“ building a global community” once global summit 2005 may 4 – 6, 2205 milan, italy

“Building a Global Community”

ONCE Global Summit 2005May 4 – 6, 2205Milan, Italy

Hosted by i-Faber (www.1City.biz)

Dynamics with Business Process Outsourcing

Impacts and Implications

Rick BeersDir: Business Process Architecture

Corning Incorporated

Dynamics with Business Process Outsourcing

Discussion ObjectiveUsing Corning’s Shared Services experience as a

starting point, provide the client view of BPO: the impacts upon clients of Procurement

outsourcing and the opportunities for Systems Integrators, Vendors and

Service ProvidersTopics

• Corning Profile• Corning & Shared Services• Corning and BPO• BPO Circumstances• Implications and Opportunities

Dynamics with Business Process

OutsourcingTopics

• Corning Profile

• Corning & Shared Services

• Corning and BPO

• BPO Circumstances

• Implications and Opportunities


Outsourcing

• Founded: 1851

• Headquarters:Corning, New York

• Employees:Approximately 25,000 worldwide

• 2004 Revenues:$3.8 Billion


OutsourcingCorning has manufacturing operations in 23 countries.

Americas• Brazil• Canada• Mexico• U.S.• Dominican

Republic

Europe• Denmark• France• Germany• Italy• Netherlands• Russia• Spain• U.K.

Asia• Australia• Hong Kong• India• Japan• Korea• PRC• Singapore• Taiwan• Thailand.

Africa• South Africa


Outsourcing

Corning Cable Systems

Display Technologies

Steuben

Ophthalmic Environmental Technologies

SpecialtyMaterials

Life Sciences

Controls and

Connectors

Optical Fiber

Consumer

Electronics

CPGAutomoti

ve

Corning is a highly diversified corporation represented in 7 Industry Verticals

Telecom

Life Sciences

Semiconductor

Healthcare

Divisional diversity drives Corning’s ERP Architecture: Single Global Instance of Finance tied to Global Supply Chain Instances


Outsourcing

Global Supply Chain

Global Financials & Indirect Procurement

Global Supply Chain

Global Supply Chain

Global Supply Chain

Global Supply Chain

Global Supply Chain Global

Supply Chain

Global Supply Chain

Global Supply Chain


OutsourcingWithin that diversity however, there are common themes

• Asset Intensive, Mixed Mode Manufacturing

• An OEM supplier (with one exception)

• Relatively few customers and vendors

• Specialty products; attributes-driven


OutsourcingTopics

• Corning Profile


• Corning and BPO




OutsourcingDuring 2002, in response to business conditions, Corning undertook a far reaching Corporate initiative to evaluate the administrative functions of HR, Finance, IT and Indirect Procurement.

• Company realities

• Top Quartile performance requirement

• Business Process Outsourcing (BPO) potential

• Alternative organizational models


OutsourcingAt year-end 2002, a decision was reached.

• We would not adopt a large scale BPO model

• We would outsource selectively over time

• We would organize around a Shared Services model structured as if we were a Service Provider

• Procurement• Finance• HR• IT

Business Process InsourcingThe model emulates BPO dynamics


OutsourcingProperly executed, a Shared Services model can have a variety of positive impacts

● Head Count Reduction

● Spend Reduction

● Leveraged Skills

● Management Focus

● Risk Reduction / Control

● Agility (M&A, etc)

Efficiency

Effectiveness


OutsourcingUnderlying Premise:• Enterprise Value was to be gained by centralizing common, non-

differentiating business processes previously performed within business units as long as no harm is done to business units

Strict accountability has been the key to acceptance• Broad use of Service Level Agreements

The shared services unit provides a service but does not own the end to end process within which that service resides. • Again, very similar to BPO dynamics

Three Imperatives


OutsourcingAs an Aside; What is an End to End Process?The Essence of Process

End-to-end work

An organized group of related tasks that work together to create a result of value

Michael Hammer2004


Outsourcing

Source to SettleSupplier

Qualification RequisitionProduct Receipt Reconcile Payment Post

Invoice Receipt

Consider a typical Procurement end to end process:

The Efficiency of each of these tasks is interesting…….

……However…… End to End

Effectiveness is what really

matters


Outsourcing

Business Unit ImpactNon-Differentiating Differentiating

Process Commonality

Unique

Common

•Cost Management

•Maintenance Mgmt.

•Production Mgmt.

•Billing-Receivables

•Req. to Pay

•Ind. Matl's Sourcing

•Payroll

•CRM

•Supply Chain Planning

•Direct Matl's Sourcing

•Customer Service

•Order Mgmt.

•Inventory Mgmt.

Shared Services Zone

Careful consideration needs to be given of the processes to move to a Shared Service. For Corning:


OutsourcingConsider Source to Settle for Direct Materials

Division 1

Division 2

Division 3

Division N



Invoice Receipt



Invoice Receipt



Invoice Receipt



Invoice Receipt

Corning Shared Services

CSS


OutsourcingUnfortunately, there has been a problem. End to end process flows that were closely integrated within each division have been disconnected. For direct materials:

Supplier Qualification




Requisition

Product Receipt

Product Receipt

Product Receipt

Product Receipt

Reconcile Payment PostInvoice Receipt

Division 1

Division 2

Division 3

Division N

This also aligns with a key BPO dynamic: How to deal with an end to end process that is

disconnected?


OutsourcingTopics

• Corning Profile


• Corning and BPO




OutsourcingCorning has been carefully attempting various BPO opportunities since the 2003 reorganization. Two attempts in Procurement have yielded opposite results and a wealth of experience.

• eSourcing: Reverse Auctions for commodities

• Storeroom Operations


OutsourcingeSourcing at Corning• Began 2004 with the intent of a 12 month pilot

‣ Expectation of 30 events in 2004

• Contracted with FreeMarkets with a Successful Result‣ Preferred over ERP application due to consultative element‣ Intent had been to revert to ERP application after pilot, as event

volume increased and internal knowledge was gained‣ However, as of April 2005, we are at 600 events and growing ‣ Satisfaction very high with FreeMarkets‣ Positive surprise: Commodity Expertise‣ Long term plan being evaluated

• Downside: Connectivity into Master Data Files

• Limitation: Not possible for direct materials due to the need for end to end process interoperability with Planning application

• Possible Concern: Acquisition by Ariba might shift emphasis to application over service


Outsourcing

• MRO and some indirect materials

• After pilot, contracted with a firm specializing in such BPO and began roll-out in early 2004

• Unsuccessful and being brought back in house.‣ Pricing model flawed for Corning’s use: service priced per $

ordered. Materials purchased are high cost, specialized and low volume.

‣ Vendor provided little consultative assistance‣ Significant interoperability problem: no systems linkage into

approval workflow within ERP application.

• Concept is still sound, but appears impractical for our use

Storeroom Operations


OutsourcingTopics

• Corning Profile


• Corning and BPO




OutsourcingAs compelling a case may be for BPO in itself, it often has impacts within a client that make it impractical.

• Complexity– Energy spent managing complexity detracts from

creative energy

• Interoperability– Transactional flows AND Information

• Governance– The responsibility of many is the responsibility of none


OutsourcingAs an example, consider the Corning Source to Settle example with Storeroom BPO





Requisition

Product Receipt

Product Receipt

Product Receipt

Product Receipt

Reconcile Payment PostInvoice Receipt

Storeroom Service Provider

Insufficient integration was designed to create the degree of interoperability required for approval workflows

within the transaction system

MMS


OutsourcingOrganizational impacts have been significant

• Complexity– One more pain in the neck to deal with…..

• Interoperability– Automated transactions became semi-automated

• Governance– Who owns accuracy (six sigma measure) of storeroom

transactions


OutsourcingTopics

• Corning Profile


• Corning and BPO




OutsourcingA significant opportunity exists for Service Providers who take a more holistic approach to customer engagement. Competitive Differentiators:• Readiness Assessments

– Is a customer ready – What are internal process flows– What is state of data management

• Integration Guidance– Goal: Maintain required level of process interoperability– What is best answer for a given condition (Interface, SOA, workflow)

• Category Expertise– Commodity, Industry, Channel– Catalogue

• Best Practice Expertise – With using the service/product offering……….


OutsourcingThere are, however, negative implications possible.

• Overlap of SI’s, Apps Vendors and SP’s– Vertical integration is a constant– Alliances?

• The “Game Boy” mentality within customers– “Don’t bother me with details, just make the system work”.– “Our processes and challenges are unique; your solution needs

to accommodate me”

• Customer Retention– What happens after a SP educates the customer?


OutsourcingThe one overriding point, however, is that:

A great System or Service is NOT the goal for the customer.

End to End Business Process Excellence is. That is what must define the engagement between a customer and its BPO Provider.

“ building a global community” once global summit 2005 may 4 – 6, 2205 milan, italy

Documents

business units

business conditions

shared services model

bpo dynamicsdynamics

client view of bpo

large scale bpo modelwe

indirect procurement

common themesasset intensive