e-Procurement

thats Intelligent Buying

Dr. Ashis K. Pani

The Enterprise Landscape

e-Procurement:

The Next Wave of Cost Reduction

Sourcing 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
Flow

Source: ariba.com

Process

Procurement Process: Why automate?

Multiple Departments
Engineering
Marketing
Sales
Support
Approval Hierarchy
Managers
Approvers
Purchasing Department
Etc.
H/W Purchaser
Facilities Purchaser
Etc.
Suppliers
Contract
Non-Contract
Specialized
Etc.

Logistics
Receiving
Inventory
Payment
Etc.

Deffinition e-Procurement
An e-Procurement application is the software that is
required to access suppliers electronically, enabling
an organization to conduct procurement transactions
over the Internet.
Supplier

Supplier
Portal
Supplier

Supplier

Benefits of eProcurement
http://www.mysap.com/solutions/e-procurement/businessbenefits.htm

Reduced purchase costs

Enhanced efficiency at every stage
Monitor and regulate buying behaviors
Improve sourcing by discovering more suppliers
Ensure deliveries on time, every time
Free up skilled employees
Reduce training requirement
Permit flexible access time, anywhere
Manage contracts
Perform content management functions
Reduce maverick purchase

Direct vs Indirect Materials

Direct Materials
Strategic sourcing core business

Indirect Materials
Technical sourcing non-strategic

Systematic sourcing scheduled by production Spot buy, less frequent purchase of

run
standardize products
Locus of operation: professional buyers
desktop

Locus of operation: employee desktop

Driven by design specification

Driven by catalog

Actual transaction function not as time

consuming as back & forth information
sharing & communication with suppliers

Focus on transaction functions which is

time consuming

More 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 provider

Collaboration, integration & visibility among

qualified suppliers are critical

Many suppliers

Quality, security and privacy conscious

Price 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 goods

Cost of
Procurement

Cost of Inventory:

Carrying costs
Storage
Insurance
Shrinkage
Obsolescence

Cost of
Inventory
*Source: Grainger Industrial Supply and industry studies

Operating Resource Procurement at

Microsoft: MS Market
Supplier N
Supplier 2

Buyer

2. Browser Suppliers

Web
Browser

4. Order items
5. Confirm order

Catalog
Order Form
Availability
Order Entry

Catalog Content
Interchange

3. Find Products

Multisupplier
Catalog

1. Catalog
Management

6. Transmit order
get confirmation

MS Market in Action
7. Order Completed

Supplier 1

Approval
Workflow
PO Workflow

Fulfillment
Shipping

Accountin
g

Business Benefits of MS Market

MS Market Solution
User-friendly catalog for employees

Business Benefits

world wide

Control and tracking of orders with

direct vendors

Integration with SAP R/3

Automate $3 billion annual

spending

Components: Windows NT server 4.0

Reduce purchase cycle from 8 to 3

days

Internet Information Server 3.0, SQL

Server 6.5, Site Server Enterprise 2.0,
Microsoft Exchange Server for e-mail
approval

Reduce employee overhead from

14 to 2 full-time employees
Average 1,000 orders per day;

Front-End and Back-End of

e-Procurement
Supplier

Supplier
Portal
Supplier

Supplier

Transformation of Corporate Purchasing

Front-End e-Procurement Back-End ERP systems
e-Catalogs
A/C receivable and
Content Management
payable
RFQs
Inventory Management
Approval Routing
Material Management
Order Management
Order and Sales
Data Management
Management
Providers: Ariba,
Sales Planning
Commerce One,
Providers : Oracle, SAP,
Oracle, Cisco, Clarus,

eProcurement System Architecture for Chevron

Extranet
Extranet

Intranet

SAP
---

ARIBA

Harbinger

Procurement
Front-end

Multi
Vendor
Electronic
Catalog

Supplier

Supplier

JDE

Supplier

Chemical

--JDE
COPL

EDI/EFT

PO / Invoice / Funds

Supplier
Firewall

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?

 Advanced Scheduling
Demand Forecasting
Transportation Logistics
Distribution Planning
Order Commitment

SCM

Defining Supply Chain Management

The 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.

Simple Supply Chain Component

Raw Material
Supplier
Supplier
Manufacturer

Distributor

Manufacturer

Distributor

Retailer

B2B lace
etp
ark

Customer

Simple Supply Chain Component

Retailer places
order with
Distributor
Retailer must
hold safety stock

Distributor
Information Flow

Amount of safety Physical Flow

stock required
depends on
Retailer
variability in
replenishment
process
How IT can improve the scenario

IT Improvements
Electronic Data
Interchange (EDI)

Point of Sale
(POS)

Distributor
Information Flow

Both result in Physical Flow

reduced safety
stock, improved
Retailer
customer service
or both

IT Improvements
Inventory and
demand visibility
has been increased

Distributor

Information
Information Flow
has replaced Physical Flow
inventory

Retailer

Impact of e-enabled SCM

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 customerresponsive 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
together

Impact of poor 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
Unhappy retailers.

integrated,

The

result:

An e-Supply Chain in Action

Retail Stores
Package are shipped to
CVSs Warehouse

Listerine

WLs Manufacturing
and Distribution facility
in Pennsylvania

Farmers sells
Eucalyptus crop in
Australia
Processing
Company
extracts oil
Sells
Distributor
in New Jersey

Synthetic Alcohol
in Saudi Desert
Union
Carbide ships

Refined to ethanol
in Texas

Farmers grow
corn in Midwest

Supply Chain between Werner - Lambert (WL) and CVS

What is Causing the Supply Chain

Management Boom ?
e-Commerce
Value Proposition
Give customers what they
want, when and how they
want it, at the lowest cost

e-Business
Structural Migration
Rapid Demand Fulfillment
Internet-Enabled Supply
Chain Planning and
Execution

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 Chain

Supply Chain Planning

Credit Card
Information

Product
Flows

Payment Flows
Supply Chain Execution

Order
transmission

Product
Flows

Payment
Schedules

Customer

Delivery
Status report

Retailer

Product
Flows

Distribution

Product
Flows

Information Flows
Manufacturing

Supplier

Demand
forecasts

New generation SCM optimization tools

I2 technologies Rhythm and
SAPs Advanced Planning and Optimization
(APO)
Provides an integrated approach through which

Demand Prediction
Inventory stacking and
Transportation decisions are made together

e-Supply Chain Management

SCM is a business framework
comprised of multiple applications
and divided into two application
camps:
1. Planning (Demand, Distribution,
Transportation Planning)
2. Execution (furniture.com,
living.com,homepoint.com)

Elements of Supply Chain Planning

Flexible SCP apps involves evaluation of
multiple planning strategies, such as the
following

Profitable 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 Execution

Forecasting
Aggregate
inventory
planning
Capacity
planning

Replenishment
Process

Sourcing
Order
entry and
processing

Order
confirmation

Fulfillment
planning

Order Planning
Process

Inventory
availability
-schedule
production
Allocate
inventory
-priority orders

Production
Process

Production
scheduling
Distribution
Scheduling

Reverse Distribution

Pick and
Load

Schedule
Home
Delivery

Distribution Process

Customer
service

Auto Industrys Inventory Pipeline

Vendors
Inventories

JIT Mfg. Process

Mfg.
Process

Plt. Transit to
FG Dealers

Dealers
Inventories

Success Stories:
Dell Computer
Technology use leads Dell to gain competitive
edge
Internet 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 order

Virtual Integration involving technology and integration

with parts suppliers
i2-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 Nike
Supply Chain Management System developed by i2
led to excess inventory and order delay

SAP and Hershey

Problems with SAP software system caused a
backlog of orders and slower deliveries, resulting in
lower earnings.

SAP and Whirlpool

Appliance shipping delays after SAP implementation

http://www.cnet.com/news

eCRM
e" Should Stand for easy

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.

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 revenue
Use integrated information for excellent service
Introduce more repeatable sales processes and
procedures
Create new value and instill loyalty
Implement a more proactive solution strategy

Five Tough Questions

1. Can your customers and staff interact in any
combination of e-mail, chat, Web, phone, and
fax?

Five Tough Questions

1.
2. Do they find intelligent and personalized selfservice at your site?

Five Tough Questions

1.
2.
3. Are your customers frustrated by having to
repeatedly contact your staff and re-explain
previous issues to continue a conversation?

Five Tough Questions

1.
2.
3.
4. Are previous communication between the
customers, help-desk staff, marketing, and
sales available across your organization?

Five Tough Questions

1.
2.
3.
4.
5. Does your staff have real-time access to
complete customer details such as purchase
history, pending orders, and account profile?

3 phases of CRM
Acquire new customers
Enhance profitability of existing ones
Retaining customers for life

The Three Phases of CRM

Acquire
Differentiation
Innovation
Convenience

Bundling
Reduce Cost

e
nc
ha
En

Customer Service

Adoptability
Listening
New Products

Ret
ain

The Five Engines of eCRM

Customer Centric
Information Store

Information

Analysis &
Segmentation
Engine
Design
relevant
interaction

Personalization
Engine

Personalize
for each
customer

Reach every
customer
where
appropriate

Broadcast
Engine

Facilitate
interaction

Transaction
Engine

Transaction

The Arc 360 Process

Online Data Sources
Log
Reg. &
Files Trans. Data

Data
Capture

Offline Data Sources

Survey
AdStream
Responses

Call
Center

Direct
Mail

Warranty
Circle

CAPTURE

CAPTURE

Data Hygiene
& Integration
Update Database with
Measured Customer
Data Storage
Responses

Update Database with

Results of analysis

Arc
Data Warehouse

Targeted Action
E-mail
Campaign

Phone
campaign

Banner Ad
Campaign

Loyalty
Program

Targeted Marketing

Decision Support
Traffic
Report
Customer
Segmentation

Customer
Value
Cross &
Up-sell Model

Data Analysis,Viewing & Reporting

The Bottom Line

It 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