Buying Channel Analysis

• Buying channel - is a process to specify a need, locate the supplier of that need, determine the terms of acquiring the need and executing an agreement for the supplier to fulfill the need. An efficient and effective procure to pay process contains processes and buying channels that are designed to “fit” different situations and circumstances encountered by end users of the P2P process .

• Buying channel analysis examines requester need, material type, location, transaction cost, supplier, PO count and size ($).

• Balances transaction cost, responsiveness, tracking and risk to identify the right channel mix.

Buying Channel Summary

Transaction Cost per Channel

Cost per PO = $150 plus

Cost per PO = $40-60

Cost per PO = $5-10

Cost per PO = $10-15

NATCO = 0 NATCO = 0

NATCO = 0 NATCO = 100%

NATCO Currently48,000 PO / YearAve Cost: $150 / PO

Transaction Cost per Channel

Cost per PO = $150 plus

Cost per PO = $40-60

Cost per PO = $5-10

Cost per PO = $10-15

NATCO = 20% NATCO = 40%

NATCO = 10% NATCO = 30%

NATCO Currently48,000 PO / YearAve Cost: $150 / PO

NATCO Objective48,000 PO / YearAve Cost: $106/ PO

NATCO Savings48,000 PO / Year20 man years

Procurement Capacity Benchmarks

04/10/23 5

NATCO Currently48000 POs per year

FTEs on Org Chart = 14(not including Engineers time)

My Estimate – 650 POs per FTERequiring 74 FTEs to process(Not including AP)

The Last Unautomated Frontier: How Technology Is Streamlining The Invoice-To-...Scott Dunlap, AFP Exchange; Jan/Feb 2005; ABI/INFORM Global pg. 14.

The Purchasing Card Benchmark Report, Aberdeen, March 2005.

Today = 3428

Ouch!Very painfullyWith current processUsing a lot of Engineers’And others time

Top 50 Suppliers by PO Count

Detailed Buying ChannelResults

• Supplier Integration - implementation of e-catalog or e-connectivity with a supplier that is currently a major Natco strategic supplier.

$50 million($33/yr) in spend with 4 vendors, 8999 POs (6000/yr)Savings 1-2 man years in procurement, $2-5 million in payment discounts

Classification Benchmarks

UN/SPSC Code • Universal Standard Product and Service Classification Code. A Global

commodity standard - 10 digit, hierarchical code used to consistently classify products and services The UNSPSC is a hierarchical classification with five levels. These levels allow analysis by drilling down or rolling up to analyze expenditures. Each level in the hierarchy has its own unique two-digit code:

• An example follows:– Code: 43 20 15 01 14, – Segment: 43, Information Technology Broadcasting and telecommunications– Communications Devices and Accessories. – Family: 20, Components for information technology or broadcasting or telecommunications Computer Equipment

and Accessories.– Class: 15, Computers Computer accessories– Commodity: 01 Computer switch boxes Docking stations– Business Function:14, Retail

High Freq High Value

e-candidates

High Freq High Value

e-candidates

Low Freq High Value

Buyer assisted

Low Freq High Value

Buyer assisted

Medium Freq Medium Value

E-catalog or pcard

Medium Freq Medium Value

E-catalog or pcardpcardpcard

Buying ChannelResults

• pCard implementation – implement a pcard program for small value transactions, single transactions with a supplier or field transactions in order to reduce transaction costs and improve requester responsiveness.

FAMILY DescriptionTotal Family

Spend

Total Line Items

Spend per line

item

3121 PAINTS AND PRIMERS AND FINISHES $3,107,117 1888 $1,646

1214 ELEMENTS AND GASES $6,800,073 1842 $3,692

2411 CONTAINERS & STORAGE $6,554,143 1001 $6,548

3010 STRUCTURAL MATERIALS $14,211,481 3261 $4,358

4111MEASURING AND TESTING AND OBSERVING INTRUMENTS $7,958,971 3647 $2,182