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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

Email

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

Chart1153550

Sales

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Chart10.751.52.753.254

Series 1Number of Devices per Customer

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