Driving Sustainable Savings in the Manufacturing Supply Chain through Continuous Spend Capture


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Driving Sustainable Savings in the Manufacturing Supply Chain through Continuous Spend Capture

  1. 1. B Driving Sustainable Savings in the Manufacturing Supply Chain through Continuous Spend Capture© 2012 Ariba, Inc. All rights reserved.
  2. 2. AgendaIntroductionControlling Spend in the Intelligent Economy Simon Ellis - IDC Manufacturing Insights Bob Dudas - PPG Dustin Nield – CovidienQ&A2 © 2012 Ariba, Inc. All rights reserved.
  3. 3. Supply Chain SpendManagement 2012Controlling Spend in the IntelligentEconomyAriba LIVE April, 2012
  4. 4. Agenda 1. Economic Conditions in 2012 2. Supply Chain Trends Driving Investment for 2012 3. Speed and Spend Management 4. Key Takeaways© IDC Manufacturing Insights Page 4
  5. 5. Manufacturing Recovery and Results65 9560 9055 85 80 Manufacturing attenuates,5045 75 70 PMI confidence languishes 6540 Consumer Confidence 6035 5530 50 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 125 7 6 115 5 4 105 3 95 2 Revenue 1Revenue returns to peaks, 85 0 -1 Net Profit Margin Actualmargin follows. 75 -2 Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 © IDC Manufacturing Insights Page 5
  6. 6. ….. and Healthy IT Spending in 2012 US Spend 2011 2012 Growth ($ Millions) Auto 12,238 12.929 5.6% Food & 11,704 12,573 7.4% Beverage Electronic 8,852 9,344 5.6% Components Aerospace 8,682 9,102 4.8% Chemicals 6,164 6,585 6.8% Source: IDC Manufacturing Insights Worldwide Spending Guide. Selected Categories© IDC Manufacturing Insights Page 6
  7. 7. Manufacturing Supply Chain Trends The rise of the consumer - driven by mobility and social business connectivity, the consumer now holds ‗the power‘; using ubiquitous access to make more informed decisions and purchases Complex and extended global supply networks - are a consequence of globalization and the chase for "low-cost" manufacturing. The reality is that many manufacturers now experience significantly longer product lead times than ever before, driving a level of complexity in the supply chain that can prove problematic if agility and responsiveness are required. Volatile demand is the new norm. Consumers are less brand loyal, and far more selective, than ever before — and, frankly, are willing to "leave their wallet at home" if the value they require in a purchase is not apparent. Peer reviews and recommendations are driving brand switching, and private label choices are becoming more popular. All these conspire to drive forecast accuracy down and demand volatility up.© IDC Manufacturing Insights Page 7
  8. 8. Manufacturing Supply Chain Trends Growing regulation, particularly in the area of traceability, is certainly worrisome to manufacturers, many of which prefer to be proactive rather than reactive. Traceability has reinvigorated efforts to improve visibility and supply chain responsiveness. The accelerating pace of business is putting pressure on manufacturers to be more agile and run the clock speed of their supply chains more quickly. Many businesses are facing sub-48-hour order lead times, often with poor supporting capabilities. Inflation and direct input costs remain a concern for manufacturers that lack the ability to make price increases stick or are already at a cost disadvantage versus competition.© IDC Manufacturing Insights Page 8
  9. 9. THE Supply Chain Challenge Balance Forecasting and Responsiveness (Agility) Complexity Management Cost /Spend Control Supply Demand Complexity Volatility Service Centricity Fulfillment Excellence Risk Management Segmentation© IDC Manufacturing Insights Page 9
  10. 10. Business Objectives Driving IT Investments© IDC Manufacturing Insights Page 10
  11. 11. Top Supply Chain Priorities© IDC Manufacturing Insights Page 11
  12. 12. Manufacturers Focus on Clock-Speed Alignment across the Supply and Demand Sides of their Supply Chains Weeks Hours Demand volatility and supply instability combine to drive increasing cadence mismatches for manufacturers Supply Demand Chain Chain Demand-side volatility has a higher inherent frequency, but is lower in Cadence cost (―frequency modulated‖); supply side instability has a lower Months Mismatches Days inherent frequency, but is higher in cost (―amplitude modulated‖) For brand-oriented value chains, the rapidly accelerating demand Months cycle is the ―pace maker‖ for the supply chain – driving manufacturers Information to synchronize through better inventory management and demand Technology signal utilization Years For technology-oriented value chains, the need for accelerated time-to-volume is the ―pace maker‖ for the supply chain – driving manufacturers to look for faster planning and supply side responsiveness capabilities For engineering-oriented value chains, the need for supply stability and supplier collaboration is the ―pace-maker‖ for the supply chain – driving manufacturers to look for more agile supply networks and comprehensive risk management capabilities For asset-oriented value chains, the need for consistent return-on-investments is the ―pace-maker‖ for the supply chain – driving manufacturers to look for more effective ways to manage feedstock pricing and asset utilization© IDC Manufacturing Insights Page 12
  13. 13. Manufacturing Supply Chains Continue to Wrestle with Margin Pressures - Pursue a Blend of Four Approaches Product price increases are one way to ensure desired margins, particularly in the face of input cost inflation; but as we wrote in a perspective last year, deciding to take a price increase, and getting it to stick in the marketplace are very different. Increasing both the quality and frequency of product innovation can be an effective way to refresh the product portfolio, to beat the fade and recover premium margin opportunities; yet it requires a deep level of development expertise, and an effective New Product Development and Implementation (NPDI) process. Adjusting product mix is an approach companies have successfully employed in the past – promoting higher margin items at the expense of lower margin alternatives – yet in todays commercial environment, where consumers are trading down to stretch disposable income and maximize perceived value, the luxury end of many manufacturers product portfolios are not performing well. Driving out unnecessary waste with cost efficiency programs has proven to be a very effective way to preserve margin levels, and has enabled companies to be leaner and more agile in responding to market forces; yet very few companies cost cut their way to prosperity and there is the very real fear of marginalizing product quality of losing sight of the total cost picture when chasing cost reduction targets.© IDC Manufacturing Insights Page 13
  14. 14. Key Takeaways Even for manufacturers who have a service or quality-centric supply chain, cost control and spend management is a critical priority Across all of manufacturing companies it is the top supply chain priority Concerns about input costs and resulting margin pressures makes procurement an important area of focus – particularly in an environment where price increases are hard to achieve Demand volatility means that the supply side of the chain must be more flexible This requirement for greater speed and responsiveness puts pressure on the supplier relationship, necessitating both closer collaboration and greater spend visibility© IDC Manufacturing Insights Page 14
  15. 15. Driving SustainableB Savings in the Manufacturing Supply Chain through Continuous Spend Capture Bob Dudas Manager, eProcurement - PPG Industries© 2012 Ariba, Inc. All rights reserved.
  16. 16. PPG is… • A global maker of paints, coatings, optical products, specialty materials, chemicals, glass and fiber glass • Founded in 1883 • Headquartered in Pittsburgh, Pa. • Owned by approximately 197,000 shareholders, including 15,500 employees and retirees • 2011 ► Sales 14.9 B ► Net Income 1.1 B
  17. 17. PPG’s Global Operations • Approximately 38,000 employees • In more than 60 countries PPG Presence
  18. 18. PPG is… • Composed of 13 strategic business units in six major product areas: ► Industrial Coatings ► Performance Coatings ► Architectural Coatings - EMEA ► Optical & Specialty Materials ► Commodity Chemicals ► Glass
  19. 19. Spend Management Program at PPG
  20. 20. Strategic PurchasingThe Process: Identify Develop Source & Develop Order Monitor & Opportunity Strategy Negotiate Contract Execution Manage SupplierOur Tools: Discovery Ariba Supplier Network PPG eBuy Analysis Category Ariba Contract Catalogs, Analysis PA-2.0 SMART Mgmt Sourcing Mgmt Contract s& SMART R.M. Analysis Ad Hoc PO Apvd Inv $AVE-CAIR ERP SPM-CAIR Systems PSI Oracle Spend SAP MFG-Pro Data P&D Scoreboard
  21. 21. Procure to PayStrategic Imperatives – Without Ariba
  22. 22. Procure to PayStrategic Imperatives – With Ariba
  23. 23. Ariba Tools Strategic Imperatives Pricing Compliance Efficiency Ariba Tools Automation Savings
  24. 24. PRICINGDESCRIPTION BEFORE AFTER Ariba Tools Ariba ToolsPRICING Negotiated pricing was manually audited on Pricing points for all e-catalog items a post transaction basis are negotiated and enforced by the purchasing team Contract price terms enable purchasing negotiated pricing to be appropriately modeled
  25. 25. EFFICIENCYDESCRIPTION BEFORE AFTER Ariba Tools Ariba ToolsEFFICIENCY Validating invoices to the contract price Price terms are locked in by the terms used by a supplier, required manual system when the supplier is creating lookups by the end user an invoice on the Ariba Network Users no longer need to compile Requisitioners needed to compile monthly monthly reconciliations as all CPC reconciliations and documentation information is stored electronically in resulting in wasted time and paper the Ariba tools Approved invoices move to the ERP Approved invoices would be sent to AP system for payment without the for processing and entry into the involvement of AP, improving overall appropriate ERP system process efficiency Contracts are stored electronically and Paper contracts were filed and retrieved quickly stored manually
  26. 26. SAVINGS DESCRIPTION BEFORE AFTER ¹ Ariba Tools Ariba Tools SAVINGS Using Contract Price Terms generated compliance savings of $2,340,000. e-Invoice processing creates a process cost reduction of $12/invoice generating savings of $672,000 PPG eBuy Catalogs generated savings of $153,000 (eBuy) Suppliers provided discounts due to automated order entry resulting in savings of $22,000 Adecco MSP (Temp Services) process generates compliance and local market competitive rate savings of $698,000¹ Annual Savings reflect PPG Industries own processes; may not be reflective of other companies.
  27. 27. AUTOMATIONDESCRIPTION BEFORE AFTER Ariba Tools Ariba ToolsAUTOMATION Users placed calls to suppliers to order Automation guides the catalog process many of their items vs. using automated from order creation to payment processing websites and catalogs from the supplier Automated order entry system provides opportunity for PPG to receive discounts from suppliers for using the tool Many invoice approvals generated Emails are auto generated by the tool when manually through routing of paper gaining approval for either purchases or invoices or emailing approvers as contract related tasks required. AP received paper invoice for processing. Invoice discrepancy resolution and approvals are accelerated and system managed
  28. 28. COMPLIANCEDESCRIPTION BEFORE AFTER Ariba Tools Ariba ToolsCOMPLIANCE Preferred suppliers were not enforced at eBuy purchases enhance compliance the point of ordering with utilization of PPG preferred suppliers catalogs and contracts Validating invoices to the contract price Ariba tool enforces supplier compliance terms used by a supplier, required when they are submitting their contract manual lookups by the end user invoices Contract expiration dates were manually Upcoming expiring contracts are easily maintained with no automated alerts or identified for renegotiation and contribute toward purchasing compliance and reminders in place efficiency Ariba contracts promotes compliance with PPG purchasing policies using customized templates for building contracts
  29. 29. Driving SustainableB Savings in the Manufacturing Supply Chain through Continuous Spend Capture Dustin Neild Program Manager, eSourcing - Covidien© 2012 Ariba, Inc. All rights reserved.
  30. 30. is …• A global medical device and pharmaceutical manufacturing company with over $11 Billion in annual revenue• Well positioned with a diverse portfolio of products and technologies in attractive franchises• A company with a history of quality and innovation• Highly efficient and productive, producing strong margins and cash flow• A leading player across our portfolio 30 | April 3, 2012
  31. 31. Integrity, Honesty, Safety and Quality We will conduct business with integrity and honesty in compliance with all laws and Company policy. We are committed to produce products that are safe and of the highest quality for our customers.31 | Confidential & Proprietary
  32. 32. What does Covidien mean? ―Co,‖ from the Latin word for together ―Vi,‖ from the Latin word for life Covidien is a unique name in our space within the healthcare industry – and it is designed to stand out from our competitors An ongoing partnership in the lifesaving work of medical professionals, creating far-reaching benefits for improved patient care32 | April 3, 2012
  33. 33. Our Mission and VisionOur Mission Create and deliver innovative healthcare solutions, developed in ethical collaboration with medical professionals, which enhance the quality of life for patients and improve outcomes for our customers and our shareholders.Our Vision Deliver unmatched value to our customers by providing solutions that improve patient outcomes and healthcare delivery through clinically relevant and economically valuable innovation. 34 | April 3, 2012
  34. 34. Strong Line-Up of Well Recognized Brands 36 | April 3, 2012
  35. 35. 48 Manufacturing Facilities in 17 Countries Countries with Multiple Facilities United States 23 France 2 Canada 2 Germany 2 Mexico 3 Ireland 4 United Kingdom 237 | April 3, 2012
  36. 36. Key Challenges, Before Ariba: Large, disparate Sourcing organizations o Center-led Sourcing group, 6 Business Units, ~50 Mfg. sites - Poor visibility into Sourcing activity - Little control over processes - Missed opportunities to aggregate spend - No shared repository for content - Inconsistent application of process & terms - Missed opportunities to leverage previous or similar work - Team document sharing was inefficient or lacking entirely Traditional negotiating methods – inefficient and often undocumented o Poor business continuity o Underutilized economies of scale o Too many suppliers 38 | April 3, 2012
  37. 37. Key Wins, with Ariba: Ariba Sourcing Provides a System of Record o All Sourcing projects under one umbrella, one pipeline o Reporting fields by category, project type, org structure, BU, site, o Owner, etc. o Processes modeled, stored, can be controlled o Better aggregated spend opportunities & improved efficiency o All content stored and accessible globally - Standard terms applied everywhere; more parallel workflows - Each user is empowered to access and re-use content - Shared workspace for all projects - Audit-ability greatly improved Improved negotiating efficiency, esp. with reverse auction projects o Documentation is stored, events easily copied = business continuity o Better economies of scale o Improved supplier rationalization / consolidation o Scoring improves negotiating leverage & messaging 39 | April 3, 2012
  38. 38. Covidien‘s Ariba Footprint:• Ariba Sourcing Professional •$1B in Annual Spend Sourced Contract Mfg 8% Indirect 42% Direct 50% 40 | April 3, 2012
  39. 39. Q&A Contact info: Sundar Kamakshisundaram: sundar@ariba.com41 © 2012 Ariba, Inc. All rights reserved.
  40. 40. Share This Session…NOW…from your mobile! • All presentations are posted: Guidebook mobile app – Search Apple or Android app store for Guidebook – Enter code “collabor8” Or at Slideshare.net/Ariba • Share via email or social media **Come back soon – we are syncing audio and video interviews to #AribaLIVE the presentations**42 © 2012 Ariba, Inc. All rights reserved.