E-procurement TechnologyE-procurement Technology

Dubai Municipality

Nader HaffarMaged Wassim

2

Agenda

What is procurement? Why is procurement important The evolution of procurement What is e-procurement? Procurement Vs e-procurement Demonstration of e-procurement in action The benefits of an efficient procurement process Lessons learned in procurement project Questions and Answers

Procurement is the process of sourcing

products and services from point of supply to the point of demand

Procurement is the process of sourcing products and services from point of supply to

the point of demand

3

Why is procurement important?

It received a lot of attention Open up countless opportunities Multidimensional relationships

4

Procurement Evolution

Strategic

Sourcing

PRESENTPRESENT

e-Procurement

FUTUREFUTURE

“Partnerin

g”

PASTPAST

5

Reduction in Process cost

Shorter cycle times Lower personnel costs Greater accuracy

Source: RB Weber (data derived from Source: RB Weber (data derived from sources including CAPS, NAPM and sources including CAPS, NAPM and Stanford University)Stanford University)

$79$79

$6$6

PRESENTPRESENT

FUTUREFUTURE

PASTPAST

$6$6$33$33

$79$79

6

In order to In order to obtain an obtain an equivalent equivalent impact, a firm impact, a firm would have would have to...to...

In order to In order to obtain an obtain an equivalent equivalent impact, a firm impact, a firm would have would have to...to...

Increase revenue by 50%Increase revenue by 50%

Reduce overheads by up to 20%Reduce overheads by up to 20%

Significantly reduce staff numbersSignificantly reduce staff numbers

A 5% reduction A 5% reduction in purchase in purchase cost can result cost can result in a 50% in a 50% increase in increase in profit margin.profit margin.

A 5% reduction A 5% reduction in purchase in purchase cost can result cost can result in a 50% in a 50% increase in increase in profit margin.profit margin.

ProfitProfit

OtherOtherCostsCosts

PurchasesPurchases

100100 100100

45

50

45

47.5

55 7.57.5

-5%-5%

Savings go direct to the bottom line

7

E-Business and E-Commerce … What do they mean?

E-Business is using electronic information to improve performance, create value and enable new relationships between businesses, their suppliers and customers

E-Commerce is the electronic buying,

marketing, and selling of products and services

E-Commerce is the electronic buying,

marketing, and selling of products and services

8E-Business impacts three broad areas of Municipality activity

Supplier network Customer network

Source & Buy Products

Develop ProductsDistribute Products

Sell to & Serve Customers

Plan Categories & Assortments

Replenish & Allocate Products

Buy-Side Sell-Side

B2CB2B B2E

E-business is the use of the internet application across the B2C, B2B and B2E to increase the effectiveness of

the Municipality.

9

Traditional Vs Internet Procurement

Traditional Purchasing

Need

Inform purcha-sing Department

Get Approval

Create Purchase Order

Receive in one week

Request for quotation

GetApproval

Internet purchasing

Need

Search approvedelectronic

catalog

order

Receive in 2 days

Approve online

10

What is E-procurement

Automate the ENTIRE supply chain from product selection through receipt.

E-Procurement offers real-time interactivity with trading partners locally and worldwide

select requisition approve status receive Pay

11

Suppliers Buyer

Connectivity Models

EDI

Website Website

Many to ManyMany to Many

Many to One &One to Many

Many to One &One to Many

One to One to ManyOne to One to Many

Shared Solution

12

Business Models - Auctions Used to sell or buy

Forward Auctions - The forward auction allows originators to post items or services they want to sell and buyers to compete for the best prices the originator will accept for the items or services.

Reverse Auctions - The reverse auction allows buyers to post items or services they want to buy and originators to compete for the best price at which they are willing to offer the items or services. This auction format is ideal for procurement.

Prior to rewarding the business, service history of the supplier should be taken into consideration.

13

Connectivity Approach

A Single,Secured

Connection!

UAE Marketplace

Japan Marketplace US

Marketplace

UK Marketplace

SE Asia Marketplace

Construction Marketplace

Government Marketplace

Healthcare Marketplace

14

The Total Solution

Automates entire buying and selling process

Provides access to new services, portals & communities

Elect

ronic

Elect

ronic

Procu

rem

ent

Procu

rem

ent

Elect

ronic

Elect

ronic

Procu

rem

ent

Procu

rem

ent

B-to-B

Porta

l

B-to-B

Porta

l

B-to-B

Porta

l

B-to-B

Porta

lSuppliersSuppliers

Other Other PortalsPortals

Business Business ServicesServices

15

How the e-procurement process works...

e-procurement enables distributed but controlled purchasing. It automates the process from requisition to payment - to streamline operations, shorten cycle times and reduce costs

End User

• Select approved goods• Check prices • Check availability• Submit requisitions

Suppliers

• Manage content• Maintain accuracy

• Negotiated relationships• Buyer specific content

Purchasing Dept.• Approve requisitions• Place orders• Manage consolidation• Analyse purchasing data

Catalogues

16

Demonstration

17

Closed item

Overtime item

Open item

Auction Example ..

18

e-procurement - The principal Benefits

Processes Efficiency

Compliance

Leverage of Purchasing Power

19

e-procurement savings: e-procurement savings: the principal the principal benefitsbenefits

1: Increase in Process 1: Increase in Process EfficiencyEfficiency

E-Procurement reduces the E-Procurement reduces the administrative cost for each transaction administrative cost for each transaction shifted from paper to the electronic shifted from paper to the electronic channel:channel:

• reduced error ratesreduced error rates

• reduced processing timereduced processing time

• reduced fax / phone usagereduced fax / phone usage

• reduced on-site inventoryreduced on-site inventory

Los Angeles Los Angeles CountyCounty have have reduced the cost of reduced the cost of procurement from an procurement from an average of $130 per average of $130 per order to $40 per order.order to $40 per order.

Their target is to Their target is to achieve a cost of $25 achieve a cost of $25 per order.per order.

(Costs are inclusive of (Costs are inclusive of all business & IT all business & IT personnel and systems personnel and systems involved in the involved in the procurement process)procurement process)

20

A PwC client plans to A PwC client plans to generate savings of generate savings of $50m per annum $50m per annum

through increasing through increasing compliance from 40% to compliance from 40% to

75%.75%.

On-contractOn-contract spendspend

Off-contractOff-contract spendspend

e-procurement: e-procurement: the principal benefitsthe principal benefits

Electronic procurement enables Electronic procurement enables organisations to ensure procurement organisations to ensure procurement compliance: compliance:

• increased use of preferred suppliersincreased use of preferred suppliers

• reduced off-contract spendingreduced off-contract spending

• reduced processing errorsreduced processing errors

so that:so that:

• more goods are purchased at lower more goods are purchased at lower pricesprices

Typically this is the largest Typically this is the largest element of the e-Procurement element of the e-Procurement value propositionvalue proposition

2: Increase in Contract Compliance

21

On-contractOn-contract spendspend

Off-contractOff-contract spendspend

The same client is The same client is currently not certain currently not certain where indirect spend where indirect spend goes and cannot fully goes and cannot fully

exploit its buying exploit its buying power - estimates power - estimates another $29m per another $29m per

annum through annum through leverage.leverage.

e-procurement: e-procurement: the principal benefitsthe principal benefits

3: Increased Leverage of 3: Increased Leverage of Purchasing PowerPurchasing Power

Electronic procurement provides greater Electronic procurement provides greater oversight of purchasing spend:oversight of purchasing spend:• consolidated details of actual spend consolidated details of actual spend

with each supplierwith each supplier• consolidated detail of actual spend in consolidated detail of actual spend in

each product categoryeach product category

so that:so that:• full purchasing power is leveraged to full purchasing power is leveraged to

negotiate increased discountsnegotiate increased discounts• appropriate product categories can be appropriate product categories can be

targeted for preferred supplier targeted for preferred supplier contractscontracts

22

Key points in Introducing e-ProcurementKey points in Introducing e-Procurement

e-procurement is a “flexible solution” technology could e-procurement is a “flexible solution” technology could be a point solution and is better connected to an ERP.be a point solution and is better connected to an ERP.

Does not need to be part of a strategic enterprise-wide Does not need to be part of a strategic enterprise-wide architecture.architecture.

e-procurement is mostly about changing buyer behavior.e-procurement is mostly about changing buyer behavior.

Supplier adoption, system Integration & Content Supplier adoption, system Integration & Content Management are the challenges.Management are the challenges.

Must go hand-in-hand with a Strategic Sourcing Must go hand-in-hand with a Strategic Sourcing Strategy.Strategy.

23

Questions and

Answers

24

25

26

e-procurement

Electronic Procurement:

The act of placing an order using the Internet Technology.

Source: “IDC -International Data Corporation”

27

Procurement Issues

Analysis indicates that Procurement is one of the operational areas that can yield significant efficiency and savings opportunities.

Opportunities can be a result of lack of control in the following areas:

Identification of spend by commodity type and visibility to supplier relationships;

Lack of control & compliance to procurement policies & procedures

28

Procurement has traditionally been under-utilized as a Procurement has traditionally been under-utilized as a lever for improved performance for a number of lever for improved performance for a number of reasons:reasons:

• Procurement viewed as a collection of administrative and logistical tasks focused on transaction processing

• Performance measures not linked to

business objectives and focused primarily

on unit price

• Significant portions of the spend base do

not pass through procurement

Procurement Issues

29

By removing the administrative overhead from indirect purchasing, your procurement staff can focus on:

• strategic procurement: improving existing contracts and building new supplier relationships

• supporting priority or time-critical purchases

E-Procurement:

• eliminates re-entry of orders

• accuracy of stock item and price eliminates need for supplier to re-work orders

• eliminates order-chasing by providing on line status information

• reduces cycle-times so can deliver reduced inventory stock levels across supply chain

2: Reduction in Process Costs2: Reduction in Process Costs

How e-procurement delivers the savings

30

Off-contract purchasing is typically because of the implicit delay or difficulty in locating preferred supplier product range. E-Procurement:

• Reduces time taken for employee to source product by provision of single composite catalogue of preferred suppliers

• Simplifies requisitioning process by point-and-click ordering

• Reduce time to place order by providing immediate placement of requisitions within approval limits

• Reduce fulfilment time by avoiding need for supplier rework of orders.

3: Increase in Contract Compliance3: Increase in Contract Compliance

How e-procurement delivers the savings

Internet purchasing

Need

Search approved Internet catalog

Order

Receive in 2 days

Traditional purchasing

Need

Call purcha-sing

manager

get approval

Phone in order

Receive in one week

find item in catalog

31

How to Start: implementation Decisions

Level of AutomationLevel of Automation

End to end processEnd to end process

Req to orderReq to order

DeploymentDeployment

DesktopDesktop

Limited accessLimited access

Purchasing dept onlyPurchasing dept only

Content (catalogue)Content (catalogue)

Cat managed externallyCat managed externally

Cat managed internallyCat managed internally

Supplier managedSupplier managed

Distribution ofDistribution of

FunctionalityFunctionality ERP basedERP based Free standing Free standing

integrated best of breedintegrated best of breed Distributed functionalityDistributed functionality

OrganisationalOrganisational

GlobalGlobal

RegionalRegional

DivisionalDivisional

Spend Spend SegmentationSegmentation

… … Getting the benefits at lowest riskGetting the benefits at lowest risk

32

Factors influencing implementation strategy

Reaching critical mass in contract coverage

Strategy

User adoptionCultural adoption

Change Management Approach

SupplierAdoption

Country

BU / Siteconstraints

TechnicalIntegration

33

e-Business IntegrationThe integration points of the e-business solution should maintain the integrity and workflow of the transactional system.

1. HR Organization

Synchronize HR data and structure for sign-on existence and approval hierarchy

2. Accounting Information

Synchronize company codes, cost centers, accounts, etc.

3. Pass Requisition to transactional system

Export requisition (approved or unapproved) back to transactional system for PO creation

4. Create PO and output to e-Business Transaction Manager

Generate output at PO creation (EDI-style) and pass to EDI, Fax, or e-Business Transaction Manager for web-based processing

5. Pass status changes back to e-Business requisition

Backflush changes to update req. status

6. Synchronize item masters if appropriate

Keep catalog records in sync with internal purchase item masters

34

Key Implementation issues Clear procurement strategy Up-Front strategy is critical to set program direction Defines implementation detail

Content management Who/How much? Standard formats

Supplier adoption Numerous vendors to integrate - which suppliers to use? Multiple small vendors often used to form end solution Trade off between transaction and content

ERP Integration Complex application requires diverse skill sets Short development cycle is typical Level and detail Coverage of process

35

Key Implementation issues

ROI case As-is/to-be Metrics

Procurement policy Change management Competing with phone/direct supply sites

Internet technology is in its adolescenceRapid change is the normStrong program manager is a must

36

Direct

Indirect

Indirect Goods Companies spend 50% to 65% of gross revenue on material

purchases to fuel their business. Millions of dollars are expended for two different purchasing processes:

Direct goods: raw materials and components of the end product. 70% to 80% of purchasing falls into the direct category.

Indirect Goods (MRO): valves for machinery and pencils for the paperwork. These high-volume/low-dollar purchases account for 20% to 30% of most companies' procurement dollars and a greater percentage of paper volume.

37

Business opportunities:• Reduce cost of procurement• Gain management oversight

of spending on non-production goods

• Provide basis for improved supplier contracting

Source: AMR; CAPS (Center for Advanced Purchasing Studies)Source: AMR; CAPS (Center for Advanced Purchasing Studies)

Taxes13%

Profit6%

HR17%Direct

28%

Division of the Corporate Dollar

Indirect 36%

Example PwC clients (Spend on Indirect Goods): Technology Co.~ $1.3bn Consumer Electronics~ $8bn Energy Company ~ $20bn

Indirect Goods - the Cinderella of purchasing

38

Indirect Goods

On average 36% of gross revenue is spent on indirect purchases.

These goods and services: are purchased by dedicated non-production related purchasers armed with

paper catalogs, fax machines, and the telephone.

are high-volume/low-dollar purchases.

Tens of thousands of purchases are required each year to keep a company running, leaving lots of room for inefficiencies:

the time to purchase items drives employees to purchase outside of the system as on expense items.

procurement staff are focussing on administrative tasks rather than negotiating improved relationships with suppliers.

lack of oversight of purchasing volumes prevents negotiation of best deals.

39

Business Focus Focus has shifted within the airline industry to include emphasis

on the costs associated with procurement of indirect materials. When you compare the volume of purchases and the processing costs that may be associated, it adds up!

Raw Material, Direct

Materials, CAPX

Expenditures

ProductionConsumables

Indirect

$$$’s

per Unit

$$$’s

per Unit

No. of Units / unique items purchasedNo. of Units / unique items purchased

Traditional High Value Focus

Traditional High Value Focus

All costs get magnified

for these purchases

Often Ignored FocusOften Ignored Focus

40

E-Procurement Business Opportunities

Reduced Cost of Goods…

Reduced Administration..

Shorter Cycle Times……..

Inventory ………….….……

Automating the Entire Goods & Services Supply Chain can Deliver:

3 - 5% or More

$ 80 to $ 7 per PO

From Weeks to Days

Reduced or Zero-Stock