Reining in Elusive Tail Spend With Spot Buy Purchasing
•
3 likes•1,405 views
The document discusses reining in "tail spend" through spot buying purchases. It summarizes a presentation about using Ariba Spot Buy to address off-contract, one-off purchases. Spot buys make up around 15% of indirect spending but involve many small transactions. The presentation shows how Pfizer used analysis to determine 32% of non-catalog orders could be addressed through Spot Buy, often at lower prices. Pfizer implemented Spot Buy to automate purchasing processes, reduce vendors, and increase procurement value while saving on transactions.
Recommended
More Related Content
What's hot
What's hot (20)
Similar to Reining in Elusive Tail Spend With Spot Buy Purchasing
Similar to Reining in Elusive Tail Spend With Spot Buy Purchasing (20)
More from SAP Ariba
More from SAP Ariba (20)
Recently uploaded
Recently uploaded (20)
Reining in Elusive Tail Spend With Spot Buy Purchasing
- 1. Sponsored by: Brought to you by: June 2, 2016 Reining in Elusive Tail Spend with Spot Buy Purchasing
- 2. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 2Customer Today’s Presenter’s: James Tucker Vice President, Go-to-Market Strategy & Operations, Ariba Spot Buy Scott LaGois Manager, Business Process & Operations, Global Procurement
- 3. SUPPLIERS 20% 40% 60% 80% 100% $$$$ $$$ $$ $ Vilfredo Federico Damaso Pareto
- 4. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 4Customer Flash Poll Question #1 What is the biggest cause of maverick spending at your company (select one)? A. Impatience, unwillingness to comply with procurement process B. Unplanned items needed (emergency, etc.) C. Unique, one-off purchases D. Off-catalogue items needed
- 5. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 5Customer ProcureCon Survey Results
- 6. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 6Customer The Long-Tail Challenge There is nothing “one-off” about “one-off” purchases TACTICAL • 20% of indirect spend • 80% of suppliers • 1-4 weeks STRATEGIC • 80% indirect spend • 20% of suppliers • 4+ weeks SUPPLIERS 20% 40% 60% 80% 100% $$$$ $$$ $$ $ 1. Inefficient purchasing 2. Reduced transparency 3. Higher transaction costs 4. A long tail of one-off suppliers 15% of indirect goods are from one-off purchases resulting in ‘Shining a Light on ‘One-Off’ Purchases’ , Procurement Leaders, 2016 SPOT BUYS • 15% of indirect goods – both Strategic and Tactical • Non-sourced / non-contracted • Not in company catalog • Need immediately
- 7. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 7Customer Common Spot Buy Categories Example spot buy purchases Other Urgent and Unanticipated Items Facilities and Maintenance Office Furniture & Supplies Electrical and Test Equipment Technology and Accessories MRO and Industrial Supplies
- 8. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 8Customer Poll Question #2 How does your organization address off-contract goods and one-off purchases (select all that apply)? A. P-Cards B. Buying desk C. Outsourcing providers D. Free form text / non-catalog requests E. Non-travel related T&E
- 9. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 9Customer ProcureCon Survey Results
- 10. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 10Customer Ariba Spot Buy: Find and Buy Non-Sourced Goods The perfect balance of convenience and control • Simple user experience • Configuration and workflow • Secure payment • Visibility into transaction details * The use of Ariba Spot Buy is subject to regional availability and is currently available for U.S. domestic buying only. SHIP Spot Buy Ecosystem APPROVE PAY SEARCH BUYERS Ariba Procurement ANALYZE FILTER Marketplaces Ariba Network Suppliers • Filtered suppliers and content • Thousands of categories • Ecosystem of supply from Marketplaces and Ariba Network Suppliers* Company Catalog Spot Buy Catalog SUPPLIERS
- 11. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 11Customer Ariba Spot Buy Quickly and easily find items not available in your company catalog without leaving the Ariba Procurement tool Simple search refinement filters: • Price range • Location (zip code) • Condition (new, used) • Seller Name • Seller Type A submitted Purchase Requisition is routed for approval Select item you want Add item to shopping cart Find non-sourced goods in your approved P2P tool without risk of buying on the web • Can’t find what you need from the Company Catalog tab? • Find and buy non-sourced goods from the Spot Buy Catalog tab (0)
- 12. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 12Customer Ariba Spot Buy Business Value “Spot Buy is a game changer for non-sourced goods. We’ve seen 25% savings over non-catalog orders.” - Biopharmaceutical Company Eliminate non-catalog, invoice, etc. saves $400 per trans Sources: CAPS Benchmarking Improve Process for Finding and Buying Non-Sourced Goods “Spot Buy has improved customer satisfaction ratings by simplifying one time purchases.” - Enterprise Software Company Increase Procurement’s strategic value Accelerate User Adoption and Improve Customer Satisfaction “We look at Spot Buy as a real opportunity to help focus on higher value procurement.” - Nuclear Technology Company Average P-Card rebate about 1.0% Increase P-Card Rebate Savings “We’ve cut 20% of our long-tail one-off vendors and replaced with Spot Buy.” - Specialized Polymer Company Savings estimate of about $100 per vendor Source: 2015 Ariba survey Reduce Vendor Management and Long-Tail Supplier Costs
- 13. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 13Customer Eliminate Long-Tail Issue using a single proxy vendor with Ariba Spot Buy Suppliers Spend 1. Current long-tail suppliers Annual spend with ad-hoc suppliers Annual spend with Spot Buy suppliers Suppliers Spend 2. Target ad-hoc suppliers to replace with Spot Buy Suppliers Spend 3. Reduce ad-hoc suppliers Suppliers Spend 4. Vendor management savings with Spot Buy Savings estimate of about $100 per vendor Source: 2015 Ariba survey
- 14. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 14Customer Long-Tail Rationalization from customer presentation at Ariba LIVE 2016 “Every purchase with Ariba Spot Buy supports and sustains the progress of this key objective.”
- 15. Spot Buy at Pfizer Scott LaGois – Global Procurement, BP&O
- 16. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 16Customer Pfizer Overview PFE Numbers (2015) $49B Revenue 63 Manufacturing Sites Worldwide >175 Markets in which Pfizer sells products >97,000 Colleagues around the world 7 Products with sales greater than $1 Billion
- 17. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 17Customer Pfizer’s Ariba Footprint
- 18. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 18Customer Spot Buy Opportunity Analysis To estimate the potential usage and benefit of Spot Buy, an analysis on non-catalog orders was performed Items were “sourced” through Spot Buy – to determine availability and compare pricing Results: 32% PO line items were available in Ariba Spot Buy Of the items available, prices were generally lower than paid by Pfizer (average savings 25%, weighted average savings 20%) 0% 25% 50% 75% 100% - 5 10 15 20 25 30 35 40 Maintenance, Repair & Operations (MRO) Lab & Med Equipment And Supplies Packaging & Shipping Materials IT Hardware, Supplies & Software Facilities Environmental (ES&H) Waste Disposal Services Lab Chemicals, Biologicals And Radioactives
- 19. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 19Customer Drivers for Implementation Key decision factor for 9r2 upgrade Significant shift for procuring non-sourced goods Other benefits and business drivers: Process Automation • Reduction in transactions routing to Procurement • Consistency within standard controls and business rules Vendor Maintenance • Fewer (one-time) adds and reduction in overall vendor maintenance requirements P-Card Activity • Spot Buy purchases help Increase P-Card rebate Hard Savings • Cost savings of marketplace items versus ad hoc
- 20. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 20Customer Spot Buy at Pfizer Pfizer Spot Buy Supply Order Confirmation sent and validated 2Buyer receives OC Purchaser Order (PO ) PO validates inventory and price purchase request (PR) approval workflow Advanced Ship Notice sent 3 and ASN 1 Company Catalog Spot Buy Catalog Ariba Procurement Content Supplier ships goods upon payment receipt ship spot buy catalogs Ariba Network Suppliers Spot Buy Supply Level 2/3 enriched data 4 pay eBay Marketplace Sellers paid via PayPal funded with a ghosted Amex P-Card CAR AMEX routes data to Pfizer’s CAR Tool SAP CAR uses enriched data to perform reconciliations and upload to SAP G/L
- 21. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 21Customer Current Status and Best Practices Current Status Live since Feb. 23rd Phase I – Early Access to Spot Buy • ~45 colleagues invited, 29 trained • Selected based on spend profile Phase II – Broad Spot Buy Adoption • ~4K colleagues invited • Higher anticipated volume Best Practices Change management Policy Training Communication
- 23. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 23Customer World-Class Organizations have 80% of Spend Under Management; however… Source: The Hackett Group Non-world-class organizations typically influence only 55% of overall spend compared to eighty percent for world-class Ariba Spot Buy can help • Improve process for finding and buying non-sourced goods • Accelerate user adoption and satisfaction • Increase P-Card rebates • Reduce long-tail supplier problem
- 24. © 2016 SAP SE or an SAP affiliate company. All rights reserved. 24Customer Q&A Take control of your spot buy spend today SIGN UP for an Ariba Spot Buy spend assessment START using Ariba Spot Buy today WATCH Ariba Spot Buy video on YouTube https://youtu.be/LuGEJPIIzdE Ariba Spot Buy Scott LaGois Manager, Global Procurement BP&O +1 516 782 7874 scott.lagois@pfizer.com James Tucker Vice President, Ariba Spot Buy Go-to-Market +1 650 390 1702 james.tucker01@sap.com jbtucker3
- 25. James Tucker Vice President, Ariba Spot Buy Go-to-Market +1 650 390 1702 james.tucker01@sap.com jbtucker3 Thank you Contact Information:
Editor's Notes
- [click] Vilfredo Federico Damaso Pareto was born in Italy in the mid-1800’s (15 July 1848 – 19 August 1923). He made several important contributions to economics, particularly in the study of microeconomics. [click] He was one of the first to observe that 80% of the land in Italy was owned by just 20% of the population, and that income has a similar distribution. It is in recognition of these observations that the Pareto principle was named. The Pareto Principle is now more commonly referred to as the 80/20 rule. A general rule of thumb in business is that "80% of your sales come from 20% of your clients." and conversely, [click] 80% of your spend comes through 20% of your suppliers. When you look at this histogram sorted by the suppliers with the highest amount of spend down to the smallest amount of spend you get this long-tail effect and the term adopted by many organizations to describe lower dollar ad-hoc spend. In this webinar, we’re going to discuss strategies for getting long-tail spend under management using an innovative solution from SAP Ariba called Ariba Spot Buy. I’ll begin with an introduction of Ariba Spot Buy and specifically how it helps address the long-tail management issues. Then I’ll turn it over to Scott to discuss Pfizer’s Spot Buy program. So our host for this webinar, conducted a Benchmarking Survey at their ProcureCon East conference earlier this year. Many of the questions from their survey included topics around non-sourced / off-contract buying and long-tail management. We will conduct a few flash polls during this webinar using some of the questions from the Benchmarking Survey.
- The first Flash Poll Question is - What is the biggest cause of maverick spending in your organization? Select one of the following: Impatience, unwillingness to comply with procurement process Unplanned items needed (emergency, etc.) Unique, one-off purchases Off-catalogue items needed We’ll give it about 10 seconds. Great. Now let’s compare these results with the 2016 Benchmarking Report
- The most common reason for maverick spending based on the ProcureCon 2016 Benchmarking Report is “employee impatience with the procurement process” at 42%. 25% selected unplanned items were needed. And 23% said unique buys that employees pursue without consulting procurement first.
- The fact of the matter is that there is really nothing maverick about these kinds of one-off purchases. Employees sometimes simply need to buy items they need in order to effectively do their jobs. This does, however, result in: A time consuming and frustrating process for employees to find and buy items not found in the company catalog. And many company's believe it just doesn’t make good economic sense to get sourcing or procurement involved in low-cost purchases. In fact, one company I spoke with said it costs them about $200 on average for a procurement professional to handle non-catalog requests, which in many cases is more expensive then the item purchased. When employees use a P-Card or personal credit card, Procurement has little or no visibility into what was actually purchased introducing compliance risk and missing potential demand signals that could lead to a sourcing event. Employees are often driven by necessity rather than price, so may pay higher transaction costs for items purchased outside of procurement. Many companies have a policy to add a vendor master file record for every purchase, even one-time and ad-hoc suppliers, [click] resulting in the long-tail issue we’re discussing today. [click] According to the Hackett Group and Procurement Leaders research, spot buy spend typically represents about 15% of indirect spend, and occurs in both strategic and tactical categories. We’re defining Spot Buy as the purchase of an item that was non-sourced, not in the company catalog, but is something that is needed today and probably not suitable for a sourcing event. [Next slide: common spot buy categories]
- I’ve interviewed dozens of companies over the past year or so, and found these to be typical spot buy categories: Office Furniture and Supplies, Electrical and Test Equipment, Technology and Accessories, MRO and Industrial Supplies, Facilities and Maintenance, and a host of other Unanticipated and Urgent items. At a glance you might think that these are common categories to source. And that’s true; however, for most companies it may be cost prohibitive or impossible to source every category or to load and maintain a supplier’s full catalogue. [click] These are a few examples of real-life spot buys one of our customers have shared with us: you see as an example the windscreen, stepladders, ergonomic-chair, etc. Let’s to another Flash Poll...
- Flash Poll #2 - How does your organization address off-contract goods and one-off purchases (select all that apply)? P-Cards Buying desk Outsourcing providers Free form text / non-catalog requests Non-travel related T&E We’ll give it about 10 more seconds. Great. Now let’s compare these results with the 2016 Benchmarking Report
- For this question ProcureCon sited a recent Hackett Group research paper that says “an average of 7% savings can be achieved by better managing tail-spend. The most common solution has been the issuance of P-Cards (58%), which has helped consolidate buying for departments that may be operating with varying levels of autonomy. Another common tactic has been the advent of the buying desk (49%) which is used to manage buying requests that might otherwise be executed without consulting procurement at all. And 25% are looking at Outsourcing provider to help manage tactical buying requests. Now let me introduce you to a new solution to help you address off-contract buying and one-off long-tail purchases.
- Ariba Spot Buy is a feature available within Ariba cloud procurement solutions (i.e. P2P, P2O, APC) at no additional software cost. Spot Buy is currently available for buyers and suppliers in the US and we plan to launch Spot Buy later this yearin Europe. The Spot Buy catalog is created and maintained by SAP Ariba and our ecosystem partners, which include marketplaces like eBay, and qualified Ariba Network Suppliers.
- [click] One benefit of Spot Buy is that Ariba users don’t need to do anything different. Users simply shop the way they are accustomed to, by looking for an item in their existing company catalogs. If that item is not found, the user is guided to the Spot Buy Catalog. [click] In this example I’m looking for a “Bluetooth headset” and see that there are none available in the company catalog. [click] So I click on the Spot Buy Catalog tab and see there are [click] over 200 options available. [click] I can easily refine the search results [click] by filtering by price range; proximity – by finding suppliers that are closest to my location; condition – whether I’m looking for new or used items; seller name – if you have a preferred seller in mind; and Seller Type if you want to limit search results by Top Rated Sellers or a vetted list of about 100 Recognized Brands. [click] Once you’ve narrowed down your search results [click] you simply select the item you want. [click] Here you see a variety of images, information about the seller, a detailed item description, shipping options, etc. [click] You add the item to your [click] shopping cart and submit it. [click] Submitted items are routed for approval using existing workflow rules. Approved requests result in a Purchase Order that is used to automatically fulfil the order. The user does not need to worry about payment or reconciliation – it is all automated. The Spot Buy administrator can control which users have access to Spot Buy, and can further restrict availability by commodity and price threshold. This ensures that employees/buyers have a simple user experience and procurement improves visibility and control over spot buy purchases.
- [click] Ariba Spot Buy helps make Procurement more strategic by improving the process for finding and buying non-sourced goods. In addition to the process savings, many customers have even sited improved pricing over some of their sourced goods. [click] Spot Buy is a game changer for Ariba customers because now on day 1 of a deployment all employees will find what they are looking for and have a much better experience. One of our customers said they got high marks on a user survey because of Spot Buy. [click] Spot Buy setup is very simple. A single proxy vendor is setup in your Vendor Master File and Ariba Procurement solution and all Spot Buy purchases are made against this single proxy vendor using a single ghosted P-Card, which drives incremental rebate savings averaging about 1% of spend. [click] And finally, Spot Buy dramatically reduces the number of one-time ad-hoc suppliers you need to add to your vendor master file because of the use of a single proxy spot buy vendor. One of our customers said they used to add 20-30 suppliers per month before turning on Spot Buy. Because long-tail is the theme of this webinar, let me spend a little more time explaining how Spot Buy helps solve the long-tail problem…
- This chart represents a typical long-tail supplier curve. Where the histogram is sorted by suppliers by spend amount. [click] The blue bars indicate one-time / ad-hoc suppliers with spot buy categories as an indication of opportunity for consolidation. [click] and this is what the histogram looks like when you remove those suppliers [click] now if you consolidate the target spot buy supplier spend into a single blue bar you might find that it represents the highest amount of spend by supplier. And now with Ariba Spot Buy you have reduced or eliminated many one-time ad-hoc suppliers, and no longer need to add them to your vendor master file on an ongoing basis. For many companies this can mean thousands of suppliers and a significant savings opportunity.
- This example, taken from a customer who spoke at Ariba LIVE this year, shows their strategy to rationalize the long-tail of their vendor master file. Their objective being a reduction from 37K down to 18K, retiring 21K vendors. And they site Ariba Spot Buy as a key tool to support this objective.
- So that is an overview of Spot Buy and how it helps companies get their non-sourced spend and long-tail under control. Now let me turn it over to Scott LaGois of Pfizer to share his experience deploying Spot Buy at Pfizer. Scott…
- Live since 10/2013 285 catalogs in APC 60 US catalogs
- 300 randomly selected non-catlg items 32% found in Spot Buy/eBay Typically 25% savings over non-cat items BUT – not use Spot Buy for every category Blue historgram – savings in Spot Buy vs Non-Cat Eg. MRO
- Spot Buy was one of the key decision factors for us to move to a 9r2 upgrade
- A Spot Buy purchase order is used as the checkout mechanism with the eBay seller. After a successful inventory and price check the checkout process will complete. An order confirmation is sent. [click] We pay for Spot Buy items using a single ghosted Amex P-Card. [click] Upon payment receipt, an advanced ship notice is sent, and the supplier ships the goods. [click] The purchase data is enriched in Ariba Spot Buy to include PO, Tax, Shipping, etc.) [click] The enriched data is automatically routed to Amex and Amex routes to our (Pfizer’s) instance of the CAR (Corporate Account Reconciliation), which uses the enriched data to perform the reconciliations and uploads the results to our SAP GL instance.
- Unknown could be in areas like new subsidiaries, disconnected, unknown/niche suppliers. Thank you Scott. The theme of this webinar is reining in tail spend with spot buy. We discussed the Pareto Principle aka the 80/20 rule. [click] According to the Hackett Group, it is world class organizations that have 80% or more of their spend under management. But for Non-world class organizations, they typically influence only half of their overall spend, which means a large percent of their spend is spot buy spend. [click] Ariba Spot Buy can help get this spend under management. Providing an on-demand catalog with no suppliers to enable, no P-Cards to carry around, no need for employees to take the risk of buying from some obscure company found on the Web. And no need to continue to add one-off suppliers to your vendor master file. Finally getting that long-tail under control. I’m planning to do a webinar with The Hackett Group to share the results of their resent research paper called “Spot Buy: A Modern Approach to Managing Tail Spend”. So stay tuned for that.
- So remember that Ariba Spot Buy is an included feature at no additional cost for Ariba cloud Procurement customers (P2P, P2O, or APC). There are many ways for you to get started with your Spot Buy program: You can preview an Ariba Spot Buy video on YouTube. You can sign up for a Spot Buy spend assessment – where our team will analyze your spend data to identify the potential impact a Spot Buy program could have in your business. If you’re an existing Ariba Cloud Procurement customer, you can start using Spot Buy today simply requesting to turn on the Spot Buy feature. Ok, now do any of you have any questions for me or Scott?