Control your indirect spend with SAP SCM

S&P

2013 – Implement Procurement Event

2

Contents

Understand the Indirect Spend 1

Traditional Indirect Procurement pitfalls 2

Simplify the indirect procurement processes 3

How Technology can improve Indirect Procurement 4

Focus on Alignment between Operations, Finance and Procurement 5

Response-Ability: Delegate to focus on more strategic activities 6

Viewpoints 7

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1

4

“Currently, indirect spend is recognized as a major

area for potential improvement, with up to 20% of

all purchases (by value)”

BusinessWeek

1

5

70/90

1

6

“Currently, indirect spend is recognized as a major

area for potential improvement, with up to 70/90% (by

number) of purchase orders, shipment expenses, and

invoices processed attributed to materials and services

that are not used in the finished product”

BusinessWeek

1

7

Key Challenges of Indirect Procurement

Fragmented

Demand

High number of

Suppliers

Maverick

Buys

Poor

Visibility

into spending

Poor

Standardization

Complexity of

the Market

High

number of

Stakeholders

Indirect Procurement deals with the acquisition of all those goods and services not directly involved

in the core business of the organization. This is the reason why the contribution that indirect goods

and services are able to offer to the company is very often misunderstood or underestimated.

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8

1 Manual approvals are the major cause of long lead times in Ind. Proc.

2 No standard processes

3 Lack of visibility into contracts or contracts not in place

4 Lack of strategic tools for sourcing, suppliers qualification & evaluation

5 “Where is my money going to?”

Traditional Indirect Procurement pitfalls 2

9

“If you want to truly understand something, try to

change it.”

Kurt Lewin

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10

Indirect Procurement vs. Direct Procurement

Process

Number of

transactions

Transaction

price

Other

Number of requisitioners

Maverick spend

Business focus

Buying power

Power of procurement

department

Supply market

Buying power

Number of supply chain

integration issues

Number of used suppliers

Number of categories

Indirect Procurement

Direct Procurement

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11

“Problems can be complicated.

Solutions cannot.”

Implement

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12

A guideline to approach Indirect Spend Management

FOLLOWING THE STAR

• SIMPLIFY the Indirect Spend and apply a category-wise

sourcing strategy and procurement process

• Provide employees with the right TECHNOLOGY which

creates a compelling purchasing experience

• ALIGN the different stakeholders involved and let them

gain a common understanding of the new processes

• Delegate, under certain conditions and rules, people giving

them the RESPONSE-ABILITY of their actions

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13

Simplify!

“Simplicity is the ultimate sophistication”

Leonardo Da Vinci

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Start by Categorizing products and services

Indirect materials

and services

Administrative services Travels

Marketing

Telecoms

IT

Facility management

Utilities

MRO

44 Office equipment and accessories and supplies

10 Office machines and their supplies

15 Duplicating machines

01 Photocopier

31 Printer and facsimile and photocopier supplies

03 Toner

Root

Segment

Family

Class

Commodity

Class

Commodity

Office Stuff

All products and services

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Define a purchasing channel for each category

Operations

Indirect Spend needs CONTROL that:

• Is sufficient enough to meet the defined goals

for cost reduction

• Is possible to implement and is aligned with

strategic goals and objectives

• Provides “reasonable assurance”

• Adds value to the business

Control Flexibility

FLEXIBILITY is needed, when control:

• Stops the business from operating

• Establishes ineffective routines

• Builds up rule books just to make rules

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Technology

“Technology does not drive change – it enables

change”

Anonymous

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Traditional vs. e-Procurement process

Traditional Procurement

E-Procurement

LEADTIME REDUCED BY 67% IN TOTAL

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Technology support

SPEEDING UP THE JOURNEY TOWARDS PROCUREMENT EXCELLENCE

Paperless

processes

Reduced

lead

times

Increased spend

visibility

Automated

checks

Reduced

transactional

costs

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19

Examples of purchasing channels using SAP SRM

– placing a service order

SERVICE PROCUREMENT WITH GOODS RECEIPT

Invoice receipt Goods receipt Service entry sheet Purchase Order Shopping cart

This function is used to create purchase orders for services performed by service provider. Service entry sheet is created for each service

provided, and the consumed time can be entered in the entry sheet. Once the service entry has been confirmed, invoice can be posted.

Business benefits

• Having visibility on the spend

• Aggregating the demand and increasing the

procurement power

• Providing an easy procurement system for

employees

• Increase the contract compliance

Addressed challenges

• Services are often procured locally, which leads to poor

visibility in the spend. Saving opportunity not fully

captured

• Maverick purchases for services and use of

unauthorised suppliers

• Manual process and long processing time of

purchasing documents

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Examples of purchasing channels with SAP SRM

– processing a contractual invoice

DIRECT CONTRACT REFERENCE FOR INVOICE

Contract release

in SAP SRM

Contract history update

in ERP Contract reference Incoming invoice

This function is used to create invoices with a direct reference to an SRM central contract. The invoice with the contract reference updates

the history of the contract in SAP ERP. A release is then created for the reference central contract in SAP SRM.

Business benefits

• Better agreements for services through higher spend

visibility and lower maverick buying

• Automated processes, review and approval plus

accounting of contractual invoices

• Consistent verification of invoice validity, amounts,

terms, etc.

Addressed challenges

• Invoices for unplanned services are often posted

without reference to any purchasing document and are

therefore difficult to trace

• Manual handling of recurring contractual invoices take

up unnecessary manual resources

• Suppliers do not invoice according to the agreed-upon

terms and conditions

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Examples of purchasing channels with SAP SRM

– buying direct materials

PLAN-DRIVEN PROCUREMENT

Invoice receipt Goods receipt Process PO Process purchase

requisition Planning

This function is used to process Direct material requirements that have been generated in systems other than SAP SRM. The demand for

products can come from several different planning systems such as material requirements planning (MRP). Using SAP SRM, contract is

assigned automatically to the PO.

Business benefits

• Bundle all the requirements into one request which

can be sourced by professional buyers instead of

operational purchasers

Addressed challenges

• Fragmented demand for MRO activities

• No contract visibility

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PURCHASES OVER CATALOGUE

Make purchasing easy to increase compliance

Examples of purchasing channels with SAP SRM

– buying indirect materials through e-Catalogues

Invoice receipt Goods receipt Purchase order Shopping cart

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Alignment

“The present contains nothing more than the past, and

what is found in the effect was already in the cause”

Henry Bergson

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Alignment between operations, procurement and finance

BRIDGING THE GAP

No

Invoice posted

Account Payable

Invoice posting Ok?

Purchasing

Correction

Operations

Correction

Invoice

queue

Yes

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Response-Ability

“Technology is nothing. What’s important is that you

have a faith in people, that they’re basically good and

smart, and if you give them tools, they’ll do wonderful

things with them”

Steve Jobs

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Response-ability

Contract

negotiation and

implementation

Spend analysis Forecasting

Supplier

relationship

management

Supplier

development

Strategic

sourcing

The key to minimise the operational and tactical tasks in purchasing department is to DELEGATE, whenever possible, tactical, non-value-

added work. This will give employees the ability to react to their needs in a faster and more flexible way leaving the procurement

department the time to focus on the above-listed strategic tasks.

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Viewpoints

Define clear and

measurable key

performance

indicators

Identify your

categories and

underline their

corresponding

procurement

challenges

Tailor a sourcing

strategy and a

purchasing

channel on

each category

Adopt the right

technology

Identify and

align all the

stakeholders

involved

Use a

phased

approach

Define KPI´s

Keep It Simple Technology

Response-Ability

Alignment

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Implement Consulting Group

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