Procure to Pay Transformation Case Study

Optus Procure to Pay Transformation The Journey 26 June 2013

Karen Carmichael Director, Procurement SingTel Optus [email protected]

Raj Dhawan Senior Manager, Operations Management Consulting Accenture [email protected]

1

Optus Procurement Transformation

AGENDA

Procurement @ Optus

Fix the Basics

Procure to Pay

Drive Value

Enhance capability

Change Management

2


Our Procurement

From Stickers To Satellites

10,000 Staff requesting over...

...$3.5bn in goods and services each year...

...with more than 3000 Suppliers.

All to ensure we deliver daily service and products to more than 10 million

consumers services along with Wholesale and Business customers.

Our procurement team delivers one of the industries lowest cost to spend model,

supporting sourcing across a diverse range of goods and services.

We are almost at our goal, it hasn’t always been easy but we have come along way in

our transformation journey.

3

Innovative

Sourcing

Solutions


Why Transform?

To lead our business in the development and execution of innovative sourcing and purchasing strategies in an advancing digital world.

A reactive transactional procurement capability that was seen as complex and confusing along with inconsistent and disaggregated supplier management. We were seen as a roadblock

Our Situation 2010

Our Goal

• Fix the basics: standardise our processes

• Procure to Pay: improve effectiveness and efficiency

• Drive value: enable cost benefit to the business

• Enhance capability: continuous improvement, upskilling, buy talent

Our Approach

4


AGENDA

Procurement @ Optus

Fix the Basics

Procure to Pay

Drive Value

Enhance capability

Change Management

5


Fix the Basics

Deliver sustainable cost management

strategies

Be streamlined and efficient

Have effective governance and compliance

Ensure superior performance

Enable business strategy

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

0

20

40

60

80

100

Nov Dec Jan Feb Mar Apr May June

Tenders in Progress

Direct Indirect Value ($mil)

# $mil

New Process

New Engagement & Governance

New Tracking and Analytics

New Supplier Governance

Deliver Quick Win Value

The Goal The Change

6

CLOSER


Fix the Basics

Results are being seen in compliance to Top Gun

process and process timelines

Intensive coaching model and

weekly measurement to embed

Top Gun process

Key metrics and processes are in

place, allowing us to pro-actively

manage our business

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

0

20

40

60

80

100

Nov Dec Jan Feb Mar Apr May June

Tenders in Progress

Direct Indirect Value ($mil)

# $mil

Embedding new Tender process and delivering Efficiency. Delivering Procurement Efficiency

40%

reduction in

time to

market

A new ‘Top Gun’ process was introduced across procurement to deliver an efficient and effective

sourcing strategy. Phase II intends to focus on the automation of this embedded process.

Accountability Collaboration Champion Empowerment Development

A rigorous governance and tracking of the process allows us to ensure it is operating effectively.

Individual tracker for every

Top Gun tender measures

timeline and marks the

completion of every step.

Visual Tender Wall with

Fortnightly ‘Round Wall’

meetings ensure challenge

areas are discussed as a

team.

Roll Up view allows us

to Champion the most

critical cases.

Tender on a page allows for Post

Implementation reviews to continue

development

Tender boards promote

healthy competition and

empower to succeed.

New process

7

CLOSER


Fix the Basics

We also ensured active tracking was in place to allow for the appropriate and timely management

of the process. Process efficiency

Area From To

Aged Tenders No emphasis on the age of tenders, no age targets, no visibility to age

We report weekly on aged tender progress, with a target of a 50% reduction in tenders over 1 yr age. Monthly reporting to MDs

Expired Agreement No visibility to contract expiry, managed on reactive basis as the business realised contracts had expired

Interim manual reporting established, all expiring contracts evaluated and renewal work kicks off where required

PO Compliance No visibility to the portion of POs below $100k that complied with Procurement policy

Regular audit has kicked off to drive the right behaviour and educate

Tender Communication Each Cat Mgr running a disparate process, with different communications, folder format etc. Difficult to arrange cover during absences

Standardised, documented process being rolled out based on consistent dropbox format and comm’s templates

WOC’s Average 25 WOCs over 2 weeks, no visibility or management of aged WOCs

Average 3 WOCs over 2 weeks, KPIs in place, aged WOCs actively managed

Active Management of Aged

Tenders and Expired agreements

88% Reduction in WOC’s >2 Weeks

of Age.

8


Fix the Basics

A new governance framework was embedded to make our buying decisions easier whilst

providing clarity to the Business. Governance

Supplier Segmentation Supplier relationship Model

Understand their importance

External Supplier Governance

Internal Governance External Governance

9

CLOSER


Fix the Basics

New Performance Dashboards and Saving Trackers are in place to ensure we are on track to

realise our benefits to Optus. Performance Mgmt

$333K savings based on average of

BAFO responses less final price

Addressing all these have demonstrated the ability to

save $$.

As seen in the Mobile E2E Planning Tender

10

CLOSER


Fix the Basics

We have aligned our spend and suppliers into the relevant categories and now have a new

taxonomy to perform spend diagnostics Spend Analytics

Allows for Strategic positioning

for cost and delivery efficiency.

Understanding our spend and the new

taxonomy it aligns to.

11


Fix the Basics

A monthly Supplier dashboard provides us with detailed information to ensure we are maximising

the vendor relationship. Vendor Mgmt

Ensuring our suppliers are

delivering to our expectations in a

consistent and standardised

evaluation framework.

Detailed scorecards for our Strategic

Suppliers performance across

common criteria:

- Quality / Safety & Sustainability

-.Delivery

- Cost Mgmt & Pricing

- Service Responsiveness

- Capabilities & Innovation

12


Fix the Basics

The key to communicating change and process to the business is our new and interactive Portal Engagement

In addition to improvements in usability, the site introduces; • sourcing procedures for each spend bracket (how to buy) • Refreshed Procurement policies • Download packs for key processes • Comprehensive help functions.

Just a quick note of positive feedback on your Portal – it

is outstanding!

From a project delivery perspective, the site offers

everything we need to know and more – great work!

And our Customers Love It

13


AGENDA

Procurement @ Optus

Fix the Basics

Procure to Pay

Drive Value

Enhance capability

Change Management

14


Procure to Pay – Context

• No clear framework to buy • Manual, sub-optimal processes;

inefficient workflows and duplicate approvals

• Lack of clear policies • Poor user experience – for both

business as well as procurement

• Crude way of linking contracts with purchase orders.

• No supplier integration. • No catalogues. • Underutilisation of current system • Poor usability.

• No spend categorisation • Lack of compliance reports • Overheads with time spent on admin

activities

• Annualised benefits of $9.5M • Compliance increase by 11% • Better relationship with

vendors • Quick and accurate reporting • No longer seen as a roadblock • Improved usability • Specialised/assisted buying

Process & Technology

Operating Model

Reporting & Compliance

Benefits


Procure to Pay – High Level Buying Model

PO Buying Channels

Catalog/Material Master

i.e. Contract exists

P-Card

Pro

cure

men

t P

ort

al

Sin

gle

Po

int

of

Entr

y

PO

Bu

sin

ess

Re

qu

esto

rs

Invoice

Payment

>$200k²

<$200k

and

>$3k

Determine

Approach and

Execute Strategy

Category Manager

Supplier

Engagement

(Sourcing/Variation)

Suppliers Contract Manager

Develop/Update

Contract

Spot Buy Team

Define Approach

and Execute

Request

Market

Engagement

(Quote/Auction)

POP

Yes

No

On MM

/Catalogue

?

Iden

tifi

ed N

eed

Receipt

Free-Text Request

On Catalogue OR

above $5K

<5k and not on

Catalogue/MM

Functional Help Desk

Sourcing

Buying

Reactive Buying/Sourcing

A new buying framework was defined that introduced compliance, made buying easier and provided

category specific flexibility

We introduced a process that would make purchasing easier for goods and services that were on contract.

Start at our Portal Search & Select the Product &

Populate request Form

Step 1 Step 2 Step 3

POP places order in SAP

We now show our contracted products through a search and select engine. Easy for the user and

enables powerful spend reporting.

Based on the analysis of 46,000 PO’s from Jan 2011 to Dec 2011 we expected ~60% to flow through this

process. Remaining volumes will be through one of the 3 Alternate PR processes.

Requestor POP’s


Procure to Pay – Simplifying Buying

17


Procure to Pay – Assisted Buying

When there is no contract or contracted material we have sourcing

teams that support a Purchase Request..

No Contract

Requisition

Raise a PR

The SOURCE4U Team

will approve and trigger

PO

The SOURCE4U Team

will work with you to

source the best vendor

and product and

approve for you to raise

a PO

Category Managers will

work with you to

determine the best

sourcing approach.

Team of 18

18


Procure to Pay – Spend Taxonomy

UNSPSC list 4 Levels: Segment

Family Class

Commodity

39,000 general categories

Preliminary analysis Optus categories’ customisation

• GL accounts impacted (PO Historical data)

• Optus categories (Optus doc. & Discussions)

Customised UNSPSC list Mix of UNSPSC levels 1, 2 & 3

List of unique categories Customised mix of UNSPSC levels 1, 2, 3 & 4

900 telco specific categories

~300 Optus customised categories

• Telco specific materials

• Optimal level of spend accuracy

Procurement validation & update of categories

Allowing Optus to get better visibility of spend and enabling the identification of sourcing opportunities

Challenge

Lack of sophisticated reporting system

Only 6% of available SAP procurement

reports utilised

SAP BW not used for procurement / spend

reporting

Reporting largely a manual and time-

consuming task

Limited contract reporting available and no

alerts for contract renewal

Purchases not linked to contracts – not

possible to track contract spend

No material master and therefore no product

categorisation

No meaningful information on what has been

bought

Lack of a hierarchical sub-category structure

We need a powerful reporting

capability

Contract Lifecycle

Management

Spend Taxonomy

and improved buying

High quality analytics

Enhance

SAP

Introduce

CLM

Enhance

BW

=

Governance & operational challenges Technology


Procure to Pay – Need for better governance

20

Capability


Procure to Pay – Closing the Loop

1

,

Publish contract to CMS

,

Trigger for contract creation

Initiate Authoring

C1

CollaborationC5

Finalise ContractC6

a) set up vendor

C3Interface Master Data

Material Catalogue

b) create materials

Material Group

c) map to taxonomy

Outline Agreement Created

C7

Need forProduct / Services

Create Requisition Receipt Reconcile Invoice

R6

SAP CLM

• Choose and edit template• Add contract header level data• Identify vendor

C4

Acknowledgement from CMS

C9

• Contract expiry• Strat sourcing/ tendering

• Negotiate Contract• Finalise with Business

• Completed legal contract• Scan signed copy and attach• Materials setup

Set-up Master DataC2 C8

• Contract header• Line items• Price and pricing conditions

R1

SAP CMS• Requestor• PoP

• Raise free-text request if not on contract

Generate PO

R2 R3

• Link PO to Contract or PR

• Generate and send PO to vendor

R5R2

• Goods/services • Three-way match• Make payment

SAP BW

REPORTING

CLM Reports

REPORTING

CMS Reports

REPORTING

BW Reports

New capability

Existing – Change Anticipated

Existing – No Change Anticipated

Vendor Master

Requisition to Pay

SAP CMS Master Data

C

R

Contract Creation Steps

Requisition to Pay

ReportingRP

RP

RP RP

• Financial line of business

Seek Approval

R4

21

The business architecture helped close the loop between sourcing and buying helping with category

management, contract management and vendor management.


Procure to Pay – Implementation Timeline

Start Mon 26/09/11 October November December January March April May June

Plan Mon 26/09/11 - Thu 20/10/11

Design Mon 17/10/11 - Fri 23/12/11

Build Mon 21/11/11 – Fri 27/01/12

Test Mon 23/01/11 - Mon 23/04/12

Deploy Mon 30/01/12 - Fri 23/04/12

Warranty Support Mon 23/04/12 - Mon 16/07/12

SIT 1 Completion Fri 17/02/12

Go-Live

Data Migration Approach

Contract Master List

Project Charter

RTM

Testing Strategy

Functional Designs

Technical Designs

Sign off Trial Migration Plan

Test Plan

Test Scripts

Detailed Business Processes

Tue 21/02/12

SIT 2 Completion Fri 2/03/12 UAT

Completion Thu 23/03/12

Handover Documentation Thu 19/04/12

Taxonomy IA & Solution (Custom)

Taxonomy IA & Solution (Standard)

Taxonomy SIT

Completion Thu 9/02/12

22

The implementation followed a typical systems lifecycle, however it was business led rather than

technology led. The focus was on business benefits (compliance, savings, user experience,

simplification) rather than technology.

23

A post deployment support structure has been established as follows, the details of which are currently

under discussion:

CMS Team


Procure to Pay – Support Structure

Procurement @ Optus

Fix the Basics

Procure to Pay

Drive Value

Enhance capability

Change Management


AGENDA

24


Procure to Pay – Summary of Business Benefits

25

• Competitive sourcing process of obtaining 3 quotes for all purchases

between $5K -$200K

• Purchase requisitions <$200K managed by central team

• Centralised Management Information reporting

• Increased governance, compliance and fraud prevention

• The result has been a 2% increase in contract compliance, when compared to

FY11

• The result has been a 11% increase in contract compliance, when

compared to FY11

• Central repository for supplier contracts established

• Strong governance of an agreed purchasing process

• Ability to enforce linking of purchases to the contract terms and value

• Ability to buy off a list of standard goods and services; enables centralised and

specialised buying

• Ability to link purchases to contracts at the time of purchasing thereby providing

improved visibility of purchasing activity on and off contract across Optus

Estimated @

$3.2M per annum

Estimated @

$5.5M per annum

Fixed Core

Engineering

(FCE) &

Customer

Provisioning

(CP)

• Independent sourcing process in place

• Pre-approved panel of suppliers are leveraged for every RFQ

• Source4U team validate all quotes received and process the PRs

Estimated @

$5.4M per annum

Savings

Category Key Highlights Estimated

Annual Benefits


Drive Value

Optimus has allowed for the introduction of process control and

powerful reporting.

Reporting

Understanding our Spend

All the work behind the scenes that has gone into

converting our process into a standardise system based

process .

This allows for new and exciting reporting and analytics.

Ensuring we can help the wider business meet it’s

strategic goals.

A standardised Taxonomy for

materials, whether contracted or

not, will allow a greater level of

reporting by Material Spend.

Linking that spend and materials

with Contracts provide and even

greater level of spend analytics.

26

27

Total tenders has fallen from 86 in Feb 2011

to ~30 in June 2012. The aging profile has

also improved dramatically.

‘Tenders in progress’ has fallen due to an

improvement in median time

from 187 to 95 calendar days…

…and because we’re cancelling or pipelining

tenders earlier.

65%

reduction

49%

reduction

Old

process

New

target Actual

Performance

against target

Performance

against old

process

Simple 203 88 80 -9% -60%

Medium 210 151 119 -21% -43%

Complex 545 217 150 -31% -72%

Tenders

Cancelled 44

Pipeline 4


Drive Value


Drive Value

FY13 IncrementalOPEX Target

FY13 IncrementalCAPEX Target

FY13 IncrementalTarget

FY13 Existing OPEXStretch Expectations

Final FY13 CostBenefit Target

$0m

$100m

We now take accountability for shared KPIs to drive down $100m

costs in our business for FY13

28

Procurement @ Optus

Fix the Basics

Procure to Pay

Drive Value

Enhance capability


AGENDA

29


Enhance Capability

We introduced 3 new support teams for our system and process

change.

New Teams

Contract

Management

Category

Management

Operations &

Performance

Supports the Business

With ‘Off-Contract’

Purchases under

$200k

Supports POP’s with a

Unique ‘how to’ help

desk for our new

process.

Ensures our Material

and Vendor Data is

clean and up to date,

Current Structures remained as is and is the stage 3 of

transformation

30


Enhance Capability

Our new teams are critical to ensuring a smooth sourcing process. Reporting

Performing:

• Creation, updating and blocking of materials, vendors

• Contract pricing

• Linking materials to existing categorisation by liaising with category

managers

Performing:

• First point of contact for POPs around new procurement

processes related queries

• Link to alternate support based on the query type and

complexity (link to Procurement category/contract managers,

IT, SAP, etc)

Performing:

• Competitive sourcing of non contracted spend

($5K to $200K)

• Optimal pricing as per business specifications

and/or requirements

• Validation of <$5k PR purchases

31


Enhance Capability

We have begun the final journey in transformation, we are

restructuring and retooling our workforce.

PEOPLE

Procurement Organisation Alignment

Full Strategic Sourcing

18

/6

25

/06

02

/07

09

/07

16

/07

23

/07

30

/07

06

/08

13

/08

20

/08

27

/08

03

/09

10

/09

17

/09

24

/09

01

/10

08

/10

15

/10

22

/10

29

/10

05

/11

12

/11

19

/11

26

/11

03

/12

10

/12

17

/12

24

/12

31

/12

07

/01

14

/01

21

/01

28

/01

04

/02

Category Planning

Restructure our Team

Enhance our resource capability

Educate and Enhance our resources.

Contract Calibration

Enhance Contract Capability

Aligned with Strategic Sourcing & Supplier Mgmt solution Jun Jul Aug Sep Oct Nov Dec Jan

32

Procurement @ Optus

Fix the Basics

Procure to Pay

Drive Value

Change Management


AGENDA

33


Change Management

Firstly we created a brand and then got busy….

We have introduced a lot of change to our business in a

very short period of time.

What was key to our success?

34


Change Management

We had a multi layer of change management. Wider Audience,

Detailed Engagement and Training. Change Mgmt

Wider Communication Engagement Training

We continued to educate our Change Network

and expanded to more targeted areas.

-Corporate Services Quarterly road show

presentation.

- VIRGIN SLT Update

- Networks SLT update

- VIRGIN POP Info Session

- Fixed Core GM Update

- MDSS Targeted Communication and Process

- UECOMM Walk through

We performed regular communications drops and

highlighted our Category Mgmt in our Videos.

Talking about OPTIMUS.

We developed a unique Training Portal and face

to face training

35

Base your requirements on a standard

build and communicate high level

change

Understand any unique needs of the business

areas that you may need to be flexible with and

communicate in a more targeted fashion

Ensure those who use the

process the most understand

the overall change and any

unique processes for their area.


Change Management

We drilled down on all previous spend to understand the highest

traffic areas and ensured tailored communications were developed Change Mgmt

Over 45,000 PO’s

Spending over $3.5

bn

Networks

Consumer

OB

SMB

Corporate

T&P

OWS

Mobile Core

Fixed Core

Service Assurance

MDSS

XXX

XXX

Standard Process Unique Process Engage the Users

Requestors

POP’s

Business Unit Division Department Our People

Using Networks as an example we understood Networks to be a

large user of our process and that Mobile Core Engineering was

one of the largest divisions within this spend. Inside Mobile Core

Engineering a Department called MDSS was the largest contributor.

We spent a lot of time with Mobile Core Mgmt and their Top

Requestors / POP’s ensuring they were comfortable and that any

unique needs were addressed.

36


Change Management

We developed Information booklets as well as ebooks for our users. Change Mgmt

37


Our new dawn has come and we are ready for the future

New Brand

New ways to communicate

Continue to Improve

Drive Cost Efficiency

Enhance our Taxonomy

Interact Globally

Focus on Vendor Relationships