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Faster Insight: Smarter Procurement DecisionsRajesh Shewani
Pre-Sales Leader – India/SAIBM Business Analytics – Cognos & SPSS
Smarter businesses are able to leverage information to drive smarter business outcomes
Reduce Costs
Reduce Risk
Increase Productivity
Increase Revenue
22
Smarter planet: Thinking and acting in new ways to make our systems more efficient,
productive and responsive.
3
… Business Change in the Midst of an Info Explosion
1 in 31 in 3spent by knowledge workers each
week just searching for and understanding information
managers frequently make critical decisions without the
information they need
19+ Hours19+ Hours
3 in 43 in 4
“…40 exabytes of data created in 2008…more than created in the previous 5,000 years combined…”
business leaders say more predictive
information would drive better decisions
Source: Various Industry Studies
Business Intelligence & Performance Management Optimize Business Performance
4
Realize fast time to value with adaptable, packaged
BI applications
IBM Cognos Analytic Applications
Drive dynamic, reliable and sustainable financial performance management practices
IBM Cognos 8 Planning, IBM Cognos 8 BI, IBM Cognos 8 ControllerIBM Cognos TM1
Make better, faster decisions by sharing, understanding,
analyzing and sharing information
IBM Cognos 8 BI
+
• Faster insight drives faster time-to- value and action
• Consistent measurement of business strategy
• More effective management of risks and controls
• Anticipate and explore new opportunities
Faster Insight: Smarter Decisions
Driving Procurement Transformation
FRONT-OFFICE ACTIONS:Improve Sales Forecasting, Manage Pipeline Risk, and Improve Working Capital
CUSTOMER ACTIONS:Protect Profitable Customers & Manage the Unprofitable Ones
PRODUCT ACTIONS:Eliminate Unprofitable Products & Non-value Added Activities
FINANCE ACTIONS:More effectively manage cash flow, supplier risk, working capital and horizontal performance management
SUPPLIER ACTIONS: Leverage Your Best Suppliers: lower costs, improve margins, manage risk and generate cash
WORKFORCE ACTIONS:Retain the best, retrain or eliminate the rest
IT ACTIONS: Manage disparate legacy systems; Need less ad hoc reporting; Better data quality and reliability; Sustainable and better TCO
“Only 31 percent [of companies] manage performance and risk together. Executives cite the lack of standardized processes,
insufficient data and inadequate technologies…”
The Smarter Supply Chain of the Future, IBM (2009)
Infrastructure• Persistence of a transactional rather than a strategic focus
• Insufficient information about what is being bought, how much, and from whom
• Non-integrated business processes and systems
• Ineffective or non-existent performance measures
• Difficult to provide cross functional reporting for finance and procurement
Resources Constraints
• Ad hoc reporting environment and limited depth of reporting and analysis strains internal resources
• Must build and maintain connections to multiple data sources
• Build and maintain warehouse
• Gather requirements, design, author and change reports
Procurement Challenges
Managing Supplier and Spend RiskSource: Aberdeen Group
Quality Issues
On-time Delivery Issues
Increased Supply Prices
Longer Lead Times
Supply Capacity Shortages
Supply Best Practices Risks
Longer lead times
Political, regulatory, security, tariffs and currency risks
Low cost country sourcing
Lean and JITLittle/no buffer stock
Manufacturing disruptions
Outsourcing
Supply base rationalization
Limited visibility into service levels
Poor supplier performance
Fewer or single sourced supplier
47%
49%
50%
32%
33%
Corporate Performance Impact
• Share price• Product delay and revenue
decline• Lower margin• Competitors gain edge
• Supply chain disruption• Increased supplier pricing• Higher supplier pricing
Smarter Procurement Decisions
What insightdoes my team need …
1. Insight into my suppliers and spend that reduces costs and saves the company money
2. Consistent measurement and integrated analysis so that our organization functions as ONE company
3. Information to fully leverage spend and manage supplier performance ACROSS the organization
4. Capacity to source data from Oracle and other systems
5. Applications that are easy-to-use, easy-to-change, easy-to-maintain and easy-to-scale
6. A capacity to conduct analysis multi-dimensionally – comparing time, supplier, spend, item and costs and beyond
Smart Businesses = Aligned Outcomes
Delay payments to accrue cash flow benefits and extend Days Purchasing Outstanding
Maintain discounts offered for early payments despite late remittance
Eliminate uncoordinated, rogue spending
More effectively manage working capital and cash management
Early payments to capture available discounts … good for margin, but bad for cash
Supplier relationships need to be more effectively managed to get the best price and terms
Longer cycle time to create ROI through strategic sourcing, commodity planning and supplier risk management
Shared Interests in the Supply Chain
• Lower purchase volume and manage spend
• Supplier risk mitigation and SCM disruption
• Supplier contractual compliance
• Lower operating costs
• Consistent finance and procurement performance measurement
Better Insight = Optimized Performance
Are we capable of understanding procurement risk and
performance across our enterprise?
Supplier Management Working Capital Talent Fulfillment
How well are suppliers adhering to their contracts
Do we have the right balance between DPO and early
payment discounts?
Can staff properly look for supplier and
financial risks?
Will low customer satisfaction and affect
orders?
Are we managing supplier and
financial risks?
Can we measure spend consistently?
Procurement Effectiveness in Two Dimensions
Lacking coordinated procurement initiatives and capabilities
Mature procurement processes, skills, governance and technology
Has procurement strategic vision but lacking systems and processes to execute
Point investments in systems or processes but unable to “put the pieces together”
43
21
Strategy/ Organization
Abi
lity
to E
xecu
te
Procurement Effectiveness
Source: IBM
Strategy / Organization
• Established strategic sourcing teams
• Unique category sourcing strategies
• Strategic alignment and integrated cross-functional involvement with executive support
• Deep category specific expertise and market intelligence
• Total cost approach to decision making
• Training and development
Ability to Execute
• Detailed and available spend information and performance metrics
• Ability to aggregate and leverage spend through consistent procurement processes
• High compliance and end-user satisfaction
• Rationalized and collaborative supply base
• Fully deployed / integrated e-Procurement
• Integrated supply chain
Insight into Procurement Business Drivers
Business Drivers
Analysis DimensionsAnalysis Dimensions
VENDORVENDOR
PRODUCTPRODUCT
BUYERBUYER
CONTRACTCONTRACT
ORDER TYPEORDER TYPE
ORGANIZATIONAL UNITORGANIZATIONAL UNIT
Price/Quality BalancePrice/Quality Balance Cost ContainmentCost ContainmentSupply ConsistencySupply Consistency
Demand PlanningDemand Planning
CONTRACT MANAGEMENT
CONTRACT MANAGEMENT
Compliance
Contract Performance
Contract Opportunities
VENDOR ANALYSISVENDOR ANALYSIS
Key Vendor IdentificationVendor Performance
SPEND ANALYSISSPEND ANALYSIS
Spend ClassificationSpend Comparisons
OPERATIONAL EFFECIENCY
OPERATIONAL EFFECIENCY
Process EfficiencyCycle Time
ANALYSIS PACKAGES INSIGHT TO BUSINESS QUESTIONS MEASURES
Spend Analysis
• Purchase Volume
• Purchase Amount
• Non-Contract Purchase Volume
• Non-Contract Purchase Amount
• Vendor Count
• PO Count
• Purchase Amount % Total
• Purchase Amount Variance Period over Period
• …
• How has demand channel spend varied over time?
• How do current purchase amounts from key vendors compare to past purchases?
• What is the trend in the items being purchased?
Spend Comparisons
• What items are we purchasing in high volumes?
• Who are our top vendors by spend and what portion of total spend do they represent?
• Which internal demand channels exhibit the highest demand?
• Which items or item categories exhibit the highest demand?
Spend Classification
Demand Channel Spend TrendHow has demand channel spend varied over time?
Drill down and drill through operational-
level reporting
Packaged monthly spend analysis
Different drill down and through points
Supplier performance comparisons
Email report to finance and others
Consistent reporting and analysis
INSIGHT TO BUSINESS QUESTIONS
Pricing• How do prices compare across vendors? • Are we getting the best price?• To what extent are prices varying from expectations?• What/who is responsible for this variance?
Quality• Is quality meeting expectations?• How does this vary by product?• How does this vary by vendor?• How does this vary by buyer?
Reliability• Are deliveries being received on time?• Are we receiving the expected quantity of the expected product?• Can we decrease inventory levels based on supplier reliability?
Vendor Performance
• Who are we doing business with?
• Which vendors do we purchase the most from?
• How do vendors rank by volume and dollars spent?
• Which vendors supply our key products?
• How has this changed over time?
Vendor Analysis
ANALYSIS PACKAGES
MEASURES
• Purchase Amount
• Purchase Volume
• PO Count
• Average Price
• Purchase Price Variance
• Returns count
• Returns Amount
• Late delivery count
• Late delivery volume
• Average delivery days
• Min delivery days
• Max delivery days
• RFQ Response Rate
• …
Key Vendor Identification
Vendor Spend Trend Who are we doing business with? And how has this changed over time?
Rolling period trend analysis and
compare vendors’purchase amount
Spend analysis over rolling periods
Multiple points of analysis
Easy to use configurable analysis
Export report in spreadsheet format for finance and others
ANALYSIS PACKAGES INSIGHT TO BUSINESS QUESTIONS MEASURES
Contract Management
• Purchase Amount Outside contract
• Purchase Amount
• Purchase Price
• Contract Price
• Contract Volume
• Contract Item count
• Contract Vendor Count
• Contract
• …
• Which contracts will expire in the next x weeks/months?• For which contracts have we purchased over x% of the contract
value/volume?• Which item categories are purchased from multiple vendors, and
who are those vendors?• How many vendors supply our high volume items?
Contract Opportunities
• What percentage of high volume item purchases leverage contracts?
• Which contracts are underperforming with respect to price?• Which contract items have quality related issues?• How many new contracts have been signed?
Contract Performance
• For contracted products, what is the scale of activity that takes place outside of contract terms?
• What is the cost of purchases made outside of contract terms?• Who is responsible for purchasing outside of contract?
Compliance
High Data and User Scalability
Model-Based Approach
Supports Best Practices
Fusion of Analysis & Planning
Owned by Finance
Item Category Spend by VendorWhich item categories are purchased from multiple vendors? How many vendors supply
our high volume items?
Packaged insight into MRO POs
Assess high-volume purchases by PO
Drill down to the operational level
Utilize analysis to consolidate suppliers
Extend to BI and performance management (i.e. dashboards and planning)
ANALYSIS PACKAGES INSIGHT TO BUSINESS QUESTIONS MEASURES
Operational Efficiency
• Purchase Amount
• Purchase Volume
• PO Count
• Requisition Count
• Late Delivery Count
• Requisition Days Open
• PO Days Open
• Invoice Days Open
• Delivery Days Late
• …
• Are procurement processes being completed in a timely manner?
• How long does it take to move from one stage to the next in the procurement cycle?
• How does this vary by commodity?
• How does this vary by buyer?
Cycle Time
• What is the variance between actual and expected costs?
• What is the source of cost increase related to process quality?
• What are the reasons for product returns?
• What percentage of requisitions submitted are declined?
• How do these compare across buyers and commodities?
Process Efficiency
Open Purchases
Packaged insight into MRO POs
Consistent analysis of operational efficiency by quarter and fiscal
Share report with procurement and finance teams
Compare and contrast suppliers to isolate performance issues
Are procurement processes being completed in a timely manner?
Improve Performance
Packaged Business Intelligence
• Consistent and integrated analysis of spend and supplier performance that helps to lower costs and improve margins.
Adaptable
• Procurement reporting and analysis that evolves with rapid changes to your supply chain.
Industry-leading BI and PM
• A deeper level of analysis that enhances the strategic planning capacity of organizations with a consistent and integrated view of performance
Your Options
Build Buy
The Age Old Challenge
Buy OptionRequirements = RigidCustom business logic = HardExtensibility = LowLots of stair climbing
Build OptionTime to insight = LongRequirements = OutdatedCost of Maintenance = HighLots of stair climbing
Low
REQUIREMENT FITGood Excellent
CostRiskTime
High
BuyAnalytic App
Build CustomAnalytic App
CustomizedCustomized
The Age Old Challenge
Buy OptionRequirements = RigidCustom business logic = HardExtensibility = LowLots of stair climbing
Build OptionTime to insight = LongRequirements = OutdatedCost of maintenance = HighLots of stair climbing
Our Approach
Simplified design process -business conversation
Rapid response to evolving & changing requirements
Configure metadata versus lines of code
Automated business requirements changes
Minimized impact on IT
Packaged BI = Analytic Applications
Defined data extraction: Enables the application to access and manage data from disparate sources.
Defined business content: A collection of reports and metrics derived from the pre-defined data model.
Defined data model: A codified set of measures and analysis.
Gartner Inc. Definition
Who cares? “… well imagine the solution to your performance challenge was on the 10th
floor of an office building?
IBM Cognos Analytic Applications: Overview
Packaged Reporting & Analytics
Ad-hoc Query
Analysis
Dashboards
Scorecards
Packaged Datamart
MAPPINGS CONFIGURABLESOURCES
CONFIGURABLESOURCES
And More…PlanningAnd More…Budget Transactional Sources…
Why We’re Different
Ad-hoc Query
Analysis
Dashboards
Scorecards
MAPPINGSCONFIGURABLE
SOURCESCONFIGURABLE
SOURCES
And More…PlanningAnd More…Budget
Publish & ValidateInteractive Operational and
Analytic Reports
Streamline Semantic Layer
Automate Datamart
Configure ETL Code
Transactional Sources …
29
The Benefit for Your Team
Authored BI(Reports, Analysis, Metrics)
Semantic Layer
Data Warehouse
ETL Code
Other Analytic Applications
SLOW, COSTLY TO CHANGE
ERP CustomSource
IBM Cognos Analytic Applications
Validate & Publish Authored BI(Reports, Analysis, Metrics)
StreamlineSemantic Layer
AutomateDatamart
ConfigureETL Code
CHANGES WITH YOUR BUSINESS
ERP CustomSource
30
• Packaged Business Intelligence– Consolidate information with embedded
datamart
– Self-serve reporting and analysis
– Mappings to Oracle E-Business Suite
– Capable of extending to other data sources
– Reliable repository of procurement data
• Adaptable– Streamline changes to business requirements
– Continuously relevant content
– Upgradeability and manageability
– Minimized impact on IT
– Sustained value and Lower TCO
• Industry-leading BI and Performance Management
In Summary - Comprehensive Procurement Analytics
3131
© Copyright IBM Corporation 2008 All rights reserved. The information contained in these materials is provided for informational purposes only, and is provided AS IS without warranty of any kind, express or implied. IBM shall not be responsible for any damages arising out of the use of, or otherwise related to, these materials. Nothing
contained in these materials is intended to, nor shall have the effect of, creating any warranties or representations from IBM or its suppliers or licensors, or altering the terms and conditions of the applicable license agreement governing the use of IBM software. References in these materials to IBM products, programs, or services do not imply that they will be available in all countries in which IBM operates. Product release dates and/or capabilities referenced in these materials may change at any time at IBM’s sole discretion
based on market opportunities or other factors, and are not intended to be a commitment to future product or feature availability in any way. IBM, the IBM logo, Cognos, the Cognos logo, and other IBM products and services are trademarks of the International Business Machines Corporation, in the United States, other countries or both. Other
company, product, or service names may be trademarks or service marks of others.
Thank You
Appendix
Isolated and Distributed Systems Impact Risk
52%
27%
11%
1%
9%
Somewhat capable
Slightly capable
Not very capable
Not at all capable
Extremely capable
How would you assess the capability of your company to mitigate the key supply chain risks it faces right now?
Source: McKinsey Global Executives Survey, 2006
• Data governance issues within highly distributed networks and data systems
• Rigid and complex ERP reporting and analysis environments
• Operating silos and best-of-breed systems exacerbate consistent insight and data quality
•Multiple internal stakeholders and a lack of aggregated data sources
Accounts Payables / Procurement
Key Account Payable Interaction Points
1. Payables Risk –
Adherence to contract termsCost of late payment feesConsistent aging pattern for supplier payments
2. Cash Management –
Cash requirements based on due date and discount dateUtilization of discounts and impact on cashCost of discounts lost Reasons for discount lost
A/P Linkage Best Practices
Common metrics / measurements
Common policies and procedures
Standard supplier management for finance and procurement
Purchasing operations involvement for invoice / process exceptions
Common data warehouse for consistent reporting
Consistent measures for analysis
Integrated cross-departmental insight
Synergy of A/P and Procurement processes can yield increased efficiency
63%
68%
75%
75%
31%
52%
Source: IBM Global Business Services, The Global Supply Chain Survey 2009, The Smarter Supply Chain of the Future
Organizational silos
Not rewarded for it
Too busy to assist others
Ineffective tools
Not viewed as important
Intellectual property of customers
Organizational silos and ineffective tools reinforce internal inefficiencies and undermine SCM visibility
Global Supply Chain Survey - 2009
Supply Chain Executives Cite Significant Cultural Barriers to Achieving the Level of Interaction and Visibility They Need
Manage information over its lifetime and use it as
part of business processes
Information On Demand
Customer & Product Profitability
Workforce Optimization
Dynamic Supply Chain Multi-Channel
Marketing
Financial Risk Insight
Business Optimization
Flexible Architecture for Leveraging Existing Investments
OtherInformationSources
Establish and maintain an accurate, trusted view of
information
Plan, understand and optimize business performance
End-to-EndCapabilities
Plan, understand and optimize business
performance
Establish and maintain an accurate, trusted view
of information
Use information as part of business
processes
Manage information over
its lifetime
SmarterBusiness Outcomes
