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e-Procurement thats Intelligent BuyingDr. Ashis K. Pani
The Enterprise Landscape
e-Procurement: The Next Wave of Cost ReductionSourcing is defined as the process of identifying suppliers that could provide needed products or services for the acquiring organization.Purchasing refers to actual buying of materials and those activities associated with the buying process.
Procurement on the other hand has a broader meaning and includes purchasing, transportation, warehousing and inbound receiving.
Procurement is a closed-loop process that begins with the requisition and ends with payment
sourcing is a pre purchase activity (identify suppliers) and purchase and sourcing both are part of procurement
A Traditional Purchasing Process Flow
Source: ariba.com
Multiple DepartmentsEngineeringMarketingSalesSupportApproval HierarchyManagersApproversEtc.Purchasing DepartmentH/W PurchaserFacilities PurchaserEtc.
SuppliersContractNon-ContractSpecializedEtc.LogisticsReceivingInventoryPaymentEtc.
Procurement Process: Why automate?
Deffinition e-ProcurementAn e-Procurement application is the software that is required to access suppliers electronically, enabling an organization to conduct procurement transactions over the Internet.
SupplierSupplierSupplierSupplier
Portal
6
Traditional/ManualInternetPrice of Materials and Services---5% to 10% reductionPurchase and Fulfillment Cycles7.3 days2 daysAdministrative CostsUSD107 per order requisitionUSD30 per order requisitionInventory---25% to 50% reduction in inventory cost
Source: Aberdeen Group Jun 2004Effect of eProcurement
Benefits of eProcurementhttp://www.mysap.com/solutions/e-procurement/businessbenefits.htmReduced purchase costsEnhanced efficiency at every stageMonitor and regulate buying behaviorsImprove sourcing by discovering more suppliersEnsure deliveries on time, every timeFree up skilled employeesReduce training requirementPermit flexible access time, anywhereManage contractsPerform content management functionsReduce maverick purchase
Direct vs Indirect MaterialsDirect MaterialsIndirect MaterialsStrategic sourcing core businessTechnical sourcing non-strategicSystematic sourcing scheduled by production runSpot buy, less frequent purchase of standardize productsLocus of operation: professional buyers desktopLocus of operation: employee desktopDriven by design specificationDriven by catalogActual transaction function not as time consuming as back & forth information sharing & communication with suppliersFocus on transaction functions which is time consumingMore complex both technical and non technological consideration when choosing a solution provider. Must provide benefits to all members of supply chain Less complex decision when choosing a solution providerCollaboration, integration & visibility among qualified suppliers are criticalMany suppliersQuality, security and privacy consciousPrice conscious
Total Cost of Indirect Procurement
Only 40% of total indirect material costs are true product costs Cost of Procurement: Coordinating approvals Managing quotations Purchase orders IT costs Cost of Inventory: Carrying costs Storage Insurance Shrinkage Obsolescence
*Source: Grainger Industrial Supply and industry studiesCost of goodsCost of ProcurementCost of Inventory
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Operating Resource Procurement at Microsoft: MS MarketMS Market in ActionBuyer
WebBrowser1. Catalog Management2. Browser Suppliers
3. Find Products
4. Order items
5. Confirm orderMultisupplierCatalog
Catalog
Order Form
Availability
Order Entry
Supplier NSupplier 2Supplier 1Approval Workflow
PO WorkflowFulfillment Shipping Accounting Etc.Catalog ContentInterchange6. Transmit order get confirmation7. Order Completed
Business Benefits of MS MarketMS Market SolutionBusiness Benefits
User-friendly catalog for employeesworld wide
Integration with SAP R/3
Components: Windows NT server 4.0Internet Information Server 3.0, SQLServer 6.5, Site Server Enterprise 2.0,Microsoft Exchange Server for e-mail approvalControl and tracking of orders with direct vendors
Automate $3 billion annual spending
Reduce purchase cycle from 8 to 3 days
Reduce employee overhead from 14 to 2 full-time employees
Average 1,000 orders per day;
Front-End and Back-End of e-Procurement
SupplierSupplierSupplierSupplier
Portal
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Transformation of Corporate PurchasingFront-End e-Procuremente-Catalogs Content ManagementRFQsApproval RoutingOrder ManagementData Management Providers: Ariba, Commerce One, Oracle, Cisco, Clarus,
Back-End ERP systemsA/C receivable and payableInventory ManagementMaterial ManagementOrder and Sales ManagementSales PlanningProviders : Oracle, SAP,
e-Procurement System in Chevron Corporate Profile
US 3rd largest petroleum co.
Operating in roughly 100 countries
Annual net gain - $3.2 billion
Purchase budget - $9.9 billion
Two existing ERP systems from SAP and J.D. Edwards Two-fold Solution
e-Procurement Software from Ariba
Web-based front end and user interface for catalog search, purchase order and requisition EDI and Catalog services from Harbinger
Facilitate interaction with suppliers and manage catalog content and customer/supplier base
(Source : Deloitte Consulting, Realizing the B2B Procurement Vision)
eProcurement System Architecture for Chevron
Supplier
Supplier
Supplier
SupplierFirewallEDI/EFTMultiVendorElectronicCatalogProcurementFront-endExtranetPO / Invoice / Funds
IntranetSAP---
JDE Chemical---
JDE COPLA R I B AHarbinger
Firewall
says -----
At any given time, out-of-stocks on retailers shelves average 8%.On week-ends this percentage increases to 11% and on holidays, to 15%
Why is this?
SCMAdvanced SchedulingDemand ForecastingTransportation LogisticsDistribution PlanningOrder Commitment
Defining Supply Chain ManagementThe Supply Chain is a process umbrella under which products are created and delivered to customers.A Supply Chain refers to the complex network of relationships that organizations maintain with trading partners to source, manufacture and deliver products.A Supply Chain perspective transforms a group of ad hoc and fragmented processes into a cohesive system capable of delivering value to the customer.
Manufacturer
Raw Material SupplierDistributorCustomer
B2B Marketplace
Manufacturer
DistributorRetailer
B2B Marketplace
B2B Marketplace
Supplier
Simple Supply Chain Component
Simple Supply Chain ComponentRetailer places order with DistributorDistributorRetailerPhysical FlowInformation FlowRetailer must hold safety stockAmount of safety stock required depends on variability in replenishment processHow IT can improve the scenario
IT ImprovementsElectronic Data Interchange (EDI)DistributorRetailerPhysical FlowInformation FlowPoint of Sale (POS)Both result in reduced safety stock, improved customer service or both
Inventory and demand visibility has been increasedDistributorRetailerPhysical FlowInformation FlowInformation has replaced inventory
IT Improvements
IT systems are used to facilitate or enable the transfers of information: within firm, between firms, and across the entire supply chain.
Focus is changing from internal integration to external integration.
Extensive stress on outsourcing is forcing companies for more integration.
Roles of IT in the Supply Chain
Bergen Brunswig According to CEO Donald Roden, we no longer in the distribution business, but actually in the business of managing the supply channel. This means not just moving products, but managing information.
Dell Computer is built on a vision of customer-responsive order fulfillment. The flexible supply chain helps to deliver a machine within 48 hours.
P&G saved retail customers millions through supply chain efficiency gain. The essence of the approach lies in manufacturers and suppliers working closely togetherImpact of e-enabled SCM
Boeing Aircraft Raw-materials shortages, and poor SCM created havoc with production at Boeing, resulting very unhappy customers.
Nabisco (food king) Companys supply chains were not integrated, The result: Unhappy retailers.
Impact of poor SCM
An e-Supply Chain in ActionWLs Manufacturing and Distribution facility in PennsylvaniaFarmers sells Eucalyptus crop in AustraliaProcessing Company extracts oilDistributor in New JerseyFarmers grow corn in MidwestRefined to ethanol in TexasSynthetic Alcohol in Saudi DesertPackage are shipped to CVSs Warehouse
Union Carbide ships
Sells
Supply Chain between Werner - Lambert (WL) and CVS
Listerine
Retail Stores
e-Commerce Value Propositione-Business Structural MigrationGive customers what they want, when and how they want it, at the lowest costRapid Demand Fulfillment Internet-Enabled Supply Chain Planning and Execution
What is Causing the Supply Chain Management Boom ?The next opportunity lies in the fusing of each companys internal systems to those of its suppliers, partners and customers.
A Process view of Supply ChainSupply Chain PlanningProduct FlowsSupplierManufacturingSupply Chain Execution
DistributionRetailerCustomerProduct FlowsProduct FlowsProduct Flows
Payment FlowsInformation Flows
Demand forecasts
Order transmission
Delivery Status report
Credit Card Information
Payment Schedules
Returns % expected climb from 17% to 20%+ driven by free shipping and comparison shopping$400B value of returned goods by 2013Jupiter quote: 37% of online buyers would buy more if it were easier to return merchandise.AMR quote: No one plans to develop commercial reverse-logistics software(because) the software requires too much customization, and reverse logistics has never been an IT priorityThe Reverse Logistics Market Place
New generation SCM optimization toolsI2 technologies Rhythm andSAPs Advanced Planning and Optimization (APO)Provides an integrated approach through which Demand Prediction Inventory stacking and Transportation decisions are made together
e-Supply Chain ManagementSCM is a business framework comprised of multiple applications and divided into two application camps:Planning (Demand, Distribution, Transportation Planning)Execution (furniture.com, living.com,homepoint.com)
Elements of Supply Chain PlanningFlexible SCP apps involves evaluation of multiple planning strategies, such as the followingProfitable to promise: Should I take the customer order at this time.Available to promise: Is inventory available to fulfill the order.Capable to promise: Does manufacturing capacity allow order commitment?
Elements of Supply Chain ExecutionReplenishmentProcess
Production Process
ForecastingAggregateinventoryplanningCapacityplanning SourcingInventoryavailability-scheduleproductionAllocateinventory-priority ordersProductionscheduling
DistributionScheduling
Orderentry andprocessingOrderconfirmationFulfillmentplanning
Order Planning ProcessDistribution ProcessPick andLoadScheduleHomeDeliveryCustomerserviceReverse Distribution
JIT Mfg. ProcessVendorsInventories
DealersInventories
Mfg.ProcessTransit toDealersPlt.FGAuto Industrys Inventory Pipeline
Success Stories:Dell ComputerTechnology use leads Dell to gain competitive edgeInternet cutting out the middleman and selling directly to the customers.VMI on assembly enabling Dell to build to order, thus reducing inventories and cutting costs.Total time from customer order to shipments 3.5 days.1990: 95% build to stock 1995: 40% build to order current: 95+% build to orderVirtual Integration involving technology and integration with parts suppliersi2-Technology allows Dell VMI strategy and confirms shipping in a real time.Supply Chain Management, Mentzer, Information Week.
Failures of e-Supply Chain:i2 and NikeSupply Chain Management System developed by i2 led to excess inventory and order delaySAP and HersheyProblems with SAP software system caused a backlog of orders and slower deliveries, resulting in lower earnings.SAP and WhirlpoolAppliance shipping delays after SAP implementationhttp://www.cnet.com/news
e" Should Stand for easyeCRM
Some facts (www.sybase.com) It costs six time more to sell to a new customer than to sell to an existing one.A typical dissatisfied customer will tell eight to ten people about his or her experience.A company can boost its profits 85% by increasing its annual customer retention by only 5%.70% of complaining customers will do business with the company again if it quickly takes care of a service snafu.More than 90% of existing companies dont have the necessary sales and service integration to support e-Commerce.
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What is e-CRM "A comprehensive approach which provides seamless integration of every area of business that touches the customer namely, marketing, sales, customer service and field support through the integration of people, process and technology, taking advantage of the revolutionary impact of the Internet."
What is e-CRM..e-CRM is a concept, or management discipline concerned with how organizations can increase retention of their most profitable customers using Internet technologies and simultaneously reduce costs and increase value of interactions, thereby maximizing profits."
What are the goals ..Use existing relationships to grow revenueUse integrated information for excellent serviceIntroduce more repeatable sales processes and proceduresCreate new value and instill loyaltyImplement a more proactive solution strategy
Five Tough Questions Can your customers and staff interact in any combination of e-mail, chat, Web, phone, and fax?
43Are organizations today geared to do this. To demonstrate this point, we compiled a list of ten tough questions to ask yourself about your existing operations. These questions should give you a good feel for how far along you are in supporting the demands of 21st century customers.
Five Tough Questions
Do they find intelligent and personalized self-service at your site?
44Are organizations today geared to do this. To demonstrate this point, we compiled a list of ten tough questions to ask yourself about your existing operations. These questions should give you a good feel for how far along you are in supporting the demands of 21st century customers.
Five Tough Questions
Are your customers frustrated by having to repeatedly contact your staff and re-explain previous issues to continue a conversation?
45Are organizations today geared to do this. To demonstrate this point, we compiled a list of ten tough questions to ask yourself about your existing operations. These questions should give you a good feel for how far along you are in supporting the demands of 21st century customers.
Five Tough Questions
Are previous communication between the customers, help-desk staff, marketing, and sales available across your organization?
46Are organizations today geared to do this. To demonstrate this point, we compiled a list of ten tough questions to ask yourself about your existing operations. These questions should give you a good feel for how far along you are in supporting the demands of 21st century customers.
Five Tough Questions
Does your staff have real-time access to complete customer details such as purchase history, pending orders, and account profile?
47Are organizations today geared to do this. To demonstrate this point, we compiled a list of ten tough questions to ask yourself about your existing operations. These questions should give you a good feel for how far along you are in supporting the demands of 21st century customers.
3 phases of CRMAcquire new customers
Enhance profitability of existing ones
Retaining customers for life
AcquireDifferentiationInnovationConvenienceEnhanceAdoptability Listening New ProductsRetainBundling Reduce Cost Customer ServiceThe Three Phases of CRM
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The Five Engines of eCRM
InformationDesign relevant interactionPersonalize for each customerReach every customer where appropriateFacilitate interaction
Transaction$Customer Centric Information StoreAnalysis & Segmentation EnginePersonalization EngineBroadcastEngineTransactionEngine
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Engine 1: Information Store
Clickstream Data
INTEGRATED CUSTOMER CENTRIC INFORMATION STORE
3rd Party Content Feeds (e.g., Weather, News, Finance, etc.)3rd Party Data ERP (e.g., SAP, Oracle, Baan, Navision, Ramco)Sales Force Automation (e.g., Siebel)Call Center DataLegacy System Data
Transactional Data
Engine2:Analysis and SegmentationQESTIONANALYSIS & SEGMENTATION ACTIVITYTECHNICAL APPLICATIONWho are our most frequent shopper?12345What do they have in common?Do they live close to our storeHow can we resegment them?How can a campaign be constructed to reach these three segment?Frequent Shoppers
ACB?
????
Attributes of frequent ShoppersFrequent Customers living near physical storeVerification of 3 customer segmentsIntegration of segment detailsQuery the database, applying statistical functions to determine the top 20% frequent shopper Using data mining tools, identify trends in the frequent customer segmentEstablish correlation between location and sale frequency dataVerify 3 new customer segment:Frequent customer not living near the store,Frequent customer living near the store andInfrequent customer living near the storeOLAP queries the database for detailed customer information on the three segment
Voice Synthesized report of school closing in aninteractive voice response menu
Engine 3: PersonalizationWHOWho should be sent information service? Dynamically generated list from the analysis and segmentation engine coupled with subscription based information generate a target list for interaction
WHATWhat content should be included in these customer information services?
WHEREWhere should the customer information service be delivered? This involves effectively utilizing knowledge of customer contact point (e.g., email, phone, WAP phone, Pager)
WHENWhen should information service be sent to customer? The CEP engine analyze customer behavior to offer products and services of the time potential customers need them most
HOWHow should the information be incorporated into the customer information service? CEP will dynamically alter content and format information to effectively deliver it through the appropriate customer communication deviceTrading Service School Service Complaint ServiceSALES ACCOUNT EXECUTIVEComplaint ServiceSTOCK BROKERTrading service PARENTSchool Service
Summery of detailed portfolio analysis by industry sectorSpreadsheet with customer complaints sorted by severitylevel and product typeDelivery via pagerDelivery via CellphoneDelivery via webAfter 6pm must benotified instantly of unusual internationalstock trading volumesvia pagerDuring school days,must be notified of child related schoolclosing viatelephoneNotify when critical customer complaintsare made notify via email from 9 5pm via phone after 5pm
Hello James, yourchildrens schools are getting out earlypress 1 for closure reason press 2 for traffic reports press 3 for weather reports
Engine 4: Broadcast
Engine 5: TransactionDEVICE TRANSACTION ENGINE SERVICESWeb
Phone
WAP Phone
Personal Digital Assistants & Pagers
Set-top TV box Serves Personalized web pagesProvides shopping cart functionalityIncludes standard forms for commonly used functions e.g., log in, log out)Provides one click purchase mechanismsServes HTML PagesProvides personalized hyperlinks to shopping/special areasAttaches documents, spreadsheets, sound clips to standard emailIncorporates dynamic voice response menusIncludes phone session management functions (e.g., prompts)Provides streaming audioIncorporates speech synthesis and speech recognitionProvides push-button mechanismsEnable mobile commerce and interactive information analysis
Provides response option (e.g., one button response email)
Inserts streaming audio and videoProvides one-click purchase mechanisms
The Arc 360 ProcessDataCapture
Data Hygiene& Integration
Data Storage
Arc
Targeted ActionDecision SupportOnline Data SourcesOffline Data Sources
Data WarehousePhone campaignE-mail CampaignLoyaltyProgramBanner AdCampaign
CustomerValueTrafficReportCross & Up-sell ModelCustomerSegmentation
Direct MailCall CenterWarrantyCircleCAPTURECAPTURE
Reg. & Trans. DataLogFilesSurveyAdStreamResponses
Update Database withResults of analysisUpdate Database withMeasured Customer Responses
Targeted MarketingData Analysis,Viewing & Reporting
The Bottom LineIt will allways come down to being better than the competition.Since technology will be available to everyone, we can only achieve this goal by having a better strategy and an excellent execution.Therefore People will make the difference!
Thank You
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