Control you indirect spend with SAP SCM

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Currently, indirect spend is recognized as a major area for potential improvement, with up to 70/90% (by number) of purchase orders, shipment expenses, and invoices processed attributed to materials and services that are not used in the finished product”

Indirect Procurement deals with the acquisition of all those goods and services not directly involved in the core business of the organization. This is the reason why the contribution that indirect goods and services are able to offer to the company is very often misunderstood or underestimated.

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Control you indirect spend with SAP SCM

  1. 1. S&P Control your indirect spend with SAP SCM 2013 – Implement Procurement Event
  2. 2. Contents 1 Understand the Indirect Spend 2 Traditional Indirect Procurement pitfalls 3 Simplify the indirect procurement processes 4 How Technology can improve Indirect Procurement 5 Focus on Alignment between Operations, Finance and Procurement 6 Response-Ability: Delegate to focus on more strategic activities 7 Viewpoints 2
  3. 3. 1 20 3
  4. 4. 1 “Currently, indirect spend is recognized as a major area for potential improvement, with up to 20% of all purchases (by value)” BusinessWeek 4
  5. 5. 1 70/90 5
  6. 6. 1 “Currently, indirect spend is recognized as a major area for potential improvement, with up to 70/90% (by number) of purchase orders, shipment expenses, and invoices processed attributed to materials and services that are not used in the finished product” BusinessWeek 6
  7. 7. 2 Key Challenges of Indirect Procurement Poor Maverick High number of Complexity of Standardization Buys Suppliers the Market High number of Stakeholders Poor Fragmented Demand Visibility into spending Indirect Procurement deals with the acquisition of all those goods and services not directly involved in the core business of the organization. This is the reason why the contribution that indirect goods and services are able to offer to the company is very often misunderstood or underestimated. 7
  8. 8. Traditional Indirect Procurement pitfalls 1 Manual approvals are the major cause of long lead times in Ind. Proc. 2 No standard processes 3 4 5 Lack of visibility into contracts or contracts not in place Lack of strategic tools for sourcing, suppliers qualification & evaluation “Where is my money going to?” 8 2
  9. 9. 2 “If you want to truly understand something, try to change it.” Kurt Lewin 9
  10. 10. 2 Indirect Procurement vs. Direct Procurement Process Supply market Number of transactions Number of used suppliers Number of categories Buying power Number of supply chain integration issues Transaction price Other Number of requisitioners Maverick spend Indirect Procurement Business focus Direct Procurement Buying power Power of procurement department 10
  11. 11. 3 “Problems can be complicated. Solutions cannot.” Implement 11
  12. 12. A guideline to approach Indirect Spend Management FOLLOWING THE STAR • SIMPLIFY the Indirect Spend and apply a category-wise sourcing strategy and procurement process • Provide employees with the right TECHNOLOGY which creates a compelling purchasing experience • ALIGN the different stakeholders involved and let them gain a common understanding of the new processes • Delegate, under certain conditions and rules, people giving them the RESPONSE-ABILITY of their actions 12 3
  13. 13. 3 Simplify! “Simplicity is the ultimate sophistication” Leonardo Da Vinci 13
  14. 14. 3 Start by Categorizing products and services Indirect materials and services MRO IT Administrative services Travels Telecoms Facility management Utilities Marketing Office Stuff All products and services Root 44 Office equipment and accessories and supplies Segment Family Class 10 Office machines and their supplies 15 Duplicating machines Commodity Class 01 Photocopier 31 Printer and facsimile and photocopier supplies Commodity 03 Toner 14
  15. 15. Define a purchasing channel for each category Indirect Spend needs CONTROL that: FLEXIBILITY is needed, when control: • Is sufficient enough to meet the defined goals for cost reduction • Stops the business from operating • Is possible to implement and is aligned with strategic goals and objectives • Builds up rule books just to make rules • Establishes ineffective routines • Provides “reasonable assurance” • Adds value to the business Flexibility Control 15 3
  16. 16. 4 Technology “Technology does not drive change – it enables change” Anonymous 16
  17. 17. 4 Traditional vs. e-Procurement process E-Procurement Traditional Procurement LEADTIME REDUCED BY 67% IN TOTAL 17
  18. 18. 4 Technology support SPEEDING UP THE JOURNEY TOWARDS PROCUREMENT EXCELLENCE Paperless processes Reduced lead times Increased spend visibility 18 Automated checks Reduced transactional costs
  19. 19. Examples of purchasing channels using SAP SRM – placing a service order 4 SERVICE PROCUREMENT WITH GOODS RECEIPT Shopping cart Purchase Order Service entry sheet Goods receipt Invoice receipt This function is used to create purchase orders for services performed by service provider. Service entry sheet is created for each service provided, and the consumed time can be entered in the entry sheet. Once the service entry has been confirmed, invoice can be posted. Addressed challenges Business benefits • Services are often procured locally, which leads to poor visibility in the spend. Saving opportunity not fully captured • Having visibility on the spend • Maverick purchases for services and use of unauthorised suppliers • Providing an easy procurement system for employees • Manual process and long processing time of purchasing documents • Increase the contract compliance • Aggregating the demand and increasing the procurement power 19
  20. 20. Examples of purchasing channels with SAP SRM – processing a contractual invoice 4 DIRECT CONTRACT REFERENCE FOR INVOICE Incoming invoice Contract history update in ERP Contract reference Contract release in SAP SRM This function is used to create invoices with a direct reference to an SRM central contract. The invoice with the contract reference updates the history of the contract in SAP ERP. A release is then created for the reference central contract in SAP SRM. Addressed challenges Business benefits • Invoices for unplanned services are often posted without reference to any purchasing document and are therefore difficult to trace • Better agreements for services through higher spend visibility and lower maverick buying • Automated processes, review and approval plus accounting of contractual invoices • Manual handling of recurring contractual invoices take up unnecessary manual resources • Consistent verification of invoice validity, amounts, terms, etc. • Suppliers do not invoice according to the agreed-upon terms and conditions 20
  21. 21. Examples of purchasing channels with SAP SRM – buying direct materials 4 PLAN-DRIVEN PROCUREMENT Planning Process purchase requisition Process PO Goods receipt Invoice receipt This function is used to process Direct material requirements that have been generated in systems other than SAP SRM. The demand for products can come from several different planning systems such as material requirements planning (MRP). Using SAP SRM, contract is assigned automatically to the PO. Addressed challenges Business benefits • Fragmented demand for MRO activities • Bundle all the requirements into one request which can be sourced by professional buyers instead of operational purchasers • No contract visibility 21
  22. 22. Examples of purchasing channels with SAP SRM – buying indirect materials through e-Catalogues 4 PURCHASES OVER CATALOGUE Shopping cart Purchase order Goods receipt Invoice receipt Make purchasing easy to increase compliance 22
  23. 23. 5 Alignment “The present contains nothing more than the past, and what is found in the effect was already in the cause” Henry Bergson 23
  24. 24. 5 Alignment between operations, procurement and finance BRIDGING THE GAP Account Payable Invoice posting Ok? Yes Invoice posted Invoice queue No Purchasing Correction 24 Operations Correction
  25. 25. 6 Response-Ability “Technology is nothing. What’s important is that you have a faith in people, that they’re basically good and smart, and if you give them tools, they’ll do wonderful things with them” Steve Jobs 25
  26. 26. 6 Response-ability The key to minimise the operational and tactical tasks in purchasing department is to DELEGATE, whenever possible, tactical, non-valueadded work. This will give employees the ability to react to their needs in a faster and more flexible way leaving the procurement department the time to focus on the above-listed strategic tasks. Contract negotiation and implementation Spend analysis Forecasting Supplier development Supplier relationship management Strategic sourcing 26
  27. 27. 7 Viewpoints Define KPI´s Response-Ability Alignment Define clear and measurable key performance indicators Identify your categories and underline their corresponding procurement challenges Keep It Simple Tailor a sourcing strategy and a purchasing channel on each category Adopt the right technology Technology 27 Identify and align all the stakeholders involved Use a phased approach
  28. 28. Implement Consulting Group Learn more about how we work with SAP Supply Chain Management Learn more about how we work with Procurement Go to Implement Consulting Group's main website 28

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