Ignite 2015 NA Procurement Breakout Session - "The Business Case to Empower Your Upstream Supply Chain"

Supplier Management: The business case to empower your upstream supply chain October 2015 Omar Nadi Director, Supplier Product Management

Agenda

•  StateofP2P•  Whatischanging?•  HowdoIstartbuildingabusinesscasetogetthere?

State of P2P in Process Industries

Supplier Management is stuck so to speak, relying on decades old methods

Missing a shared vision across purchasing and finance Lack of a champion

Stalled Automation of Direct Suppliers

Limited focus on Requisitioning Process & Indirect Spend

What is changing?

It starts with Automation of your Network

Environmental Shifts

Organization

•  Rise of CSCO

•  Global Service teams across purchasing, finance, logistics

•  Renewed focus on upstream opportunities

•  Searching for new technologies

Technology

•  Business Networks quickly build robust partner connections

•  SaaS solutions are able to scale networks extremely fast

•  New technologies around risk/disruption

Competition

•  Process Industry Clients are focused on building Supplier Networks

•  Automation will not be a competitive advantage but a basic requirement

TheCPO'sAgendafor2012...andBeyond–Aberdeen“Suppliernetworksandportals(uHlizedby51%moreBest-in-Classcompaniesthanallothers)representashi-inthebusinessmindset.Suppliernetworksarenotjustmerelinksbetweenbuyersandsellers;solu;onsenabletruecommercebetweenprocurementprofessionalsandtheirsuppliersandallowCPOstobeNermanagetheenHrespectrumofpurchasing“

P2PStudy2015-HackeNGroupEDIisnolongerthedominantconnec;vitystrategy,TopPerformersareleadingthetransi;ontoweb-basedsolu;ons

TheChiefSupplyChainOfficerReport2013–SCMWorldStrongSupplierRela;onshipslistedassecondmostsignificantwaysupplychaincancreatevalue

What are analysts saying?

B2BCollaboraHonNoLongerOpHonal–Aberdeen

Thetoppriori;esforleadersarecollabora;onwithsuppliersandcustomers.Thelikelihoodis72%greaterfortheleadersthanthefollowerstocollaboratewithsuppliers.

What is changing?

EDI Internal Portal

Fax eMail

Business Network

Network Nervous System

Moving data faster Moving clean data faster

Linking cross

partner/process data

Scalability

Opening new communication

channels

Applying new data feeds and to

your network

Sense & Respond

Elemica’sNextGenera;onNetworkPlaPorm

How do I get there?

Agent of Change Identify someone to lead the with executive approval that will take an objective look at what is best for the company and that is willing to challenge the status quo to lead the program.

Build the Team •  Finance resources who touch inbound invoices •  Purchasing resources centrally and at plants that touch orders,

confirmations, shipments, invoices

Building a Business Case

Build the Business Case Purchasing Metrics

•  FTEs per PO Line •  FTEs per Shipment Processed

•  % of Orders requiring intervention

•  % of Orders requiring rush transportation •  Cost of rush shipments

•  Inventory Turns

Invoice Metrics

•  FTEs per Invoice •  % Invoices requiring intervention

•  DPO •  On-time payments

•  Discounts captured

Building a Business Case

Build the Business Case Sample Company

•  Spend = $5B •  PO Lines = 150,000

•  Average Inventory = $833M

•  Invoices paid on time = 80% •  FTE’s processing Order Confirmations and Shipments = 30

•  FTE’s processing Invoices, Invoices Statuses, Payment Advice = 50 •  Salary Rate = $40/hour

•  Cost of Capital = 5%

Building a Business Case

Annual OrdersSpend

Personnel Hourly RateInventory Turns

Cost of Capital

Labor Savings Minutes Saved Occurrence Total SavingsOrder Response Processing 5 100% $500,000ASN Processing 10 100% $1,000,000Data quality issues 60 4% $240,000Expedition issues 120 1% $120,000

Operational Improvements Cost per Error Occurrence Total SavingsExpedited/Delayed Orders $3,000 1.0% $225,000

Working Capital Improvements Improvement Occurrence Total SavingsIventory Turn Improvement 0.25 100% $1,666,667

Total Annual Savings: $3,751,667 Per PO: $25.01

150,000

$4065%

$5,000,000,000

Building a Business Case

Annual InvoicesSpend

Personnel Hourly RateCost of Capital

Late Payment ChargeEarly Payment Discount

Labor Savings Minutes Saved Occurrence Total SavingsInvoice Processing 15 100% $1,500,000Payment Processing 15 50% $750,000Data quality issues 120 5% $600,000

Payment Discounts Improvement Occurrence Total SavingsInvoice Discounts 30% 15% $225,000

Working Capital Improvements Increase Occurrence Total SavingsDPO Improvement 1 80% $547,945On-time Payment Improvement 50% 20% $500,000

Total Annual Savings: $4,122,945 Per Invoice: $27.49

$40

150,000$5,000,000,000

2%

5%2%

Building a Business Case

Build the Business Case Total Savings $7.9M

Total Savings per PO = $25.01 Total Savings per Invoice = $27.49

  Best in Class Automated

All Others Manual

Percent Improvement

Order to ASN $38.10 $6.13 84%

Invoice & Payment $34.65 $4.17 88%

Total $72.75 10.30 86%

Consistent with Analyst Studies*

Efficiency KPI Current Automated Improvement

Orders per FTE 5,000 18,000 3.5x

Invoices per FTE 3,000 9,400 3x

*B2BIntegra;onandCollabora;on:StrategiesforBuildingaROIBusinessCase-Aberdeen

Efficiency KPI Current Automated Improvement

Rush Shipments 2% 1% 50%

Inventory Turns 6 6.25 6%

DPO 1 day

On-Time Payment 80% 90% 11%

Human Capital ($4.7M) •  Savings Purchasing = 23 Years

•  Savings Finance = 36 Years

Working Capital ($3.2M) •  Savings per PO = $13

•  Savings Per Invoice = $8.50

Building a Business Case

Other Benefits Being a better customer – priority from your supplier

Improved Relationships •  On-time payments

•  Improved communication

•  Less work for both sides Efficiency gains upstream unlock further benefits downstream

Calculating TCO Supplier Performance Visibility

•  % of orders with ORE

•  % of orders with ASN Standardized Processes

Digitization- eliminate paper Free up IT resources – managing your own point to point connections or portal

Word of caution

Be Careful Have to look at total cost to system before choosing a partner

NumberofSuppliers4,000

TotalAnnualspend$5,000,000,000

AnnualInvoices150,000

Vendors VendorAvg.Spend TransactionFees MembershipFees TotalFees/Invoice2,200 $22,727 $0.00 $0.00 $0.001,000 $200,000 $15.90 $2.56 $18.46520 $1,923,077 $34.44 $28.83 $63.28240 $7,291,667 $48.87 $10.79 $59.6640 $50,000,000 $35.56 $13.32 $48.88

TotalMembershipCosttoSuppliers

ValueBasedModel

SupplierNetworkTransactionValueFees

TotalLicenseCosttoBuyers$400,000

$2,246,000

$5,372,500

TotalAnnualCosttoSystem

$8,018,500

TotalTransactionCosttoSuppliers

Questions?