The Hartford's Michael Knipper on Blueprint for Rapid and Sustainable Spend Management Success

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Presentation from AribaLIVE 2011 in Nashville on Rapid and Sustainable Spend Management Success by Michael Knipper, SVP, Enterprise Services, The Hartford Financial Services Group, Inc.

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The Hartford's Michael Knipper on Blueprint for Rapid and Sustainable Spend Management Success

  1. 1. Blueprint for Rapid and Sustainable Spend Management Success<br />Michael Knipper <br />Senior Vice President<br />
  2. 2. The Hartford<br />200 year old multi line financial Services company<br />26,000 employees primarily based domestically<br />$1.4 Billion in sourceable spend and increasing<br />Enterprise services – Real Estate, Procurement/Negotiation, Commodity Management and Operations<br />
  3. 3. Overview – Our Journey<br />Vision<br />Selection<br />Implementation<br />ASIA – All Spend in Ariba<br />
  4. 4. Vision<br />Procurement will deliver measurable value to the company. Value is defined as:<br />Transparency of all spend paid through Accounts Payable<br />Ensure all spend is approved prior to purchase<br />Ensure all invoices in managed categories are matched to a purchase order or contract<br />Defined sourcing process for all managed categories<br />Consistent categorization of spend<br />Spend reporting that provides data to guide decisions and actions<br />Reduce expense and be able to prove it!<br />Key Enablers<br />Single entry point for all purchases<br />Only one system generates an okay to pay file<br />
  5. 5. Source to Pay Process<br />SOURCING<br />CONTRACTING<br />REQUISITIONING AND PURCHASE ORDERS<br />RECEIVE/ INVOICING<br />PAY<br />REPORTING<br />VENDOR MANAGEMENT<br /><ul><li>Procurement works with stakeholders to select suppliers
  6. 6. Employee needs are fulfilled after approval
  7. 7. Procurement with legal establishes T’s and C’s
  8. 8. Goods & Services received. Invoice reconciled, approved
  9. 9. Most cost effective method is used to Pay invoice
  10. 10. Monitor compliance to process
  11. 11. Monitor Supplier performance</li></ul>Purpose<br /><ul><li>Spend Analysis
  12. 12. Volumes
  13. 13. Locations and business units
  14. 14. Suppliers
  15. 15. Pricing
  16. 16. Specifications
  17. 17. Market analysis
  18. 18. Competitive situation
  19. 19. Suppliers
  20. 20. Market segmentation
  21. 21. Internal needs analysis
  22. 22. Supplier search
  23. 23. RFI/RFP Development and Issuance
  24. 24. Reverse Auctions
  25. 25. Negotiations
  26. 26. Catalogs are established for contracted vendors
  27. 27. Release contracts are used where applicable
  28. 28. NCPR used where no catalog or contract exists
  29. 29. Orders are routed electronically to suppliers after full internal approval
  30. 30. All requirements and service levels are included in contract
  31. 31. Risk assessment and mitigation
  32. 32. Certifications, proof of insurance, information protection
  33. 33. Establish pricing terms for contract compliance during invoicing
  34. 34. Goods are centrally received or at desktop
  35. 35. Supplier submits electronic invoice
  36. 36. Requester approves invoice to validate receipt where receiving is not turned on
  37. 37. Invoices have to reconcile against approved PO or contract
  38. 38. Invoice exceptions created to flag non compliant behavior
  39. 39. Fully approved invoices are paid
  40. 40. Use ghost cards and P cards where possible
  41. 41. Optimize payment terms to get discounts for early payment (Through managing payment terms in contracts and PO’s)
  42. 42. Ensure source to pay process is used
  43. 43. Identify contracted vs. consumed spend for business units to manage reserves and budgets
  44. 44. Monitor exceptions and develop policy and new processes
  45. 45. Ensure spend is appropriately classified by commodity category
  46. 46. Identify suppliers that require management based on spend and criticality
  47. 47. Develop processes and metrics to continuously benchmark supplier performance
  48. 48. Develop supplier specific surveys and reporting
  49. 49. Monitor market conditions to maximize value from suppliers</li></ul>Tasks<br /><ul><li>Integrated Procure to Pay system
  50. 50. Contract Authoring and Contract compliance
  51. 51. Integrated Procure to pay system
  52. 52. Peoplesoft AP
  53. 53. P cards
  54. 54. Sourcing, Spend Visibility, AHP
  55. 55. Spend Visibility
  56. 56. Reporting
  57. 57. Supplier performance management</li></ul>Tools<br /><ul><li># of suppliers with negotiated agreements
  58. 58. # of suppliers per spend category
  59. 59. Sourcing cycle time
  60. 60. % non competed sourcing events
  61. 61. Savings from sourcing
  62. 62. % spend on catalog orders
  63. 63. # transactions through catalog orders
  64. 64. # of orders manually transmitted
  65. 65. PO processing cost per PO
  66. 66. Requisition to order cycle time
  67. 67. # of contracts negotiated per year per quarter per month
  68. 68. # of contracts touching legal
  69. 69. Contract negotiations and agreement cycle times
  70. 70. # of invoices per year
  71. 71. % of paperless invoices
  72. 72. % of invoices having exceptions
  73. 73. Average cost per invoice
  74. 74. % of goods returned
  75. 75. Cycle times for invoices
  76. 76. # of finance FTE’s in Invoice process
  77. 77. % of invoices paid with check or Wire transfer
  78. 78. # of invoices paid within 30 days
  79. 79. Discounts obtained through early pay
  80. 80. Dollars paid through P cards
  81. 81. % Compliant spend
  82. 82. BU’s with non compliant spend
  83. 83. % of spend classified
  84. 84. # of suppliers managed through a comprehensive process
  85. 85. Supplier performance report card
  86. 86. Cost
  87. 87. Delivery
  88. 88. Service levels
  89. 89. Quality
  90. 90. Value</li></ul>Key Metrics<br />
  91. 91. Selection<br />
  92. 92. Selection Process<br />RFP delivered to six providers<br />Key requirements<br />On demand tool<br />Complete tool set to support Source to Pay<br />Why we implemented a new tool<br />Inconsistent approvals prior to purchase<br />Inconsistent authorization to spend levels<br />Inconsistent and in some cases no existent invoice to purchase order contract matching<br />Antiquated contract repository<br />No sourcing tool<br />Highly customized tool, difficult and expensive to maintain<br />
  93. 93. Implementation<br />
  94. 94. Implementation<br />Strategic Intent – Implement entire source to pay tool set by May 15th 2011 (six months). Go live success defined as including:<br />All spend commodities<br />All historical contracts loaded<br />All users trained <br />Consistent company wide end to end process<br />Contract signed September 2009<br />Implementation started mid-November 2009<br />Live May 10th<br />
  95. 95. Implementation – Guiding Principles<br /><ul><li>Ariba will be the single place to initiate all purchases and all purchases must be made through the approved processes/ methods within the tool
  96. 96. All invoice payments will be routed through Ariba and paid by approved methodology (PCard, ACH, check). Predetermined exceptions to the use of Ariba will be clearly defined (i.e., Legal fees, agent commissions, claim systems payments).
  97. 97. PCards will be used for payment whenever possible to maximize the savings opportunity
  98. 98. Ninety percent of all requisitioned items will be available in Ariba catalogues and the catalogue “punch-out model” with HIG controlled pricing being the preferred model
  99. 99. Commodity approvers will be defined and required for the following commodities: IT hardware and software, meetings, RE, Marketing Services, print, and others to be clearly defined
  100. 100. All procurement contracts will be in Ariba
  101. 101. The receiving function in Ariba will not be utilized. Invoices for office supplies will be routed through auto requisition match/ auto pay. All other invoices will be auto requisition or contract matched and routed to the initial requistioner to validate receipt/ acceptance
  102. 102. There will be one consistent enterprise wide approval process needed to acquire and pay for goods and services
  103. 103. Approvals will be obtained only once -at the requisition or project approval stage- whenever possible
  104. 104. We will minimize (no more than 5) the number of approvers required</li></li></ul><li>Implementation – Big Bang Approach<br />Entire Source to Pay transformation involving 5 module implementation<br />Procure to Pay Day 1 scope<br />Configured Requisitioning/ Contract Compliance/ Receiving/ Invoicing/ P cards<br />Complete redesign of approval process<br />Re-approval of all contracts (over 20,000)<br />40 catalogs<br />Enabled 1000 Suppliers<br />Contracts<br />20,000 legacy contracts converted<br />500+ contracts enabled for compliance<br />Spend Visibility<br />$2 Billion of Annual Spend classified<br />Reporting Transformation<br />Two year history <br />Sourcing and SPM implemented for Process Transformation<br />Communication and training to all employees<br />
  105. 105. Implementation – Change Management Process<br />Turn off the old system<br />Turn on the new system<br />Hope to survive<br />
  106. 106. Implementation – What We Learned<br />Vanilla is not a dirty word<br />Other than interfaces, no IT concerns<br />Forces an enterprise view with consistent process<br />Removes temptation to “over customize”<br />We were in worse shape than we thought<br />Contracts vs. Invoices<br />Open purchase orders<br />Billing errors<br />Significant volume of spend no compliant with policy<br />Inconsistent coding<br />
  107. 107. Implementation – Current State<br />Averages 4,500 purchase orders per month, 80% of the transactions are through catalogs<br />Post conversion, we are averaging 200 new contracts or amendments per month<br />Average 7,000 monthly invoices, 71% electronic<br />72.5% of “okay to pay” is from ARIBA<br />452 suppliers fully enabled<br />User experience far better than expected<br />
  108. 108. ASIA – Program Overview<br />Sonny Mehta – 860.547.2037<br />
  109. 109. ASIA – Program Charter<br />STRATEGIC INTENT<br /><ul><li>By year-end 2011, all spend being paid by Accounts Payable will follow approved Source-to-Pay (S2P) processes</li></ul>OBJECTIVES<br /><ul><li>Evaluate and existing S2P practices
  110. 110. Baseline the S2P cycle through the development and use of metrics
  111. 111. Establish, document and implement approved S2P policies + workflows
  112. 112. Identify categories of spend to follow appropriate sourcing practices
  113. 113. Determine the path forward to process all invoices through Ariba
  114. 114. Operate one system to create an “OK to Pay” file that feeds PeopleSoft Accounts Payable
  115. 115. By eliminating direct input to PeopleSoft
  116. 116. Note: Payments for claims, payroll, agent incentive compensation and trade settlement are out of scope
  117. 117. Clarify roles and scope for contracting
  118. 118. Optimize use of enabling technologies (operating platforms) across the S2P cycle
  119. 119. Implement capability to handle Sales + Use Tax requirements</li></li></ul><li>ASIA – Program Framework<br />Identify<br />(ASIA Priorities)<br /> Assess<br /> (S2P Cycle)<br /> Solve<br /> (S2P Solutions)<br /> Implement<br /> (Deliver End-state)<br /> Operate<br /> (S2P Value)<br /><ul><li>Data Analysis
  120. 120. Spend Category Segmentation
  121. 121. Spend Levels
  122. 122. Strategic Value
  123. 123. Sourceable versus Non-Sourceable
  124. 124. Key Commodities
  125. 125. Key Associated Suppliers
  126. 126. Assess S2P Cycle (across spend categories)
  127. 127. Source
  128. 128. Contract
  129. 129. Requisition + PO
  130. 130. Receive/Invoice
  131. 131. Pay
  132. 132. Report
  133. 133. Vendor Management
  134. 134. Define Current + Future States
  135. 135. Role Clarity
  136. 136. Baseline Metrics
  137. 137. Evaluate Policies
  138. 138. Workflow Analysis
  139. 139. Identify Opportunities + Gaps
  140. 140. Deliver on Actions
  141. 141. Test + Implement Requirements
  142. 142. Business Readiness
  143. 143. S2P Methods + Processes + Technologies
  144. 144. Training
  145. 145. Supplier Enablement
  146. 146. Operate End-state
  147. 147. Business Metrics
  148. 148. Effectiveness
  149. 149. Efficiency
  150. 150. Policy Compliance
  151. 151. Continuous Improvement
  152. 152. Define Requirements
  153. 153. Design End-state Solutions
  154. 154. Streamlined
  155. 155. Best Practices
  156. 156. Maturity Model
  157. 157. Identify What Changes
  158. 158. Define Actions
  159. 159. Sequence
  160. 160. Timing
  161. 161. Accountable Owners
  162. 162. Critical Paths
  163. 163. Scope Development
  164. 164. Prioritized Targets and workplan for ASIA Program</li></ul>Program Management<br />(Planning, Scope + Risk Mgt, Roles + Responsibilities, Workstreams, Milestones, Deliverables, Communications, Dashboard)<br />Phase 1 = PeopleSoft Input Phase 2 = Direct Payment Systems Phase 3 = S2P Optimization<br />
  165. 165. ASIA-Spend Category Segmentation – PeopleSoft Direct Input (Illustrative)<br />Identify<br />(ASIA Priorities)<br />Strategic Spend<br />Critical Spend<br />H<br />Distribution<br />Channels<br />Brokers<br />TPA’s<br /><ul><li>Shows differentiated nature of spending
  166. 166. Strategic
  167. 167. Leverage
  168. 168. Critical
  169. 169. Low-Critical
  170. 170. Forms the basis of priorities + scope
  171. 171. Drives appropriate S2P solution (sizing)</li></ul>Banking<br />Services<br />Data<br />Svc<br />Legal<br />Consulting<br />Strategic Value<br />IT Outsourcing<br />Projects<br />Conf +<br />Mtg’s<br />Board<br />Associations<br />Health<br />Networks<br />Directors<br />Fee<br />Postage<br />Outside<br />Travel<br />Civic<br />Donations<br />Ex-Gratia<br />Field<br />Giving<br />Transportation<br />State Ins<br />Depts<br />Sub-<br />scriptions<br />Printing<br />Gift<br />Matching<br />L<br />Low-Critical Spend<br />Leverage Spend<br />L<br />H<br />Spend<br />
  172. 172. Assess(S2P Cycle)<br />ASIA – Assessing the S2P Cycle<br />Source<br /><ul><li>What sourcing methods do we apply today? Under what circumstances?
  173. 173. What is our process capability? What opportunities exist to rationalize suppliers?</li></ul> Contract<br /><ul><li>What’s our contracting strategy? Who negotiates? What contract methods should we use?
  174. 174. What is our process capability? How do we handle sales/use taxes?</li></ul>Requisition/<br />PO<br /><ul><li>What commodities should be approved prior to ordering? What’s our policy?
  175. 175. How much “Maverick” spending is occurring? Where?</li></ul> Receive/ Invoice<br /><ul><li>What categories of spend are subject to receiving? How do we validate?
  176. 176. Are processes documented and policies published and understood by the enterprise?</li></ul>Pay<br /><ul><li>What payment/settlement method do we use? Special handling? What circumstances?
  177. 177. How do we handle sales and use tax requirements? What spend requires a PO/Contract? What are the exceptions?</li></ul> Report<br /><ul><li>What business intelligence is used to monitor, manage and enhance the S2P cycle?
  178. 178. How do we measure value to the enterprise?</li></ul> Vendor<br />Mgt<br /><ul><li>How do we evaluate vendor relationships? What’s our process? What’s the result?
  179. 179. How do we manage our suppliers? Against what SLA requirements?</li></li></ul><li>ASIA – S2P Process Paths (Illustrative)<br />Channel<br />Process<br />Method<br />Assess(S2P Cycle)<br /><ul><li>Understanding the applicable S2P processes and methods:
  180. 180. Enables assessment of current practices
  181. 181. Ensures consistent application of appropriate practices across the S2P cycle</li></li></ul><li>ASIA Team Guiding Principles + Tenets<br />Change Agents- Question the status quo. Nothing should be sacred or immune from change. Don’t pave the cow-paths<br />Transformation- Simplify processes, clarify roles, measure value<br />Externally Focused- Take a customer-centric view when developing solutions<br />Transparency - There are no hidden agendas. The goal is the agenda.<br />Knowledge Exchange- Communicate early and often<br />Team Effectiveness- Collaborate, Collaborate, Collaborate<br />Expediency - Act with urgency<br />
  182. 182. What’s Next..<br />Improved vendor management process<br />Increase sourcing activities, including auctions<br />Utilize supplier portal for selling our products<br />Solve the “project problem”<br />

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