Inflation Compensation:  Using Procure-to-Pay to Increase Savings and Better Manage Cash Panel Members:  Pierre Mitchell, ...
Agenda <ul><li>Introductions </li></ul><ul><li>The Situation – Inflation </li></ul><ul><li>The Approach – Strategic Spend ...
Featured Speaker – Pierre Mitchell © 2011 Ariba, Inc. All rights reserved.  Mr. Mitchell is a regular contributor to busin...
The Inflation Situation © 2011 Ariba, Inc. All rights reserved.  <ul><li>3M:  “Margins declined under rising material cost...
The CPO Situation <ul><li>Drive more savings </li></ul>© 2011 Ariba, Inc. All rights reserved.  What are your top business...
And in a Volatile Global Environment Frequency of Adverse Event Severity of Adverse Event Low High Low High Source:   The ...
The Best Defense Is Often a Good Offense © 2011 Ariba, Inc. All rights reserved.  Source: The Hackett Group 2011 Inflation...
And You’re Going to Be Busy in 2011 © 2011 Ariba, Inc. All rights reserved.  % of Respondents claiming the Key Issue as a ...
Effectiveness Prize (e.g., Savings) © 2011 Ariba, Inc. All rights reserved.  1 to 2 3 to 5 More than 5 Don’t know How many...
And Doing More with Less © 2011 Ariba, Inc. All rights reserved.  Source :  The Hackett Group, 2011 Key Issues Study
The World-Class Procurement Prize © 2011 Ariba, Inc. All rights reserved.  Hackett Value Grid™ * Many of these metrics are...
The Approach: Holistic © 2011 Ariba, Inc. All rights reserved.  What is your top Procurement initiative for 2011? Better p...
Doing More: Value beyond Cost © 2011 Ariba, Inc. All rights reserved.  Supply Value Proposition Role of Procurement Right ...
Look under Every Rock:  Purchase-to-Pay © 2011 Ariba, Inc. All rights reserved.  Increasing value From P2P P2P Value Suppl...
Top Performance in P2P © 2011 Ariba, Inc. All rights reserved.  P2P Performance <ul><li>Example of Effectiveness Drivers <...
Efficiency Targets in P2P are Aggressive © 2011 Ariba, Inc. All rights reserved.  What are your targets for improving P2P ...
Break through the Barriers <ul><li>Visibility Barriers (Spend and Savings) </li></ul><ul><li>Collaboration Barriers </li><...
Problem:  Realized  Savings Visibility © 2011 Ariba, Inc. All rights reserved.  Savings Negotiated Savings Delivered
It’s about ACTUAL Savings © 2011 Ariba, Inc. All rights reserved.  ‘ The savings claimed by Procurement related to Indirec...
Top Performers VERIFY Savings © 2011 Ariba, Inc. All rights reserved.  ‘ Savings are considered booked/achieved when they ...
Start with Visibility – if you can © 2011 Ariba, Inc. All rights reserved.  Do you have a  single point of visibility  int...
Compliance © 2011 Ariba, Inc. All rights reserved.  If Full Compliance is buying from the right vendor, at the right price...
“ Guided Buying”: Compliance at the Source © 2011 Ariba, Inc. All rights reserved.  A way to seamlessly guide employees wi...
Collaboration © 2011 Ariba, Inc. All rights reserved.  Do you have an automated way of collaborating with your suppliers o...
Invoice Strategies © 2011 Ariba, Inc. All rights reserved.  What invoice strategies are you consistently employing to opti...
Information: From Tools to Services © 2011 Ariba, Inc. All rights reserved.
Ariba Procurement Benchmarking Program Procurement Benchmarking Reporting Metrics Procurement Benchmarking Program Statist...
The Future <ul><li>Optimized working capital </li></ul><ul><li>More effective user experience </li></ul><ul><li>Embedded d...
Questions © 2011 Ariba, Inc. All rights reserved.
“Safe Harbor” and Confidential Information Statement <ul><li>This information reflects the status of Ariba solution planni...
Inflation Compensation:  Using Procure-to-Pay to Increase Savings and Better Manage Cash Panel Members:  Pierre Mitchell, ...
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"Inflation Compensation: Using Procure-to-Pay to Increase Savings and Better Manage Cash – an Interactive Session with the Hackett Group "

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Pierre Mitchell, The Hackett Group, AribaLIVE 2011
Inflation Compensation: Using Procure-to-Pay to Increase Savings and Better Manage Cash – an Interactive Session with the Hackett Group
http://exchange.ariba.com/community/events/aribalive

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  • Key Points We use actual data to define world-class performance Two dimensions: Efficiency and Effectiveness Hackett defines world-class as the top quartile performers in both efficiency and effectiveness metrics Where would you place yourself?
  • Sample size 1137
  • Both groups felt important, but effectiveness different story
  • Average of indirect materials and indirect services Easy with direct. Indirect is harder. Talk through the slides callouts
  • You already do most of this on Google, Amazon, and Expedia right now! Example: product categorization, product rankings, supplier rankings, attribute-search, etc.
  • Embedded decision support includes selecting suppliers beyond cost
  • Transcript of ""Inflation Compensation: Using Procure-to-Pay to Increase Savings and Better Manage Cash – an Interactive Session with the Hackett Group " "

    1. 1. Inflation Compensation: Using Procure-to-Pay to Increase Savings and Better Manage Cash Panel Members: Pierre Mitchell, The Hackett Group John Lark, Ariba Moderator: James Tucker, Ariba © 2011 Ariba, Inc. All rights reserved.
    2. 2. Agenda <ul><li>Introductions </li></ul><ul><li>The Situation – Inflation </li></ul><ul><li>The Approach – Strategic Spend Management (Evolving your value in Procurement) </li></ul><ul><li>Key Focus Areas – P2P </li></ul><ul><li>Breaking Down the Barriers </li></ul><ul><li>The Future </li></ul>© 2011 Ariba, Inc. All rights reserved.
    3. 3. Featured Speaker – Pierre Mitchell © 2011 Ariba, Inc. All rights reserved. Mr. Mitchell is a regular contributor to business publications and a frequent presenter at industry events. Previously, he was vice president of research at AMR Research and a manager at Arthur D. Little, where he led sourcing and supply chain transformations at Fortune 500 organizations. Industry positions include manufacturing project manager at The Timberland Company, materials manager at Krupp Companies and engineer at EG&G Torque Systems. He holds an engineering degree from Southern Methodist University and an MBA from the University of Chicago. Pierre Mitchell Director, Procurement Research The Hackett Group Mr. Mitchell leads the Procurement research activities at The Hackett Group and also serves as an adjunct senior advisor for Hackett’s Procurement Executive Advisory Program. He has nearly 25 years of industry and consulting experience within Procurement and Supply Chain, specializing in supply management transformation, best practices and tools.
    4. 4. The Inflation Situation © 2011 Ariba, Inc. All rights reserved. <ul><li>3M: “Margins declined under rising material costs.” </li></ul><ul><li>PepsiCo: “We have no idea what the commodity markets are going to look like in 2012 and beyond.” </li></ul><ul><li>Goodyear: “Raw material prices costs are likely to rise 25% to 30% in the first quarter of 2011 and rubber prices have risen 40% since October [2010].“ </li></ul><ul><li>Whirlpool – &quot;seeking to offset cost increases for such items as steel, copper and plastics...“ </li></ul><ul><li>Electrolux –&quot;Operating income in North America and Europe declined as the company was hit by higher costs for raw materials and lower sales prices.&quot; &quot;The costs for our most important raw materials continue to increase.&quot; </li></ul>CEO/CFO Quotable Quotes…
    5. 5. The CPO Situation <ul><li>Drive more savings </li></ul>© 2011 Ariba, Inc. All rights reserved. What are your top business drivers in 2011? <ul><li>Ariba / Hackett Survey conducted during ISM webcast “Defining and expanding the value proposition of P2P“, 2/23/2011 </li></ul><ul><li>All questions had a minimum of 400 respondents </li></ul><ul><li>Over 400 unique US and Global companies </li></ul><ul><ul><li>VP, C-Level: 21 </li></ul></ul><ul><ul><li>Supervisor, Manager, Director: 265 </li></ul></ul><ul><ul><li>Buyer: 198 </li></ul></ul><ul><ul><li>Others: 73 </li></ul></ul><ul><li>In tight markets </li></ul>You are here “ Can you give me some shade?”
    6. 6. And in a Volatile Global Environment Frequency of Adverse Event Severity of Adverse Event Low High Low High Source: The Hackett Group Supply Risk Management Study, 2010 Supply Risks that Actually Impacted Large Organizations (Summer 2010 – would be a lot different now!) <ul><li>Crude Oil in Middle East </li></ul><ul><li>Rare Earth Metals in China (97% of Market) </li></ul><ul><li>Shortages Japan Disaster </li></ul>
    7. 7. The Best Defense Is Often a Good Offense © 2011 Ariba, Inc. All rights reserved. Source: The Hackett Group 2011 Inflation Study
    8. 8. And You’re Going to Be Busy in 2011 © 2011 Ariba, Inc. All rights reserved. % of Respondents claiming the Key Issue as a “Critica l” or “Major” priority for 2011 Broader Value Delivery Basic Cost Reduction Capability-building Trend vs. 2010 Source : The Hackett Group, 2011 Key Issues Study
    9. 9. Effectiveness Prize (e.g., Savings) © 2011 Ariba, Inc. All rights reserved. 1 to 2 3 to 5 More than 5 Don’t know How many specific areas of savings opportunity have you identified and are focusing on at this time? Source: Defining and expanding the value proposition of P2P survey, February 2011
    10. 10. And Doing More with Less © 2011 Ariba, Inc. All rights reserved. Source : The Hackett Group, 2011 Key Issues Study
    11. 11. The World-Class Procurement Prize © 2011 Ariba, Inc. All rights reserved. Hackett Value Grid™ * Many of these metrics are also available at a more granular spend category level below the indirect/direct materials and services levels Source: The Hackett Group 2010 11.3X “ROI” EFFECTIVENESS <ul><li>Economic return </li></ul><ul><li>Supply base leverage & performance </li></ul><ul><li>Role of procurement </li></ul><ul><li>Process quality </li></ul><ul><li>Examples: </li></ul><ul><li>144% higher spend cost reductions </li></ul><ul><li>90% higher spend cost avoidances </li></ul><ul><li>58% less suppliers per $B </li></ul><ul><li>22% less suppliers that represent 80% of direct spend </li></ul><ul><li>10% less suppliers that represent 80% of indirect spend </li></ul><ul><li>50% higher spend influence in direct materials/services </li></ul><ul><li>33% higher spend influence in indirect materials/services </li></ul><ul><li>42% less PO Pricing errors </li></ul>EFFICIENCY <ul><li>Process costs </li></ul><ul><li>Productivity </li></ul><ul><li>Cycle times </li></ul><ul><li>Costs per transaction </li></ul><ul><li>Staffing Levels </li></ul><ul><li>Examples: </li></ul><ul><li>16% lower Cost of Procurement as a % of spend </li></ul><ul><li>28% lower Direct - PR Cost as a % of Direct Spend </li></ul><ul><li>19% lower Indirect - PR Cost as a % of Indirect Spend </li></ul><ul><li>32% lower Purchase Operations cost as a % of spend </li></ul><ul><li>12% higher Span of Control </li></ul><ul><li>174% more POs processed per FTE </li></ul><ul><li>54% faster Direct Receiving cycle time </li></ul><ul><li>63% less cost per PO </li></ul><ul><li>23% less FTEs per $1B of spend </li></ul><ul><ul><li>39% less direct FTEs per $1B direct spend </li></ul></ul><ul><ul><li>29% less indirect FTEs per $1B indirect spend </li></ul></ul><ul><ul><li>All cost, FTE, and wage rate data available at a process group level </li></ul></ul>
    12. 12. The Approach: Holistic © 2011 Ariba, Inc. All rights reserved. What is your top Procurement initiative for 2011? Better processes and automation Multi-year strategic plan with enterprise goals Internal and external collaboration Compliance Training & investment Source: Defining and expanding the value proposition of P2P survey, February 2011
    13. 13. Doing More: Value beyond Cost © 2011 Ariba, Inc. All rights reserved. Supply Value Proposition Role of Procurement Right goods /services at the right time & place Right goods and services AND at the right price Shift from lowest price to Total Cost of Ownership Reduce demand activity, complexity and variability Increase business value derived from spend Supply Assurance Buyer / Planner Negotiator Supply expert (SCM, SPM, etc.), team leader, project manager Spend/ budget consultant & relationship manager Trusted business advisor and change agent Price Total Cost of Ownership Demand Management Value Mgmt. Role of Supply Base Innovative / Flexible Aligned / Loyal Operationally Excellent Priced Fairly Reliable, Solvent Source : The Hackett Group, 2011 VALUE +
    14. 14. Look under Every Rock: Purchase-to-Pay © 2011 Ariba, Inc. All rights reserved. Increasing value From P2P P2P Value Supplier Risk Management “ Customer” Satisfaction Internal Contract Compliance Spend Visibility for Sourcing “ Hands-Free” Processing Process Productivity On-time and Error-Free Delivery Supplier Contract Compliance Regulatory Compliance Early Pay Discounts Internal customer time freed to focus on core Working Capital Reduction Source : The Hackett Group, 2011 SUPPLY ASSURANCE PURCHASE COST REDUCTION TCO REDUCTION DEMAND MANAGEMENT VALUE MGMT
    15. 15. Top Performance in P2P © 2011 Ariba, Inc. All rights reserved. P2P Performance <ul><li>Example of Effectiveness Drivers </li></ul><ul><li>First Pass Match Rate </li></ul><ul><li>Maverick Spending </li></ul><ul><li>Supplier Compliance </li></ul><ul><li>Internal “Channel Compliance” </li></ul><ul><li>Available Discounts and Discounts taken </li></ul><ul><li>Number of Payment Terms </li></ul><ul><li>End User Satisfaction </li></ul><ul><li>Example of Efficiency Drivers </li></ul><ul><li>Cost per Invoice </li></ul><ul><li>FTEs per $ Billion </li></ul><ul><li>Invoice per FTE </li></ul><ul><li>PO Utilization </li></ul><ul><li>Processing Cycle Times </li></ul><ul><li>On-Time Payment Rates </li></ul><ul><li>Self-Service Inquiries </li></ul><ul><li>Electronic Invoicing </li></ul><ul><li>Electronic Payments </li></ul>
    16. 16. Efficiency Targets in P2P are Aggressive © 2011 Ariba, Inc. All rights reserved. What are your targets for improving P2P processing costs within the next 2 years? Source: Defining and expanding the value proposition of P2P survey, February 2011
    17. 17. Break through the Barriers <ul><li>Visibility Barriers (Spend and Savings) </li></ul><ul><li>Collaboration Barriers </li></ul><ul><li>Compliance Barriers </li></ul><ul><li>Technology Barriers </li></ul><ul><li>Business Case Barriers </li></ul>© 2011 Ariba, Inc. All rights reserved.
    18. 18. Problem: Realized Savings Visibility © 2011 Ariba, Inc. All rights reserved. Savings Negotiated Savings Delivered
    19. 19. It’s about ACTUAL Savings © 2011 Ariba, Inc. All rights reserved. ‘ The savings claimed by Procurement related to Indirect Purchases are falling to the bottom line and can be proven’ (% of Responses) Perception Gap Source: The Hackett Group Spend/Savings Visibility Study, 2010
    20. 20. Top Performers VERIFY Savings © 2011 Ariba, Inc. All rights reserved. ‘ Savings are considered booked/achieved when they are negotiated and agreed to by the supplier and …’ 16x Difference! Those who adopt this model save 6.3% on indirect spend (vs. 3.8% for other two models) Reduced budgets, but not necessarily reduced purchased costs “ Hope is not a strategy” Source: The Hackett Group Spend/Savings Visibility Study, 2010
    21. 21. Start with Visibility – if you can © 2011 Ariba, Inc. All rights reserved. Do you have a single point of visibility into vendor and contract compliance on 80% or more of your spend, regardless of ERP system: Source: Defining and expanding the value proposition of P2P survey, February 2011
    22. 22. Compliance © 2011 Ariba, Inc. All rights reserved. If Full Compliance is buying from the right vendor, at the right price and paying the right price, what percentage of your TOTAL purchases are Fully Compliant: Source: Defining and expanding the value proposition of P2P survey, February 2011 Over 90% 70% - 90% 50% - 70% Under 50% Don’t know
    23. 23. “ Guided Buying”: Compliance at the Source © 2011 Ariba, Inc. All rights reserved. A way to seamlessly guide employees with supply needs to the optimal supply source and transaction channel – at “The Moment of Truth” <ul><li>Requires: </li></ul><ul><li>End-to-end P2P accountability linked back to sourcing. P2P buy-pay channels optimized for the spend categories and suppliers they support. </li></ul><ul><li>P2P buy-pay channels linked to all forms of “preferred supply” (local catalogs, punchouts, local stock, category managers, COEs/SSCs/BPOs, supplier directories, etc.) based on harmonized spend taxonomy and business rules. </li></ul><ul><li>Use of technology like virtual catalogs, agents, auto-classification, MDM tools, and a consumer-like interface that sits on top of enterprise applications and links out to “the cloud”. </li></ul><ul><li>It’s not that far away! </li></ul>
    24. 24. Collaboration © 2011 Ariba, Inc. All rights reserved. Do you have an automated way of collaborating with your suppliers on non-sku goods and services in terms of tying invoices easily back to source agreements? Source: Defining and expanding the value proposition of P2P survey, February 2011
    25. 25. Invoice Strategies © 2011 Ariba, Inc. All rights reserved. What invoice strategies are you consistently employing to optimize your cash usage or reduce risk? (check all that apply): Source: Defining and expanding the value proposition of P2P survey, February 2011 Payment Term Rationalization Early Pay or Dynamic Discount P-Card Rebates Supply Chain Financing None of the Above Don’t Know
    26. 26. Information: From Tools to Services © 2011 Ariba, Inc. All rights reserved.
    27. 27. Ariba Procurement Benchmarking Program Procurement Benchmarking Reporting Metrics Procurement Benchmarking Program Statistics Projected Using Benchmarking Sample Data Projected Using Benchmarking Sample Data I. Key Metrics III. Supplier Management Total Relationships-Active Suppliers PO Supplier Accounts Available Total Annual PO Volume & Spend PO Lifetime & Quarterly Suppliers Latest Annual Invoice Volume & Spend Quarterly Invoice Latest Annual ER Volume & Spend Suppliers (Reconciled) % of Catalog & Non Catalog Spend IV. User & Miscellaneous Metrics % of Services Spend PO User Accounts Available % of Spend through Ariba Network PO Users Submitting Requisitions PO Users Approving Requisitions PO & Invoice Spend/ Vol on Ariba Network Approval Time per Requisition Reconciled Invoice Count & Spend II. Spend Composition V. Trends Top 10 UNSPSC Codes by Spend $ PO Vol PO Spend & Line items By Month Top 10 Suppliers by Spend & Transactions Invoice Spend & Line Items By Month Program Launch Date 2002 Reporting Cycle Once in 3 Months No of Cycles Completed to Date 35 No of Participating Clients (Cycle 35),# 121 No of Participating Clients with Data ),# Vs Total Ariba P2P Platform Clients, # 83 200 No of Industry Groups Represented, # 9 of 9 Total Annual PO Spend (Cycle 35) ,$M 115,058 Total Annual Invoice Spend (Cycle 35), $M 11,252 Total Annual PO Volume (Cycle 35) ,#K 11,298 Total Annual Invoice Volume (Cycle 35) ,#K 2,466
    28. 28. The Future <ul><li>Optimized working capital </li></ul><ul><li>More effective user experience </li></ul><ul><li>Embedded decision support </li></ul><ul><li>Seamless integration to networks and intelligence </li></ul>© 2011 Ariba, Inc. All rights reserved.
    29. 29. Questions © 2011 Ariba, Inc. All rights reserved.
    30. 30. “Safe Harbor” and Confidential Information Statement <ul><li>This information reflects the status of Ariba solution planning as of January 2011. All such information is the Confidential Information of Ariba (per the contract between our companies), and must not be further disclosed, as stated in the confidentiality clause of that contract. This presentation contains only intended guidance and is not binding upon Ariba to any particular course of business, product strategy, and/or development. Its content is subject to change without notice. Ariba assumes no responsibility for errors or omissions in this document. Ariba shall have no liability for damages of any kind including without limitation direct, special, indirect, or consequential damages that may result from the use of these materials. </li></ul>© 2011 Ariba, Inc. All rights reserved.
    31. 31. Inflation Compensation: Using Procure-to-Pay to Increase Savings and Better Manage Cash Panel Members: Pierre Mitchell, The Hackett Group John Lark, Ariba Moderator: James Tucker, Ariba © 2011 Ariba, Inc. All rights reserved.

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