Strategic Sourcing & E Procurement


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Strategic Sourcing & eProcurement Implementation in a MRO setting - Heavy Machinery

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Strategic Sourcing & E Procurement

  1. 1. eProcurement / Sourcing MRO Environment Utilising Lean Six Sigma Anand Subramaniam
  2. 2. <ul><li>“ The Internet Is Like Darwinism On Steroids. You Evolve Or Are Eliminated.” </li></ul><ul><ul><li>- Paul Fernandez, Proxicom </li></ul></ul>
  3. 3. Implementation Highlights … <ul><li>10% Technology 90% Change Management 70% Strategic 30% Paperwork </li></ul>
  4. 4. Highlights <ul><li>MRO - Heavy Machinery Industry (Implementation Highlights) </li></ul><ul><li>Strategic Sourcing </li></ul><ul><li>eProcurement </li></ul>
  5. 5. MRO - Heavy Machinery Industry (Implementation Highlights)
  6. 6. Client’s - Terms & Definition <ul><li>Purchasing </li></ul><ul><ul><li>Transactional function of buying products / services or the placement and processing of a purchase order </li></ul></ul><ul><li>Procurement </li></ul><ul><ul><li>Sourcing products and services required to manufacture a product (direct) or to operate the organisation (indirect) from point of supply to the point of demand </li></ul></ul><ul><li>Strategic Sourcing </li></ul><ul><ul><li>Broader and more comprehensive than the procurement process where it focuses more on supply chain impacts of procurement and purchasing decisions, and works cross-functionally within the business firm to help achieve the organisation’s overall business goals </li></ul></ul><ul><li>eProcurement </li></ul><ul><ul><li>Employees’ finds the products they need to buy, requisition generation, approval if needed, creating the purchase order, and delivering that order electronically to the supplier for confirmation and fulfilment </li></ul></ul>
  7. 7. Client’s - Vision & Mission E-Procurement Access online catalog via desktop browser Internet Access <ul><li>Catalog: </li></ul><ul><li>Items from contracted vendor </li></ul><ul><li>Product configuration tool </li></ul><ul><li>Color photographs, animation & videos of prod.application, </li></ul><ul><li>Product detailed specifications </li></ul><ul><li>Interview with other users </li></ul>Quick search Inventory Check Option Price Comparison Test Drive Online Support Order Completion “ Buyer” “ Supplier” Electronic PO Workflow Approval Order Management System Ack. & Ship notice/ changes Payment Process Self-Service Purchasing Open Standards & IP Technologies Process Workflow Corporate Contracts Business Rules
  8. 8. Brainstorming / Focus Group <ul><li>Distribution of Functionality </li></ul><ul><li>ERP based </li></ul><ul><li>Free standing integrated best of breed </li></ul><ul><li>Distributed functionality </li></ul><ul><li>Maximise benefits/ Minimise risks </li></ul><ul><li>Lean, 6 Sigma </li></ul><ul><li>Process Mapping </li></ul><ul><li>Deployment Strategies </li></ul><ul><li>Phases, stage gates </li></ul><ul><li>QA review / sign off </li></ul><ul><li>Level of Automation </li></ul><ul><li>End to end process </li></ul><ul><li>Requisition to order </li></ul><ul><li>Content (catalogue) </li></ul><ul><li>Cat managed externally </li></ul><ul><li>Cat managed internally </li></ul><ul><li>Supplier managed </li></ul><ul><li>Organisational </li></ul><ul><li>Change Management </li></ul><ul><li>Regional / Divisional </li></ul><ul><li>Legal & Fiscal needs </li></ul>Spend Segmentation <ul><li>Deployment </li></ul><ul><li>Desktop / Mobile </li></ul><ul><li>Limited access </li></ul><ul><li>Purchasing dept only </li></ul>
  9. 9. eProcurement Process <ul><li>Spend Analysis </li></ul><ul><li>(Opportunity Identification) </li></ul>3. Supplier Identification 4. Sourcing ( eTendering / eAuctions) 5. Contract Management (Portal) 6. Procurement (P2P) 7. Order Fulfillment 8. Invoicing, Reconciliation & Payment 2. Supplier Assessment
  10. 10. What was involved & benefits 2. Employee- Facing Catalog Finance Purchasing Employees 1. Workflow for originating and approving requisitions 3. Purchasing Data and Analytics Supplier Site Supplier Catalog Direct connect Catalog tools 4. Procurement Vendor’s Supplier Network <ul><li>Benefits </li></ul><ul><li>Reduced purchase process costs </li></ul><ul><li>Improved compliance with sourcing policies </li></ul><ul><li>Provided analytical reports for informed decision making </li></ul>
  11. 11. Business Case Approved Reduced Product/Process Costs Improved Compliance Reduced Inventory Costs Reduced Maverick Purchasing Value Drivers Improved Process Efficiency Pain Points <ul><li>Fragmented data </li></ul><ul><li>Unreliable/inaccurate data </li></ul><ul><li>Rampant off-contract spend (approximately 27% of indirect spend) </li></ul><ul><li>Long lead times result in purchase of large safety stocks </li></ul><ul><li>Long lead times due to high manual processing, 1/3 time spent reviewing manual requisitions </li></ul><ul><li>High transaction costs </li></ul><ul><li>Long supplier negotiation </li></ul><ul><li>Non contract compliance drives up price </li></ul>
  12. 12. Scope – Sourcing & eProcurement <ul><li>Determined the types of purchase and spend categories </li></ul><ul><ul><li>percentage of addressable spend by category </li></ul></ul><ul><ul><li>level of compliance by reference to the extent to which corporate contracts are in place, </li></ul></ul><ul><ul><li>the level of maverick spend and the number of suppliers by spend categories </li></ul></ul><ul><ul><li>Stakeholder buy-in with regard to phasing the strategic procurement </li></ul></ul><ul><ul><li>applying benchmark savings percentages to addressable spend by category </li></ul></ul><ul><li>Determined Potential benefits by mapping the procure-to-pay process and defined </li></ul><ul><ul><li>how the process is undertaken, including technology </li></ul></ul><ul><ul><li>timings / outcomes for each process step </li></ul></ul><ul><ul><li>the resources involved in each process step and their cost </li></ul></ul><ul><ul><li>calculation method - unit costs for order and invoice processing </li></ul></ul><ul><ul><li>As-Is process and To-Be in line with best practices </li></ul></ul><ul><ul><li>potential process savings in the selected services and extrapolated the potential savings across all areas </li></ul></ul>
  13. 13. Scope (Contd.) <ul><li>Determined the procurement strategy and policies for the program direction & implementation </li></ul><ul><li>Used Value Stream Mapping to define As-Is ~ To-Be process along with metrics </li></ul><ul><li>Determined the necessary levels of investment & ROI </li></ul><ul><li>Performed procurement process audit & supplier evaluation </li></ul><ul><li>Evaluated the effectiveness of the strategic sourcing process including user needs and supplier / vendor relationship </li></ul><ul><li>Developed certification process (ISO, TQM) & training requirements </li></ul>
  14. 14. Scope (Contd.) <ul><li>Evaluated pricing / cost structures for total cost of ownership (TCO) (direct, indirect, landed, technology, logistics, material, disposal, transaction, relationship cost) </li></ul><ul><li>Analysed corporate contracts (including outsourced service delivery) - the number of suppliers : value bands of invoices </li></ul><ul><li>Change management strategy and communication management plan </li></ul><ul><li>Defined Standard formats and the trade off for Content Management </li></ul><ul><li>Determined the system integration points (push and pull) between numerous vendors and deciding on which suppliers to use </li></ul>
  15. 15. Stakeholder Management Strategy Reaching critical mass in contract coverage Risk Strategy Change Management Approach Supplier Adoption Legal & Fiscal - Country BU / Site constraints Technical Integration Providing Change Management guidance, with a specific focus on the areas relating to e-procurement implementation Case Studies - extracting lessons learnt from a range of industries (related and unrelated) who had undertaken different approaches to Change Management
  16. 16. Success Factors <ul><li>Strategic </li></ul><ul><ul><li>Freed up front line resources to focus on value-added activities </li></ul></ul><ul><ul><li>Stakeholder briefed on policies, process and procedural changes </li></ul></ul><ul><ul><li>Senior management buy-in to improve strategic procurement policies </li></ul></ul><ul><li>Process </li></ul><ul><ul><li>Cross functional teams involvement </li></ul></ul><ul><ul><li>Well defined project and change management process </li></ul></ul><ul><ul><li>Staff resources trained on capabilities and competencies </li></ul></ul><ul><ul><li>Standardisation (processes, documents, specifications, product catalogues) and streamlined back end processing </li></ul></ul><ul><li>Finance </li></ul><ul><ul><li>Effective and realistic benefits realisation </li></ul></ul>
  17. 17. Transition (As-Is ~ To-Be) = 7.2 months Integration Procurement viewed as key contributor to business strategy Value Optomisation Procurement strategy tied to business strategy Value Innovation Sustainability STAGE 1 STAGE 2 <ul><li>INFORMAL </li></ul><ul><li>Focus on purchase orders </li></ul><ul><li>Detailed reconciliation </li></ul><ul><li>‘ Back Office’ function </li></ul>CONTROL Procurement has some accountability for overall cost reduction STAGE 3 STAGE 4 STAGE 5 As-Is To-Be Took 7.2 months (11 days ahead of schedule & $12.8k under budget)
  18. 18. Results Achieved Business Metrics Governance & Internal Controls Client Satisfaction P.O. Processing Cycle Time e-Transaction: Invoice Contract: Cycle Time Length Ledger Miscodes Suppliers Connected via Web Savings via Web Stock Keeping Unit Before Implementation 40-50% 40% 23 Days ?? 6- 28 months 57 pages 78% 0 0 283,000 After Implementation 90% 93% 2.1 hour 98% 45 days 6 pages 9% 17,000 $112M 134,000
  19. 19. Strategic Sourcing
  20. 20. Identify - Sourcing Solution Solutions Overview Diagnostic tool List of key vendors Requirements template and guidance Discussion paper Experiences of e-procurement Output - Deliverables Input - Questions Addressed Stakeholder buy in - Increase awareness & understanding What solution types are available ? What & why on solution fit? What lessons from dis / similar firm? What & why to capture? Who are leaders / visionaries? Specific Solution highlights, why?
  21. 21. Strategic Sourcing - Roadmap Source: Adjoined Consulting. LLC
  22. 22. Drivers - Strategic Sourcing <ul><li>Increase customer focus </li></ul><ul><li>Focus on supplier economics </li></ul><ul><li>Drive continuous improvement </li></ul><ul><li>Assess the total cost of ownership </li></ul><ul><li>Reduce costs and delivery cycle times </li></ul><ul><li>Increase number of global competitors </li></ul><ul><li>Improve quality/long-term financial performance </li></ul><ul><li>Deliver more innovative products more frequently & cheaply than competitors </li></ul>
  23. 23. Lean - Supplier Rationalisation <ul><li>Applying Lean concepts for supply base reduction and foster alliance </li></ul><ul><ul><li>Fewer supplier management problems </li></ul></ul><ul><ul><li>Closer and more frequent interaction between buyer and supplier </li></ul></ul><ul><ul><li>Greater levels of quality and delivery reliability. </li></ul></ul><ul><li>Supplier selection & termination conducted with cross functional teams included were </li></ul><ul><ul><li>Supplier certification programs are used </li></ul></ul><ul><ul><li>Site audits conducted, to identify a supplier’s process capabilities </li></ul></ul><ul><li>Purchase cost becomes relatively less important, when evaluating suppliers for strategic partnering </li></ul><ul><li>Undertake Value Engineering activities for cost reduction, improve quality, and reduce new product development time. </li></ul><ul><li>Outsourcing opportunities / risks reviewed (3PL & 4PL) for Vendor Managed Inventory (VMI) </li></ul>
  24. 24. eProcurement
  25. 25. Procurement Vision – Reduce Cost <ul><li>Minimise total cost from $82 to $6 </li></ul><ul><li>Reduce cycle times </li></ul><ul><li>Improve Accuracy </li></ul>
  26. 26. eProcurement Challenges Gaining initial interest Making the case Commit resources Deliver the benefits Leadership and ownership of the project Management and user buy-in Selling the benefits Management and user buy-in Selling the benefits Organisation design Compliance with corporate contracts and processes
  27. 27. eProcurement - Roadmap
  28. 28. Waste Eliminated <ul><li>Excessive quality checking </li></ul><ul><li>Multiple reports highlighting the same things </li></ul><ul><li>Delivering above the agreed service levels </li></ul><ul><li>Excessive paperwork sitting within departments and on people’s desks </li></ul><ul><li>Rework due to incorrect information provided </li></ul><ul><li>Excessive validation of reporting data </li></ul><ul><li>Reformatting automatically generated reports </li></ul><ul><li>Excessive downloading and uploading of data into the ERP system </li></ul><ul><li>Multiple printing and binding of reports </li></ul><ul><li>Time in process waiting for action </li></ul>Waiting Over - servicing Accumulation Errors Over - processing Motion Movement Waste
  29. 29. eProcurement Tools Introduced <ul><li>Spend Analysis – data on spend patterns </li></ul><ul><li>eTendering – receipt of tenders & evaluation </li></ul><ul><li>P2P – purchasing, workflow, requisition, ordering </li></ul><ul><li>eAuctions – commodity focused, competitive market </li></ul><ul><li>Marketplace – contracts, collaboration, management information </li></ul><ul><li>Portals – suppliers registration, tender / opportunities, supplier evaluation, risk analysis, contract award </li></ul><ul><li>eInvoicing – invoice presentment, automatic match, authorisation & payment </li></ul>
  30. 30. Take Away <ul><li>Define m etrics to measure and monitor Progress </li></ul><ul><li>Ensure on-going supplier certification and evaluation </li></ul><ul><li>Benchmark & using proven implementation methodologies for sourcing & eProcurement </li></ul><ul><li>Re-engineer process and remove waste (utilise Lean / 6 Sigma concepts) </li></ul><ul><li>Develop selection criteria to appoint strategic suppliers (Leichardt scale) </li></ul>
  31. 31. Take Away (Contd.) <ul><li>Automate areas to eliminate re-entry / re-work / duplication </li></ul><ul><li>Review inventory policies for cycle-times & inventory levels reduction </li></ul><ul><li>Manage supplier relationships to support priority or time-critical purchases </li></ul><ul><li>Undertake comprehensive analysis and research, to understand procurement price, costing and the total cost of ownership (TCO) </li></ul><ul><li>Consolidated details of actual spend with each supplier and product category </li></ul><ul><li>Select a Solution Vendor based on - organisational / industry fit, expertise, product strategy, history of success, interview consultants for their competencies / capabilities </li></ul>
  32. 32. <ul><li>“ Latecomers Must Be 10 Times Better Than What They Replace.” </li></ul><ul><ul><li>- Peter Drucker </li></ul></ul>
  33. 33. <ul><li>Good Luck </li></ul><ul><li> </li></ul>