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Best Electronic Procurement practices in Public & Private Sector March 17, 2009The Financials Day

Koit PuusaagMaster Principal Consultant, EE & CIS region

Agenda

• Introduction to Advanced Procurement• Best Practices and Trends in Electronic Procurement

• Save with Shared Services• Streamline with Employee Self Service• Avoid Errors with Contract Management• Take Tendering On-line• Analyze with Business Intelligence• Deploy Supplier Collaboration

Agenda

• Introduction to Advanced Procurement• Best Practices and Trends in Electronic Procurement

• Save with Shared Services• Streamline with Employee Self Service• Avoid Errors with Contract Management• Take Tendering On-line• Analyze with Business Intelligence• Deploy Supplier Collaboration

Procurement Transformation

High

Str

ate

gic

Va

lue

Maturity

Cost ProcurementCost Procurement

Tactical BuyingTactical Buying

Strategic ProcurementStrategic Procurement

Low

High

Low

Touchless Buying

Policy Enforcement

Contract Negotiation

Spend Management

Create Manual Orders

Answer Supplier Queries

Help Requesters

Manage Content

Value Creation

Collaborative Procurement

Supply Optimization

Full Process Automization

SupplyOptimization

AnsweringSupplier Queries

HelpingRequesters

ManagingContent

CreatingManual Orders

SpendAnalysis

ContractNegotiation

Project-Based

Procurement

InternalBenchmark

Delivery

Monitor &Review

Controls

Strategic

High

Medium

Low

Val

ue

Val

ue

eProcurement Adds Value!Routine Tasks Hinder Strategic Activities

Oracle Advanced Procurement

DemandCollection

IndirectGoods

DirectMaterials

EngineeredGoods

Services ApprovalRouting

TouchlessBuying

Automated Payment

Enforce Policy Compliance

Budget-BasedProcurement

ContractManagement

SupplierPerformance

Reduce Spend on Goods and Services

CategoryManagement

OnlineSourcing

SpendAnalysis

Streamline Procurement Processes

SupplierCollaboration

Settlement

Orders

ProfileManagement

SupplierNetwork

Logistics

SupplierPortal

End to End Electronic ProcurementFree Staff for High-Value Activities

Send ElectronicPO to Supplier

Receive ElectronicInvoice

CreatePurchase Order

Identify & QualifyVendors

EvaluateBids

Create & ApproveRequisition

Negotiate MasterPurchase Agreement

Pay Supplier(EFT)

AnalyzePerformance

Receive Goods or Services; Inspect

Select VendorAdjust

Contracts

SourcingStrategy

PurchasingExecution

Add Structure to Strategic Activities and Execute Routine Transactions Automatically

Agenda

• Introduction to Advanced Procurement• Best Practices and Trends in Electronic Procurement

• Save with Shared Services• Streamline with Employee Self Service• Avoid Errors with Contract Management• Take Tendering On-line• Analyze with Business Intelligence• Deploy Supplier Collaboration

Save with Shared Services

- Many organizations have complicated organizational structures, operate across countries, industries etc., leading to a number of purchasing units

- Increasing purchasing volumes means more purchasing power to negotiate with the suppliers

- Centralized purchasing means more transparency and visibility into the procurement process

- Companies realize savings by avoiding duplications in the purchasing process

- Proper IT solution ensures that each organization unit will be provided with “localized” services

- Shared services also means savings in IT investment

- Many organizations have complicated organizational structures, operate across countries, industries etc., leading to a number of purchasing units

- Increasing purchasing volumes means more purchasing power to negotiate with the suppliers

- Centralized purchasing means more transparency and visibility into the procurement process

- Companies realize savings by avoiding duplications in the purchasing process

- Proper IT solution ensures that each organization unit will be provided with “localized” services

- Shared services also means savings in IT investment

BU 1

SourceRequest Buy Pay

BU 2

BU 3

Decentralized

BU 1

SourceRequest Buy Pay

SharedService

BU 2

Central Sourcing, Local Execution

BU 1

SourceRequest Buy Pay

SharedService

BU 2

Automatedfinancialreconciliation

Complete Shared Services

Save with Shared ServicesUtilize Full Purchasing Power – Shared Services Model

BU 1

SourceRequest Buy Pay

SharedService

BU 2

Automated financialreconciliation

Transfer to Local Business Unit

Centralised Purchasing

Accounting Office

Land Forces

IT Department

Procurement Department

Supplier 3

Supplier 1

Supplier 2

Laptops

Plane tickets

Uniforms

Accomodation

OfficeSupplies

CD ROMs

LaptopsMainframeCD-ROM

Office Supplies

AccomodationUniforms

Centralized PurchasingCentralized Purchasing

• View exceptions across multiple applications and operating units

• Create, implement, and execute agreements

• Analyze performance of procurement & suppliers

• Exceptions• Agreements• Performance Analysis

NegotiationsContracts & agreements

Invoicing & payment

Supplier Management

RequisitionsPO

execution

Professional Buyer’s Work Center

Single Access Point for All Responsibilities

Professional Buyer’s Work CenterEnable Command & Control for the Procurement Professional

Professional Buyer’s Work Center Command and control for the procurement professional

• Multi-Org Access

• Reduced pop-ups and duplicate screens

• Re-designed and streamlined entire workflows

• Reduced the number of steps to complete key tasks

• Improved overall look & feel and visual style

• Increased personalization capabilities

Streamline with Employee Self Service- Typically the purchasing process was initiated by phone

or e-mail

- Handling such administrative tasks wasted purchasing professionals time and kept them away from true value add activities

- There was no single trace of the process and requestor was never sure what was happening with the purchase request

- Self service purchasing environment allows the person to search for the goods and services on – line, initiate the approval process for the purchases and have a real time overview of the status of the purchase requistion

- Security rules and content management can be used to make sure that people can only purchase the goods they are supposed to

- Typically the purchasing process was initiated by phone or e-mail

- Handling such administrative tasks wasted purchasing professionals time and kept them away from true value add activities

- There was no single trace of the process and requestor was never sure what was happening with the purchase request

- Self service purchasing environment allows the person to search for the goods and services on – line, initiate the approval process for the purchases and have a real time overview of the status of the purchase requistion

- Security rules and content management can be used to make sure that people can only purchase the goods they are supposed to

Items are organised by

Stores

Items are organised by

Stores

Approval hierarchy Approval hierarchy

Notes can be added

Notes can be added

User checks whether funds are available

User checks whether funds are available

Avoid Errors with Contract Management

- One of the hardest challenges organizations face is making sure that correct legal paperwork goes out with every purchasing document

- Errors from poor contract management can be costly and lead to potential fines and regulation violations

- Typically, contract management has been a manual task and there has been no real collaboration between different counterparts

- A modern contract management solution automizes the whole process making sure that correct legal paperwork is included with every purchasing transaction

- One of the hardest challenges organizations face is making sure that correct legal paperwork goes out with every purchasing document

- Errors from poor contract management can be costly and lead to potential fines and regulation violations

- Typically, contract management has been a manual task and there has been no real collaboration between different counterparts

- A modern contract management solution automizes the whole process making sure that correct legal paperwork is included with every purchasing transaction

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Contract TemplatesAutomatically Import Redline Changes for Superior Compliance

Review each Review each change in detailchange in detail

Accept or Reject Accept or Reject offline changesoffline changes

Identify modified Identify modified clauses at a glanceclauses at a glance

Application can fetch data from database tables (i.e supplier name, address, terms

etc)

Application can fetch data from database tables (i.e supplier name, address, terms

etc)

Terms can be made mandatory

Terms can be made mandatory

No

IndustrySegment?

Yes

Add Clauses• High Value• Insurance

Over $50k?

CommercialGovernment

Responses Drive Responses Drive Clause SelectionClause Selection

.

.

.

Template

Contract

Contract

Draft

Expert-Based AuthoringProduce Compliant Contracts

• Configurable rulesdrive terms selectionfor complex contracts

• Clauses default based on product, supplier, contract value, etc.

• Author high quality contracts with minimal legal supervision

Take the Tendering On - Line- Paper based tendering is time consuming, in many

cases lack transparency, restricted to limited suppliers only

- On – line tendering reduces the tender times, allows the user to define specific qualification and evaluation criterias, use powerful tools for negotiating and evaluating the tenders

- Links to external websites (like TED) allow the user to work with much wider supplier base

- All transactions are completely transparent, comply with EU and local legislations and leave behind a complete audit trail

- Public Sector is to be ready for full electronic tendering based on EU directives

- Paper based tendering is time consuming, in many cases lack transparency, restricted to limited suppliers only

- On – line tendering reduces the tender times, allows the user to define specific qualification and evaluation criterias, use powerful tools for negotiating and evaluating the tenders

- Links to external websites (like TED) allow the user to work with much wider supplier base

- All transactions are completely transparent, comply with EU and local legislations and leave behind a complete audit trail

- Public Sector is to be ready for full electronic tendering based on EU directives

Take Tendering On-lineSlash Cycle Time by Eliminating Manual Processes

Quickly create new rounds Quickly create new rounds & amendments & amendments

Instantly create new event Instantly create new event from previous agreement from previous agreement

or requisitionor requisitionView responses & monitor View responses & monitor

bids in real-timebids in real-time

Reduce Preparation Time and Manual Effort

View status and View status and incoming supplier incoming supplier

messagesmessages

Team Scoring of Requirements

• Each team member scores the assigned section

• Oracle Sourcing calculates average of individual score sheets to determine section score

• Sum of team scores determines overall response score (as input to optimization)

Quality Control Team

Technical Team

Technical Capabilities (40% weight)

Commercial Team

Price (40% weight)

Past Performance (20% weight)

Quote ABC

• John = 90• Mary = 85• Sue = 80

• Sue = 75• Doug = 80• Tina = 85

• Alan = 90• Mark = 80

Technical Capabilities = 34

Price = 32

Past Performance = 17

TOTAL SCORE : 83

Optimized, Policy-Compliant Award Recommendation

• Multiple Sites• Dozens of Bid

Lines

Company Policy Complex Bids

Maximum of 5 Vendors

Minimum 60% to incumbent

supplier

$100k Annual Maximum

• Sourcing Rules• Budget Constraints• Supply Base Rules

Multiple Suppliers

Model multiple business constraints and supplier inputs

Award Optimization Engine

* Requires Sourcing Optimization

System Generated Recommendations*Eliminate Time-Consuming Manual Analysis with Sourcing Optimization

Oracle On-Line Negotiation Event Example: Supplier Bid Monitor

Oracle Sourcing Customer Example

Exploit More Savings OpportunitiesImprove Sourcing Effectiveness Without Increasing Staff

Time

Vo

lum

e o

f S

pen

d U

nd

er C

on

trac

t

Oracle Enabled Sourcing

Traditional Sourcing Approach

“Learning Curve”

Average Improvement Through eSourcing*

50% reduction in sourcing cycle time

60% reduction in Admin costs

10-15% improvement in time-to-market (NPI)

Enhanced market knowledge and improved transparency

Dramatically improved ability to identify and negotiate with new sources of supply on a global basis

“E-sourcing technologies deliver information visibility and globally infrastructure to enhance and accelerate strategic sourcing”*

*Source: Aberdeen

•Structured Event Creation•On-Line Negotiation Support•Efficient Change Management

CategoryCategory Benchmarks Benchmarks

Raw MaterialsRaw Materials 2 to 5 % & Better Risk Mgmt.2 to 5 % & Better Risk Mgmt.

PackagingPackaging 10 to 20 %10 to 20 %

Indirect Materials and ServicesIndirect Materials and Services 10 to 20 %10 to 20 %

Information TechnologyInformation Technology 15 to 30 %15 to 30 %

Professional Services Professional Services 8 to 15 %8 to 15 %

Logistics/TransportationLogistics/Transportation 7 to 15 %7 to 15 %

Media,Marketing,Promotional ItemsMedia,Marketing,Promotional Items 10 to 20 %10 to 20 %

Other Indirects Other Indirects 5 to 15 %5 to 15 %

Capital ProjectsCapital Projects 7 to 15 %7 to 15 %

© 2005 Greybeard Advisors LLC

Why The Interest In Sourcing? Conservative Estimates Of Cost Reduction Metrics Through Sourcing

Analyze with Business Intelligence

- Purchasing reporting used to be purely transactional, it lacked trends metrics and any kind of analytic capabilities

- As a result of this approach mistakes were made, and areas for improvement undiscovered

- Modern purchasing reporting solution takes the transactional reporting but allows the user to add to it analytical tools, metrics, KPI’s

- Reporting solution should be in real time and allow the user to drill down to the transaction levels, it should be quick to implement and easy to change

- Purchasing reporting used to be purely transactional, it lacked trends metrics and any kind of analytic capabilities

- As a result of this approach mistakes were made, and areas for improvement undiscovered

- Modern purchasing reporting solution takes the transactional reporting but allows the user to add to it analytical tools, metrics, KPI’s

- Reporting solution should be in real time and allow the user to drill down to the transaction levels, it should be quick to implement and easy to change

Oracle Procurement and Spend AnalyticsSupplier Performance

Oracle Procurement and Spend Analytics

Procurement & Spend Dashboard Dashboard

Pages

Roles

Performance Measures

Reports based on Multiple Sources

FlexibleView Selectors

Prebuilt Reportswith over 5200 metrics

Conditional Navigation

Highlighting

Guided Navigation

Configurable Filters

Deploy Supplier Collaboration

- Commonly the most common communication channels with the supplier are phone, fax and e-mail

- Many supplier related activities like entering invoices, shipping notices, RFP responses etc. are purely administrative and take procurement professionals time away from true value add activities

- Modern eProcurement solution contains supplier self service module allowing the supplier to carry out many activities traditionally handled by the purchasing department.

- Commonly the most common communication channels with the supplier are phone, fax and e-mail

- Many supplier related activities like entering invoices, shipping notices, RFP responses etc. are purely administrative and take procurement professionals time away from true value add activities

- Modern eProcurement solution contains supplier self service module allowing the supplier to carry out many activities traditionally handled by the purchasing department.

Supplier Management User-InterfaceStreamlined supplier profile management

Create supplierCreate supplier

To Do List for requestsTo Do List for requests

Search or drill down to supplier detailsSearch or drill down to supplier details

Real time overview of all actionsReal time overview of all actions

The Lives Of Procurement Professionals Are Already Changing

Procurement Organization Focus**(% of Time Involved in Strategic

Activities)

50%

67%

39%

52%

67%

79%

2 Years Ago Current 2 Years FromNow

LeadersFollowers

* Aberdeen Group, The CPO Agenda: Five Strategies for Organizational Transformation. **A.T. Kearney’s Assessment of Excellence in Procurement

The CPO’s Agenda*

1. Improve supplier development and collaboration

2. Enhance and integrate procurement automation infrastructure

3. Adopt low cost country supply initiatives

4. Transition to a center-led procurement organization

5. Increase spend under management and improve spend compliance

34%

3,512

0.74%

54

World ClassPurchasing

Organization

36% Increase25%

% time spent on Risk Management and Decision Support

Activities

More Buying Power

7,805 Suppliers Per $Billion of

Spend

27% LowerCosts

1.01%

Total Cost of Procurement

(as % of Spend)

48% Less Staff104FTE per $Billion of

Spend

ComparisonSummary

TypicalPurchasing

OrganizationPerformance Indicator

Shift investment in procurement to higher-value activities

Reduce staff by swapping labor for technology

Opportunity: Achieve World Class Procurement

Source: Hackett Group

AQ&Q U E S T I O N SQ U E S T I O N S

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