This document discusses implementing strategic sourcing and eProcurement in a heavy machinery industry. It highlights that implementation requires 90% change management and focuses on strategic rather than paperwork aspects. Key points covered include defining procurement, strategic sourcing, and eProcurement terms. Process mapping was used to define the "as-is" and "to-be" states. The implementation took 7.2 months and achieved results like reduced purchase cycle time and increased contract compliance. Strategic sourcing aims to drive cost reduction, quality improvement, and innovation through approaches like supplier rationalization and lean concepts.

1. eProcurement / Sourcing
MRO Environment
Utilising Lean Six Sigma
Anand Subramaniam

2. 2
“The Internet Is Like Darwinism On Steroids.
You Evolve Or Are Eliminated.”
- Paul Fernandez, Proxicom

3. 3
Implementation Highlights …
10% Technology
90% Change Management
70% Strategic
30% Paperwork

4. 4
Highlights
 MRO - Heavy Machinery Industry
(Implementation Highlights)
 Strategic Sourcing
 eProcurement

5. MRO - Heavy Machinery Industry
(Implementation Highlights)

6. 6
Client’s - Terms & Definition
 Purchasing
 Transactional function of buying products / services or the placement and
processing of a purchase order
 Procurement
 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
 Strategic Sourcing
 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
 eProcurement
 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

7. 7
Client’s - Vision & Mission
E-Procurement
Access online catalog
via desktop browser
Access online catalog
via desktop browser
Internet Access
Catalog:
• Items from contracted
vendor
• Product configuration tool
• Color photographs,
animation & videos of
prod.application,
• Product detailed
specifications
• Interview with other users
Quick
search
Quick
searchInventory
Check
Option
Inventory
Check
Option
Price
Comparison
Price
Comparison
Test
Drive
Test
Drive
Online
Support
Online
Support Order
Completion
Order
Completion
“Buyer” “Supplier”
Electronic
PO
Electronic
PO
Workflow
Approval
Workflow
Approval
Order Management
System
Order Management
System
Ack. &
Ship notice/
changes
Ack. &
Ship notice/
changes
Payment
Process
Payment
Process
Self-Service Purchasing
Open Standards &
IP Technologies
Process Workflow
Corporate Contracts
Business Rules

8. 8
Brainstorming / Focus Group
Level of AutomationLevel of Automation
 End to end processEnd to end process
 Requisition to orderRequisition to order
Content (catalogue)Content (catalogue)
 Cat managed externallyCat managed externally
 Cat managed internallyCat managed internally
 Supplier managedSupplier managed
Distribution of FunctionalityDistribution of Functionality
 ERP basedERP based
 Free standing integrated best ofFree standing integrated best of
breedbreed
 Distributed functionalityDistributed functionality
OrganisationalOrganisational
 Change ManagementChange Management
 Regional / DivisionalRegional / Divisional
 Legal & Fiscal needsLegal & Fiscal needs
Spend SegmentationSpend Segmentation
DeploymentDeployment
 Desktop / MobileDesktop / Mobile
 Limited accessLimited access
 Purchasing dept onlyPurchasing dept only
Maximise benefits/Maximise benefits/
Minimise risksMinimise risks
 Lean, 6 SigmaLean, 6 Sigma
 Process MappingProcess Mapping
Deployment StrategiesDeployment Strategies
 Phases, stage gatesPhases, stage gates
 QA review / sign offQA review / sign off

9. 9
eProcurement Process
1. Spend Analysis
(Opportunity Identification)
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
4.
Procurement
Vendor’s
Supplier
Network
Benefits
• Reduced
purchase
process costs
• Improved
compliance
with sourcing
policies
• Provided
analytical
reports for
informed
decision
making

11. 11
Business Case Approved
Reduced Product/Process
Costs
Improved Compliance
Reduced Inventory Costs
Reduced Maverick
Purchasing
Value Drivers
Improved Process Efficiency
Pain Points
• Fragmented data
• Unreliable/inaccurate data
• Fragmented data
• Unreliable/inaccurate data
• Rampant off-contract
spend (approximately
27% of indirect spend)
• Rampant off-contract
spend (approximately
27% of indirect spend)
• Long lead times result in
purchase of large safety
stocks
• Long lead times result in
purchase of large safety
stocks
• Long lead times due to
high manual processing,
1/3 time spent reviewing
manual requisitions
• Long lead times due to
high manual processing,
1/3 time spent reviewing
manual requisitions
• High transaction costs
• Long supplier negotiation
• Non contract compliance
drives up price
• High transaction costs
• Long supplier negotiation
• Non contract compliance
drives up price

12. 12
Scope – Sourcing & eProcurement
 Determined the types of purchase and spend categories
 percentage of addressable spend by category
 level of compliance by reference to the extent to which corporate contracts are in
place,
 the level of maverick spend and the number of suppliers by spend categories
 Stakeholder buy-in with regard to phasing the strategic procurement
 applying benchmark savings percentages to addressable spend by category
 Determined Potential benefits by mapping the procure-to-pay process and
defined
 how the process is undertaken, including technology
 timings / outcomes for each process step
 the resources involved in each process step and their cost
 calculation method - unit costs for order and invoice processing
 As-Is process and To-Be in line with best practices
 potential process savings in the selected services and extrapolated the potential
savings across all areas

13. 13
Scope (Contd.)
 Determined the procurement strategy and policies for the program
direction & implementation
 Used Value Stream Mapping to define As-Is ~ To-Be process along
with metrics
 Determined the necessary levels of investment & ROI
 Performed procurement process audit & supplier evaluation
 Evaluated the effectiveness of the strategic sourcing process
including user needs and supplier / vendor relationship
 Developed certification process (ISO, TQM) & training requirements

14. 14
Scope (Contd.)
 Evaluated pricing / cost structures for total cost of ownership (TCO)
(direct, indirect, landed, technology, logistics, material, disposal,
transaction, relationship cost)
 Analysed corporate contracts (including outsourced service delivery)
- the number of suppliers : value bands of invoices
 Change management strategy and communication management
plan
 Defined Standard formats and the trade off for Content Management
 Determined the system integration points (push and pull) between
numerous vendors and deciding on which suppliers to use

15. 15
Stakeholder Management Strategy
Reaching
critical mass
in contract
coverage
Risk
Strateg
y
Risk
Strateg
y
Change
Management
Approach
Supplier
Adoptio
n
Legal & Fiscal
-
Country
BU / Site
constraints
Technical
Integratio
n
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
 Strategic
 Freed up front line resources to focus on value-added activities
 Stakeholder briefed on policies, process and procedural changes
 Senior management buy-in to improve strategic procurement policies
 Process
 Cross functional teams involvement
 Well defined project and change management process
 Staff resources trained on capabilities and competencies
 Standardisation (processes, documents, specifications, product
catalogues) and streamlined back end processing
 Finance
 Effective and realistic benefits realisation

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
INFORMAL
-Focus on
purchase
orders
-Detailed
reconciliation
-‘Back Office’
function
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. 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
 Increase customer focus
 Focus on supplier economics
 Drive continuous improvement
 Assess the total cost of ownership
 Reduce costs and delivery cycle times
 Increase number of global competitors
 Improve quality/long-term financial performance
 Deliver more innovative products more
frequently & cheaply than competitors

23. 23
Lean - Supplier Rationalisation
 Applying Lean concepts for supply base reduction and foster alliance
 Fewer supplier management problems
 Closer and more frequent interaction between buyer and supplier
 Greater levels of quality and delivery reliability.
 Supplier selection & termination conducted with cross functional teams included were
 Supplier certification programs are used
 Site audits conducted, to identify a supplier’s process capabilities
 Purchase cost becomes relatively less important, when evaluating suppliers for
strategic partnering
 Undertake Value Engineering activities for cost reduction, improve quality, and
reduce new product development time.
 Outsourcing opportunities / risks reviewed (3PL & 4PL) for Vendor Managed
Inventory (VMI)

24. eProcurement

25. 25
Procurement Vision – Reduce Cost
39
43
8
28
3
3
0
10
20
30
40
50
60
70
80
90
As~Is To~Be Vision
Internal Processing Cost External Processing Cost
 Minimise
total cost
from $82 to
$6
 Reduce cycle
times
 Improve
Accuracy

26. 26
eProcurement Challenges
Gaining initial
interest
Gaining initial
interest
Making the
case
Making the
case
Commit
resources
Commit
resources
Deliver the
benefits
Deliver the
benefits
Leadership and
ownership of
the project
Leadership and
ownership of
the project
Management
and user buy-in
Selling the
benefits
Management
and user buy-in
Selling the
benefits
Management
and user buy-in
Selling the
benefits
Management
and user buy-in
Selling the
benefits
Organisation design
Compliance with
corporate contracts
and processes
Organisation design
Compliance with
corporate contracts
and processes

27. 27
eProcurement - Roadmap

28. 28
Waste Eliminated
 Excessive quality checking
 Multiple reports highlighting the same
things
 Delivering above the agreed service
levels
 Excessive paperwork sitting within
departments and on people’s desks
 Rework due to incorrect information
provided
 Excessive validation of reporting data
 Reformatting automatically generated
reports
 Excessive downloading and uploading of
data into the ERP system
 Multiple printing and binding of reports
 Time in process waiting for action
Waiting
Over-servicing
Accumulation
Errors Over-processing
Motion
Movement
Waste

29. 29
eProcurement Tools Introduced
 Spend Analysis – data on spend patterns
 eTendering – receipt of tenders & evaluation
 P2P – purchasing, workflow, requisition, ordering
 eAuctions – commodity focused, competitive market
 Marketplace – contracts, collaboration, management information
 Portals – suppliers registration, tender / opportunities, supplier
evaluation, risk analysis, contract award
 eInvoicing – invoice presentment, automatic match, authorisation &
payment

30. 30
Take Away
 Define metrics to measure and monitor Progress
 Ensure on-going supplier certification and evaluation
 Benchmark & using proven implementation
methodologies for sourcing & eProcurement
 Re-engineer process and remove waste (utilise Lean / 6
Sigma concepts)
 Develop selection criteria to appoint strategic suppliers
(Leichardt scale)

31. 31
Take Away (Contd.)
 Automate areas to eliminate re-entry / re-work / duplication
 Review inventory policies for cycle-times & inventory levels reduction
 Manage supplier relationships to support priority or time-critical purchases
 Undertake comprehensive analysis and research, to understand
procurement price, costing and the total cost of ownership (TCO)
 Consolidated details of actual spend with each supplier and product
category
 Select a Solution Vendor based on - organisational / industry fit, expertise,
product strategy, history of success, interview consultants for their
competencies / capabilities

32. 32
“Latecomers Must Be 10 Times Better Than
What They Replace.”
- Peter Drucker

33. 33
Good Luck
http://www.linkedin.com/in/anandsubramaniam