Seongmin Ryu Principal Consultant e-Procurement Implementation & e-Marketplace.

Seongmin RyuSeongmin RyuPrincipal ConsultantPrincipal Consultant

e-Procurement e-Procurement Implementation & Implementation &

e-Marketplacee-Marketplace

e-Procurement as a e-Procurement as a Process EnablerProcess Enabler

e-Procurement e-Procurement Implementation ApproachImplementation Approach

e-Marketplace Trendse-Marketplace Trends

e-Market Opportunities, e-Market Opportunities, Risks and UncertaintiesRisks and Uncertainties

AgendaAgenda

e-Procurement Implementation & e-Marketplace

pagepage33

e-Procurement? e-Procurement?

What’s that?What’s that?

pagepage44

Definition of e-ProcurementDefinition of e-Procurement

Alignment with purchasing strategiesAlignment with purchasing strategies– Direct linkages and collaborative planning for strategic components Direct linkages and collaborative planning for strategic components – Exchanges, e-auctions or aggregators for commodities and indirect goods Exchanges, e-auctions or aggregators for commodities and indirect goods

and services and services E-nablement of entire acquisition process -selection, transmission, and E-nablement of entire acquisition process -selection, transmission, and

trackingtracking

““E-procurement is the redesign and implementation of E-procurement is the redesign and implementation of procurement processes between multiple enterprises procurement processes between multiple enterprises using electronic business as a competitive enabler”using electronic business as a competitive enabler”

pagepage55

BuyerBuyer

SupplierSupplier

e-Procurement as a Process Enablere-Procurement as a Process Enabler

Identify Supply Needs

Specify Requirements

Acquire Goods or Services

Manage Materials

Use, Disposeand Settle

Update Catalog ProvideSpecifications

Bid, ProcessOrder

MaterialShipment

ProcessPayment

Desktop Purchasing

E-BiddingReverse Auction

E-SourcingE-Catalog

Procurement Card VMI*

Order Tracking

Automatic Matching for Payment

e-Procurement Opportunities

* VMI =Vendor Managed Inventory

pagepage66

e-Procurement Category Strategye-Procurement Category Strategy

LOW HIGHBuyer influence on supply market

Objective:• Risk reduction

BOTTLENECKBOTTLENECKObjective:

• Competitive Advantage

STRATEGICSTRATEGIC

Objective:• Purchasing Efficiency

NON-CRITICALNON-CRITICALObjective:

• Competitive Cost

LEVERAGELEVERAGE

Bu

sin

es

s c

riti

calit

y

HIGH

Facilities Utilities Raw Materials

OfficeSupplies

Commo-dities

Sub-materials

TravelFreight

A company’s expenditures are characterized in terms of business criticality and buyer influence on the

marketplace.

E-Sourcing

Supplier PortalInfo. Sharing

Team Room

Procurement

Card

Desktop PurchasingE-Bidding

Reverse Auction…

pagepage77

Desktop PurchasingDesktop Purchasing

Enable users to search web-catalogs to make a purchase request, have Enable users to search web-catalogs to make a purchase request, have the requisition go through appropriate approval steps and enable an the requisition go through appropriate approval steps and enable an order to be sent, via the Internet, directly to the supplier.order to be sent, via the Internet, directly to the supplier.

Paym

ent

Paym

entIn

voic

e

Invo

ice

AccountingAccounting

SupplierSupplierDirect Send PODirect Send PO

DeliverDeliver

PO Info. Copy

PO Info. Copy

UserUser

ApproveApprove

CreateCreatePOPO

CreateCreatePRPR E-CatalogingE-Cataloging

InternetInternet

pagepage88

Search potential suppliers on the Internet. Provide application forms Search potential suppliers on the Internet. Provide application forms and receive applications and additional documents, via the Internet, and receive applications and additional documents, via the Internet, from suppliers willing to become qualified suppliers. Update the from suppliers willing to become qualified suppliers. Update the catalogs of qualified suppliers.catalogs of qualified suppliers.

Buyer

USA

Japan

Korea

e-Sourcinge-Sourcing

pagepage99

So, what can you get from it?So, what can you get from it?

pagepage1010

e-Procurement Benefitse-Procurement Benefits

Leverage

Compliance Transaction costs

• Reduced order cycle time

• Data availability/visibility

• Reduced inventory levels

• Consistent workflow/approvals

Hard savings

Soft savings

pagepage1111

1. 1. Increased contract complianceIncreased contract compliance

Electronic procurement enables Electronic procurement enables organizations to ensure organizations to ensure procurement compliance: procurement compliance: Increased use of preferred Increased use of preferred

supplierssuppliers Reduced off-contract spendingReduced off-contract spending Reduced processing errors Reduced processing errors

Results:Results: More goods are purchased at More goods are purchased at

lower priceslower prices

On-contract spend

Off-contract spend

Philips plans to generate savings of $50 million annually through increasing compliance from 40% to over 75%.

e-Procurement Benefits (Cont’d)e-Procurement Benefits (Cont’d)

Business CaseBusiness Case

pagepage1212

BP Amoco is a provider of energy and petrochemical, and estimated potential savings are 5 to 10% from corporate goods and services spend using e-procurement


2. 2. Increased purchasing leverageIncreased purchasing leverage

Electronic procurement Electronic procurement provides greater oversight of provides greater oversight of purchasing spend:purchasing spend:

Results:Results: Full purchasing power is Full purchasing power is

leveraged to negotiate leveraged to negotiate increased discountsincreased discounts

Appropriate product categories Appropriate product categories can be targeted for preferred can be targeted for preferred supplier contractssupplier contracts


pagepage1313

3. 3. Reduced transaction costsReduced transaction costs

Electronic procurement Electronic procurement reduces the administrative cost reduces the administrative cost for each transaction shifted for each transaction shifted from paper to the electronic from paper to the electronic channel through:channel through: Reduced error ratesReduced error rates Reduced processing timeReduced processing time Reduced number of Reduced number of

procurement stepsprocurement steps Reduced mail/fax/phone usageReduced mail/fax/phone usage Reduced on-site inventoryReduced on-site inventory

Results:Results: Procurement can focus their Procurement can focus their

efforts on building strategic efforts on building strategic relationships with suppliersrelationships with suppliers

Ericsson Telecom makes over 50% of purchases on the internet. Administrative costs have been reduced by 90%, and the firm is expected to do all worldwide purchasing on the internet by 2001

Cisco Systems has reduced the cost of procurement from an average of $130 per order to $40 per order. Its target is to achieve a cost of $25 per order.







AgendaAgenda


pagepage1515

Now, you see the benefits,Now, you see the benefits,

But, how can you realize it?But, how can you realize it?

pagepage1616

Implementation ApproachImplementation Approach

ProcurementCouncil

Strategic Sourcing

Local Procurement

Shared Service Center

Sourcing Teams

CEO / COO / CFO

Division/Group Heads

Organization / Culturehybrid example

Co

st S

avin

gs

($ M

)

0

40

80

120

160

200

240

280

320

360

400

2000 2001 2002 2003 2004 2005 2006

Year

Savings without process or organizationchanges

Savings with process and organization changes and continual improvement

Degradation in Realized Savings

All areas must be addressed and aligned...

Process / Technology

SupplierSupplier

ERP Decision

Support E-

Procurement

Strategic Sourcing

2User Requisition1

Ship Goods4

Receiving5

Payment7

SharedServiceCenter

6Purchase Order

3

Seamless support will require a combination of technologies

pagepage1717

e-Procurement Implementations Considerationse-Procurement Implementations Considerations

1. Integration with legacy systems or ERP1. Integration with legacy systems or ERP

2. Concerns regarding implementation of e-Procurement system2. Concerns regarding implementation of e-Procurement system Absence of well-designed, systematic procurement processes and Absence of well-designed, systematic procurement processes and

operation regulations operation regulations Tendency to adhere to pre-e-procurement processes and Tendency to adhere to pre-e-procurement processes and

regulations regulations Internal resistance from employees(apprehension of losing job or Internal resistance from employees(apprehension of losing job or

authority)authority)

3. Lack of supplier capability to participate in3. Lack of supplier capability to participate in e-Procurement e-Procurement processesprocesses or adopt e-Procurement themselvesor adopt e-Procurement themselves

pagepage1818

e-Procurement Implementations Considerations (Cont’d)e-Procurement Implementations Considerations (Cont’d)

4. Diminution of e-Procurement benefits from adverse 4. Diminution of e-Procurement benefits from adverse supplier market conditions or government restrictions.supplier market conditions or government restrictions.

5. 5. e-Procurement risks:e-Procurement risks: Production setbacks from misplaced procurementProduction setbacks from misplaced procurement Security and certification concernsSecurity and certification concerns Inadequate laws and constitutional system regarding e-CommerceInadequate laws and constitutional system regarding e-Commerce

6. 6. Shortage of online data concerning suppliers and their Shortage of online data concerning suppliers and their products. products.

pagepage1919

1. Active participation and support from both users and 1. Active participation and support from both users and executive group.executive group.

2. Overall familiarity “From Demand to Payment”2. Overall familiarity “From Demand to Payment”

3. Buying only from well-qualified supplier groups3. Buying only from well-qualified supplier groups

4. Seamless integration with ERP/Legacy system4. Seamless integration with ERP/Legacy system

5. Triple-win solution for suppliers, internal customers and 5. Triple-win solution for suppliers, internal customers and procurement departmentprocurement department

e-Procurement Implementation Critical Success Factorse-Procurement Implementation Critical Success Factors

e-Procurement as a Process e-Procurement as a Process EnablerEnabler




AgendaAgenda


pagepage2121

As you know, As you know,

e-Market is hot!e-Market is hot!

pagepage2222

What is the potential?What is the potential?

Offline B2BSpending

Horizontal Online B2BSpending

VerticalOnline B2B Spending

20102000 2005

B2B onlinePenetration

10

15

20

5

B2B Spending($Trillions)

$11.9 Trillion

$3.7 Trillion

$5.3 Trillion

2% 35% 75%

$20.9 Trillion

Total B2BSpending

Source: PwC analysis, Forrester, Goldman Sachs, IDC, US Census Data

Vertical spending includes industry-specific costs, e.g. raw and capital goodsHorizontal spending includes all non-production operating expenses, e.g., SG&A, MRO, etc.

pagepage2323

NETWORK OPTIMIZATION(Multi-Business)

A

F

D

G

C

EB

Company

Company

Company

Company

Company

CompanyCompany

ENTERPRISE OPTIMIZATION(Single Business)

ProcureProduceProducts

ManageLogistics

ForecastDemand

Physical flow

Information flow

eMarkets optimize a network of businesses rather than a eMarkets optimize a network of businesses rather than a single businesssingle business

eMarkets — Online business trading communities that focus on either eMarkets — Online business trading communities that focus on either indirect or specific direct goods and services. eMarkets can be built indirect or specific direct goods and services. eMarkets can be built around vertical (industry specific) and horizontal (cross industry) marketsaround vertical (industry specific) and horizontal (cross industry) markets

pagepage2424

eMarket Models

Indirect Suppliers

Direct Suppliers

eMarket Intermediary

Model TypeCompany Centric

Indirect Procurement

All suppliers to Company A are

linked with Company A and, where applicable,

each other

Characteristics

Industry VerticalDirect and

Indirect

Vertical Exchange

Community forms around common

exchange of direct and indirect goods

“Platform” built for eBusiness within a

vertical market enhancing

processes across the value chain

Industry Vertical Indirect

Procurement

Groups of buyers with common

interests align to gain leverage

Meta-Market

Industries

Horizontal S

er vices

Multiple industries integrate

processing leveraging buying, selling, and cross-industry horizontal

services

Company A

Company A

Company CCompany B

Company A

Company A

Company CCompany B

eMarkets are developing around a lot of different modelseMarkets are developing around a lot of different models

Company A

pagepage2525

Meta-Market Operations

VAC Development• Identify, launch or roll up VACs• Identify new customer bases• Create critical mass

Technology Infrastructure• Provide Technology

Platform/Integration Capabilities

Cross Community Support• Sales/Marketing• Customer Service• Cross VAC Optimization• Broader communities to allocate

R&D

Seller/Seller/SuppliersSuppliers

HR Benefits

Logistics

MRO

Marketing

Oil

& G

as

Au

to

Te

leco

m

Hig

h T

ec h

BuyersBuyers

Meta-Market

Meta MarketsMeta Markets

Meta-Market DriversMeta-Market Drivers The larger the network, the greater its power to create value for its membersThe larger the network, the greater its power to create value for its members

– Increased leverage with suppliersIncreased leverage with suppliers– Broader market accessBroader market access– Greater integration across market supply chainsGreater integration across market supply chains– Expanded community/collaboration opportunitiesExpanded community/collaboration opportunities

The larger the Meta-Market, the faster it can form and launch new eMarkets and provide greater The larger the Meta-Market, the faster it can form and launch new eMarkets and provide greater functionality to its portfolio membersfunctionality to its portfolio members

Markets of Markets: Meta-MarketsMarkets of Markets: Meta-Markets





AgendaAgenda


pagepage2727

Looking beyond the hype:Looking beyond the hype:

Let’s Get Real!Let’s Get Real!

pagepage2828

e-Market Opportunities, Risks and Uncertaintiese-Market Opportunities, Risks and Uncertainties

What are the Opportunities?What are the Opportunities? e-Market value leverse-Market value levers Strategic optionsStrategic options

Risks and UncertaintiesRisks and Uncertainties eMarket IssueseMarket Issues Internal issuesInternal issues

A Plan of ActionA Plan of Action Building a strategyBuilding a strategy Effective implementationEffective implementation

pagepage2929

First, the Good News...First, the Good News...

pagepage3030

The Five eMarket Value LeversThe Five eMarket Value Levers

Potential Benefit

Ex

ten

t o

f C

han

ge

Purchasing

Power

Process

Efficiency

Market

Efficiency

Supply Chain

Integration

Aggregation

pagepage3131

Basic Strategic Options Basic Strategic Options

Do nothingDo nothing

Join an existing e-Market:Join an existing e-Market: ParticipateParticipate Equity partnerEquity partner

Develop a new e-Market:Develop a new e-Market: PrivatePrivate PublicPublic

Combination (portfolio approach)Combination (portfolio approach)

“Ostrich”

“Follow”

“Lead”

Confused?!

pagepage3232

A Continuum of Increasing Opportunity (and Risk)... A Continuum of Increasing Opportunity (and Risk)...

Risk of being frozen out

Higher Control, Costs & Rewards

Risksand

Uncertainties

Opportunities

Investment capital

No one else joins

Equity upside Control own

destiny Process, COG

savings Industry

synergies

Developpublic

e-Market

Suppliers refuse to join

Systems expense

No equity upside

Process, COG savings

Developprivate

e-Market

Investment capital

Equity upside Process, COG

savings Industry

synergies

Join existinge-Market as

equity partner

Others get bigger share of benefits

Process, COG savings

Participate in industry synergies

Join existinge-Market

as a participantDo nothing

Fall behind competitors

Low cost

Option 2a Option 2b Option 3a Option 3b

Combination (portfolio approach)Option 1

pagepage3333

Next, the Bad News...Next, the Bad News...

(or Every Silver Lining(or Every Silver Lininghas a Cloud)has a Cloud)

pagepage3434

eMarket IssueseMarket Issues

Technology: Reality versus HypeTechnology: Reality versus Hype

Remorseless change - unpredictableRemorseless change - unpredictable

Critical mass is crucial: size countsCritical mass is crucial: size counts

Market perceptionMarket perception

Trust is fundamentalTrust is fundamental

pagepage3535

TechnologyTechnology

HypeHype the technology is readythe technology is ready integration is easyintegration is easy fastfast technology solves the problemstechnology solves the problems

XML is the new exchange XML is the new exchange

mediummedium

the technology is stablethe technology is stable

RealityReality the technology is still evolvingthe technology is still evolving integration is not easyintegration is not easyslowslowpeople and process issues are people and process issues are

significantsignificantXML is not ready, except in limited XML is not ready, except in limited

cases (e.g. RosettaNet)cases (e.g. RosettaNet)constant evolution and new entrantsconstant evolution and new entrants

“75% of eBusiness projects will fail”Source: Gartner Group December 1999

pagepage3636

Market Entrants

Source: Forrester Research, Goldman Sachs, Bear Stearns, PwC analysis

0

100

200

300

400

500

600

1997 1998 1999 2000

Source: PwC analysis

Market Potential

B2B online Penetration

($Trillions)

Online B2B Spend$15.6 T

Offline B2B Spend$4.3 T

20102000 2005

10

15

20

5

2%

November

forecast

March forecast

November forecast

35% 75%

Nestle USA signs agreement with Ariba

Earthgrains save time and money with Ariba

ECFood.com holds its first food auctions online

Pepsi selects Peoplesoft/ Commerce One

E-Steel starts up

Alliant foodservices implements i2

Efdex launches 1st global food and drink e-market

PwC introduces E.conomy - marketplace

Diageo to use Ariba B2B e-Commerce platform

Kraft selects Ariba B2B platform

GM, Ford, Diamler Chrysler form Auto-Pts Exchange

Sears, Carrefour, Oracle form Retail marketplace

Worldcatch.com splashes with seafood community

General Mills, Land O’Lakes in a web deal

Unilever launches B2B initiative on Ariba platform

March99

April99

May99

June99

July99

Aug99

Sept99

Oct99

Nov99

Dec99

Jan2000

Feb2000

March2000

Atlas Ventures Makes Investment in eFoodmanager

Remorseless changeRemorseless change

pagepage3737

Source: Forrester Research, Goldman Sachs, Bear Stearns, PwC analysis

Entry Expansion Dominate Consolidation

Level of eMarket Adoption

CustomerLock-In Competitor

Lock-Out

eMarketDevelopment Stage

Number ofeMarketCompetitors

First to market is not the objective,achieving critical mass is crucial

Achieving “critical mass” is crucialAchieving “critical mass” is crucial

SIZE COUNTS!

pagepage3838

The Problem

• If you do not do it, market punishes you

• If you do it wrong, market also punishes you

• The risk is high; the reward is great - you’ve have to get it right

How to succeed

• Clear articulation of strategy to market is important

• The strategy can cover all or any element of the value chain

• Arriving at the right strategy involves rethinking conventional business models

Market perceptionsMarket perceptions

pagepage3939

Trust is fundamentalTrust is fundamental

(Lack of) trust is consistently identified is the top inhibitor to participation basic security infrastructurebasic security infrastructure

– authentication (who?)authentication (who?)– privacy (confidential?)privacy (confidential?)– authorisation (permitted?)authorisation (permitted?)– integrity (what was sent?)integrity (what was sent?)– non-repudiation (binding?)non-repudiation (binding?)

credit rating - ability to paycredit rating - ability to pay transaction insurance - willingness to paytransaction insurance - willingness to pay performance - on time, in full, to specificationperformance - on time, in full, to specification co-operating competitors - boundaries, individual versus communityco-operating competitors - boundaries, individual versus community

PKI (Public Key Infrastructure) technology can provide some answers ; PKI (Public Key Infrastructure) technology can provide some answers ; however, implementation can be costly and time consuminghowever, implementation can be costly and time consuming

pagepage4040

Internal IssuesInternal Issues

How prepared is your organisation?How prepared is your organisation?

Need to realistically assess performance in the key areas of:Need to realistically assess performance in the key areas of: StrategyStrategy Organisation and CompetenciesOrganisation and Competencies ProcessesProcesses Performance ManagementPerformance Management Systems and TechnologySystems and Technology Delivery and OperationsDelivery and Operations LegalLegal TaxTax SecuritySecurity

pagepage4141

How to get the most silverHow to get the most silverfor the smallest storm...for the smallest storm...

pagepage4242

What is happening in your What is happening in your industry?industry?

Key Question 1Key Question 1

pagepage4343

What are your competitors What are your competitors and customers (suppliers) and customers (suppliers)

doing?doing?


pagepage4444

Do you have an e-Market Do you have an e-Market strategy?strategy?


pagepage4545

Is your e-Market strategy owned Is your e-Market strategy owned (understood?) by the CEO / Board?(understood?) by the CEO / Board?


pagepage4646

Can you successfully Can you successfully implement your e-Market implement your e-Market

strategy?strategy?


pagepage4747

Most will Fail...Most will Fail...

“75% of e-Business projects will fail”

Source: Gartner Group December

“Many of the solutions announced are not real e-Markets, and of those that are, many will not be built; many of those built will not survive; and many of those that survive will

consolidate into super-e-Markets”Source: IDC July 2000

pagepage4848

“90% of eBusinesses have suffered significant disruption since launch”

Source: PwC September 1999

ReliabilityReliability

pagepage4949

Create a Realistic StrategyCreate a Realistic Strategy

Realistically assess performance in the key areas of:Realistically assess performance in the key areas of: StrategyStrategy Organisation and CompetenciesOrganisation and Competencies ProcessesProcesses Performance ManagementPerformance Management Systems and TechnologySystems and Technology Delivery and OperationsDelivery and Operations LegalLegal TaxTax SecuritySecurity

Build a strategy that identifies and aligns:Build a strategy that identifies and aligns: ObjectivesObjectives RisksRisks ControlsControls

Your worlds Our people

Your E-Business Partner !

Seongmin Ryu Principal Consultant e-Procurement Implementation & e-Marketplace.

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Transcript of Seongmin Ryu Principal Consultant e-Procurement Implementation & e-Marketplace.