Achieving Excellence in End-to-End Supply Management

NCMA World Congress 2004“Maximizing Value to Stakeholders…Contract Management in the Business World” 1

April 26–28, 2004Renaissance Orlando Resort at Seaworld Orlando, FL

Breakout Session # 207

Michael P. O’Hara, General Manager – Services Industry, Nextance, Inc.

Tuesday, April 27, 2004

2:45pm – 3:45pm

Achieving Excellence in End-to-End Supply Management



“What makes Dell and Wal-Mart successful? It’s thebusiness model, and supply chain is an enabler. That’s why you’re seeing this growing importance of supply chains. People realize this is the weapon of the future”

Robert Moffat Vice President, Supply ChainIBM



The end-to-end approach to the supply chain is now seen as a competitive edge, a feature so sexy it inspires extra ogling on Wall Street. Dell Computer and Nokia already get higher valuation because of their superior operations.

Forbes MagazineOctober 13, 2003



Supply Chain is a Strategic Lever in Services Organizations

Methods

ALIGN …

Procurement with organizational demand

EXECUTE …

Strategic sourcing

Contractual agreements

MANAGE …

Supply Chain performance

OPTIMIZE …

Internal and external Supply Chain

Goal

Delivering the right products andservices at the right cost:value and at the right time



Supply Chain

No longer just a term relegated to the manufacturing industry – but a discipline driving organization’s to greater efficiency, reduced expenses, reduced risk and increased organizational responsiveness to rapidly changing business landscape.

Comprises the entire end-to-end process of planning, sourcing, selecting, acquiring, receiving, paying, managing and disposing of goods and services

The opportunity - Organization’s still maturing their supply chain practices Significant opportunity to gain greater supplier leverage and

dramatically reduce operating expenses The right technology is a key enabler in the process

MOHara

Change slide as needed to accomdate a sourcing and procurement theme



Where are we today?



The Supply Chain Continues to MatureCurrent stateCurrent state The result of incremental

improvements

Driven by rapid changeDriven by rapid change Technology Competition Consolidation Internet

““Big Picture” Big Picture” perspective missingperspective missing

Focus on narrow opportunities(e.g., sourcing savings)



Islands of Automation and Process

Pockets of innovation exist but lack maturity of manufacturing sector

pCardeprocure

-ment

Exchanges

Ware-houses

SpendData On-

lineRFx

Reverse auctioning

Contract Systems

Consortiums



Strategic sourcing

Online RFx

Contract management

Supplier management

Spend optimization

Integrated supply chains

Demand management

Performance management

Compliance

Integrated tools

Trends in the Services Sector

Web applications

e-Procurement

ExchangesPortals

1995 1998 2000 2005

Inside and Outside Organization

MARKET

Birth of Supply Chain Management for services industries

Where is the integration of Technology and

Process, of People and Information?



Companies are Still Laggingin Getting to a World Class Supply Chain

• Abundance of Technology/Absence of Technology

• Incorrectly Applied Technology

• Lack of an Established Business Model

• Lack of Well-Defined Processes

• Not Understanding the “Big Picture”



Titanic and the Rudder

• State of the Art

• Incorrectly Applied Technology

• Lack of Well-Defined Processes

• Absence of Standards (W.J. Lovett)

• Didn’t understand the big picture (ship is the lifeboat)



Rapid Advancements in Technology have caused Supply Chain “Gridlock”

• Innovation is coming in waves – in some cases, the rising tide isn’t lifting all ships– A large part of that innovation targets specific problems in

lieu of looking at the whole picture• We’re coming from behind – pressure to catch-up, stay

competitive by implementing piecemeal solutions• Prior investment in technology is substantial – organizations are

hesitant to change• Some newer technologies have over-promised and under-

delivered– Some organizations are wary of unproven tools, some

choose to wait it out



Technology

Strategic Sourcing

Sourcing analytics

Supplier evaluation

RFx & auctions

Contract management

Strategic Sourcing

Sourcing analytics

Supplier evaluation

RFx & auctions

Contract management

Supplier Enablement

Supplier portal

Supplier connectivity

Supplier Enablement

Supplier portal

Supplier connectivity

Content

Content consolidation

Catalog content management

Content

Content consolidation

Catalog content management

Operational Procurement

Self-service procurement

Plan-driven procurement

Services procurement

Asset Management

Operational Procurement

Self-service procurement

Plan-driven procurement

Services procurement

Asset Management



Big Picture



Some of the Top Issues Facing Supply Chains in Services Organization

Information/Tools Lack of single contract repository Inability to capture and reuse data Inaccessible, lack of visibility to data Non-standardized naming conventions Lack of Demand Planning/Demand Mgmt Tools

Process Manual, fragmented contract development Application’s inability to accommodate process flexibility and provide

process structure as needed Lack of scalability Disparate processes, tools, and information Lack of well-defined processes (playbook) Tug of war for process ownership

Performance Poor supplier performance measurement and management Limited visibility into consumption and spend analytics Weak industry, market, commodity, and supplier intelligence Poor demand management



Lack of Single Contract Repository

No single capture point for contractual information

Contracts executed on paperNo aggregate view of third-party

relationships, liabilities, performance

Problem

Inconsistent management of supplier and spend base

Lost leverage opportunities Increased expenses Maverick spend Risk for regulatory compliance issues Supplier stability and operational

continuity

Impact

Centralized contract management system

Capture detailed contract terms and conditions

Integration with existing systems to enhance logical processes

Best Practice



Manual, Fragmented Contract Development

Contract development using multiple forms

No standardized templates Deferring to vendor contracts

Problem

Risk of noncompliance of legal, regulatory, and internal compliance

Risk of overlooking key favorable protections and terms

Impact

Automated Application-based,

structured approach Technology can drive

contract type, clauses, fallback

Paper-based Commodity-specific

contract templates approved by legal department

Strict version control, legal review, and approval

Periodic audit of executed contracts for compliance to standard benchmark terms

Best Practice



Inability to Match Invoices to Contract

Inability to match invoices to contractual terms, pricing, and conditions

Inability to isolate maverick spending by matching contracted supplier to paid supplier and contracted good and services to paid goods and services

Problem

Missed potential for a cost reduction by ensuring that invoices match contracts

Impact

A “No P.O./No Pay” policy helps with matching invoice to contracted terms

Systems that can load and match invoice to contracts and send an “OK to pay” to the Accounts payable system

Best Practice



Foundational Underpinnings – Contracts as the “Rudder”

Contract Management and it’s related processes sit at thecenter of an effective and efficient supply chain

• Sourcing and Contract Automation is a best practice driving:– Standardized contract templates – Reduced cycle time from business unit engagement to contract

execution– Maintaining legal integrity and corporate intent behind contractual

agreements through structured development processes– Integrated sourcing processes and integrated sourcing information– Effective supplier management– Enhancing the ability to mitigate risk– Reducing Expenses in several aspects of the end-to-end process



Return on Investment

Contract Management & Automation

• Effective contract development and management looks holistically at sourcing and procurement approaches the process of engaging suppliers, developing structured agreements and managing and enforcing compliance across the entire spend base. ROI on effectively managing the entire supply chain can be 3-10% of an organizations entire spend. Other key factors such as operational risk can be greatly mitigated

• Organizations deploying e-sourcing solution can potentially realize gains from 3-10%, sometimes more, sometimes less based on the commodity. Unless the e-sourcing event is a spot-buy, it still is susceptible the same problems as a typical sourcing event. Did the organization get the savings?

E-sourcing



Automation … • Capture paper-based contractual information into an

electronic repository• Utilize standard contract templates to maintain legal

integrity in accordance with corporate objectives, workflow to ensure proper review and controls

• Reduce cycle time to execute contracts – streamline the engagement and interaction necessary with suppliers (automated RFx/electronic document exchange and import)

Manage

Engagement … • Captures the needs of the

organization in a standard, accessible template that can be used by sourcing

• Drives compliance, reduces maverick spend

• Creates organizational awareness around supply chain/sourcing

Automation and compliance … • Generate requisitions from executed

contracts, streamlining process, eliminating handoffs, reducing cycle time, driving compliance

Catalog creation … • Generate catalogs for e-procurement or ERP

systems from executed contracts

» Source

» Procure » Pay»Plan

Spend leverage, payment automation, and compliance … • Matching contracts suppliers to “paid” suppliers is a

critical sourcing requirement to leverage spend and reduce maverick suppliers

• Reconciling invoices to contracts can drive compliance and reduce payment errors; critical to organizations when substantial payments do not have a matching requisition

Performance management, compliance, cost reduction – captured contractual detail captured is critical to being able to effectively scorecard/manage supplier performance to contract terms and conditions. Accessibility to contracted supplier information matched to spend is critical to managing leveraging the supply base as well as measuring usage, risk mitigation and internal adoption

Spend leverage … • Visibility across existing contract base,

commodities, products, and services• Via extensive search capabilities, quickly find

existing contracts or opportunities to leverage existing agreements and arrangements

End-to-End Sourcing and Procurement Management



Inability to Capture and Reuse Data

Key supply chain data capturedin nonelectronic format

Contract data can be used by other systems and processes, but is not readily available

Problem

Lack of data integrity Inability to match supply chain inform-

ation to original contract terms and conditions

Inability to gain ready access to contractual detail

Inability to view aggregate contractual data

Impact

Centralized contract management system

Robust capture of detailed contract terms and conditions

Integration with existing systems to enhance logical processes

Aggregated data warehouse of key supply-chain information

Best Practice



Poor Supplier Performance Measurement and Management

Organizations have poorly documented handoffs to internal clients

Without supplier performance data organizations do not know if suppliers and products perform as stated in the agreement

Problem

Savings do not materialize and uncertainty arises around actual costs of provided goods and services

Risk of operational stability and increased expenses and lost productivity

Impact

Clearly defined performance metrics

Train supplier managers to assess and measure suppler performance

Scorecarding process Key performance

indicators

Best Practice



• You can’t change what you don’t manage

• You can’t manage what you can’t measure

• You can’t measure what you don’t know

Functional Truths



Technology, Process and People are the Keys to Success



Organizational “Golden Threads”

Common themes and issues relevant to organization’s today

• Expense Management• Revenue Growth• Shareholder Value• Increased Productivity• Risk Mitigation• Customer Retention and Customer Satisfaction• Operational Stability• Regulatory Compliance

MOHara

MOHara11/3/2003Change "Supply Chain" to "Sourcing and Procurement" as needed



Organizational “Golden Threads”Common themes and issues relevant to organization’s today

• Expense Management• Revenue Growth• Shareholder Value• Increased Productivity• Risk Mitigation• Customer Retention and Customer Satisfaction• Operational Stability• Regulatory Compliance

Directly impacted by the organization’s supply chain

Influenced by the organization’s supply chain

MOHara

Change "Supply Chain" to "Sourcing and Procurement" as needed



Best P

ractices

ToolsProcess

The Four Enablers

People Process Tools

Find, Define, Implement and Integrate the Right Practices, People, Processes and Tools



Consider the Airline Industry – Two prevalent business models exist:

Efficient vs. Effective

Low Fare Airlines Major Airlines

One type of Aircraft

Point-to-Point

Standardized Service

Low Cost

Profitable

Average time in air per day : 11.5

Focus on efficiency and effectiveness

Multiple Types of Aircraft

Hub System

Differentiated Service

Variable Costs

Unprofitable

Average time in air per day : 8.6

Focus on efficiency

Low-Fare airlines realized that several factors make success for an airline, moving people quickly, while providing a standard level of service at a low-cost is their goal. Other airlines tried to vary the offering and looked for efficiency in moving passengers by funneling customers through a “hub”. Focusing on one aspect of efficiency and assuming that gain would outweigh other shortcomings proved disastrous. They lost focus on the total picture and assumed efficiency would equate to profitability. Southwest, realized the simple concept, planes make money when they are in the air. What looked like an effective model for the major airlines, simply wasn’t.



Why is the end-to-end process important to you?

Value Drivers Business Initiatives Results

Productivity& Efficiency

ExpenseControl

ManagedRisk

Adoption &Compliance

Sourcing and Supply ChainAutomation

Standardized processes

Supplier Enablement

Contract Development Efficiency

Supplier Rationalization

Demand Visibility

Effective Supplier Management

Alignment to Corporate Goals

Supplier Risk Assessment

Supply Risk Management

Contingency Planning

Process Controls

Policies and Procedures

Metrics and Measures

Supplier Performance

Organizational Compliance

Spend Reduction

Increased adoption & compliance to contract terms and conditions

Decreased cycle time

Increased efficiency

Reduced Risk



Creating a World Class Supply Chain

Scale, adapt, and extend Right People, Processes, Practices and ToolsBuild flexibilityBuild flexibility

Create game planCreate game plan Understand your supply chain

Define processes

Get organizational commitment

Extend supply chainExtend supply chain Optimize internal supply chain

Enhance supplier capabilities

Manage supply chain Manage supply chain performanceperformance

Create dashboard

Measure compliance

Learn from experienceLearn from experience Transactions into informationTurn Information into knowledge

Continuous improvement



Predictions – One Day We’ll See…..

• Standardization – Information, Processes and Technologies

• Integration of People, Processes, Tools and Information

• Rising Value of Supply Chain – Organizations will view the strategic and operational value of supply chain equally with Finance, Marketing, Product Development and other critical business operations

Achieving Excellence in End-to-End Supply Management

Documents

supply management

supply chain performance

external supply chain

supply chain ibm

andsupply chain

lack of visibility

right technology

management limited visibility