This document discusses building a business case for empowering a company's upstream supply chain through supplier management automation. It begins by outlining the current state of supplier management, which relies on outdated methods. It then explores how the environment, organizations, and technologies are changing to require improved supplier connectivity and collaboration. Analyst reports are cited that emphasize the importance of supplier networks and relationships. The remainder of the document provides guidance on assembling a business case, including identifying a change leader, calculating potential labor savings and working capital improvements, and comparing metrics of automated vs non-automated companies. It concludes with a word of caution to consider the total costs of any supplier network solution.

1. Supplier Management: The
business case to empower your
upstream supply chain
Sept 2015
Omar Nadi
Director, Supplier Product Management

2. Agenda
• State
of
P2P
• What
is
changing?
• How
do
I
start
building
a
business
case
to
get
there?

3. State of P2P in Process
Industries
Supplier Management is stuck so to speak, relying on decades old methods for
management
Missing a shared vision across purchasing and finance
Lack of a champion
Stalled Automation of Direct Suppliers
Limited focus on Requisitioning Process & Indirect Spend

4. What is changing?
It starts with Automation of your Network
Environmental Shifts
Organization
• Rise of CSCO
• Global Service teams
across purchasing,
finance, logistics
• Renewed focus on
upstream
opportunities
• Searching for new
technologies
Technology
• Business Networks
quickly build robust
partner connections
• SaaS solutions are
able to scale networks
extremely fast
• New technologies
around risk/disruption
Competition
• Process Industry
Clients are focused on
building Supplier
Networks
• Automation will not be
a competitive
advantage but a basic
requirement

5. The
CPO's
Agenda
for
2012...and
Beyond
–
Aberdeen
“Supplier
networks
and
portals
(uHlized
by
51%
more
Best-­‐in-­‐Class
companies
than
all
others)
represent
a
shi-
in
the
business
mindset.
Supplier
networks
are
not
just
mere
links
between
buyers
and
sellers;
solu;ons
enable
true
commerce
between
procurement
professionals
and
their
suppliers
and
allow
CPOs
to
beNer
manage
the
enHre
spectrum
of
purchasing“
P2P
Study
2015
-­‐
HackeN
Group
EDI
is
no
longer
the
dominant
connec;vity
strategy,
Top
Performers
are
leading
the
transi;on
to
web-­‐based
solu;ons
The
Chief
Supply
Chain
Officer
Report
2013
–
SCM
World
Strong
Supplier
Rela;onships
listed
as
second
most
significant
way
supply
chain
can
create
value
What are analysts saying?
B2B
CollaboraHon
No
Longer
OpHonal
–
Aberdeen
The
top
priori;es
for
leaders
are
collabora;on
with
suppliers
and
customers.
The
likelihood
is
72%
greater
for
the
leaders
than
the
followers
to
collaborate
with
suppliers.

6. What is changing?
EDI
Internal Portal
Fax
eMail
Business
Network
Network
Nervous
System
Moving data faster Moving clean
data faster
Linking cross
partner/process
data
Scalability
Opening new
communication
channels
Applying new
data feeds and to
your network
Sense & Respond

7. Elemica’s
Next
Genera;on
Network
PlaPorm

8. How do I get there?
Agent of Change
Identify someone to lead the with executive approval that will take an
objective look at what is best for the company and that is willing to
challenge the status quo to lead the program.
Build the Team
• Finance resources who touch inbound invoices
• Purchasing resources centrally and at plants that touch orders,
confirmations, shipments, invoices

9. Building a Business Case
Build the Business Case
Purchasing Metrics
• FTEs per PO Line
• FTEs per Shipment Processed
• % of Orders requiring intervention
• % of Orders requiring rush transportation
• Cost of rush shipments
• Inventory Turns
Invoice Metrics
• FTEs per Invoice
• % Invoices requiring intervention
• DPO
• On-time payments
• Discounts captured

10. Building a Business Case
Build the Business Case
Sample Company
• Spend = $5B
• PO Lines = 150,000
• Average Inventory = $833M
• Invoices paid on time = 80%
• FTE’s processing Order Confirmations and Shipments = 30
• FTE’s processing Invoices, Invoices Statuses, Payment Advice = 50
• Salary Rate = $40/hour
• Cost of Capital = 5%

11. Building a Business Case
Annual Orders
Spend
Personnel Hourly Rate
Inventory Turns
Cost of Capital
Labor Savings Minutes Saved Occurrence Total Savings
Order Response Processing 5 100% $500,000
ASN Processing 10 100% $1,000,000
Data quality issues 60 4% $240,000
Expedition issues 120 1% $120,000
Operational Improvements Cost per Error Occurrence Total Savings
Expedited/Delayed Orders $3,000 1.0% $225,000
Working Capital Improvements Improvement Occurrence Total Savings
Iventory Turn Improvement 0.25 100% $1,666,667
Total Annual Savings: $3,751,667 Per PO: $25.01
150,000
$40
6
5%
$5,000,000,000

12. Building a Business Case
Annual Invoices
Spend
Personnel Hourly Rate
Cost of Capital
Late Payment Charge
Early Payment Discount
Labor Savings Minutes Saved Occurrence Total Savings
Invoice Processing 15 100% $1,500,000
Payment Processing 15 50% $750,000
Data quality issues 120 5% $600,000
Payment Discounts Improvement Occurrence Total Savings
Invoice Discounts 30% 15% $225,000
Working Capital Improvements Increase Occurrence Total Savings
DPO Improvement 1 80% $547,945
On-time Payment Improvement 50% 20% $500,000
Total Annual Savings: $4,122,945 Per Invoice: $27.49
$40
150,000
$5,000,000,000
2%
5%
2%

13. Building a Business Case
Build the Business Case
Total Savings $7.9M
Total Savings per PO = $25.01
Total Savings per Invoice = $27.49
Best in Class
Automated
All Others
Manual
Percent
Improvement
Order to ASN $38.10 $6.13 84%
Invoice & Payment $34.65 $4.17 88%
Total $72.75 10.30 86%
Consistent with Analyst Studies*
Efficiency KPI Current Automated Improvement
Orders per FTE 5,000 18,000 3.5x
Invoices per FTE 3,000 9,400 3x
*B2B
Integra;on
and
Collabora;on:
Strategies
for
Building
a
ROI
Business
Case
-­‐
Aberdeen
Efficiency KPI Current Automated Improvement
Rush Shipments 2% 1% 50%
Inventory Turns 6 6.25 6%
DPO 1 day
On-Time Payment 80% 90% 11%
Human Capital ($4.7M)
• Savings Purchasing = 23 Years
• Savings Finance = 36 Years
Working Capital ($3.2M)
• Savings per PO = $13
• Savings Per Invoice = $8.50

14. Building a Business Case
Other Benefits
Efficiency gains upstream unlock further benefits downstream
Calculating TCO
Supplier Performance Visibility
• % of orders with ORE
• % of orders with ASN
Improved Relationships
• On-time payments
• Improved communication
• Less work for both sides
Standardized Processes
Digitization- eliminate paper
Free up IT resources – managing your own point to point connections or portal

15. Word of caution
Be Careful
Have to look at total cost to system before choosing a partner
Number
of
Suppliers
4,000
Total
Annual
spend
$5,000,000,000
Annual
Invoices
150,000
Vendors Vendor
Avg.
Spend Transaction
Fees Membership
Fees Total
Fees/Invoice
2,200 $22,727 $0.00 $0.00 $0.00
1,000 $200,000 $15.90 $2.56 $18.46
520 $1,923,077 $34.44 $28.83 $63.28
240 $7,291,667 $48.87 $10.79 $59.66
40 $50,000,000 $35.56 $13.32 $48.88
Total
Membership
Cost
to
Suppliers
Value
Based
Model
Supplier
Network
Transaction
Value
Fees
Total
License
Cost
to
Buyers
$400,000
$2,246,000
$5,372,500
Total
Annual
Cost
to
System
$8,018,500
Total
Transaction
Cost
to
Suppliers

16. Questions?