ORMSCarolyn DePalmo Program Manager

(408) 527-0639 cdepalmo@cisco.com

Web-Ordering Project

Selling Costs

Intrinsic Value

Buying Costs

Electronic Commerce Goal: Reduce the Cost of Buying and Selling

Buying Costs Make up 2-10% of Product Cost

Selling Costs Make up 14-40% of Product Cost

CCO

Cisco Connection Online

Networked Commerce for Cisco’s Customers

Status

Pricing

Config

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Q3 Q4 Q1 Q2 Q3

Hit

s

Tool Oct Jan April %²

• Status 47,439 59,401 103,170 +74%

• Pricing 28,587 33,194 52,046 +57%

• Config14,386 14,536 40,902 +181%

Cisco Commerce Agents - Growth in Use

7/96 9/9611/96 1/97 3/97 5/97

Rate

0%

5%

10%

15%

20%

25%

Ord

erin

g Ra

te

Cisco Networked Commerce: Ordering

Next:

Automate the “Buy” Side

Networked Commerce for Cisco’s Suppliers

Corporate Procurement Profile:Spend handled by Procurement Programs: $403 M

Number of Transactions through Procurement: 90 K

Overall Average Transaction Value: $4,500 _________________________________________Breakdown: Dollars Volume

Purchase Orders $375 M (93%) 22,500 (25%) ($17K Avg Tx Value)

Direct Orders $24 M (6%) 49,500 (55%) ($485 Avg Tx Value)

Procurement Card $4 M (1%) 18,000 (20%) ($222 Avg Tx Value)

PO'sDO's

VISA

Volume

Dollars

93%

6%

1%

25%

55%

20%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cisco Corporate Supply ManagementTransaction Types by Volume and Dollars

Transaction TypesAppropriate and Affordable Solutions for Every Buying Scenario

LOW

LOW

HIGH

HIGH

$DOLLARS$

V O L U M E

Direct Order Programs

Procurement Card Program

Purchase Order

Purchase Order

Value Add, RFP, Contracts, Negotiations Catalogs

Supplier AlignmentFirst Phase Catalog Suppliers - Include:

Boise Cascade - Office Supplies Comkyl - Mfg Tools

GE/Compucom - Desktop HW US Tech - phones/telecom

Anixter - Cabling/Networking Andataco - HW/Terminals

BT Redwood - Forms Sun Micro - HW

ElectroRent - Rentals BRG - Furniture

Pagenet - Pagers Metricom - Modems

Telepress - Bus Cards Wood Associates - promo

Why Change?Why Change?

Process “Suppliers”:

Cisco Employees Vendors - quotes, specs

Inputs:

P/R’s

Outputs:

P.O.’s

Process “Customers”:

Cisco Employees Vendors - POs/COs

P/R P.O. Process

Feed Forward Loop Feed Forward Loop

Feed Back Loop Feed Back Loop

Input Issues:

• Incomplete Data

• Inaccurate Data

• Illegible Data

• Routing Cycle Time

• Lost Paper

Process Issues:

• Cumbersome

• Highly Manual/Paper

• Manual Data Entry

• Backlogs+Faxing POs

• Status Inquiry Replies

Customer Issues:

• “Black Hole”

• Cycle Time

• Routing

• Total Process

• PO’s to Vendors Late

One Stop Web “Order” Entry

D.O. Suppliers

Requesters

ARIBA

ORMS

Direct Order

Universal Interface

True Reqs

Autocreate PO in Oracle

Supplier Population

20%Visa Procurement Card

25%

55%

Buyer

TransformingTransforming

RR

Purch Tools

Purch

Tools: Visa, Web-Req (D.O.) with “intelligent agents”, wizards, public and private catalogs

Old Model: How Purchasing got into the transaction business

TransactingTransacting

Web-Ordering Project GoalsCost Reduction• Process Cost ($100+)

• Product Cost

• Transaction Processing to Negotiating

• Sales Offset Formula

Control Improvement• Automatic Enforcement of Cisco Policy

• Via System Enforced (invisible) Controls

• Accuracy in Data via up front audits

• Visibility

Customer Satisfaction• User Friendly Interface

• One Stop Shopping

• Better Status and Communication

• Better Supplier Communication

• Enhance Purchasing Jobs

Cycle Time Reduction• Error Reduction - quick picks, etc..

• Requisition Creation Time - Catalogs

• Approval Routing (immediate e-mail)

• PO Creation - ERP Integration

• Supplier Receipt of Order - EC

Cost Savings

If Purchase $400 Million/Year

If negotiate extra 3% off prices = $12 Million Savings

If Corporate Profit Margin = 10%

Then:

$12M/10% = $120 Million in Sales you DON’T need for the same bottom line.

Conversely, in a 10% gross margin business, you’d need an extra $120M in sales to generate the same bottom line as a 3% decrease in payments.

Sales Offset Formula

Less Than $1K

$1K - $5K

$5K - $10K

$10K - $25K

$25K - $50K

$50K - $100K

$100K - $250K

$250K - $500K

$500K Plus

0 5 10 15 20 25 30 35

Calendar Days

Less Than $1K

$1K - $5K

$5K - $10K

$10K - $25K

$25K - $50K

$50K - $100K

$100K - $250K

$250K - $500K

$500K Plus

Series2

Series1

Approval Cycle Time

Purchasing Process

Requisition & PO Cycle Time AnalysisOverall Average Weighted by Distribution:

Total: 12.84 Days; Signature 4.75 = 37% of Time

Electronic Commerce - Purchasing Critical Components

Catalog Management• Supplier Web Site up to date but user must know where to go on crowded internet

• Custom Reformat of supplier catalogs but suppliers resistant

•Keep frequently ordered items on local, high speed database on intranet with searching and links to internet

Interprocess Management• Between Processes

• Between Systems

• Link and Leverage existing Applications

• Cross Functional Communication

Requisition Management• Automate Process; manual nightmare of lost paper and bad data

• Minimize keystrokes: user profile info, pick and populate from catalog, quick picks, account codes auto assign, etc.

• Approval Routing - accommodate business rules through existing tool (email, intranet)

Transaction Management• Place orders directly with Suppliers

• No need to re-key into other systems

• Information - status and visibility

• Reporting - value of knowledge

CatalogsCatalogs

ApproversApprovers

BuyersBuyers

SuppliersSuppliers

DistributionDistribution

RequestorsRequestorsPaymentPayment

ReceivingReceiving EC

Paperless Interprocess SolutionPurchasing - A/P - Receiving

Cisco EC ProjectsCatalogs

Ordering

Approving

Status

ARIBA

ORMS

Universal Interface

Request

Direct Order

Purchase Order

E-Mail

Oracle

Req

EDI 850

Cisco

Accounts

Payable

Purchasing

EDI 862

Shipment Confirm.

ERS

EDI 810

Invoice

Cisco Receiving Single Ent.

EDI 820

Payment

Cisco

Supplier

Population

* Yellow = Ariba

Process - How We Got Here1. Business Process Analysis (As-Is)

2. Interview Stakeholders (Desired To-Be)

3. Requirements Document

4. Analyze Industry (Bus, Functional, Technical)

5. Make Vs. Buy

6. Award Contract

7. Implementation

Implementation

1. Business Rules Definition 2. Supplier Alignment

3. Catalog Organization 4. Adapter Interfaces

Key Functional Activities

Policy/Operating “Practices” Kickoff/Education/Bene’s

Renew Requirements Follow-up/CIF Content

Ariba Document for Coding EC Agreement

CIF integration into Ariba Sources (Accts, Depts…)

Map items-SPSC-Com-Structure Filters/Data Validation

6. Cheerleader Promotion /Excitement

Change Management

Corporate Support

5. Product Knowledge Familiarization - Detailed

Usability/Unit Testing

Conference Room Pilots

Timeline - Planned PhasesTimeline - Planned Phases

IntroductionIntroduction

PlanningPlanning

InstallationInstallation

ImplementationImplementation

DeploymentDeployment

Roll-outRoll-out

System ‘Live’System ‘Live’

MayMay JulyJuly AugAug

• Acceptance & FeedbackAcceptance & FeedbackPhase 5Phase 5

JuneJune OctOctSeptSept NovNov

• Upgrade/Production Roll-outUpgrade/Production Roll-out

Phase 6Phase 6

Phase 1Phase 1 • Assess Project ScopeAssess Project Scope

Phase 2Phase 2 • Finalize Work Plan / Map RequirementsFinalize Work Plan / Map Requirements

Phase 3Phase 3 • Install Software / Adapters / CatalogsInstall Software / Adapters / Catalogs

Phase 4Phase 4 • Customize & TestCustomize & Test