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Ariba Live 2008 Kane Presentation Final R

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1. How Spend Management Complements ERP 13 May 2008 Ariba Live – Las Vegas, NV Presenter Bob Kane Sr. Director, Strategic Sourcing & Supply [email_address]…
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  • 1. How Spend Management Complements ERP 13 May 2008 Ariba Live – Las Vegas, NV Presenter Bob Kane Sr. Director, Strategic Sourcing & Supply [email_address] Telephone (253) 924-3730
  • 2. Speaker Background <ul><li>Sr. Director of Strategic Sourcing & Supply for Weyerhaeuser – Federal Way, WA </li></ul><ul><ul><li>~ $4B+ in spend oversight supporting 100’s of mill locations in North America </li></ul></ul><ul><ul><li>Lead-team member for P2P architecture and implementation </li></ul></ul><ul><li>Former Director/CPO, Supply Chain Operations for General Dynamics IS&T business segment – Taunton, MA </li></ul><ul><ul><li>Implemented center-led supply chain practice for $8B+ revenue base with ~ multi-billion $ in spend </li></ul></ul><ul><ul><li>Implemented full P2P platform utilizing Ariba Enterprise Spend Management products and practices </li></ul></ul><ul><ul><li>Chaired corporate spend management initiatives including Spend Aggregation/Visibility, E-Sourcing, Category Management and 6S/Lean </li></ul></ul><ul><li>Lean/6S experience + ERP implementations (e.g. SAP, Oracle, IFS) </li></ul><ul><li>Member The Aberdeen Group, ProcureCon and Ariba Customer Advisory Councils </li></ul><ul><li>Previously named a “Top Pro to Know” by the “ Supply & Demand Chain Executive” publication </li></ul>
  • 3. Weyerhaeuser Overview <ul><li>Incorporated in 1900 </li></ul><ul><li>2007 sales - $16.7 billion </li></ul><ul><li>Approximately 46,700 employees in 18 countries </li></ul><ul><li>Business segments are: </li></ul><ul><ul><li>Timberlands </li></ul></ul><ul><ul><li>Wood Products </li></ul></ul><ul><ul><li>Containerboard, Packaging and Recycling* </li></ul></ul><ul><ul><li>Cellulose Fiber and White Papers </li></ul></ul><ul><ul><li>Real Estate and Related Assets </li></ul></ul><ul><ul><li>Alternative Energy (CatchLight ™ Energy) </li></ul></ul><ul><li>We lead the industry in sustainable forest practices </li></ul><ul><ul><li>Plant 120 million seedlings annually </li></ul></ul><ul><ul><li>We do not harvest from tropical or biodiversity hotspots </li></ul></ul>* Announced sale to International Paper March 2008; projected to be finalized Q3 2008 pending approvals
  • 4. Core Products & Services Packaging Cellulose Fiber Alternative Energy Real Estate & Home Building Timberlands Building Products
  • 5. What can a tree be? http://www.weyerhaeuser.com
  • 6. Weyerhaeuser Procurement…. by the numbers <ul><li>Procurement approach a combination of center-led and decentralized (~70/30) </li></ul><ul><ul><li>Core manufacturing and enterprise/IT support is center-led </li></ul></ul><ul><ul><li>Real estate/home-building/timberlands largely decentralized </li></ul></ul><ul><ul><li>Strategic sourcing and procurement strategy is center-led </li></ul></ul><ul><li>Supporting 270 mill/plant operations in North America (U.S. and Canada primarily) ~ 110 staff members </li></ul><ul><ul><li>Mill support to enterprise initiatives, chemicals to IT services to energy </li></ul></ul><ul><li>2007 managed spend of ~ $4.9 billion </li></ul><ul><li>56,000 suppliers </li></ul><ul><li>3 million invoices </li></ul><ul><li>Multiple ERPs </li></ul>Procurement & Energy Mission Safely deliver supply chain value while driving measurable competitive advantage in Procurement and Energy to the Enterprise
  • 7. Today’s Landscape <ul><li>40-70% of a company’s revenues tied to the cost of what it buys </li></ul><ul><li>Economic conditions generally unfavorable; price and demand volatility risk on the rise </li></ul><ul><ul><li>Manufacturing capacity limitations and cutbacks </li></ul></ul><ul><ul><li>U.S. Dollar – favorable to exports </li></ul></ul><ul><ul><li>China influence on demand </li></ul></ul><ul><ul><li>Oil at $121/barrel </li></ul></ul><ul><ul><li>U.S. recessionary trend and “ripple” effect through suppliers (e.g. corn to chemicals) </li></ul></ul><ul><ul><ul><li>e.g. Housing starts reduced from 2.5M in 2006 to <700,000 for 2008 </li></ul></ul></ul><ul><ul><li>No significant recovery by the end of 2008 </li></ul></ul><ul><li>Increased outsourcing to reduce cost and keep focus on core company discriminators </li></ul><ul><li>“ Do more with less” and “be quicker, more adaptive” to meet customer needs </li></ul>
  • 8. Research Observations <ul><li>“ 60% of organizations currently rely upon manual tools to collect and analyze spend data, </li></ul><ul><ul><li>Results in limited spend visibility and the inability to improve cost savings.” </li></ul></ul><ul><li>“ Enterprises have been able to achieve a 5% to 20% cost savings for each new $ of spend brought under management.” </li></ul><ul><li>“ 40-70% of sourcing project savings can be lost in the first year by a poorly executed and compliant program” </li></ul><ul><li>*Spend Management is the way in which companies control and optimize the money they spend. It is meant to represent a holistic view of the activities involved in the “procure to pay&quot; process. </li></ul>Where do you fit it?
  • 9. Today’s Sourcing & Procurement Challenges <ul><li>Traditional means outdated </li></ul><ul><ul><li>People alone cannot accomplish complex sourcing objectives </li></ul></ul><ul><ul><li>Disparate systems, bad data habits </li></ul></ul><ul><li>“ Volunteer Fire Department” approach </li></ul><ul><ul><li>Tactical as opposed to strategic </li></ul></ul><ul><ul><li>Lack of accurate, real-time data, communication </li></ul></ul><ul><ul><li>Price minimizer vs. ROI maximizer </li></ul></ul><ul><li>Is the focus upon the right targets and compliance? </li></ul><ul><ul><li>Key spend targets – who and what importance </li></ul></ul><ul><ul><li>Transactions – how do we simplify, push repetitive down to internal customers </li></ul></ul><ul><ul><li>Leakage “kills us all” </li></ul></ul><ul><li>Technology quickly evolving from commoditization of E-RFQs and catalogs to broad, but linked platforms </li></ul><ul><ul><li>Industry consolidation and mergers </li></ul></ul><ul><ul><li>ERP vs. Spend Management Suites vs. “Boutique” vs. on-demand </li></ul></ul><ul><ul><li>Combinations of the above? </li></ul></ul><ul><li>ERPs vs. Spend Management suite/boutique vs. behind firewall/On-Demand/SaaS </li></ul>
  • 10. So, what needs to be in your toolbox? <ul><li>Robust back-end engine (e.g. ERP, MRP) </li></ul><ul><li>E-Sourcing/RFXing, sourcing project management </li></ul><ul><li>Spend aggregation, visibility and analysis </li></ul><ul><li>Business intelligence/procurement content </li></ul><ul><li>Communication, project and process control </li></ul><ul><li>Contracting repositories/authoring </li></ul><ul><li>Ability to tie in with back-end legacy systems (e.g. ERP) </li></ul><ul><ul><li>Flexible to accommodate change, growth or business acquisition </li></ul></ul><ul><ul><li>Well developed interfaces </li></ul></ul><ul><li>Transaction efficiency (e.g. supplier catalogs, workflow, e-forms) </li></ul><ul><li>Linkage to Payables for cash flow management </li></ul><ul><li>Supplier Performance Management </li></ul>
  • 11. The core question behind today’s session………… <ul><li>Why would a Chief Purchasing Officer want to implement a Spend Management system, when the Chief Information Officer says the organization has already invested in an Enterprise Resource Planning? </li></ul>
  • 12. And….what should our strategy be?
  • 13. ERPs are a backbone necessity <ul><li>Supports legacy infrastructures </li></ul><ul><li>Intended to maximize information sharing and </li></ul><ul><li>commonize standard business practices </li></ul><ul><li>Types of approaches: </li></ul><ul><ul><li>Broad-scale: CRM, MRP, Mfg./Supply Chain, Finance, HR </li></ul></ul><ul><ul><li>Discipline-unique: Logistics, quality, shop floor control, project control, procurement, inventory, etc. </li></ul></ul><ul><li>Significant company commitment in $, resources, time </li></ul><ul><li>Not as flexible – “like turning around an ocean liner” </li></ul><ul><li>Tradeoff is enterprise benefit vs. “best in breed” </li></ul><ul><ul><li>Many ERP providers stronger in one discipline vs. another </li></ul></ul><ul><ul><li>Time to implement and feature availability can be at odds with company objectives </li></ul></ul><ul><ul><li>ERP providers playing catch-up to “best-in-breed” in supply space (e.g. SAP acquisition of Frictionless) </li></ul></ul><ul><ul><li>Does not fix bad business practices or data challenges </li></ul></ul>
  • 14. Challenges – ERP vs. Spend Mgmt. <ul><li>Heavy investments already made w/ERPs </li></ul><ul><li>CIOs like the idea of Spend Management, but don’t always connect it with their ERP capabilities/investment </li></ul><ul><ul><li>Viewed as separate, not complimentary </li></ul></ul><ul><li>ERP’s focus upon maximum info sharing </li></ul><ul><ul><li>Control and tracking </li></ul></ul><ul><ul><li>Playing “catch up” in the spend management space </li></ul></ul><ul><li>How to solve the multiple ERP dilemma? </li></ul><ul><ul><li>Problem becomes expensive and time consuming </li></ul></ul><ul><ul><li>We need solutions now! </li></ul></ul><ul><li>Spend management focuses upon the strategic as it’s core focus </li></ul><ul><ul><li>How do we spend less………. </li></ul></ul><ul><ul><li>Focus is upon the technology, knowledge and a supplier network </li></ul></ul>
  • 15. A Typical P2P Target Configuration Requirements Source Procure Receive Pay P2P Process Flow <ul><li>Provide ‘Actionable’ spend data </li></ul><ul><li>Enriched and cleansed spend data </li></ul><ul><li>Predefined spend reports </li></ul><ul><li>On-line RFx </li></ul><ul><li>Category expertise </li></ul><ul><li>Sourcing portfolio mgmt </li></ul><ul><li>Supplier Access & Enablement </li></ul><ul><li>Real-time contract compliance </li></ul><ul><li>Normalized catalogs </li></ul><ul><li>Access to supplier portals and spot sourcing </li></ul><ul><li>Ability to address different spend channels </li></ul><ul><li>On-line GR’s and workflow </li></ul><ul><li>Electronic Invoicing </li></ul><ul><li>Collaborative Invoicing </li></ul><ul><li>Electronic settlement (ACH) </li></ul><ul><li>Dynamic Discounting and early payment discount capture </li></ul><ul><li>On-line supplier scorecards </li></ul><ul><li>Collaborative supplier management </li></ul><ul><li>Goals </li></ul><ul><li>Drive efficiency throughout entire P2P process </li></ul><ul><li>Maximize value realization within each process segment ( effectiveness ) </li></ul><ul><li>Minimize change management while delivering quick ROI </li></ul>Evaluate & Improve
  • 16. <ul><li>9 ERP systems </li></ul><ul><li>2 w/3 instances each </li></ul><ul><li>50+ locations </li></ul>One Business Challenge Faced Supply Chain Management Operations BU 1 BU 2 BU 3 ERP 1 ERP 2 (Instance 1) ERP 3 (instance 1), ERP 4, 5 ERP 6 ERP 2 (Instance 2) ERP 7 ERP 8 ERP 2 (Instance 3) ERP 9 ERP 3 (instance 3) ERP 3 (instance 2)
  • 17. Solution - Overlay Approach <ul><li>Spend Management (SM) as the overarching system </li></ul><ul><ul><li>ERPs/MRPs feed into SM transaction engine (e.g. Buyer for Ariba) </li></ul></ul><ul><ul><li>MRP demand planning unchanged </li></ul></ul><ul><ul><li>Indirect/enterprise support requisitioning done through SM transaction engine </li></ul></ul><ul><ul><li>Procurement content (e.g. catalogs) is the contract control mechanism (custom & punch-out's) </li></ul></ul><ul><li>Data enrichment cleansing quarterly the 9 ERPs and varying instances </li></ul><ul><li>Expertise (enrichment, category knowledge, process design) </li></ul><ul><li>Network ( integrating suppliers into the process through the supplier network) </li></ul><ul><li>Process Integrity (making strategy in sourcing make a difference in operations of procurement and invoicing) </li></ul><ul><li>Openness (bridging all ERPs so more spend can be managed) </li></ul><ul><li>Standardized processes for sourcing, contract mgmt., </li></ul><ul><li>compliance </li></ul>
  • 18. Architectural View ESM Separate ERP Instances & Installations Middleware (ESM) Data Warehouse Data warehouse acts as An information exchange Between ERP & portal Industry portal handles all Order-related transactions With suppliers via XML Middleware to Connect ERP Suppliers 1 2 3 4 5 6 7 8
  • 19. ERPs Opportunity Identification Strategy Development Supplier Selection Contract Development Order Execution Enrichment Analysis Category Mgmnt Enrichment Analysis Category Mgmnt Sourcing Category Mgmnt Sourcing P.O. Transaction Engine + AP Contracts Purchase Order Purchase Order Copy Electronic Order Entry (EOE) One System for All Invoicing Spend Management Suppliers EDI XML FAX EMAIL HTML Ariba Supplier Network B U Y E R . A R I B A . C O M S U P P L I E R . A R I B A . C O M
  • 20. Results <ul><li>Realizing business case projected benefits of $50M over 5 yrs. </li></ul><ul><li>1000+ sourcing events per year run </li></ul><ul><li>Single system for internal clients/stakeholders and procurement professionals </li></ul><ul><li>Visibility and ability to collaborate across business units, locations </li></ul><ul><ul><li>Better compliance controls </li></ul></ul><ul><ul><li>Reduction of tactical labor </li></ul></ul><ul><li>Personnel shift from transactional orientation to strategic </li></ul><ul><li>Network to communicate with suppliers from sourcing events to transactions (P.O.s to invoices) </li></ul>
  • 21. A Second Challenge Faced <ul><li>Heavy investment in ERP (>$100M) </li></ul><ul><li>Recessionary business conditions </li></ul><ul><li>4 major ERPs, one with 60+ instances </li></ul><ul><li>Poor data quality (item masters, outline agreements in ERP) </li></ul><ul><li>50% of activity driven around text based PO’s </li></ul><ul><li>Significant compliance challenges </li></ul><ul><li>Divesting of a significant multi-billion $ business segment </li></ul><ul><li>Major ERP upgrade underway in parallel with P2P effort </li></ul>
  • 22. Spend Management + ERP – Why? <ul><li>Purpose of the joint ERP/SM proposal: </li></ul><ul><ul><li>Take advantage of strong ERP footprint and P2P push </li></ul></ul><ul><ul><li>Explore functionality of solutions for P2P from both </li></ul></ul><ul><ul><li>Take advantage of different core competencies of both vendors </li></ul></ul><ul><ul><li>Leverage different aspects (focus/strength) of the respective solutions </li></ul></ul><ul><ul><li>Accelerate realization of P2P Vision 2010 </li></ul></ul><ul><ul><li>Accelerate decision process and P2P Vision 2010 </li></ul></ul><ul><ul><li>Out of the box functionality </li></ul></ul><ul><li>Elements of offering </li></ul><ul><ul><li>Outline use of functionality from each vendor by process area and function in phases </li></ul></ul><ul><ul><li>Impact regarding integration / complexity of integration </li></ul></ul><ul><ul><li>Use of on-demand to enable functionality </li></ul></ul><ul><li>Not covered at this point </li></ul><ul><ul><li>Specific priorities within WY requirements
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