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Breakout Session # 2104
Thomas Pfeiffer, Sr. Associate, Booz Allen Hamilton
Rajendra Rathod, Associate, Booz Allen Hamilton
April 24, 2007
10:45 am – 11:45 am
Taking Spend Analysis to the Next Level
Key Learning ObjectivesKey Learning Objectives
Defining a process to achieve an enterprise wide view of spending to leverage in the strategic sourcing process
Creating an integration layer to facilitate increased spend visibility and data transformation, both upstream and downstream
Impacting the enterprise through increased contract compliance, cost savings tracking and spend reporting
Defining a process to achieve an enterprise wide view of spending to leverage in the strategic sourcing process
Creating an integration layer to facilitate increased spend visibility and data transformation, both upstream and downstream
Impacting the enterprise through increased contract compliance, cost savings tracking and spend reporting
Fully Automated SpendManual Spend Analysis Spend Analysis Continuum
Manual spend analysisManual spend analysis
Requires organizations to identify, compile and scrub data when requirements change
Data analysis currently segregated by Procurement, Finance, Human Resources, CIO, etc., reporting
Manual mapping of data into appropriate taxonomy
Avoids risk of buying an immature SW solution in a SW market that is consolidating and changing
Organizations refresh data and dashboards on a regimented time interval while changes to schedule add costs
Requires organizations to identify, compile and scrub data when requirements change
Data analysis currently segregated by Procurement, Finance, Human Resources, CIO, etc., reporting
Manual mapping of data into appropriate taxonomy
Avoids risk of buying an immature SW solution in a SW market that is consolidating and changing
Organizations refresh data and dashboards on a regimented time interval while changes to schedule add costs
Automated spend analysisAutomated spend analysis Repeatable, automated solution enables near real-time
spend analysis
Improved support of enforcement and compliance activities
Automated mapping into spend taxonomy
Comprehensive and accurate spend database leveraging third party data to increase intelligence of analysis
Design dashboards to provide enterprise level visibility
Repeatable, automated solution enables near real-time spend analysis
Improved support of enforcement and compliance activities
Automated mapping into spend taxonomy
Comprehensive and accurate spend database leveraging third party data to increase intelligence of analysis
Design dashboards to provide enterprise level visibility
How does spend analytics impact my organization and why is it important?
OMB has recently mandated all government agencies adopt strategic sourcing – but they have provided little direction on “how” to do it
Agency chief acquisition officers are required to report the cost reductions and agency improvements achieved through strategic sourcing to OMB’s Office of Federal Procurement Policy.
Some of the agencies and services have experimented in sourcing – with little consistency in practices
GSA has awarded a Strategic Sourcing BPA to provide a vehicle that agencies can utilize to secure sourcing and spend analytics support
GSA has awarded a Strategic Sourcing BPA to provide a vehicle that agencies can utilize to secure sourcing and spend analytics support
Spend analytics is important because it is key to everything from commodity analysis to contract compliance
Diagnostic & Opportunity Identification Validation & Execution Implementation
EstimatedSavings
EstimatedSavings
IdentifiedSavings
IdentifiedSavings
BudgetedSavings
BudgetedSavings
RealizedSavings
RealizedSavings
Draft & IssueRFP for Select Commodities
Draft & IssueRFP for Select Commodities
Segment and evaluate spend
Profile supply base Understand current
purchasing processes Develop basic
economics
Identify requirements Understand current
contracts Understand drivers of
cost Identify service/quality
issues
Develop & convert hypotheses into actionable ideas
Estimate potential savings by source
Categorize/prioritize opportunities
Identify “Quick Wins”
Identify “Quick Wins”
Analyze RFP Responses
Analyze RFP Responses
Conduct Negotiations and
Finalize Agreement
Conduct Negotiations and
Finalize Agreement
Screen and select suppliers
Compose and validate RFP
Release RFP Address supplier
questions
Assess Key Demand Issues and Tradeoffs
Assess Key Demand Issues and Tradeoffs
Identify Business Process
Opportunities
Identify Business Process
Opportunities
Gain Buy-In of Key Constituents
Gain Buy-In of Key Constituents
Formulate business case and estimate savings potential
Review and revise proposals
Identify champions
Initiate SavingsTrack Savings
Monitor Compliance
Initiate SavingsTrack Savings
Monitor Compliance
Supply Side
Demand/Process Side
Establish screening criteria
Revise savings estimate
Short-list vendors Develop negotiation
strategy
Conduct negotiations Select final supplier(s) Resolve timing issues Finalize and sign
agreement(s)
Document strategy Create action/
transition plan Develop necessary
support systems Track progress
Product specification Order practices/
quantities Contract and policy
compliance
Define alternative approaches
Leverage best practices
Restructure operating models
“Workshop”
Develop Savings Hypotheses
Baseline Commodity
Identify Needs & Define Objectives
1
2 3
Today programmatic spend management is growing in importance as organizations want to find ways to do more with less
Scope of the CPO Agenda
What it means
What it comprises
“What are we trying to
achieve?”
Objectives, e.g.,
– Capture cost savings
– Support of agency wide initiatives
– Provide safe and reliable operations to all stakeholders
Alignment to Federal goals and intiatives
“How do we plan to achieve our mission?”
“What are we actually
achieving?”
Budgetary objectives
Mission support and readiness
Individual organizational goals
Technology
PerformanceManagement
Metrics Management
Process
Procurement Processes
Financial Management
MissionMission ResultsResultsVisionVision
Strategic Sourcing
Contract Mngt. Executional Client relations Supplier
management
Systems functionality
Accessibility / Usability
Organizational efficiency
Budgeting Track savings Performance
reporting
ObjectivesObjectives
Spend Visibility
Enterprise wide spend visibility is the catalyst for successfully impacting downstream activities
Data & System Integration
Pathway to Cost Savings
Compliance & Reporting
Creation of an integration layer to facilitate spend visibility and data transformation, both upstream and/or downstream
Creation of an integration layer to facilitate spend visibility and data transformation, both upstream and/or downstream
Leveraging the increased spend visibility through the development of an Opportunity Assessment to build a Strategic Sourcing Roadmap
Leveraging the increased spend visibility through the development of an Opportunity Assessment to build a Strategic Sourcing Roadmap
Development of a closed loop process to build in robust compliance monitoring and cost savings performance
Development of a closed loop process to build in robust compliance monitoring and cost savings performance
Defining a process to achieve an enterprise wide view of spend across the organization to leverage in the strategic sourcing and contracting processes
Defining a process to achieve an enterprise wide view of spend across the organization to leverage in the strategic sourcing and contracting processes
ArmyDataSource
Air ForceData Source
NavyData Source
Other Data Sources
Limited data sharing & integration
Some data are posted to local web sites
Local security limits cross Domain or cross Service access
Difficult to find the right web site with the right information
Numerous disparate applications
Many pointto point
connections
User
ArmyDataSource
Air ForceData Source
NavyData Source
Other Data Sources
Limited data sharing & integration
Some data are posted to local web sites
Local security limits cross Domain or cross Service access
Difficult to find the right web site with the right information
Numerous disparate applications
Many pointto point
connections
User
Understanding the primary challenges to obtaining increased breadth and depth of spend visibility is the first step to achieving it
Unique approaches such as Net-Centric Transformation creates increased data accessibility and usability
Post Netcentric TransformationCurrent State
• Data analysis was time consuming and may have required numerous resources
• Existence of a lack of trust in data
• Data resided in multiple systems and in inconsistent formats
• Data querying required knowledge of SQL
• Dissemination and reporting of data was limited
• Reactive decision making
• Increased data accessibility and reporting and analysis capabilities
• More reliable data and information
• Data resides in a data warehouse and in a common format
• User-friendly querying at varying levels of detail within the organization
• Data can be viewed and shared over the Internet
• Proactive decision making
Net-Centricity is the realization of a robust, globally interconnected network environment that includes infrastructure, systems, processes, and people in which data is shared in a timely and seamless manner among users, applications, and platforms. Net-centricity will ensure that users of information at any level can both take what they need and contribute what they know.
Net-Centricity is the realization of a robust, globally interconnected network environment that includes infrastructure, systems, processes, and people in which data is shared in a timely and seamless manner among users, applications, and platforms. Net-centricity will ensure that users of information at any level can both take what they need and contribute what they know.
A Net-Centric approach creates a virtual data warehouse as a backbone facilitating compliance, reporting and strategic sourcing…
Financial System 1(Oracle)
• Balance Scorecards• Dashboards• Interactive Reports• Static Reports• Data Mining
Data Warehouse
• OLAP• Ad-hoc ReportsFinancial
System 2(Peoplesoft)
Accounting System(Access)
Analytics• Organizational• Commodity• Procurement • Customer
Metrics & KPI’s• Number of Awards
by Buyer• Number of
Requisitions Rejected
• Length of Time from One Stage to the Next in Cycle
Procurement System(PRISM)
• Portal• Web Services
Multidimensional Cube
External Systems(FPDS, P Card, CCR)
Source Systems Data Stores Analytics & BI Services Users
Ext
ract
– T
ran
sfo
rm –
Lo
ad (
ET
L) Categorization
of spend
Optimization of the Supply Base
Opportunity for Strategic Sourcing
Off
ice
Su
pp
lies
IT S
ervi
ces
Tel
eco
m
Pri
nti
ng
Fac
iliti
es
Categorization of spend
Optimization of the Supply Base
Opportunity for Strategic Sourcing
…ultimately building an enterprise wide spend cube aids in identifying who you are buying from and what you are buying
2
1 Who do you buy from?
What are you buying?
Creation of an Enterprise Wide Spend Cube
Off
ice
Su
pp
lies
IT S
ervi
ces
Tel
eco
m
Pri
nti
ng
Fac
ilit
ies
3 How is it being Sourced?
Drawing and imaging software43161900Adobe /AE 5.5 PB Std-Pro M
File security software43162503Cobra+ 120GB 7200Rmp Firewall
Printer photocopier drums44103109HP LaserJet8500 Drum
Printing and writing paper14111500HI-SPD WHT 8-1/2X11 1000+
Toner44103103HP C4127X UP MAX CAPACITY
UNSPSC DescriptionUNSPSC
CodeTransactional Description
Drawing and imaging software43161900Adobe /AE 5.5 PB Std-Pro M
File security software43162503Cobra+ 120GB 7200Rmp Firewall
Printer photocopier drums44103109HP LaserJet8500 Drum
Printing and writing paper14111500HI-SPD WHT 8-1/2X11 1000+
Toner44103103HP C4127X UP MAX CAPACITY
UNSPSC DescriptionUNSPSC
CodeTransactional Description
Drawing and imaging software43161900Adobe /AE 5.5 PB Std-Pro M
File security software43162503Cobra+ 120GB 7200Rmp Firewall
Printer photocopier drums44103109HP LaserJet8500 Drum
Printing and writing paper14111500HI-SPD WHT 8-1/2X11 1000+
Toner44103103HP C4127X UP MAX CAPACITY
UNSPSC DescriptionUNSPSC
CodeTransactional Description
Drawing and imaging software43161900Adobe /AE 5.5 PB Std-Pro M
File security software43162503Cobra+ 120GB 7200Rmp Firewall
Printer photocopier drums44103109HP LaserJet8500 Drum
Printing and writing paper14111500HI-SPD WHT 8-1/2X11 1000+
Toner44103103HP C4127X UP MAX CAPACITY
UNSPSC DescriptionUNSPSC
CodeTransactional Description
$0
$5
$10
$15
$20
$25
Perceived Spend
Perceived Spend
Actual Spend
Actual Spend
Increased visibility will immediately aid in highlighting areas of opportunity that were not identified previously…
Primary issues driving a large delta between Actual and Perceived spend includes a lack of detailed transactional data, incorrect categorization and/or incorrectly identified corporate family spend
Utilization of a common spend taxonomy (e.g UNSPSC) and unique supplier ID (e.g. DUNS No.) will help to correctly set an accurate spend baseline
Spend by Supplier
Rationalizing the Supplier Spend Baseline and
US
$ M
illi
on
s
Developing Accurate and Actionable Dashboards
Demonstrated Best PracticesDemonstrated Best Practices
Build spend categories utilizing an industry accepted taxonomy
Leverage third party data to increase intelligence of analysis
Refresh data and dashboards on a regimented time interval
Design dashboards to provide enterprise level visibility
Compliance should be integrated across the dashboard views
Build spend categories utilizing an industry accepted taxonomy
Leverage third party data to increase intelligence of analysis
Refresh data and dashboards on a regimented time interval
Design dashboards to provide enterprise level visibility
Compliance should be integrated across the dashboard views
…and creates an inherent transparency at the enterprise level
ObjectivesObjectives
Spend Visibility
The task of increasing spend visibility means evaluating process changes, tools and analytics
Data & System Integration
Pathway to Cost Savings
Compliance & Reporting
Creation of an integration layer to facilitate spend visibility and data transformation, both upstream and/or downstream
Creation of an integration layer to facilitate spend visibility and data transformation, both upstream and/or downstream
Leveraging the increased spend visibility through the development of an Opportunity Assessment to build a Strategic Sourcing Roadmap
Leveraging the increased spend visibility through the development of an Opportunity Assessment to build a Strategic Sourcing Roadmap
Development of a closed loop process to build in robust compliance monitoring and cost savings performance
Development of a closed loop process to build in robust compliance monitoring and cost savings performance
Defining a process to achieve an enterprise wide view of spend across the organization to leverage in the strategic sourcing and contracting processes
Defining a process to achieve an enterprise wide view of spend across the organization to leverage in the strategic sourcing and contracting processes
Organizations vary significantly as to current state and technology can play an essential role in incremental impacts
LaggardsLaggards Common PracticesCommon Practices Best in ClassBest in Class
Analysis Tools No standardized analysis tool Analysis performed on an ad-hoc
basis with data retrieved manually
Analysis performed on centrally stored information
Tools are local and non standardized (e.g. Excel, Power-point)
Analysis performed using data warehousing solutions
Standard analysis and reporting tools to support executive decisions
eSourcing and eProcurement
Tools
Locally (buyer level) maintained contracts
No standard procurement tool
Centralized contract management and spend analysis tools
Centralized eProcurement tools
Integrated sourcing and procurement tools with spend analysis
Auction to quote to contract tools Robust Portal management
capabilities to provide information
Single Platform Multiple non standard technologies Standardized platforms within business units but not across business units
Mostly common database platform
Standardized platform across business units
Business processes established to maximize effectiveness /efficiency
Applications Spotty supplier performance history based on the tracking capability of local materials management environments
Basic supplier buy and performance consolidation environment
Application technology now typified by contract to purchase terms links, and call-off / receipt / quality transaction data capture
Data No centralized data storage Data stored on individual machines Fragmented procurement transaction
history databases,
Excel, Access or other local database store data with manual and automated populations which are transmitted and centrally consolidated
Databases standardized within business units
Integrated sourcing knowledge bases based on robust databases
Consolidated sourcing and procurement data across business units
Increasing Sophistication
Contract Procure PayMonitor &
Report
Sel
ecte
d V
end
ors
To
ols
/F
un
ctio
nal
ity
Contract Life Cycle Mgmt (CLCM)•Creation•Negotiation•Optimization•Approval Support•Fulfillment Tracking•Repository
CLCM•diCarta•I-many•Upside Software •Ariba•Nextance•Hummingbird•Procuri•Oracle
Business Intelligence (BI) for contract compliance & supplier performance mgmt, spend data analysis, and mgmt reporting
Spend Data Enhancement/ Enrichment
BI•Hyperion•Business Objects•SASSpend Data Enhancement/ Enrichment
•D&B •Zycus•Austin Tetra
eRequisitioningeCatalog/Order ManagementReceipt and Acceptance Tracking
ERP vendors •SAP•Oracle•Peoplesoft
Pure-play procurement software vendors (e.g., Ariba, i2, Emptoris)
Invoice ManagementAccounts PayableThree-Way (PO/R&A/Invoice) Match
ERP vendors •SAP•Oracle•Peoplesoft
eSourcing •Spend Analysis•Supplier Discovery
•eRFx/Reverse Auction
•Sourcing Decision•Sourcing Activity Mgmt
•Supplier Assessment
•Bid Optimization
eSourcing•Ariba•Emptoris•Verticalnet•Frictionless Commerce (SAP)
•Oracle•Global eProcure•Procuri
Key Systems Issues:• Lack of systems
integration• Disparate data sources• Redundant data stores• Incongruent naming
conventions
Lead To:• Limited spend data• Lack of contract
visibility/compliance• Unauthorized, duplicate
payments
Source
The landscape of offerings and vendors is complex with many areas of overlap from contract management to reporting
Vendor Ratings Framework
Market Leaders
– Ariba and Emptoris are leaders with strong spend analysis and sourcing decision capabilities
Strong Competitors
– Global eProcure, Synertrade and Verticalnet have strong current offerings although face competition from suite vendors
Challengers
– Suite vendors like SAP, Oracle and Peoplesoft
Vendor Positions
Understanding product positioning and total cost/benefits requires a structured and disciplined approach to the evaluation process
Create an integration layer to clean, consolidate and standardize sourcing data from disparate systems across units and technologies
Map and Integrate data across multiple technologie
Develop spend analysis and reporting solutions over the integration layer to provide corporate wide spend analysis and decision making
Key Benefits Lower initial cost of implementation to develop the solution versus
standardizing on a single platform
Lower on-going maintenance costs due to data standardization and common reporting
Consolidated spend analysis across technologies and locations
Integrate Existing Technologies Solution Overview
Global ProcurementGlobal Procurement
Location Unit-1
Location Unit-1
Location Unit-2
Location Unit-2
Location Unit-3
Location Unit-3
LegacyLegacy SAPSAP OracleOracle
Corporate Head-Quarters
Locations
Technology
Integration LayerIntegration Layer
Spend Analysis
Spend Analysis eSourcingeSourcing Contract
Mngt. Contract
Mngt.
As an alternative to selecting a new technology platform organizations are creating an integration layer…
…depending upon the level of integration both upstream and downstream options exist for tools and data
Spend Analysis ToolSpend Analysis Tool
Direct DataDirect Data Transformed Data
Transformed Data
Integration LayerIntegration Layer
Sourcing Data
Direct DataDirect Data Transformed Data
Transformed Data
Sourcing Data
Global ProcurementGlobal Procurement
Locations Unit-1
Locations Unit-1
Locations Unit-2
Locations Unit-2
Locations Unit-3
Locations Unit-3
LegacyLegacy SAPSAP OracleOracle
Corporate Head-Quarters
Locations
Technology
Upstream Integration (Tools, Data Normalization)Upstream Integration (Tools, Data Normalization)
Supplier Data
Supplier Data
TransactionalData
TransactionalData
Downstream Integration (Bolt-on, Data Normalization)Downstream Integration (Bolt-on, Data Normalization)
Supplier Data
Supplier Data
TransactionalData
TransactionalData
Enterprise ViewData Cleansing View
ObjectivesObjectives
Spend Visibility
Data & System Integration
Pathway to Cost Savings
Compliance & Reporting
Creation of an integration layer to facilitate spend visibility and data transformation, both upstream and/or downstream
Creation of an integration layer to facilitate spend visibility and data transformation, both upstream and/or downstream
Leveraging the increased spend visibility through the development of an Opportunity Assessment to build a Strategic Sourcing Roadmap
Leveraging the increased spend visibility through the development of an Opportunity Assessment to build a Strategic Sourcing Roadmap
Development of a closed loop process to build in robust compliance monitoring and cost savings performance
Development of a closed loop process to build in robust compliance monitoring and cost savings performance
Defining a process to achieve an enterprise wide view of spend across the organization to leverage in the strategic sourcing and contracting processes
Defining a process to achieve an enterprise wide view of spend across the organization to leverage in the strategic sourcing and contracting processes
Leveraging the increased spend visibility naturally translates into developing a Sourcing Opportunity Assessment
The evolution of spend transformation will be an enabler to identifying and executing against sourcing opportunities…
Procurement Value Levers
Increase coverage of spend
Basic cost insights
Credible threat to switch supplier
– “Designed-in” competition
– Consistent messages
Tenders / auctions
Multi-year target commitments
Timing of the buy for traded commodities
Rationalise supplier base
Switch to cost advantaged suppliers
Manage drivers of total cost of ownership, to reduce Internal costs
Reduce internal process burden to manage supply and transaction flow
Streamline logistics at supplier interface
Reduce consumption
Reduce specification
Standardise according to overall product architecture
Use industry standards instead of custom designed parts
Switch to substitute technologies with desired functionality
Leverage supplier innovation capabilities
Find appropriate make/buy/ outsource balance across supply chain tiers
Source and compete for business at tier 2 of supplier base
Supplier base restructuring
Influence product mix/regional preferences to favour products with greater supplier base leverage
PriceLevers
CostLevers
DemandLevers
ValueLevers
Sourcing function enablesProcurement function delivers
Strategic Sourcing Impact
3-5% opportunity ± commodity pricemovements + value of growth
8-25% opportunityover 6-24 month time horizon
Diagnostic & Opportunity Identification Validation & Execution Implementation
EstimatedSavings
EstimatedSavings
IdentifiedSavings
IdentifiedSavings
BudgetedSavings
BudgetedSavings
RealizedSavings
RealizedSavings
Draft & IssueRFP for Select Commodities
Draft & IssueRFP for Select Commodities
Segment and evaluate spend
Profile supply base Understand current
purchasing processes Develop basic
economics
Identify requirements Understand current
contracts Understand drivers of
cost Identify service/quality
issues
Develop & convert hypotheses into actionable ideas
Estimate potential savings by source
Categorize/prioritize opportunities
Identify “Quick Wins”
Identify “Quick Wins”
Analyze RFP Responses
Analyze RFP Responses
Conduct Negotiations and
Finalize Agreement
Conduct Negotiations and
Finalize Agreement
Screen and select suppliers
Compose and validate RFP
Release RFP Address supplier
questions
Assess Key Demand Issues and Tradeoffs
Assess Key Demand Issues and Tradeoffs
Identify Business Process
Opportunities
Identify Business Process
Opportunities
Gain Buy-In of Key Constituents
Gain Buy-In of Key Constituents
Formulate business case and estimate savings potential
Review and revise proposals
Identify champions
Initiate SavingsTrack Savings
Monitor Compliance
Initiate SavingsTrack Savings
Monitor Compliance
Supply Side
Demand/Process Side
Establish screening criteria
Revise savings estimate
Short-list vendors Develop negotiation
strategy
Conduct negotiations Select final supplier(s) Resolve timing issues Finalize and sign
agreement(s)
Document strategy Create action/
transition plan Develop necessary
support systems Track progress
Product specification Order practices/
quantities Contract and policy
compliance
Define alternative approaches
Leverage best practices
Restructure operating models
“Workshop”
Develop Savings Hypotheses
Baseline Commodity
Identify Needs & Define Objectives
…and developing Savings Hypotheses which can aid the organization in meeting its socio-economic goals
2
Identifying high priority opportunities and gaining buy-in to the process requires organizational involvement…
Identify opportunities, quantify and qualify
Initial long list of hypotheses
Develop actionable opportunities
AreaArea Savings LeverSavings Lever
SupplySupply
Global agreement
Bundling HW/SW and Services when applicable
Don’t buy
Global agreement
Bundling HW/SW and Services when applicable
Don’t buy
ExplanationExplanation
Some purchases are questioned (PDAs)
Some purchases are questioned (PDAs)
% Savings Target
% Savings Target
Realization Obstacles
Realization Obstacles
11
ExplanationExplanation
Understanding exactly what is being bought
Resources for implementation
Understanding exactly what is being bought
Resources for implementation
DemandDemand
Promote desktops vs laptops
Lease vs buy – and buy after three years for using another year at cheaper costs than year leasing
Buy batches end of market cycles HW
Substitutes solutions
Consolidated servers
Purchase processing powers
Promote desktops vs laptops
Lease vs buy – and buy after three years for using another year at cheaper costs than year leasing
Buy batches end of market cycles HW
Substitutes solutions
Consolidated servers
Purchase processing powers
Substitutes: use PDA but no laptop!
Substitutes: use PDA but no laptop!
11
Resources for implementation
Users reluctance
Resources for implementation
Users reluctance
TotalTotal 10-15%10-15% 11
- IT Hardware Sourcing Strategy Blueprint -
Legend 0 4Low complexity High complexity
AreaArea Savings LeverSavings Lever
SupplySupply
Global agreement
Bundling HW/SW and Services when applicable
Don’t buy
Global agreement
Bundling HW/SW and Services when applicable
Don’t buy
ExplanationExplanation
Some purchases are questioned (PDAs)
Some purchases are questioned (PDAs)
% Savings Target
% Savings Target
Realization Obstacles
Realization Obstacles
11
ExplanationExplanation
Understanding exactly what is being bought
Resources for implementation
Understanding exactly what is being bought
Resources for implementation
DemandDemand
Promote desktops vs laptops
Lease vs buy – and buy after three years for using another year at cheaper costs than year leasing
Buy batches end of market cycles HW
Substitutes solutions
Consolidated servers
Purchase processing powers
Promote desktops vs laptops
Lease vs buy – and buy after three years for using another year at cheaper costs than year leasing
Buy batches end of market cycles HW
Substitutes solutions
Consolidated servers
Purchase processing powers
Substitutes: use PDA but no laptop!
Substitutes: use PDA but no laptop!
11
Resources for implementation
Users reluctance
Resources for implementation
Users reluctance
TotalTotal 10-15%10-15% 11
- IT Hardware Sourcing Strategy Blueprint -
Legend 0 4Low complexity High complexityLegend 0 4Low complexity High complexity
21 3
Booz Allen Commodity Workbooks
Sourcing Opportunity Framework
Interviews
Segment higher priority
opportunities
Commodity Complexity Value chain transparency Number of specifications Complexity of drawings
Organizational Impact Budgetary impact in current
fiscal year Make vs. buy
Switching Costs Transition plan Risk mitigation Knowledge transfer
Total
Relative Ranking Based on Opportunity Criteria
50% 40% 30% 20% 10% 0% +10% +20% +30% +40% +50%
ParityParity AdvantagedAdvantagedDisadvantagedDisadvantaged
EXAMPLEEXAMPLE
Opportunity A Opportunity COpportunity B
Average OfAbsoluteRankings
…and employing a quantitative approach to run hypotheses to ground is a practical approach to building consensus
Finding the right sourcing approach to apply to the opportunity depends on the criticality and the complexity of the category
Multiple dimensions driving high value chain complexity, e.g. tough requirements on delivery times, large variety of products, short product life-cycles, high level on built-in structural costs
Rapid sourcing focusing on supply side
levers
Strategic sourcing focusing on supply and
demand side levers
Collaborative Sourcing addressing the entire value
chain
Complexity of value chain/
benefits capture
Complexity of value chain/
benefits capture
Level of criticalness for own business, e.g. total cost impact and operational impact
Strategic importance Strategic importance
Low
Medium
High
HighLow Medium
Incremental value
vs. effo
rt to capture value
Sourcing Approach Framework
Mutual willingness to participate is a prerequisite for collaboration.
Mutual willingness to participate is a prerequisite for collaboration.
Striking the right balance between collaboration and competition is key to successfully executing against the sourcing opportunity
Collaboration Competition
RelationshipEnablers
Building and Sustaining Supplier Relationships
Building and Sustaining Supplier Relationships
Defined and clearly communicated supplier roles
Supplier and internal process improvement targets
Investment in supplier development
Defined and clearly communicated supplier roles
Supplier and internal process improvement targets
Investment in supplier development
Maintaining Competition Among Suppliers
Maintaining Competition Among Suppliers
Supplier commitment to competitiveness and continued cost reductions
External benchmarking Exit clauses
Supplier commitment to competitiveness and continued cost reductions
External benchmarking Exit clauses
Balance
RelationshipProcesses
Integrating Value ChainIntegrating Value Chain
Working a joint improvement agenda
Aggregate capacity planning Benefit sharing Communication and info sharing Investment in infrastructure E-procurement
Working a joint improvement agenda
Aggregate capacity planning Benefit sharing Communication and info sharing Investment in infrastructure E-procurement
Measuring Economic Viability of RelationshipMeasuring Economic
Viability of Relationship
Performance measurement Performance monitoring Corrective action plans Ongoing competitive assessment
Performance measurement Performance monitoring Corrective action plans Ongoing competitive assessment
Achieving Balanced Sourcing
ObjectivesObjectives
Spend Visibility
Engineering in a robust compliance and reporting process is key to the measurement of progress made against organizational goals…
Data & System Integration
Pathway to Cost Savings
Compliance & Reporting
Creation of an integration layer to facilitate spend visibility and data transformation, both upstream and/or downstream
Creation of an integration layer to facilitate spend visibility and data transformation, both upstream and/or downstream
Leveraging the increased spend visibility through the development of an Opportunity Assessment to build a Strategic Sourcing Roadmap
Leveraging the increased spend visibility through the development of an Opportunity Assessment to build a Strategic Sourcing Roadmap
Development of a closed loop process to build in robust compliance monitoring and cost savings performance
Development of a closed loop process to build in robust compliance monitoring and cost savings performance
Defining a process to achieve an enterprise wide view of spend across the organization to leverage in the strategic sourcing and contracting processes
Defining a process to achieve an enterprise wide view of spend across the organization to leverage in the strategic sourcing and contracting processes
…yet spend compliance is the leading challenge for organizations today and addressing the “spend compliance gap” is critical
Diagnostic & Opportunity Identification Validation & Execution Implementation
EstimatedSavings
EstimatedSavings
IdentifiedSavings
IdentifiedSavings
BudgetedSavings
BudgetedSavings
RealizedSavings
RealizedSavings
Draft & IssueRFP for Select Commodities
Draft & IssueRFP for Select Commodities
Segment and evaluate spend
Profile supply base Understand current
purchasing processes Develop basic
economics
Identify requirements Understand current
contracts Understand drivers of
cost Identify service/quality
issues
Develop & convert hypotheses into actionable ideas
Estimate potential savings by source
Categorize/prioritize opportunities
Identify “Quick Wins”
Identify “Quick Wins”
Analyze RFP Responses
Analyze RFP Responses
Conduct Negotiations and
Finalize Agreement
Conduct Negotiations and
Finalize Agreement
Screen and select suppliers
Compose and validate RFP
Release RFP Address supplier
questions
Assess Key Demand Issues and Tradeoffs
Assess Key Demand Issues and Tradeoffs
Identify Business Process
Opportunities
Identify Business Process
Opportunities
Gain Buy-In of Key Constituents
Gain Buy-In of Key Constituents
Formulate business case and estimate savings potential
Review and revise proposals
Identify champions
Initiate SavingsTrack Savings
Monitor Compliance
Initiate SavingsTrack Savings
Monitor Compliance
Supply Side
Demand/Process Side
Establish screening criteria
Revise savings estimate
Short-list vendors Develop negotiation
strategy
Conduct negotiations Select final supplier(s) Resolve timing issues Finalize and sign
agreement(s)
Document strategy Create action/
transition plan Develop necessary
support systems Track progress
Product specification Order practices/
quantities Contract and policy
compliance
Define alternative approaches
Leverage best practices
Restructure operating models
“Workshop”
Develop Savings Hypotheses
Baseline Commodity
Identify Needs & Define Objectives
3
Savings leakage can be attributed to a number of issues related to transparency and the alignment of the organization to common goals
Chief Reasons for Savings LeakageChief Reasons for Savings Leakage
Lack of clear responsibilities, procedures and controls for ensuring spend and performance compliance
Insufficient infrastructure to communicate negotiated terms to all relevant stakeholders
Limited involvement of internal functions or stakeholders in sourcing requirements development, supplier discovery, and sourcing award decision making activities
No executive mandate or support for compliance with negotiated agreements
Lack of clear responsibilities, procedures and controls for ensuring spend and performance compliance
Insufficient infrastructure to communicate negotiated terms to all relevant stakeholders
Limited involvement of internal functions or stakeholders in sourcing requirements development, supplier discovery, and sourcing award decision making activities
No executive mandate or support for compliance with negotiated agreements
METRICSMETRICS
Alignment begins with an executive mandate and vertical integration of organizational metrics to establish a performance baseline
PERFORMANCE MANAGEMENT
ALIGN KPIs & TARGETS
Align KPIs and targets with interfacing functions
Complement financial KPIs with strategic KPIs to align with organizational strategies
Report higher order KPIs for the function as a whole
Maintain category and specific KPIs for contract performance and management
Align KPIs and targets with interfacing functions
Complement financial KPIs with strategic KPIs to align with organizational strategies
Report higher order KPIs for the function as a whole
Maintain category and specific KPIs for contract performance and management
Sr. Mgmt Metrics
Indicator Metrics
Indicator Metric
Indicator Metric
Detailed Metric
Detailed Metric
Detailed Metric
Detailed Metric
Detailed Metric
......
DATA
...... ...
Ultimately, technology can play the role of enabler but it is clearly the role of management to define organizational performance and build processes to measure against it
ProcurementProcurement
Locations Unit-1
Locations Unit-1
Locations Unit-2
Locations Unit-2
Locations Unit-3
Locations Unit-3
LegacyLegacy SAPSAP OracleOracle
Corporate Head-Quarters
Locations
Technology
Upstream Integration (Tools, Data Normalization)Upstream Integration (Tools, Data Normalization)
Supplier Data
Supplier Data
TransactionalData
TransactionalData
Downstream Integration (Bolt-on, Data Normalization)Downstream Integration (Bolt-on, Data Normalization)
Enterprise View Bolt-on applications validating supplier and
requisition compliance
Spend analytics identifying non-compliance through spend rationalization and categorization
Leveraging eForms in upstream integration applications for supplier on-boarding and compliance approval flows
Key Benefits Requires only incremental investments leveraging existing
platforms, providing substantial impacts on realized cost savings due to higher compliance percentages
Strong downstream impact from increased spend visibility providing insight into more accurate spending patterns
Integrating Compliance
SummarySummary
Fully Automated SpendManual Spend Analysis Spend Analysis Continuum
Automated enterprise wide spend analysis, provides the strongest foundation for programmatic sourcing, benefit capture, performance alignment and compliance
Incremental increases in investment, to capture greater spend visibility, through a Net-Centric Data Strategy, can provide significant value through increased cost savings identification and capture
Development of a spend integration layer, and the deployment of upstream spend tools and processes, will aid downstream value capture and increased levels of compliance
Utilization of commercial best practices, tools and processes, in developing spend analytics and sourcing strategies, will directly impact the learning curve and the results achieved
Recommended