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Partnering with Procurement Pros
Sales & Marketing Executives International
October 13, 2009
Linda ParcherVP & Chief Procurement OfficerDiebold Incorporated
Scott BlatnicaManaging Delivery PartnerAriba Inc.
Overview of Ariba and historical changes in purchasing
Overview of Diebold and typical purchasing process
Procurement / Sales Best Practices
Questions
Agenda
2
Software, Consulting and Shared Services Under One Roof
Software, Consulting and Shared Services Under One Roof
Ariba – Uniquely focused only on Spend ManagementLeader in solutions that leverage both Software and Services
SupplierManagement
Visibility
ProcurementSourcing
• Identify opportunities and prioritize spend management actions
• Monitor Performance & Compliance
• Achieve sustainable sourcing savings and competencies
• Attain global contract visibility and enable contract compliance
• Drive policy compliance and realize savings• Automate invoice processing and achieve invoice compliance
• Manage global suppliers
connectivity and performance
Enterprise Spend ManagementEnterprise Spend Management
Ariba leverages a global services team and unique delivery model to support our customers
One of the world’s largest sourcing organizations
• $120 billion sourced to date• Over 25,000 projects
Broad, deep category knowledge and experience
5
~ 100 current Spend Management Services customers~ 120 Consultants and Spend Management Program Managers~ 300+ Shared Sourcing & Category professionals organized by market
Ariba has extensive experience in supporting customers on both Direct and Indirect Sourcing initiatives
$14.5B+ Spend Managed
1150+ Engagements
$2.2B+ Savings
$6.5B+ Spend Managed
740+ Engagements
$1.3B+ Savings
$8.0B+ Spend Managed
340+ Engagements
$400M+ Savings
$580M+ Spend Managed
170+ Engagements
$55M+ Savings
$10.4B+ Spend Managed
570+ Engagements
$910M+ Savings
$12.2B+ Spend Managed
1,700+ Engagements
$1.8B+ Savings
$12.9B+ Spend Managed
830+ Engagements
$1.9B+ Savings
$3.5B+ Spend Managed
470+ Engagements
$540M+ Savings
$3.7B+ Spend Managed
580+ Engagements
$580M+ Savings
$8.3B+ Spend Managed
290+ Engagements
$1B+ Savings
Over $80B+ sourced, 7,000+ projects, and $11B+ in identified savings
Metals Plastics & Rubber
Paper & Packaging
Information Technology
Electrical & Electronics
Services & MRO
Capital & Construction
Raw Materials
Food Ingredients
Transportation & Logistics
Ariba clients are leaders in their respective industries
Ariba works with over 500 Clients
10 of the Top 14 Automotive
2 of the Top 3 Banking
4 of the Top 4 Chemicals
5 of the Top 6 Computer Hardware
3 of the Top 3 Computer Software
3 of the Top 3 Electronics
3 of the Top 3 Energy & Utilities
3 of the Top 5 Financial Services
2 of the Top 4 Industrial Manufacturing
2 of the Top 4 Insurance
4 of the Top 4 Pharmaceuticals
2 of the Top 4 Retail
4 of the Top 4 Telecom Services
2 of the Top 3 Transportation
In a typical day with Ariba …
Sourcing Projects Completed 245
Volume Sourced $143M
Volume Purchased $667M
PO’s Processed 66,000
Suppliers Registered 210,000
Suppliers Transacting 40,000
Procurement used to be a back-room function in spite of its large impact on the bottom line.
Pre-1970’s Late 1970’s
Senior management focused on marketing, R&D, finance and operations.
Procurement focused on purchase price and prevention of line shutdowns; inventory management was tertiary.
Purchasing orgs lacked the skills or aptitude to see the big picture.
Changes in the market and increasing material costs resulted in significant changes in purchasing responsibilities.
Additional emphasis was placed on cross-functional communication and value-add contribution.
Source: Burt, Doebler, Starling: World Class Supply Management
1980’s Late 1990’s 2000’s
E-Commerce boom
Desire for more than ERP tools
Functional focus
Center-led procurement organizations
Need for more value add functionalities
Need to link with other key processes and systems
Additional process focus
Adoption of eProcurement solutions
Beginning in the 80’s, procurement has evolved into value add discipline with high expectations.
Cycle time reduction
Inventory reduction
Order-to-pay process cost reduction
Biggest reason for change: The science of Spend Management can have a direct and immediate impact on EPS
Source: Triple tree (2006), Spend Management: One of the Best but Least Known ROI stories in the technology industry, Spotlight report
A 1% decrease in operating costs = 10% increase in revenues
About Diebold
• Global leader in providing integrated self-service delivery and security systems and services
• More than 17,000 associates with representation in nearly 90 countries worldwide
• $3.1 billion in 2008 revenue; “DBD” on New York Stock Exchange
• Celebrating 150th anniversary this year• “Innovation Delivered” is new brand tagline
Financial Self-Service - ATMs,Cash Dispensers, Software
Security - Physical, Electronic,Surveillance, Monitoring
25%
75%
Diebold 2008 Revenue Mix
Products - Hardware andSoftware
Maintenance and AdvancedServices
51% 49%
Diebold Spend Profile
Services andOperational Expense
Production Materialand Service Parts
• Demand management• Travel, mobile phones
• Logistics & warehouse optimization• Fleet policy• Process improvements
• Product redesign• Value engineering• Leverage new technologies • China, India & Eastern Europe supplier localization
2008 Global Spend > $1B
Indirect Spend
53%Direct Spend
47%
100
2006-2008 2009 2006 - 2011
150
$200
0
50
Initial $100MCost Reduction
Complete in 2008
Additional $100M Cost Reduction
Total Cost Reduction $200M
$100M
$12M
$35M
2010 - 2011
$53M
$200M
2008
SmartBusiness100Catalyst for Procurement Transformation
Purchasing framework
Leverage enterprise spend
Rationalize suppliers
Introduce competition
(e.g. Auctions, new suppliers)
Drive Deflation
Global sourcing
Tighten controls
Standardize services across BU’s
Reuse components Across SKU’s
Analyze TCO
Optimize flow and processes
Performance management
Outsource
Eliminate excess quality
Reduce demand (frequency, quantities)
Eliminate demand
Gainsharing
Reduce supplier's cost to service
Continuous improvement
Model “Should Costs”
Control Waste
Understand your supplier’s industry
Understand your supplier’s economics
Understand your total cost of ownership
Understand what you spend
Develop new suppliers
Supplier Innovation
Reengineer value chain
Substitute different Inputs / service
Typical Sourcing Process Map
1
Form Team & Identify ProjectOpportunity
2
Collect &AnalyzeData
SupplierIdentification
RFQ Development
Negotiate, Award and Implement
Manage Supplier Relationship
3 4 5 6 Identify Key
Stakeholders and Form Project Team
Estimate Total Spend and Savings Opportunity
Review Commodity Strategy & Identify Risks
Define Sourcing Method
Create Project Timeline
Document Plan & Distribute to Team
Understand Customer Expectations
Collect Baseline Spend, Volume Forecast and Inventory Data
Collect and Review Specifications
Identify Total Cost of Owner- ship (TCO) Elements
Create List of Incumbent & Potential Suppliers
Notify Incumbent Suppliers
Verify NDA is Required and in Place for Potential Suppliers
Create Request for Information (RFI) and Publish to Suppliers
Establish Criteria for Supplier Selection
Analyze RFI Responses and Create Supplier List for RFQ Distribution
Draft Business Requirements & Supporting Bid Documentation
Obtain RFQ Approval from Stakeholders
If Online Bid, Finalize Lot Strategy & Build Auction on Website
Publish RFQ to Suppliers
If Online Bid, Facilitate Supplier Training
Manage Q&A Process and Publish Answers
If Online Bid Collect Q-Round Bids
Conduct Negotiation or Online Bid Event
Collect Supplier Cost Breakdowns
Analyze Bid Results and Create Supplier Short List
Audit Suppliers Select Final
Supplier(s) Develop Contract and
Secure Management Approval.
Communicate Agreement to Stakeholders.
Develop Implementation Plan.
Conduct Part Qualification Process
Track & Report Spend, Savings, and Key Performance Indicators
Conduct Business Reviews
Establish Joint Supplier Process Improvement Initiatives
Measure and reward suppliers in accordance with Supplier Certification Program
Monitor Contract Milestones
LEVERAGE [Long-Term Agreement]
• Concentrate volumes• Apply buying power • Consider global sources• Downsize supply base• Renegotiate prices• Standardize/centralize
PARTNER [Life of Requirement]
• Integrate Diebold and Suppliers• Long-term agreements• Develop joint strategies• Share risks/rewards• Cross-functional teams
TACTICAL [Short-Term/No Agreement]
• Standardize where possible• Make vs. buy• Risk sharing• Decentralize execution
MANAGE RISK [Minimize]
• Source with suppliers that work to minimize risk
• Establish back-up plan
• Consider consortium buying• Simplify
Str
ateg
ic Im
pac
tH
igh
LowLow Difficulty of obtaining supply High
Supplier Relationship ManagementSupplier Segmentation
Supplier Communication
Frequent interaction with strategic suppliers• Supplier process audits• Annual supplier summit• Quarterly scorecards• Quarterly teleconferences• Supplier bulletins• Supplier innovation portal
Diebold’s goal is to be a “customer of choice”
Driving Sustained Competitive Advantage
Value Creation
Cross-FunctionalIntegration
SupplyNetworks
CollaborativeSupplier
Relationships
Business Risk
Mitigation
People Suppliers Organization
Strategic Role for Corporate Procurement
Traditional Purchasing
Commodity / Supplier
Leveraging
Supplier Integration
Value Chain Integration
Strategic Intent
• Provide purchasing services to company.
• Leverage enterprise scale economies.
• Integrate with supplier base.
• Achieve supply chain competitive advantage.
Value Proposition
• Supplier reliability and tactical cost controls.
• Cost savings through volume aggregation and supply base reduction.
• Significant TCO savings and better product development through comprehensive strategic sourcing.
• New business model and continuous improvement with value chain alliances and coordination.
Procurement professionals are now focused on selecting a supplier with lower total cost AND higher long term value
Progressive Maturity of Procurement Value Delivery
E-sourcing and E-Procurement
Dashboard
Ariba Invoice
Ariba Contract
Compliance
AribaBuyer
Downstream solutions
Ariba Sourcing
AribaContract
Workbench
Upstream solutions
AribaCategory
Mgmt
Ariba Analysis and Reporting
AribaSpend
Visibility
Spend Analytics /
Data Enrichment
Enablement Services
Procurement Services
Strategy
Software Implementation
Technology Training / Change Management
Technical and Functional Product Support
Sourcing Services
Ariba SupplierNetwork
160,000Suppliers
ASN
Tec
hn
olo
gy
Ser
vice
s
IdentifyOpportunity
DevelopStrategy
Source andNegotiate
Contract and Procure
Invoice and Pay
Monitorand Manage
Sourcing Procurement
How is e-Sourcing different from traditional sourcing?
• Buyer-supplier communications (including quotes) are collected through an online interactive bidding process vs fax / phone / email
• Sourcing strategy work is more focused in the earlier stages of the process (pre-negotiation) vs. developing throughout the course of actual negotiation
• Suppliers can compete in real time against each other (reverse auction)
• Negotiations are created in a software tool
• Identify and resolve bottlenecks• Track status and results
• Control and automate processes• Standardize data capture (e.g. supplier
capabilities)
• Streamline global and functional communications
• Identify clear accountability• Enable information sharing
• Leverage proven negotiation methods• Share “lessons learned”
Visibility
Collaboration
Best Practice Sharing
Standardization
Significant Benefits of eSourcing
• Leverage proven techniques across the company
• Streamline tracking and reporting to assign and track deliverables
Increased productivity
Request for Information- RFI
• Buyers ask only questions of suppliers, no pricing is collected
• Used when companies are:
1. Trying to understand true capabilities of their suppliers
2. “Qualify” potential suppliers
3. Evaluate suppliers on an apples to apples basis
• While these can be the least painful (no pricing) you have to make sure you:
1. Provide detailed responses
2. Take every opportunity to sell your capabilities
3. Remember that this information may be shared with many parts of the organization
• Regardless of your experience with the customer make sure to take the RFI seriously- Respond as if they know nothing about you
• Ask questions of the stakeholder that is leading the process to try to understand what they are truly after
• Remember- An RFI may be distributed so procurement can understand your capabilities. Internal stakeholders may be against it
• Number of words is sometimes associated with your interest in the project. Less is sometimes not more
Key TipsCharacteristics
Request for Proposal- RFP
• Buyers may ask suppliers questions and request pricing
• Used to:
1. Gauge Supplier interest
2. Determine potential savings opportunities
3. Deal with a contract expiration or new business need
4. Provide a formatted vehicle for collecting price, delivery and other competitive information from suppliers
5. Establish level playing field for comparison
6. Create a sense of “urgency” in the mind of the supplier
7. Communicate new requirement (payment term changes, etc.)
• Never put your best foot forward initially- Procurement will always ask for more
• Ask questions if the RFP is not complete• If you are hesitant to provide information feel
free to push back• If there are not a lot of detailed product
related questions that can indicate procurement has a greater influence
• If you do not feel the RFP addresses items you think it should (Life-cycle, etc.) ASK as part of the question and answer process
• Review RFP terms in detail- If you have concerns raise them immediately
• When pushing back on something (warranty terms) offer alternative
• Don’t price a Mercedes when they are looking for a Nissan
• Ask questions if the RFP is not complete
Characteristics Key Tips
Auctions
• An Auction is a strategic sourcing tool that creates a competitive marketplace, enabling a buyer to solicit the lowest total cost from multiple invited suppliers
• These are usually the most painful for organizations as they create the perception that the decision-driver is cost
• Used when companies:1. Believe they have the leverage 2. Are focused heavily on cost
reduction3. View competitors equally4. Want to drive to true market
pricing5. Believe they have the leverage 6. Need to create tension amongst
the suppliers7. Want to reduce negotiation cycle
time
• Placing one bid in an event is better than dropping out if you can meet the requirements
• Make sure you know your price points before an auction begins
• Your initial price• Your lowest price- Don’t go below
this unless there is a business need• Unless stated differently in the
requirement, price is not the only decision-factor
• Use every opportunity to provide more information on Diebold
• Ask questions to highlight shortcomings of the requirement- many questions will start to worry procurement
Characteristics Key Tips
Questions?
Thank you for the opportunity to meet with you today