Using Technology to Streamline Procurement and the Supply Chain

Using Technology to Streamline

Procurement and the Supply Chain

August 2006

Agenda

 Where does Procurement fit into the overall supply chain process?

 Key Procurement process steps and using technology to streamline and improve them

 Using Procurement techniques to drive supplier performance improvement

 Managing indirect suppliers through Procurement technology

Spend Profile Drives Technology Usage

Spend Profile Drives Technology Usage

High Value / Low Volume Electronic P/Os

EFT

Recurring Payments Address Governance Spend by

Category High

Low

High Volume / Low Value Electronic Catalogues

Electronic P/Os P-Cards

Reduce Overhead Low Value / Low Volume

P-Cards One Time Vendors Minimise Activity

High Volume / High Value Electronic P/Os

ERS / RCTI Direct Connect Systems Focus

Number of Transactions Low High

Putting the Systems Jigsaw Together

Forecasting / MRP Supplier Portal EDI / Direct Connect

Evaluated Receipt Settlement

Supplier Performance Management System

E-Procurement with Catalogues Electronic RFX for Quick Sourcing Supplier Portal for invoice submission

EFT via core ERP system

P-Cards

Expense Management System EMS interface to ERP

Key Direct Suppliers Systems

Spend Analysis Demand Planning

Manufacturing

Expense Management System (EMS)

E-Procurement ERP

EDI / ERS Supplier Portal

General Suppliers

Low Value Suppliers

Supply Chain Planning Process Flow

Demand Planning

Prepare Demand Forecast based on historical actual sales and known promotions activity SKU Level forecast for each major sales channel

Production Planning

Using Demand Plan Forecast, prepare 13 week rolling Production Plan by SKU per plant Used for MRP runs and ordering of input materials

Production Operations

Run MRP to order inputs, schedule production runs to make actual SKUs Make actual product based on Production Plan

Distribution

Manage distribution of finished goods to company warehouses, direct to customer shipments and export customers

Distribution Planning

Prepare Distribution Plans for finished goods based on actual Customer Orders

Supply Chain Network Process Flow

Major 1

Major 2

Retail

Route

Other

Map Demand Plans to Production Sites

Factory 1

Factory 4 Factory 3

QLD

NSW

VIC

SA

WA Factory 2

Product A Product B Product C

Major 1

Major 2

Retail

Route

Other 10 X

17 X

23 X

Demand Plans by SKU by Customer Channel, based on actual sales history, seasonality and

planned promotions Customer

Channels

Production Plans are based on total SKU forecast across customer channels. Map

SKU demand to most appropriate manufacturing location.

Distribution plans pre-position stock based on forecast demand in State Warehouses. Major customers use direct

shipping.

Forecast Demand Produce to Forecast Ship to Order

Major

Warehouses Direct Shipments

Direct Shipments

12 X

Buyer selects

item

Buyer places order

Supplier receives

order

Supplier sends

item

Buyer receives

item

Supplier sends invoice

Buyer approves

invoice

Buyer send invoice to

A/P

A/P pays invoice

Procurement Process Flow

 Forecast

 Order

 Receipt

 Invoice & Pay

 Manage Supplier

Forecasting

 Data integrity

 Forecast accuracy

 Sharing forecasting with suppliers

 Supplier portals

Ordering

 Purchase Orders

 Blanket Orders

 EDI Ordering

 Evaluated Receipt Settlement (ERS)

Technology Linkages with key suppliers

- ERS / EDI

 How to setup ERS with key suppliers

 Catalogue items

 Contracted pricing

 Supplier needs to change their invoicing process

 Focus on accurate receipting

 Agreed reconciliation process

EDI / Direct Connect with Suppliers

 Transmission of Purchase Orders

 Advanced Shipping Notices (ASN)

 Goods Receipt

 Invoicing

 Variations

Receipting

 Goods receipt to trigger payment

Invoicing and Payment

 ERS / RCTI

 Electronic invoicing versus standard invoicing

 Consolidated invoicing

 Payment terms

Managing Suppliers

 Using KPIs to measure and drive performance

Supplier Scorecards

 Scorecards are typically used to provide a summary of supplier performance against KPIs

 Traditionally Procurement has focused on “hard” metrics (Quality, Service, Price). Increasingly “soft” metrics are considered.

Measurement Systems

 Commercial software vendors

– SAP, Oracle, Ariba, Emptoris, etc

– Base KPI functionality available in core purchasing systems – Off the shelf systems, can be expensive to acquire and install

 In-house developed systems

– Customised to your industry and requirements

– Requires significant investment but can deliver flexibility

– May have stronger focus on quality or process specific issues

 Manual systems and processes

– Spreadsheets and email

– Simple but can be effective if applied consistently

Collecting KPI Data Through Systems

 At point of ordering – reference contract to track compliance

 At point of receipt – Delivered In Full, On Time

 At point of invoicing – invoice accuracy, blocked invoices etc

 At point of inspection or usage – Quality metrics, defects, out of specification issues

 At completion of order – poll users for feedback on order

 On going management

– Qualitative data

– Feedback from end users

System KPI Reporting

 Purchase Price Variance (PPV)

– Variance to budgeted cost and price

 Delivered In Full On Time (DIFOT)

– Number of orders delivered short / Number of orders delivered late

 Invoice accuracy

– Number of invoices blocked or held up / Number of invoices requiring rework

 Quality

– Number of defects for a particular supplier

 Supplier performance

– Some systems allow for each transaction to be scored by an end user upon completion – constant feedback loop

 Contract compliance

– Requires orders to reference contract at time of purchase and payment – Can calculate spend against contract versus total spend in category

Supplier Performance League Table

 Comparing performance can be a powerful motivator for suppliers

 Especially if results drive the next sales cycle…

DIFOT Performance January 2006

1. Supplier A 2. Supplier D 3. Supplier I 4. Supplier G 5. Supplier B

Quality Performance January 2006

1. Supplier D 2. Supplier G 3. Supplier B 4. Supplier A 5. Supplier I

Invoice Accuracy Performance January 2006

1. Supplier G 2. Supplier B 3. Supplier I 4. Supplier A 5. Supplier D

Indirect and MRO Suppliers

Streamlining the Tail

E-procurement

 Overview of E-Procurement

 Punch out technology overview

 Types of suppliers ready for E-procurement

P-Cards

 Using P-Cards

 Expense Management Systems

Supplier Portals

 Use supplier portals to streamline administration

 Terms and conditions

 Order transmission

 Supplier performance statistics

 Invoice submission and tracking

 Procurement contacts