely fact-based research that will assist technology professionals and influencers in mitigating technology risks, maximizing the effectiveness of IT investments, identifying and capitalizing on new opportunities, and creating solutions that are aligned with your organization's business objectives. Our IDC IT Executive Program offers you: Technical expertise matched to line of business challenges A dedicated CIO Advisor Peer access through the CIO Executive Council Open access to all IT professional events & web conferences 21 Personalized analyst access Personal dedicated analyst account manager © 2014 Ariba – an SAP company. All rights reserved.
  22. 22. Thank you!  Have you joined our IDC Insights Community? http://idc-insights-community.com It’s Free! Features Include: – Analyst Blogs and Videos – Discussion Forums – Resource Library/Complimentary Research – Networking – Invite, Find and Interact with Analysts and Other Members – Polls – Events Calendar Heather Ashton Research Manager, IDC Manufacturing Insights hashton@idc.com @HeatherAsh_IDC 22 © 2014 Ariba – an SAP company. All rights reserved.
  23. 23. Direct Materials e-Sourcing at Illinois Tool Works (ITW) Colleen Rowley, Program Manager, e-Sourcing, ITW #AribaLIVE @ariba
  24. 24. ITW at a Glance • • • • 24 Illinois Tool Works Inc. (NYSE: ITW) is a Fortune 200 company with 100 years of history We are a multinational manufacturer of a diversified range of industrial products and equipment with operations in 58 countries. Key 2012 financial metrics: USD $ 18+ billion in revenue USD $ 2.8 billion in operating income We are proud of our broad portfolio of nearly 12,000 active patents. © 2014 Ariba – an SAP company. All rights reserved.
  25. 25. ITW Business Segments Segment % of ’13F Revenues 25 Automotive OEM Test & Measurement and Electronics Food Equipment Polymers & Fluids Welding Construction Products Specialty Products ~17% ~15% ~15% ~14% ~13% ~12% ~14% © 2014 Ariba – an SAP company. All rights reserved.
  26. 26. ITW Primary Brands Test & Measurement and Electronics Automotive OEM Polymers & Fluids Food Equipment Construction Products Welding Specialty Products 26 © 2014 Ariba – an SAP company. All rights reserved.
  27. 27. Strategic Sourcing at ITW  Embed sourcing as a key capability Sourcing teams in place  Ahead of year one targets  27 Reduce costs  Progress   Objectives Leverage global sourcing spend Steady flow of projects at segment and commodity level © 2014 Ariba – an SAP company. All rights reserved.
  28. 28. Ariba Sourcing Ariba Resource Review New supplier identification. ITW creates posting based on business need. Have ability to hide ITW company name. • • • NOT a Supplier Research Tool. Suppliers self select based on opportunity presented. Ariba considers 3 to 7 supplier responses per posting as robust & a practical expectation. • Ariba Exchange 28 Ability to create and manage RFIs, RFPs, Auctions. Analysis and scenario building. Sourcing Library – repository of questions & templates. • • Ariba Discovery • • • Community where ITW and other users can share and trade information. Community groups where companies with similar objectives can discuss process and results (for example, Direct Materials sourcing or Feature Enhancement groups). • © 2014 Ariba – an SAP company. All rights reserved.
  29. 29. e-Sourcing Team Reach 29 © 2014 Ariba – an SAP company. All rights reserved.
  30. 30. Project Kick-off • • 30 The checklist helps guide project development and provides teams a general timeframe It reviews all project aspects from team development through project wrap up and lessons learned
  31. 31. Direct Material Project Characteristics • Typically a large number of suppliers (100+) Requires multiple Ariba events • Typically a large number of lots or items (1,000+) Potentially larger than the lot limitation • Use of Custom Offline Bid Sheets Be careful about formula errors 31 © 2014 Ariba – an SAP company. All rights reserved.
  32. 32. Bid Sample – Excel (Sheet 1 of 5) 32 © 2014 Ariba – an SAP company. All rights reserved.
  33. 33. Bid Sample – Excel (Sheet 2 of 5) 33 © 2014 Ariba – an SAP company. All rights reserved.
  34. 34. Bid Sample – Excel (Sheet 3 of 5) 34 © 2014 Ariba – an SAP company. All rights reserved.
  35. 35. Bid Sample – Excel (Sheet 4 of 5) 35 © 2014 Ariba – an SAP company. All rights reserved.
  36. 36. Bid Sample – Excel (Sheet 5 of 5) Supplier responds to price request with breakdown 36 © 2014 Ariba – an SAP company. All rights reserved.
  37. 37. Building Scenarios 37 © 2014 Ariba – an SAP company. All rights reserved.
  38. 38. RFP Analytical Capabilities (1/2) 38 © 2014 Ariba – an SAP company. All rights reserved.
  39. 39. RFP Analytical Capabilities (2/2) 39 © 2014 Ariba – an SAP company. All rights reserved.
  40. 40. Lessons Learned • Supplier Communication is Key For example: – – – • Invited 36 suppliers to a chemical bid 25 of the 36 never logged into the system! Project teams need to engage suppliers – e-mails may end up in spam filter or simply forgotten Ariba Sourcing Pro Can Save Time For examples: – – – Data validation Compilation of Data Ability to Run Analysis/Optimization (when baseline data is provided) • • 40 Make the Project Scope Manageable End of Project Surveys Work within the limits of the tool to be successful Understand the pros/cons of the bid event and where we can improve © 2014 Ariba – an SAP company. All rights reserved.
  41. 41. Lessons Learned: Supplier Training 41 © 2014 Ariba – an SAP company. All rights reserved.
  42. 42. Lessons Learned: FAQs 42 © 2014 Ariba – an SAP company. All rights reserved.
  43. 43. Lessons Learned: Supplier Participation
  44. 44. Challenges • Supplier Confusion Ariba Profile % questions causes supplier concern Confusion with Lot Selection Custom Download vs. Checkbox Online – Multiple Download Buttons (have created an ER/SR) – • • 44 Reporting Data Event Size Constraints General Ariba Reporting Lots, Supplier Count, Question Count © 2014 Ariba – an SAP company. All rights reserved.
  45. 45. Summary - Wrap Up Balance Cost Reductions with Risk Mitigation Build Collaborative Relationships with Suppliers for maximum impact Leverage Business Networks to provide transparency ACCELERATE SAVINGS, IMPROVE COMPLIANCE & MITIGATE RISK!
  46. 46. Thank you Q& A Contact information: Sundar Kamakshisundaram Sr. Director – Global Solutions Marketing E: sundar.kamak@sap.com 46 © 2014 Ariba – an SAP company. All rights reserved.

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