Supplier Management

1. Supplier Management e-Procurement for Manufacturers 64157 電子商務模式設計與應用 國立中山大學企管所 2002 Spring, Week 3-1 • 黃光彩 博士 • 太世科公司 • 2002/04/13

2. Agenda • e-Business Transformation & Internet • What is e-Procurement? • Production vs Non-production goods • The e-procurement cycle • Why is the e-Procurement top-management issue? • Benefits: bottom and top line • The next wave of cost reduction • Key management of considerations • Process integration • Roadmap to success • The future: the emergence of e-Communities • Buy-side vs sell-side procurement • e-Sourcing and e-Auctioning

3. Procurement Product Development Manufacturing Sales & marketing Distribution Retail Supplier Consumer Sourcing: 40% Internal 60% External Inventory turns: 8 Typical CE Player PC -typical $42 $25 $44 $35 $55 $45 $65 $57 $100 $77-82 • Bold: Digital Marketplace impact activities • Cost impact areas potentially impacted by Digital Marketplace changes • New opportunities e-Business Transformation -- Where to start with? Significant benefits of undertaking e-business transformation: one client has identified up to a 23% reduction in supply chain costs Activities: Procurement planning Vendor management Purchasing Transportation Payments Quality Management Activities: Business planning Marketing Advertising Managing Channel Financing Inventory Tracking service Activities: Advertising Transporting Stocking Presenting Selling

4. e-Procurement Management Buyer Intelligence Supplier Management Sourcing/Negotiations User Empowerment • Supplier Sourcing • Create/Maintain Quote • Analyze Quotation • Contract Management • Create Contract • Maintain Contract • Monitor Performance • Pricing • Create/Maintain Pricing Intelligence Market Intelligence • Forecast • Parts/Product Availability • Technology Roadmap • Performance Reporting • Cost Savings • Readiness • Inter-Enterprise Collaboration Requisition Processing • Create Requisition • Maintain Requisition • Validate New Requisition Purchase Order Process EDI/XML • Create Purchase Order – Manual • Create Purchase Order - Auto • Receiving • Receive/Reject Goods • Quality/Vendor Evaluation • Initial Evaluation • Continuous Performance Monitoring • Reporting/Control/Output • Information Retrieval • Output documents EDI/XML Supplier Procurement Strategy EDI/XML Analysis & Communication Information Warehouse Procurement Website EDI/XML Settlement / Accounts Payable • Receive/Process Invoices/Credit Notes • Process Payments • Process Advance Payments • Periodic Processing

5. What is e-Procurement? • Procurement • Includes purchasing, transportation, warehousing and inbound receiving • A closed-loop process that begins with the requisition and ends with payment • Product related: raw materials, components and assemblies • Typically automated by ERP systems • Non-production related (ORM): goods and services required for day-to-day business operations • Capital equipment, MRO products, office/computer/industrial suppliers, travel and entertainment • Accounts for up to 30% of annual revenue • 10% decrease in indirect procurement equals up to 50% increase in profit margins • Alternative: increase sale by 50% and significantly reduce headcount

6. What is MRO Procurement? • MRO e-Procurement = Online procurement processing • Not electronic purchasing – a complete cycle • Browser-based, self-service purchasing application that allows employees to make ORM and MRO purchases over the Internet • Creates desktop requisitioning environment • MRO items account for up to 40% of all company purchases (EcomWorld, 8/2000) • Automates purchasing procedures • Integrated preferred suppliers • A starting-point for organizations moving towards e-Business

7. The Next Wave of Cost Reduction Cost Savings • Purchase of goods and services represents the largest single cost item for an enterprise • $0.5 -$0.6 for every $1.00 earned • Non-production goods account for >30% of corporate expenditure • Large corporations traditionally spend between US$36-US$70 and 22 days processing each expense report • Employee self-service applications = US$8 and 3 days to process • Ford process 1M expense reports annually (US$28M possible saving) • Generally, 20% of Paper and pen based orders are incorrect in some way • Resolution requires human intervention that drive cost overheads • E-Procurement POs are always correct • Where are the cost savings? • Employee compliance with pre-negotiated contracts • Improved leverage with suppliers • Process improvement • Compliance can be worth twice the reduction attained by leverage • And up to 10 times the reduction from process enhancements • Employee compliance is traditional as low as 30% for indirect procurement • Payment in approx. 6-12 months

8. The Next Wave of Cost Reduction • The situation for Asia: • Cost of goods sold is significant • Regional dispersions (e.g. 14M CPG retailers in China) • Quality of distribution systems and supply chain management • Cost of procurement remains higher (30+%) • Limits capital available for market expansion • Cost savings provide you with two options • Add those savings to your bottom-line increase profit • You can reinvest the savings into your regional value chain • Invest in growth and market expansion opportunities • Improving sales and distribution channels

9. E-Procurement Strengths • Manage, automate and accelerate all order processes between the producer and supplier community. • Support the placement, management, approval, tracking, etc, of all purchases by the producer from the supplier. • Offer a natural migration path to the trusted E2E (end-to-end) B2B (business-to-business) Marketplace.

10. E-Procurement Features I • Approval management • Registration, administration and management of individuals that procure goods and services from suppliers. Sensitive to position changes, reporting structure, promotions and absenteeism. Once the credit line is setup, orders are automatically routed to the appropriate person for approval • Confirmation management • Order approval and confirmation process is facilitated through automatic generation and delivery of an e-mail alert function. An e-mail is forwarded to the appropriate party in each step of the order approval processes. • Credit limits • Management of credit limits on an individual or project basis. Defines the purchasing power of each buyer.

11. e-Procurement Features II • RFP, RFI, RFQ generation • Enables the Producer to seek the best products through formal requests. Suppliers electronically receive requests and respond online. • Bill of materials • BOM support will speed up purchasing by automatically displaying products that are related in a hierarchical structure. This will avoid random searches. • Tracking • View/search, reorder/modify, schedule orders on demand, tracking status including shipping status, and order confirmation.

12. e-Procurement Features III • Entitlement Catalog • Ability for suppliers to establish specific prices and terms for selected buyers. Although the supplier has a single master catalog, separate entitlement catalogs can be established for separate procurement organizations. • Group Sales Model • The basic concepts of the group sales are delivered through the Entitlement Catalog functions coupled with dynamic pricing capabilities. • Smart Sales • Supplier – system will automatically initiate up-sale, cross-sale or replacement-sale, or package-sale when the situation permits • Buyer – system will do comparison sale when requested; system supports a buyer configuration engine.

13. e-Procurement Features IV • Auction • Enable suppliers to auction off excess or unwanted goods to buyers • Reverse Auction • Enables buyers to submit orders to several suppliers to procure the optimum deal • Negotiation • Provides the means for electronic negotiation between buyers and suppliers for certain goods and services where appropriate

14. e-Procurement Features V • Personalization • Deliver personalized features such as: creating a personal order catalog built from data mining results; personalize recommendations based on previous buying habits; personalized web content delivers information to user based on profile and habits. • Order Suite • Provides a robust set of ordering features such as: quick order, spot order, smart query, reorder, schedule order, partial order/back order

15. Benefits of e-Procurement • Efficiency • Lower procurement costs • Fast cycle times • Reduced maverick (unauthorized) buying • More highly organized information • Tighter integration of procurement function with back-office systems • Effectiveness • Increased control over supply chain • Proactive management of key procurement data • Higher-quality purchasing decisions within organizations • Competitiveness • Supplier quality • Product delivery • Product development

16. Process Integration • The need for integration • E-Procurement chain management • Create a direct link between suppliers and employees • Must be designed for casual use by untrained employees • Numerous integration alternatives • Management control • Online product selection • Dynamic catalogues • Order management • Transition for requisition to purchase order • Application integration • Avoids duplicating efforts • Information and reporting • Critical for supplier negotiation and month-end reconciliation

17. Roadmap to Success • Objective • Deliver maximum business impact at the lowest possible cost • Leverage enterprise-wide buying power • Quick results, low risk • Supplier integration • Cost reduction by automating best practices • Challenges • Reduce order processing costs and cycle times • Provide enterprise access to corporate procurement capabilities • Empowering desktop requisitioning through self-service • Achieving integration with key back-office systems • Elevating procurement to a position of strategic importance within the organization

18. Roadmap to Success Clarify your e-Procurement Chain Goals Construct a Procurement process audit Create a business case Develop a supplier integration mix Select an e-Procurement Application Application integration is everything Educate, Educate, Educate

19. Emergence of e-Communities • E-Supplier Procurement • Existing applications link directly with suppliers on Internet • Analysis and management tools • Approval controls, etc. • E-Trader Procurement • Reduces the cost of goods sold • Online trading “community” or e-marketplace • Aggregated supplier catalogues • Vertical Industry Portals • Sourcing • Decision based on product functionality and characteristics • Not product classification and price • Internet sourcing • Auctioning • Auction vs Reverse Auction • Tender is either transparent or “private” • Creates e-Marketplace for competitive bid for products and services

20. Procurement Trends • Web auctions and bidding • Electronic marketplaces and portals • Consortium buying • Procurement Outsourcing • Direct OEM buying

21. Global Procurement Network Supply Chain Mgmt. Financial Tools Procurement Systems ASP Services Supplier Supplier Supplier Supplier Supplier Supplier Supplier Manufacturing Supplier Internet Supplier Manufacturing Manufacturing Web/EDI Manufacturing Supplier VAN EDI ABC Global Procurement Pacific Manufacturers Trading Center