eProcurement / Sourcing MRO Environment

Utilising Lean Six Sigma

Anand Subramaniam

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“The Internet Is Like Darwinism On Steroids. You Evolve Or Are Eliminated.”

- Paul Fernandez, Proxicom

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Implementation Highlights …

10% Technology 90% Change Management

70% Strategic 30% Paperwork

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Highlights

MRO - Heavy Machinery Industry (Implementation Highlights)

Strategic Sourcing

eProcurement

MRO - Heavy Machinery Industry (Implementation Highlights)

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Client’s - Terms & Definition

Purchasing Transactional function of buying products / services or the placement and

processing of a purchase order

Procurement Sourcing products and services required to manufacture a product (direct) or to

operate the organisation (indirect) from point of supply to the point of demand

Strategic Sourcing Broader and more comprehensive than the procurement process where it

focuses more on supply chain impacts of procurement and purchasing decisions, and works cross-functionally within the business firm to help achieve the organisation’s overall business goals

eProcurement Employees’ finds the products they need to buy, requisition generation, approval

if needed, creating the purchase order, and delivering that order electronically to the supplier for confirmation and fulfilment

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Client’s - Vision & Mission

E-Procurement

Access online catalogvia desktop browser

Access online catalogvia desktop browser

Internet Access

Catalog:• Items from contracted

vendor• Product configuration tool• Color photographs,

animation & videos of prod.application,

• Product detailed specifications

• Interview with other users

QuicksearchQuicksearchInventory

CheckOption

InventoryCheckOption

PriceComparison

PriceComparison

TestDriveTestDrive

OnlineSupportOnline

Support OrderCompletion

OrderCompletion

“Buyer” “Supplier”

ElectronicPO

ElectronicPO

WorkflowApprovalWorkflowApproval

Order ManagementSystem

Order ManagementSystem

Ack. &Ship notice/

changes

Ack. &Ship notice/

changes

PaymentProcessPaymentProcess

Self-Service PurchasingOpen Standards &

IP Technologies

Process Workflow

Corporate Contracts

Business Rules

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Brainstorming / Focus Group

Level of AutomationLevel of Automation

End to end processEnd to end process

Requisition to orderRequisition to order

Content (catalogue)Content (catalogue)

Cat managed externallyCat managed externally

Cat managed internallyCat managed internally

Supplier managedSupplier managed

Distribution of FunctionalityDistribution of Functionality ERP basedERP based Free standing integrated best of Free standing integrated best of

breedbreed Distributed functionalityDistributed functionality

OrganisationalOrganisational

Change ManagementChange Management

Regional / DivisionalRegional / Divisional

Legal & Fiscal needsLegal & Fiscal needs

Spend SegmentationSpend Segmentation

DeploymentDeployment

Desktop / MobileDesktop / Mobile

Limited accessLimited access

Purchasing dept onlyPurchasing dept only

Maximise benefits/ Maximise benefits/ Minimise risksMinimise risks

Lean, 6 SigmaLean, 6 Sigma Process MappingProcess Mapping

Deployment StrategiesDeployment Strategies

Phases, stage gatesPhases, stage gates

QA review / sign offQA review / sign off

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eProcurement Process

1. Spend Analysis (Opportunity Identification)

3. Supplier Identification

4. Sourcing(eTendering / eAuctions)

5. Contract Management(Portal)

6. Procurement (P2P)

7. Order Fulfillment

8. Invoicing, Reconciliation &

Payment

2. Supplier Assessment

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What was involved & benefits

2. Employee-

FacingCatalog

Finance

Purchasing

Employees

1. Workflow

for originatingand approving

requisitions

3. PurchasingData and Analytics

SupplierSite

SupplierCatalog

Dire

ctco

nnec

t

Catalog

tools

4.Procurement

Vendor’sSupplierNetwork

4.Procurement

Vendor’sSupplierNetwork

Benefits

• Reduced purchase process costs

• Improved compliance with sourcing policies

• Provided analytical reports for informed decision making

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Business Case Approved

Reduced Product/Process Costs

Improved Compliance

Reduced Inventory Costs

Reduced Maverick Purchasing

Value Drivers

Improved Process Efficiency

Pain Points

• Fragmented data• Unreliable/inaccurate data• Fragmented data• Unreliable/inaccurate data

• Rampant off-contract spend (approximately 27% of indirect spend)

• Rampant off-contract spend (approximately 27% of indirect spend)

• Long lead times result in purchase of large safety stocks

• Long lead times result in purchase of large safety stocks

• Long lead times due to high manual processing, 1/3 time spent reviewing manual requisitions

• Long lead times due to high manual processing, 1/3 time spent reviewing manual requisitions

• High transaction costs• Long supplier negotiation• Non contract compliance

drives up price

• High transaction costs• Long supplier negotiation• Non contract compliance

drives up price

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Scope – Sourcing & eProcurement

Determined the types of purchase and spend categories percentage of addressable spend by category level of compliance by reference to the extent to which corporate contracts are in

place, the level of maverick spend and the number of suppliers by spend categories Stakeholder buy-in with regard to phasing the strategic procurement applying benchmark savings percentages to addressable spend by category

Determined Potential benefits by mapping the procure-to-pay process and defined how the process is undertaken, including technology timings / outcomes for each process step the resources involved in each process step and their cost calculation method - unit costs for order and invoice processing As-Is process and To-Be in line with best practices potential process savings in the selected services and extrapolated the potential

savings across all areas

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Scope (Contd.)

Determined the procurement strategy and policies for the program direction & implementation

Used Value Stream Mapping to define As-Is ~ To-Be process along with metrics

Determined the necessary levels of investment & ROI

Performed procurement process audit & supplier evaluation

Evaluated the effectiveness of the strategic sourcing process including user needs and supplier / vendor relationship

Developed certification process (ISO, TQM) & training requirements

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Scope (Contd.)

Evaluated pricing / cost structures for total cost of ownership (TCO) (direct, indirect, landed, technology, logistics, material, disposal, transaction, relationship cost)

Analysed corporate contracts (including outsourced service delivery) - the number of suppliers : value bands of invoices

Change management strategy and communication management plan

Defined Standard formats and the trade off for Content Management

Determined the system integration points (push and pull) between numerous vendors and deciding on which suppliers to use

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Stakeholder Management Strategy

Reaching critical mass in contract coverage

Risk Strateg

y

Risk Strateg

y

Change Management

Approach

SupplierAdoptio

n

Legal & Fiscal -

Country

BU / Siteconstraints

TechnicalIntegratio

n

Providing Change Management guidance, with a specific focus on the areas relating to e-procurement implementation

Case Studies - extracting lessons learnt from a range of industries (related and unrelated) who had undertaken different approaches to Change Management

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Success Factors

Strategic Freed up front line resources to focus on value-added activities Stakeholder briefed on policies, process and procedural changes Senior management buy-in to improve strategic procurement policies

Process Cross functional teams involvement Well defined project and change management process Staff resources trained on capabilities and competencies Standardisation (processes, documents, specifications, product

catalogues) and streamlined back end processing

Finance Effective and realistic benefits realisation

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Transition (As-Is ~ To-Be) = 7.2 months

Integration

Procurement viewed as key contributor to

business strategy

Value Optomisation

Procurement strategy tied to

business strategy

Value Innovation Sustainability

STAGE 1STAGE 2

INFORMAL-Focus on purchase orders

-Detailed reconciliation

- ‘Back Office’ function

CONTROL

Procurement has some

accountability for overall

cost reduction

STAGE 3

STAGE 4

STAGE 5

As-Is

To-BeTook 7.2 months (11 days ahead

of schedule & $12.8k under

budget)

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Results Achieved

Business Metrics

Governance & Internal Controls

Client Satisfaction

P.O. Processing Cycle Time

e-Transaction: Invoice

Contract: Cycle TimeLength

Ledger Miscodes

Suppliers Connected via Web

Savings via Web

Stock Keeping Unit

Before Implementation

40-50%

40%

23 Days

??

6- 28 months57 pages

78%

0

0

283,000

After Implementation

90%

93%

2.1 hour

98%

45 days6 pages

9%

17,000

$112M

134,000

Strategic Sourcing

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Identify - Sourcing Solution

Solutions Overview

Diagnostic

toolList of key

vendors

Requirements

template and

guidance

Discussion

paper

Experiences of

e-procurement

Output - Deliverables

Input - Questions Addressed

Stakeholder buy in - Increase awareness & understanding

What solution types are

available ?

What & why on solution

fit?

What lessons from dis /

similar firm?

What & why to capture?

Who are leaders /

visionaries?

Specific Solution

highlights, why?

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Strategic Sourcing - Roadmap

Source: Adjoined Consulting. LLC

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Drivers - Strategic Sourcing

Increase customer focus Focus on supplier economics Drive continuous improvement Assess the total cost of ownership Reduce costs and delivery cycle times Increase number of global competitors Improve quality/long-term financial performance Deliver more innovative products more

frequently & cheaply than competitors

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Lean - Supplier Rationalisation Applying Lean concepts for supply base reduction and foster alliance

Fewer supplier management problems Closer and more frequent interaction between buyer and supplier Greater levels of quality and delivery reliability.

Supplier selection & termination conducted with cross functional teams included were Supplier certification programs are used Site audits conducted, to identify a supplier’s process capabilities

Purchase cost becomes relatively less important, when evaluating suppliers for strategic partnering

Undertake Value Engineering activities for cost reduction, improve quality, and reduce new product development time.

Outsourcing opportunities / risks reviewed (3PL & 4PL) for Vendor Managed Inventory (VMI)

eProcurement

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Procurement Vision – Reduce Cost

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28

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0

10

20

30

40

50

60

70

80

90

As~Is To~Be Vision

Internal Processing Cost External Processing Cost

Minimise total cost from $82 to $6

Reduce cycle times

Improve Accuracy

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eProcurement Challenges

Gaining initialinterest

Gaining initialinterest

Making thecase

Making thecase

Commit resourcesCommit

resourcesDeliver the

benefitsDeliver the

benefits

Leadership and ownership of

the project

Leadership and ownership of

the project

Management and user buy-in

Selling the benefits

Management and user buy-in

Selling the benefits

Management and user buy-in

Selling the benefits

Management and user buy-in

Selling the benefits

Organisation designCompliance with

corporate contractsand processes

Organisation designCompliance with

corporate contractsand processes

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eProcurement - Roadmap

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Waste Eliminated

Excessive quality checking

Multiple reports highlighting the same

things

Delivering above the agreed service

levels

Excessive paperwork sitting within

departments and on people’s desks

Rework due to incorrect information

provided

Excessive validation of reporting data

Reformatting automatically generated

reports

Excessive downloading and uploading of

data into the ERP system

Multiple printing and binding of reports

Time in process waiting for action

Waiting

Over-servicing

Accumulation

Errors Over-processing

Motion

Movement

Waste

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eProcurement Tools Introduced

Spend Analysis – data on spend patterns

eTendering – receipt of tenders & evaluation

P2P – purchasing, workflow, requisition, ordering

eAuctions – commodity focused, competitive market

Marketplace – contracts, collaboration, management information

Portals – suppliers registration, tender / opportunities, supplier evaluation, risk analysis, contract award

eInvoicing – invoice presentment, automatic match, authorisation & payment

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Take Away

Define metrics to measure and monitor Progress

Ensure on-going supplier certification and evaluation

Benchmark & using proven implementation methodologies for sourcing & eProcurement

Re-engineer process and remove waste (utilise Lean / 6 Sigma concepts)

Develop selection criteria to appoint strategic suppliers (Leichardt scale)

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Take Away (Contd.)

Automate areas to eliminate re-entry / re-work / duplication

Review inventory policies for cycle-times & inventory levels reduction

Manage supplier relationships to support priority or time-critical purchases

Undertake comprehensive analysis and research, to understand procurement price, costing and the total cost of ownership (TCO)

Consolidated details of actual spend with each supplier and product category

Select a Solution Vendor based on - organisational / industry fit, expertise, product strategy, history of success, interview consultants for their competencies / capabilities

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“Latecomers Must Be 10 Times Better Than What They Replace.”

- Peter Drucker

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Good Luckhttp://www.linkedin.com/in/anandsubramaniam