Steps to a Successful E-Procurement Journey – A Program In Review

Editor's Notes

• #6 Ariba’s On Demand applications and the Network generate measurable value to organizations Buyer’s experience significant savings that fall right to the bottom line Some savings are obvious (see above) but others less so. For example, a large Oil company was able to significantly cut inventory of replacement parts in its refineries due to the visibility into order status the network provided. This visibility not only enabled the managers to focus on the operations instead of whether a critical shipment was going to come, but also enabled them to reduce the excess inventory they needed as safety stock to ensure the refinery didn’t go down Suppliers experience savings through the automation of non-value added activities (like AR clerks having to call their customers each month to see when payments will be made) Suppliers also see top line growth from participation on the network – including net new business and increased wallet share with existing customers
• #7 80% of business to business commerce transactions are completed manually -Gartner and Forrester Research Most AP departments devote 25% of their time to error resolution -Gartner and Forrester Research
• #8 Aberdeen Group Research Best-in-Class 80% under spend management 56% of spend captured on supplier network Industry Average 61% under spend management 44% of spend captured on supplier network
• #9 Integrated Modules---Enterprises are increasingly focused on buying an integrated set from a single source Only 25% of Gartner’s references indicated their e-Sourcing solution was integrated to purchasing system Best in class: 60% of POs are transmitted electronically (Aberdeen Group)
• #10 Future Contract enablement Spend compliance Buyer experience Global rollout Application architecture Using Ariba for what its meant to be used for…. On line registration through SIMP which needs to link into on demand as well as vendor hub and other risk applications Things we customized Vendor Risk management in upstream (STARTS / deliverables / deal approval matrix) Integration of other buyer channels and approval workflows – lots of bolt ons
• #11 Regulatory Environment (Drove BAC SCM from a Support Function to Control Function) Regulatory demands require more rigor with Supplier Management practices Spend visibility is crucial in managing the vendor population Contract enablement (utilization of the Ariba Network) with 3-match supports spend visibility due to the ability to tie spend to contract Contract enablement with 3-match supports invoice reconciliation. Companies that don't utilize over pay 2 to 12% on invoices due to overpayment/duplicate payment Approval Workflows support polices and provide audit trails Spend Compliance According to Aberdeen Group research, the top strategic action for supplier networks is to improve contract and purchasing compliance The cost to complete a single requisition to order cycle was $33.45 for those not using a supplier network compared to $22.30 for those using a supplier network (Aberdeen Group) As we discussed, Contract Enablement is the common denominator for success. Having 3-way match, tying spend to contract, increasing spend visibility and issuing payment pursuant to terms supports risk and expense reduction Utilizing a Centralized Purchasing platform with catalog and spot buy capabilities helps guide employees to buy from the company’s approved suppliers at pre-negotiated prices, enables proper approval of purchases and reduces invoice processing delays and errors Last year we had savings of >$15ml through contracts we enable and did 3 way match on, gives indication of how much money is left on the table. In 2013 we expect >$33k Expense Reduction/Revenue Generation Static Discounting-Contact enablement allows visibility into our contract pay terms in order for AP to pay pursuant to those terms and take discounts (we manually recovered $6MM in discounts last year due to lack of automated link) Dynamic Discounting (Ariba’s Discount Pro)-future opportunity for us to generate additional revenue by inviting suppliers to request earlier payment in exchange for discounts or additional discounts Ariba’s Discovery application enables us to utilize Spot Buy as another purchasing tool to ensure we are competitively biding on incidental items that are not on our catalog library And since we are a bank, we use P-Card in some cases as a payment tool to drive revenue through interchange fees Application Management Most new deals include SaaS (Software as a Service) or in Ariba speak “on-demand” Of company’s surveyed by Forrester/Gartner, only 26%-41% of sourcing suites are behind the firewall The most common reason why organizations are implementing their strategic sourcing suites off-premises is a lack of IT resources to implement and maintain the solution (Gartner) For us, on-demand supports business continuity concerns, adoption and flexibility to support a highly dynamic environment (regulatory pressures. LOB demands). However, it requires as a significant support structure to maintain system performance, code development and testing You must balance customization demand with not comprising your work force and system integrity
• #12 Regulatory Environment (Drove BAC SCM from a Support Function to Control Function) We are a geographically dispersed organization with over 280K employees world-wide Many services have been outsourced To have insight into your supplier base you must not only have all spend under management but contract and purchasing compliance must be high All contracted suppliers must be enabled on your network and utilize contract enablement The Aberdeen Group reports that the #1 barrier for suppliers not adopting a supplier network is awareness. The second barrier is the lack of ability to support technical specifications. In order to meet business and regulatory demands, our supplier partners have to change the way they do business with us and we must have the resident technical expertise to support the application that enables the business strategy. Spend Compliance I have heard it said that “Culture eats Strategy for Lunch everyday”. We are a company comprised of 100s of LOBs with strong legacy cultures from Merrill Lynch, Countrywide, LaSalle and MBNA to name a few. Autonomy is embraced in our culture so driving uniformity and consistency within sourcing and purchasing practices is a challenge. However, to reach the full benefit of our program we must obtain high compliance Good eProurement solutions must make the correct process easier and more intuitive than the rogue one (easy to use requisition, category-specific functionality, rapid approval, penalties for non-compliance) We know that systems where requisitions that become a PO within 48 hours have higher user adoption rates Building and sustaining the infrastructure to support theses demands requires a substantial investment. You must provide An intuitive buying platform Resources to support the buying process for non-catalog/spot buy—in our case that requires managing 60 plus off-shore resources Developing and maintaining on-line catalogs with on-going maintenance to ensure contract/purchasing compliance Utilizing e-invoicing From a Sourcing perspective, you must enable contracts to ensure key contractual components are in the Ariba system and your supplier can transact in accordance with your preferred standards. This comes with it’s own set of challenges as well. For example: You must build competent teams to enable suppliers and sell the benefits to justify Ariba network fees Work with internal buyer teams to drive adoption to preferred ordering channels and approved contracts Work with finance teams to drive e-invoicing adoption. This can be difficult because Finance loses some control of when charges post and where they can be allocated You must build and sustain training and communication teams as well as help desk support to drive compliance and awareness CALL THE HELK DESK Expense Reduction/Revenue Generation Dynamic Discounting is an emerging technology that requires training your supplier population as well as internal stakeholder groups such as supplier managers, AP and sourcing managers. According to the Aberdeen Group, Dynamic discounting is lower in priority within emerging areas for supplier networks. In fact, only 8% of best-in-class organizations are currently using dynamic discounting. Believe it or not, payment terms can lead to reputational risk for us. If contracts are silent on payment terms, suppliers can attempt to require immediate pay. This creates more stress on your operation without a return. It is crucial to continuously educate your sourcing managers on the importance of payment terms and drive discounting in exchange for earlier payment. Creating the technological interface between Ariba and AP is also key in providing visibility into payment term pursuant to terms. Application Management On-demand for BAC requires extensive knowledge and SME in-house to support. Attrition is a key risk due to limited availability of this competency in the marketplace. Early in our deployment of Ariba, we customized the application to drive adoption. Now, many LOBs are dependant upon the functionality to enable business strategies. We have to work with many key stakeholders/users to prioritize enhancements across a limited deployment schedule as well as other key enterprise initiatives (such as remediation, service packs, software/hardware upgrades) Neurologists claim we only utilize 15% of our brain…well the same holds true with technology. In order to fully leverage our e-procurement and e-sourcing applications we needed to integrate them. This supports our strategy but adds another layer of complexity for us when managing the application. Ultimately- managing a comprehensive S2P program is not an “if” but a ‘how” question. The benefits are clear and the challenges are many. However, the secret of success is constancy to purpose. Like any objective you must build you plan, execute your strategy, learn from your mistakes and continuous drive value for your customers and shareholders.