E-Procurement

deeper

IBM India

© Copyright IBM Corporation 2004

e-Procurement

07.06.2004

Rahul Pasrija

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IBM India


Contents

e-Procurement

Benefits of e-Procurement

e-Procurement for Public Sector

Case Study

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IBM India


Introduction

Procurement is a competitive differentiator

World Competition Technology Explosion

Pressure on Prices Shorter Product Lifecycles

MARGINS SQUEEZED

1980 1990 2000Increased fixed costs

+ Increased fixed costs

%1980 1990 2000

Non Materials

10 years

5 years 3 years

• Increase sales by 50%• Reduce overheads by up to 20%

Profit

OtherCosts

ExternalExpenditures

45

50

45

47.5

57.5

100 100

- 5%

+50%

Revenue

0%

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Procurement challenges and expectations

Procurement organizations are expected to lower the material cost coupled with high process efficiencies

Material costs

Material costs

NegotiationNegotiation Centralized procurement

Vendor Leverage

Item standardization

Vendor base rationalization

PredictionPrediction

Process efficiency

Process efficiency

Activity costsActivity costs

TimeTime

Eliminate non value adding activities

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Procurement process

The opportunities lie across the procurement process

PayDevelop Category Strategy

Complete Supplier

Evaluation

Select Suppliers & Negotiate

Agreement

Supply

Conduct Spend Analysis & Determine Customer

Requirements

Conduct Market

Analysis

Low value buying

High value buying

Value No. of Transactions

Centralized procurement

Item Standardization

Vendor Base Rationalization

Vendor Leverage

Transaction Costs

Cycle Time

Prediction Models

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Procurement process

Multiple options are available at various points

PayDevelop Category Strategy

Complete Supplier

Evaluation

Select Suppliers & Negotiate

AgreementSupply


Requirements

Conduct Market

Analysis

High value buying



Item Standardization

Vendor Base Rationalization

Vendor Leverage

Prediction Models

• e-Requisition• e-Approval• RFI, RFQ, RFP• Tenders

• Reverse Auction

• e-PO• e-Release• e-Changes• e-Confirm

• e-documents:• ASN• Ship status• Receipt

• Supplier web report card

• e-Invoice• EFT

• Credit auth.• Debit auth.

• e-Credit/Debit

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Procurement process

Multiple options are available at various points


Requirements

Low value buying



Transaction Costs

Prediction Models

• e-Catalog• Pricing• Availability• Commit

• e-Configure

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Contents

e-Procurement



Case Study

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IBM India


Reduced Product/Process Costs

Improved Compliance

Reduced Inventory Costs

1

2

3

4

5

Reduced Maverick Purchasing

Value Drivers Pain Points Mitigation/Savings Estimates

• Fragmented data

• Unreliable/inaccurate data

• Rampant off-contract spend (approximately 27% of indirect spend)

• Long lead times result in purchase of large safety stocks

Purchase requisition process-ing time reduction of 70%-80%;averaging a week faster

Purchase requisition process-ing expense reduction up to 73%; price of goods 5%-10% less on average

Data integrity is improved through contract compliance, strengthening a company’s supplier negotiation leverage

Maverick spending decreases up to 51%

Inventory expense reduction between 25% - 50%

Improved Process Efficiency

• Long lead times due to high manual processing, 1/3 time spent reviewing manual requisitions

• High transaction costs• Long supplier negotiations• Non contract compliance drives up price

eProcurement benefits

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Contents

e-Procurement



Case Study

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e-Procurement, a significant opportunity within E-GovernanceGovernment – an attractive case for e-Procurement

Probably the “single largest buyer” of goods and services in a state

Serious initiatives underway from AustralAsia to Europe to USAImportant Value Drivers

Potential savings – aggregated demand Cost reduction – process efficiency Compliance

Attractive business models – Public Private Partnership (PPP)

As many as 42 states in the USA, in addition to the Federal Government, will embark on some form of e-Procurement project by 2004 (Gartner)

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Challenges

Adhere to EU and WTO rules for public procurement processes

Ensure transparency and efficiency for both suppliers and buyers

Solution

An open, secure and scalable e-procurement solution – Electronic Tender Handling, Information and Communications (ETHICS)

Case Study – Public Sector

National Procurement Limited, Copenhagen-Denmark

Solution caters to around 8200 institutions in EU

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Business Doubled productivity with same

staff Knowledge transfer among

employees Improved vendor satisfaction Double digit growth in contract

turnover Reduction in administrative

costs by 40-50% Increased transaction

transparency and auditing Improved decision making via

well defined transparent evaluation process

Case Study – Public Sector

Benefits

Solution caters to around 8200 institutions in EU

Technical An end to end, open standards

based tender solution based on IBM Lotus Domino

State of the art security including PKI Infrastructure

More user friendly design questionnaire to help buyer automate decision making process

A robust, secure decision support system, based on Lotus QuickPlace and Sametime, enabling teams to meet and collaborate virtually in an online voting room and gain access to important proposal related data

National Procurement Limited, Copenhagen-Denmark

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Contents

e-Procurement



Case Study

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IBM India


In 1993, IBM was in midst of a severe financial crisis

Case Study - The IBM Way

RevenueOp. Income

$69 B 10

$65 B 4

$ 65 B 3

$ 63 B -4

1990 1991 1992 1993

1990 1991 1992 1993

IBM Cash Flow

1993

5

12

-3

IBM Debt

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IBM India


IBM adopted a holistic approach to cost reduction which was critical to its turnaround...

$B

'85 '93 '97-20

0

20

40

60

80

100

120

Profit

'98

Market Value

Revenue

US$ 9 Billion Saved


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The approach encompassed strategic, tactical and operational initiatives as highlighted...

Strategic Sourcing

Global Sourcing

Aggregated Sourcing

Value Engineering Tax Chain

Skills Upgrading

Outsourcing e-Procurement

Supplier Relations

Management

Strategic

Tactical

Operational


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IBM India


Supplier Relations Management (SRM) seeks to map the supplier into appropriate relationships...

Relative supplier management skills and effort required

Problem solving

Influencing

Negotiation

Team-working

Market analysis

Behaviour

Values

Strategic, complex issues

Influencing the Board agenda

Complex, multi-dimensioned

Cross functional, joint-supplier

Market, competitors, technology

Principled, trust-based

Urgency to prove model works

Operational, simple trade offs

Influence stakeholders

Trading

Limited

Price testing/quotations

Confrontational

Secure best deal available

Competitive Leverage

Preferred Supplier

Performance Partnerships

Strategic Alliances


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IBM India


Effective SRM with appropriate technology support paid rich dividends for IBM...

Before SRM

High and unmanaged

Constant Problem

Slow

After SRMReduced part cost 15-25 %Eliminated 50% of parts

Reduced cycle time 75%Reduced design cycle time 35%

Reduced time to market 70%

Part Cost

Design Cycle Time

Time-to-Market


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IBM India


e-Procurement applications facilitate the transformation process and enable organisations to sustain the benefits…

Sourcing

Fulfillment

Settlement

Internet quotingAuctionsOn-line contracts

Information warehouseRequisition / ERPElectronic catalogs"Buyerless" automationSkills matching

EDI EFTe-Invoices

Authentication / Authorization

Buyers / Requesters Suppliers


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IBM realized significant benefits from e-Procurement…

Business Metrics

Escapes (By Pass)

Acceptable Business Controls

Client Satisfaction

P.O. Processing Cycle Time

e-Transaction: Invoice Hands Free

Contract: Cycle TimeLength

Competitive Advantage

Ledger Miscodes

Suppliers Connected via Web

Savings via Web

Supplier Survey Rating

Early 1990's

30%

40-50%

40%

30 Days

??20%

6-12 months40 (+) pages

Cost Savings

>30%

0

0

5

Today

<0.5%

+90%

>80%

1 hour

95%+80%

30 days6 pages

>3%

5%

27,000

$380M

1


deeper

IBM India


We all live under the same sky …

… but have different horizons

Thank You

We all live under the same sky …

… but have different horizons

Thank You

E-Procurement

Education

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