eProcurement / Sourcing MRO Environment

Utilising Lean Six Sigma

Anand Subramaniam

The Internet Is Like Darwinism On Steroids. You Evolve Or Are Eliminated.

- Paul Fernandez, Proxicom

Implementation Highlights

10% Technology 90% Change Management

70% Strategic 30% Paperwork
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Highlights
MRO - Heavy Machinery Industry (Implementation Highlights) Strategic Sourcing eProcurement

MRO - Heavy Machinery Industry (Implementation Highlights)

Clients - 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 organisations 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

Clients - Vision & Mission

Self-Service Purchasing
Inventory Check Option
Price Comparison Access online catalog via desktop browser Payment Process Quick search

E-Procurement

Internet Access
Catalog:
Items from contracted vendor Product configuration tool Color photographs, animation & videos of prod.application, Product detailed specifications Interview with other users

Open Standards & IP Technologies

Order Management System

Test Drive

Buyer

Supplier
Ack. & Electronic Ship notice/ PO changes

Online Support

Order Completion

Workflow Approval

Process Workflow Corporate Contracts Business Rules

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Brainstorming / Focus Group

Spend Segmentation Deployment Strategies

Phases, stage gates QA review / sign off

Maximise benefits/ Minimise risks

Lean, 6 Sigma Process Mapping

Content (catalogue) Level of Automation

Cat managed externally Cat managed internally Supplier managed

End to end process Requisition to order

Distribution of Functionality

ERP based Free standing integrated best of breed Distributed functionality

Deployment

Organisational

Desktop / Mobile Limited access Purchasing dept only

Change Management
Regional / Divisional Legal & Fiscal needs

eProcurement Process
2. Supplier Assessment 1. Spend Analysis
(Opportunity Identification)

3. Supplier Identification

8. Invoicing, Reconciliation & Payment

4. Sourcing
(eTendering / eAuctions)

7. Order Fulfillment
6. Procurement (P2P)

5. Contract Management
(Portal)

What was involved & benefits

1. Workflow for originating and approving requisitions Benefits

Supplier Site
Finance

Reduced purchase process costs Improved compliance with sourcing policies Provided analytical reports for informed decision making

Employees Purchasing

2. EmployeeFacing Catalog

4. Procurement Vendors Supplier Network

3. Purchasing Data and Analytics

Supplier
Catalog

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Business Case Approved

Value Drivers
Improved Process Efficiency

Pain Points
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

Reduced Product/Process Costs

Improved Compliance

Fragmented data Unreliable/inaccurate data

Reduced Maverick Purchasing

Rampant off-contract spend (approximately 27% of indirect spend) Long lead times result in purchase of large safety stocks

Reduced Inventory Costs

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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

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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

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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

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Stakeholder Management Strategy

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
Reaching critical mass in contract coverage Change Management Approach BU / Site constraints

Risk Strateg y
Supplier Adoptio n Technical Integratio n Legal & Fiscal Country

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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

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Transition (As-Is ~ To-Be) = 7.2 months

To-Be
STAGE 5 STAGE 4

As-Is
STAGE 2 STAGE 1

STAGE 3

Value Optomisation Procurement strategy tied to business strategy

Value Innovation Sustainability

Integration Procurement viewed as key contributor to business strategy

CONTROL Procurement has some accountability for overall cost reduction

INFORMAL - Focus on purchase orders - Detailed reconciliation - Back Office function

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Results Achieved
Business Metrics
Governance & Internal Controls Client Satisfaction P.O. Processing Cycle Time e-Transaction: Contract: Invoice Cycle Time Length

Before After Implementation Implementation

40-50% 40% 23 Days ?? 6- 28 months 57 pages 78% 90% 93% 2.1 hour 98% 45 days 6 pages 9%

Ledger Miscodes

Suppliers Connected via Web

Savings via Web Stock Keeping Unit

0
0 283,000

17,000
$112M 134,000
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Strategic Sourcing

Identify - Sourcing Solution

Input - Questions Addressed What solution types are available ? What & why on solution fit? What lessons from dis / similar firm? Who are leaders / visionaries? Specific Solution highlights, why?

What & why to capture?

Output - Deliverables Requirements template and guidance

Solutions Overview

Diagnostic tool

Experiences of e-procurement

List of key vendors

Discussion paper

Stakeholder buy in - Increase awareness & understanding

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Strategic Sourcing - Roadmap

Source: Adjoined Consulting. LLC

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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
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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 suppliers 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)

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eProcurement

Procurement Vision Reduce Cost

90 80 70 60 50 40 30 20 10 0 As~Is
Internal Processing Cost 39 28 43

Minimise total cost from $82 to $6 Reduce cycle times Improve Accuracy

3 3

To~Be

Vision
External Processing Cost
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eProcurement Challenges

Gaining initial interest

Making the case

Commit resources

Deliver the benefits

Leadership and ownership of the project

Management and user buy-in Selling the benefits

Management and user buy-in Selling the benefits

Organisation design Compliance with corporate contracts and processes

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eProcurement - Roadmap

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Waste Eliminated
Excessive quality checking Multiple reports highlighting the same things Delivering above the agreed service levels Excessive paperwork sitting within departments and on peoples 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
Over servicing Waiting Movement Accumulation Motion Errors Over processing -

Waste

Multiple printing and binding of reports

Time in process waiting for action

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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
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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)
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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

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Latecomers Must Be 10 Times Better Than What They Replace.

- Peter Drucker

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

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