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