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TASKCO Corporation

I nf [email protected]

886-2-8772-2583CONFIDENTIAL

e-Sourcing:

Picking up where ERP ande-Procurement Fall Short

June 1, 2001

2002/03/16

64157

2002 Spring, Week 4-1
mailto:[email protected]:[email protected]

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Todays Painful Reality

The first time you hear about a big purchase

is when you see the invoice.

Purchasing is considered the enemy by

your business units.

Best practices are for people with moretime.

Cycle time for sourcing projects can be as

long as 6 months.

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Agenda

What is Strategic Sourcing?Automating the Enterprise

e-Sourcing

e-Sourcing SolutionIntegration: Putting it all together

IT e-Sourcing

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What is Strategic Sourcing?

Strategic sourcing is a disciplined process

which organizations implement to moreeffectively purchase materials andservices from suppliers.

The process generates savings by reducingproduct and operations costs throughconsolidation of purchases, elimination of

duplicate and functionally equivalentparts, and rationalizing suppliers to theright number of partners.

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Evolution of Strategic Sourcing Solutions

Solution Capability

Sop

histication

ofEn

terprise

PointSolution

Vendors

Small andmedium sizedbusiness

Basic, hostedsoftware

No consultants

EnterpriseSoftwareVendors

Large enterprise,sophisticatedpurchasing group

Enterprise-classsoftware

No consultants

SourcingSpecialists

Large enterprise,

unsophisticatedpurchasing group

Limited software

Many consultants

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Why an Enterprise Automation SoftwareSolution?

An Enterprise Automation Solution:is a new class of product that complements (notreplaces) existing enterprise systems.

can be integrated with other enterprise systems formaximum value (more on this later).

gives unprecedented visibility into the sourcingprocess including sensitive expenditure data.

supports a consistent, disciplined process for sourcing.

empowers the people you have.

promotes enterprise-wide collaboration.

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Demand

Generation

Strategic

Sourcing

Transaction

Execution

Ordering

1. Requisition2. Approval

3. Order

e-Procurement

ERP

Processing

1. Issue PO2. Receive and Verify3. Approve Invoice

4. Payment Settlement

e-Sourcing

Sourcing Project

Spot Purchasing

Analyze

Orders/Spend

Assess

Marketplace

Select

Strategy

Build RFP

& Analyze

Responses

Negotiate with

Suppliers

Decide & Select

Supplier(s)

Create & Manage

Contracts

Assess Value &Vendor Performance

Strategic Sourcing is distinct from Transaction Execution

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Automating the Enterprise

Top-line SalesRevenue

ERP e-Procurement e-Sourcing

Operating Costs& Efficiency

Bottom-lineCost Savings

SFA / CRM

Only e-Sourcing focuses squarely on bottom-line cost savings(the 73% of purchasing savings opportunity). It is estimated thatevery $1 saved in sourcing is worth $5-25 in increased sales.

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Usual Order ofImplementation

1 3 42

EAI, reliabilityand scalability

e-catalognormalization,B2Bi standards

decision support,spend dataacquisition

Big TechnicalChallenges

systemsintegration,

personalization

accounting andorder processing

paper catalogsand requisitions

negotiations anddecisions

Nature ofAutomation

info consolidationand customer

communication

Big BusinessChallenges

cultural change to adopt new business processes(often driven top-down), politics of standards adoption

ERP e-Procurement e-SourcingSFA / CRM

The usual order of implementation follows the emergence of theseadvanced technologies. e-Sourcing automates more than putting paper

on the web; it automates human negotiations and decision making.

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Agenda


e-Sourcing


IT e-Sourcing

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e-Sourcing Process

Sourcing-Ready

Suppliers

Market Making &

Event Support

Market discovery

RFI / RFP

RFQ, Reverse Auction

Negotiation

Decision Support Tools

Execution &Compliance

EnterpriseComplianceAnalysis

Needs DefinitionAggregation

RFxNegotiation

ContractEstablishment

SupplierManagement

fi i h i k

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Defining the e-Sourcing Framework.

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H i i l di

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However, sourcing remains a long, tediousprocess at most organizations.

Searching for/identifying appropriate suppliers (53%)

Managing/communicating preferred supplier list (7%)

RFQ development (10%)

RFQ response/receipt (7%)

Screening/sorting proposals (20%)

Contract negotiation (11%)

Average sourcing cycle = 3.3 months to 4.2 months

Source: Aberdeen Group

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Multiple Internet models target the sourcing cycle.

Requirements/supplier identification/evaluation

OpenRatings, Thomas Register, TPN Register, WorldPreferred.com, etc.e-Marketplaces

BizBuyer, Chemconnect, e-Steel, National Transportation Exchange,PlasticsNet, PartMiner, Ariba (SupplierMarket.com), etc.

Auction/exchange software

Commerce One (CommerceBid), Moai, OpenSite, Ariba(TradingDynamics), etc.

Aggregation/outsourced purchasing AlphaDog, Demandline, EDS/CoNext, ICG Commerce, etc.

Sourcing solutions/services Agile, eBreviate, Emptoris, FreeMarkets, Mindflow Technologies,

ShareMax, Webango, etc.

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Business negotiations need to determine theLowestTotal Costsolution.

The most effective companies will be those that canestablish the most efficient global supply chains at thelowest TOTAL COST. Includes sum cost of price, quality, technical expertise, delivery, etc.

Negotiations and sourcing decisions based on multiple

parameters to deliver the lowest total cost supply chain.

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Key negotiation functionality required for effectivesupport of true B2B interactions.

Multivariable negotiations Negotiations based on multiple parameters beyond just price,

including quality, delivery, warranty, and financial terms.

Multi-stage negotiations RFI RFP RFQ Award

Multi-threaded negotiations Back and forth buyer-supplier interactions

Synchronous supply chain negotiations

Ensuring purchases are not made without due consideration ofavailability/cost of services required to use and deliver theseproducts

S l ti S i f k

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Selecting an e-Sourcing framework.

Company: large enterpriseStrategy: purchase a negotiated commerce or e-Sourcing

application.

Company: mid-sizeStrategy: outsource sourcing of particular products to

procurement service provider.

Company: smallStrategy: leverage dynamic trading platform and supply

network of e-Market/exchange.

Strategic Sourcing Categorization

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Strategic Sourcing Categorization

HIGH

LOW

LOW HIGHTransactional Volume

Dollar Value

Leverage Purchases

Capital Plant

Strategic Purchases

Direct Materials

Marginal Purchases

Indirect Materials

Tactical Purchases

Indirect Materials

Purchase Category Examples

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Purchase Category - Examples

HighContract

Value

- Compressors

- Motors

- Process Equipment

- Construction Contracts

- Environmental Contracts

- Chemical Feedstocks

- Utilities

LowContractValue

- Local Services

- Emergency Purchases

- Incidental Materials

- Valves/Instruments- Office Supplies

- Computer Supplies

- Office Furniture

- Lab/Safety Supplies

- Electrical Supplies- Distribution Chemicals

Low Transactional Volume High Transactional Volume

Approach Capital Purchases

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ApproachCapital Purchases

HIGH

LOWTransactional Volume

Dollar Value

Capital Purchases

ERP

Procurement

Approach Direct Purchases

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HIGH

HIGH

Transactional Volume

Dollar Value

Direct Purchases

ERP+

Connection

ApproachDirect Purchases

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Approach Tactical Purchases

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LOW

HIGHTransactional Volume

Dollar Value

Tactical Purchases

Web Buyer

ApproachTactical Purchases

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Agenda

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Agenda


e-Sourcing


IT e-Sourcing

Requirements for an e-Sourcing Solution

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Requirements for an e-Sourcing Solution

A complete, holistic solution includes:1. Expenditure Analysis

2. Project Management

3. RFP / RFQ

4. Reverse Auctions

5. Contract Management

6. Vendor Management7. Sourcing Workbench

Ideally, all modules are integrated anddesigned to work together

A Frictionless Sourcing Example

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ExpenditureAnalysis

Project, Contract,and Vendor

Management

Collaborative,online suppliernegotiations

A Frictionless Sourcing Example

RFP Proposal with Scoring Decision Support

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RFP Proposal with Scoring Decision Support

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E-Sourcing Software

QuickSource

QuickSource is the only e-sourcing solutiondesigned for sourcing professionals bysourcing professionals. This comprehensive

full-featured e-sourcing platform is local forautomating, streamlining and providingvisibility into the sourcing processes. Basedon the industry leading e-sourcingtechnologies developed by FreeMarkets,

QuickSource contains a robust set of featuresthat allow buyers to create and conduct onlineauctions right from their desktops

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E-Sourcing Software

QuickSource

Create re-usable templates forRequests for Information andQuotations (RFxs)

Collaborate with and manage suppliers

Create and run a wide variety of real-time, competitive bidding and

negotiation activities

Conduct offline negotiations

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E-Sourcing Software

QuickSource Add on Services

Market Operations Services

E-Sourcing Support Desk

QuickSource Supplier Training

QuickSource Rapid Implementation andDeployment

15 Days to e-sourcing process

QuickSource website readiness

QuickSource team readiness

QuickSource launch preparation

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FullSource

(E-Source Acceleration Program)Industry-specific program managementdrivenby a dedicated, experienced team who will helpdesign and implement a unique e-sourcingprogram for each customer

Expert e-sourcing servicesin hundreds ofspend categories

Information and knowledgeabout specificcommodities and supply market dynamics

FreeMarkets' industry-leading, real-time,advanced e-sourcing technology

24-hour technical and operational supportinover 30 languages
http://www.freemarkets.com/solutions/esourcing_svcs/fullsource/program_mgt.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/esourcing_expertise.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/intelligence.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/technology.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/gmoc.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/gmoc.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/technology.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/technology.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/technology.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/intelligence.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/esourcing_expertise.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/esourcing_expertise.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/esourcing_expertise.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/program_mgt.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/program_mgt.asphttp://www.freemarkets.com/solutions/esourcing_svcs/fullsource/program_mgt.asp

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FullSource

(E-Sourcing Software )Transformation bidding

Index bidding

Net Present Value (NPV) biddingMultiple Offering bidding

Rank-Only bidding

FreeMarkets is the only e-sourcing solutionprovider willing to share responsibility withan organization to meet its strategicsourcing objectives.

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FullSourceGlobal Market Operations

FreeMarkets' Global Market Operations Centers(GMOCs) are located in Singapore, Brussels,and Pittsburgh to service customers acrossworld markets

Coordinate and test events Develop andenforce market rules

Proactively monitor bidder connections andbidding activity

Provide surrogate bidding for any bidders thatexperience technical difficulties

Train and support all participating suppliers

Provide real-time event support

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Asset Management

Fast, market-based pricing when selling surplusassets

Quick, easy access to needed assets for buyers

A variety of sales venues, including Online AssetAuctions and Onsite Asset Auctions

Support by dedicated customer service teams

Ability to create a fair, neutral marketplace withequal access for all participants

Public or private access to a global assetdatabase and trading environment

FreeMarkets Online Asset Auctions

FreeMarkets Onsite Asset Auctions
http://www.freemarkets.com/solutions/asset_management/online_markets.asphttp://www.freemarkets.com/solutions/asset_management/onsite.asphttp://www.freemarkets.com/solutions/asset_management/onsite.asphttp://www.freemarkets.com/solutions/asset_management/online_markets.asp

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Intelligent Trading Networks.

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g g

OnSite: General Motors

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Background: #1 automobile manufacturer Expenditures = $87 billion/yr.

30,000 suppliers worldwide

e-Sourcing strategy: 64 reverse auctions (Nov. 99 Sep. 00) Representing $500 million-plus of transactions

Including $10 million via forward auctions

25 different commodity types

Primarily commodity/low-engineered parts Events involved 470 suppliers

OnSite: General Motors

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Results:Typical savings of 3% to 30%

Reduced process cycles to 3 to 4 weeks.

WARNING: Bid transparency is notalways tobuyers benefit

Future plans:Multi-variable RFQ/evaluations

Multi-currency

Extend to more complex products

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Systems Integration

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y g

Many e-Sourcing modules can add immediate

value without any enterprise systemsintegration.

However, large incremental value is realizedwith each integration including your ERP, e-Procurement, e-Catalog, data warehouse, andother enterprise systems.

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Agenda

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g

What is Strategic Sourcing?


e-Sourcing

e-Sourcing Solution

Integration: Putting it all together

IT e-Sourcing

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IBM e-Sourcing Business Hosting

What is IBM e-business Hosting

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e-business hosting includes a full spectrum of services that a customermay acquire from an external provider to support the deployment and

operation of their business processes and applications on the web.

The service might range from the basic provisioning of secure datacentre facilities, redundant network connectivity and equipment rackand floor space (co-location), to varying degrees of standard managed

services through to our focus on highly customised solutionsdelivering enterprise applications over IP networks.

e-business hosting is comprised of modular service elements that maybe selected by customers at any time in the life of the service

engagement as their hosting needs evolve.

Do more business up front, and secure your future business growth

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The Continuum of Hosting Services

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Level of IntegrationLow High

LevelofService

Basic

Complex

Hosting Services

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15.1%

15.1%

4.2%

11.1%

3.0%

3.7%3.1%

2.7%

2.3%

3.8%

1.4%

34.4%

IBM Global Services

Exodus

Verio

Next 10

Qwest

Digex

Global Center

PSI Net

GenuityWorldCom

EarthLink

Other

IBM's Web Hosting Revenue Share as of 12/31/2000

Source: IDC,4/2001

Recognised Leadership in the Market, and in the

scope of its e-business Hosted Solutions

Completeness of Vision

Challengers Leaders

Nich e Players Visionaries

ExodusExodus

AT&TAT&T

UUNetUUNet QwestQwest

GenuityGenuity

IBMIBM

DigexDigex

Data ReturnData Return

Cable & WirelessCable & Wireless

NavisiteNavisite

IntiraIntiraPSINetPSINet

Digital IslandDigital IslandEDSEDS

GlobixGlobix

As of 12/00As of 12/00

RackspaceRackspace

Abilityto

execute

Some of IBMs Customers

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Financial Services

Wingspan Bank

Citigroup, Inc.

JP Morgan

Moody's Investors Service

NYSE

TAHO CommerceGroup, LLC

CahootCommunications

GRAMMY Awards

Energy Argus

Telecom Italia

Bouygues

ISP/ASPAlerio

ASP-One, Inc.

Catapulse

Expansionet

Pragmatix

Travel/Transportation

ICSA T

Allied Holdings

Calberson

Retail/Services

Scoot

Wimbledon

Roland Garros

IKON Office Solutions

Infrascope

Macy's

Sears Roebuck &Company

Victoria's Secret

Tinde

Health Care

Eli Lilly

I-TRAX.com

CareTouch

Industrial

iStarXchange

Sony Electronics, Inc.

Danone

Thomson Multimedia

Aventis

Kellogg

BP

Telemarine

Public Sector

US Navy

GovernmentJobs.com

American SchoolDirectory

Foundation forEconomic Development

Universal Server Farm Architecture

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The Universal Server Farm v3

architecture delivers...Secure customer separation

Multi-layered firewalls

Consistent architectureworldwide

Enhanced scalability,rapid change

Option for dedicatedenvironment

Logical design to enablechange via software from

remote locationsCisco and other industryproducts, and proprietarymanagement tools

Switch and FirewallSwitch and Firewall

PrivateNetworks

InternetUser

Customer

Premise



Data LayerData Layer

Web LayerWeb Layer

Internet

e-business Hosting - a Fully Managed Service

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Standard Hardware Platforms

pSeries (RS/6000), AIX xSeries (Netfinity), NT, Linux

Sun, Solaris

Standard Application Servers WebSphere

Domino

Microsoft IIS Netscape

Granular Service Components

Custom Services

Systems Management Performance Management

Backup and Recovery

Applications: Siebel, Broadvision, SAP,Oracle, Websphere

Account Support Structure

Security

Keynote, SurfAid

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Delivering Applications over an IP Network

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Application Hosting Services

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Comprehensive infrastructu re and appl icat ion management --

prov ided by a team of e-bu siness experts

Custom hosting solutions

High-availability, high-volume sites

Complex security solutions

System integration

Web site design and development

Custom applicationsand services

Overall site responsibility

Applications, operating systems,servers

Database and applicationinstallation and configuration

Advanced monitoringPerformance, capacity and changemanagement

Design

Build

Test

Manage

Plan

Run

Hosted Applications

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Fully managed infrastructure for Buyand Supply, CRM, BI

Industry-leading hosting fore-marketplace applications

Seamless data flow for B2Btransactions

World-class support

Trading Partner enablingSingle point of contact

Global e-business presence

500k+ worldwide EDI-enabledpartners

Customers in 160 countries

Alliances with market-leadingapplication providers

IBM's Websphere

Ariba Technologies

i2 Technologies

SAP, Siebel, Broadvision, Oracle,

IBM hos ts many of the wor ld 's

leadin g e-markets

The Future: Building from Superiorb l

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Mana

gementServices

e-Hosting Capabilities to e-Sourcing

Bandwidth on Demand

Hosting Center Architecture

Hosting Facilities

Storage on Demand

MIPS on Demand

CustomerApps

e-markets

EDI

ASPs

Ariba/i2

WebSphere

SmallBusSolutions

Capacity On

Demand

Applications

Infrastructure

Advantage in Hosting

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Provide your clients with the safest, most secure and

complete application hosting offering Enhance your chances of Winning Deliver a better service to your client

Secure the on-going business

Many competitors are experiencing financialdifficulties Troubled providers need to raise capital to fund operations

Downsizing can affect client service

Too much is at stake to take a chance at being there when "the lights

are turned off"

What does e-Sourcing bring to?

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Work Processes For :RFx Creation and Development

Customizable Templates

Supplier Qualification / Vendor Management

Electronic Transmission of Specs, Documents,

Drawings Etc.E-bidding

Sealed Bid

Reverse Auction / Forward Auction

Expenditure/Bid Analysis

Conclusion

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73% of the potential cost savings are in sourcing yet today, sourcing is done completely manually.

If youre a large enterprise with a sophisticatedpurchasing group, enterprise software is the rightchoice.

If youre choosing enterprise software, you needa holistic solution that addresses the entiresourcing process.

Efficient & Effective Procurement

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Everyone on the same platform (intellectually &

physically)Global scope

Choosing & using e- tools to help enable

improved work processSupplier consolidation / leverage

Avoiding the maverick purchase

Measure results