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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” 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.
Citation preview
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
3
20
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.
2
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
2
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
2
11
“Problems can be complicated.
Solutions cannot.”
Implement
3
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
3
13
Simplify!
“Simplicity is the ultimate sophistication”
Leonardo Da Vinci
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14
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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15
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
3
16
Technology
“Technology does not drive change – it enables
change”
Anonymous
4
17
Traditional vs. e-Procurement process
Traditional Procurement
E-Procurement
LEADTIME REDUCED BY 67% IN TOTAL
4
18
Technology support
SPEEDING UP THE JOURNEY TOWARDS PROCUREMENT EXCELLENCE
Paperless
processes
Reduced
lead
times
Increased spend
visibility
Automated
checks
Reduced
transactional
costs
4
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
4
20
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
4
21
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
4
22
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
4
23
Alignment
“The present contains nothing more than the past, and
what is found in the effect was already in the cause”
Henry Bergson
5
24
Alignment between operations, procurement and finance
BRIDGING THE GAP
No
Invoice posted
Account Payable
Invoice posting Ok?
Purchasing
Correction
Operations
Correction
Invoice
queue
Yes
5
25
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
6
26
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.
6
27
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
7
28
Implement Consulting Group
Learn more about how we work with SAP Supply Chain Management
Learn more about how we work with Procurement
Go to Implement Consulting Group's main website