supply chain spends: advancing sourcing beyond procurement suites
DESCRIPTION
Sourcing activities in supply chain-driven companies bear more critical weight than in other industries: The sourcing of suppliers for product materials, ingredients, packaging, production services, and transportation services has direct impact on not just costs but also on the company’s ability to satisfactorily deliver product to customers. Most of those sourcing teams have already implemented a general procurement suite, likely SAP or Ariba or another solution, which includes an e-sourcing module. By now, initial benefits have been realized and may have plateaued. That also means that the limitations of the suite’s e-sourcing tool are now clear – and too many strategic sourcing events are still being handled using spreadsheets and other “off-line” de-centralized processes because they are not supported by the technology. Are you among sourcing professionals who are now asking, “What’s next?” to get you to the next phase of savings, productivity, and innovation?TRANSCRIPT
Supply Chain Spends: Advancing Your Sourcing Beyond Procurement Suites
Copyright © 2013. CombineNet, Inc.
Speakers & Agenda
Brett Cornell Senior VP, Strategic Sourcing CombineNet
Growing Coverage of Procurement Suites
Sourcing Today – Trends and Opportunities
The Role of Advanced Sourcing
Greg Holt Director of Product Marketing CombineNet
How Advanced Sourcing Works
The Power of Sourcing Optimization
Copyright © 2013. CombineNet, Inc.
CombineNet Is
The Advanced Sourcing Technology Company
Pittsburgh HQ; London; Hamburg
75% of customers use CombineNet ASAP to complement their procurement suites
Copyright © 2013. CombineNet, Inc.
CombineNet’s Customers Are Supply Chain Driven
Food & Beverage Manufacturers
Consumer Goods & Pharma Manufacturers
Retailers & Restaurant Chains
Manufacturing
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16 of the World’s Top Companies
6 of 12 Largest CPGs Supporting >$10B in transportation sourcing for diverse manufacturers
17 of Top Global Retailers & 10 Largest
U.S. Restaurant Brands
Our 100+ customers include:
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Procurement Growth and E-Sourcing Trends
The Reach of ERP & E-Procurement Suites
Spend Analysis
Understand
corporate spend and supplier relationships
E-Sourcing
Negotiate
competitive prices in online sourcing
events
Contract Management
Author and manage contracts
Procurement
Execute purchases and drive
purchasing compliance
Invoicing & Accounts
Payable
Streamline invoice management and
payment
Supplier Management
Attract, on-board and manage
suppliers
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SRM Strategic Sourcing Procure-to-Pay
Suites Bring Key Benefits to the Table
Enable advanced planning, scheduling and “group” buying to drive savings, efficiencies and profitability
Greater alignment and visibility across an organization or organizations
Spend Under Management: E-Sourcing Gap
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*Procurement Leaders 2013 Benchmark
Spend under management by procurement is reaching 70%+ of all corporate spend in mature organizations, and as high as 78% for advanced organizations*.
Spend being sourced through e-sourcing technology is plateauing around 30% of corporate spend.
Macro-Trends and Opportunities in Strategic Sourcing – According to The Aberdeen Group
Evolution of Strategic Sourcing from being a savings concept to supporting broader organizational challenges & goals
Managing supply chain risks inherent within increasing globalization
Sustainability & CSR becoming more important factors in the context of strategic sourcing
Understanding total cost and introducing supplier innovation beyond just cost criteria
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E-Sourcing Expansion Trends
Commercial, supply-chain driven companies are focused on capturing more spend under formal E-Sourcing processes by:
Aggregating spend into larger, consolidated E-Sourcing activities
– Across Business Units, Brands, Plants/Facilities, Products
Addressing categories with more complex information and decision criteria with E-Sourcing Technology
– Sacred Cows
– Direct Materials
– Packaging
– Transportation
– Corporate Services
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Unfortunately, most E-Sourcing solutions are ill-equipped to
support these more ambitious sourcing strategies, leading to inefficient and less effective
workarounds
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The Role of Advanced Sourcing
Where Advanced Sourcing Fits
Advanced Sourcing Technology is supporting these initiatives to focus on larger, aggregated sourcing events and on spends with complex award decisions.
Copyright © 2013. CombineNet, Inc.
Where Advanced Sourcing Fits
Advanced Sourcing Technology is supporting these initiatives to focus on larger, aggregated sourcing events and on spends with complex award decisions.
Copyright © 2013. CombineNet, Inc.
Why Tackle Aggregated/Large Events?
Gain greater leverage across supply base with larger spend volumes
Show suppliers the larger opportunities within your business and heighten your profile within their organizations
Drive competition and get closer to a true market pricing via a larger collection of suppliers
Reduce effort and increase efficiency of limited staff – One event vs. redundant local/regional events
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Challenges with Aggregated E-Sourcing Events
Challenge: E-Procurement suite e-sourcing modules have limited support for large events – Limitation of 1,000 bid elements
< 34 items x 2 bid elements/item x 15 suppliers
Sourcing teams work around this by: – Limiting negotiations to incumbent suppliers
– Conducting separate RFIs to reduce supplier count in RFX, limiting competition and new opportunities
– Creating Lots or Market Baskets, which reduce competition and hide true market costs
– Conducting many redundant local or regional events
– Collecting and evaluating bids in Excel spreadsheets
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An Aggregated Event in CombineNet ASAP: Common Area Maintenance Case Study
Large, U.S.-based retailer with over 800 domestic stores.
Sourcing group handling all not-for resale (indirect) purchases.
Wanted to improve results in sourcing common area maintenance services including: landscaping, snow removal, trash removal, lot sweeping, etc.
Selected CombineNet for: – Aggregation capabilities to replace time-
consuming spreadsheet-based approach.
– Expressive Bidding® allowed suppliers to submit “package” offers with further discounts.
– Results: 10% savings, and reduced sourcing project timeframe by 3 weeks.
800+ stores
18 regions
$20 million+ spend
Analyzed 8 different price points.
Many stakeholder preferences.
Case Study Fast Facts
10% savings – half from packaged offers.
Bid analysis conducted 10x faster.
Reduced project time by 3 weeks.
“Being able to inject or take out different suppliers in different districts to see where
the savings lie was a huge benefit to our process. We wouldn’t have had the time to consider this without the bid analysis and
optimization speed of CombineNet.”
– Retailer’s senior sourcing manager
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Where Advanced Sourcing Fits
Advanced Sourcing Technology is supporting these initiatives to focus on larger, aggregated sourcing events and on spends with complex award decisions.
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Managing more information provides greater transparency for better decisions
– At the Supplier level: evaluating total supplier value, performance history, and growth strategies
– At the Item level: creating total cost transparency with price and non-price factors, and encouraging product innovation from suppliers
– At the Supply Chain level: understanding supply capacity, efficiency, risk
– At the Organization level: aligning stakeholders and spend owners on sourcing strategies and decisions
“A good decision is based on knowledge and not on numbers.”
-Plato
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Benefits of Mastering Complexity
Challenge of Complexity in E-Sourcing
Challenge: E-Sourcing tools were built to streamline a simple function
– Collect prices on items and identify low-cost options
Sourcing teams work around this by:
– Focusing on supplier responses to price per unit (PPU)
– Evaluating a supplier’s quality and potential value by “Weighting and Scoring”
– Collecting and evaluating bids in Excel spreadsheets
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Total Cost
Supplier Innovation
Supply Risk
Business Preferences
Mastering Complexity: A Packaging Case Study
Market leader in manufacture of medical, dental, and animal health equipment. HQ’d in Ohio, with subsidiaries in France, India, and Italy.
Re-evaluating sourcing of packaging spends.
Key benefits realized:
– 28% savings – attributed to broader competition and Expressive Bids.
– Created and ran 50+ scenarios using bid optimization; final award “sold itself” thanks to collaboration and clear visibility.
– Supplier discovery and optimization – added 3 new suppliers.
– Future potential savings opportunities identified with alternative bids.
– All service levels maintained.
500 packaging items with multiple sub-categories (corrugated, foam, poly bags, and misc. supplies.)
Multiple plants.
30 invited suppliers – 15 qualified and bid.
Ran 50+ scenarios.
Added 3 new suppliers.
All service levels met.
28% savings: Expressive bids accounted for 5.5% of total.
Case Study Fast Facts
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Case Study: The Schindler Group
Initial Project: Fleet Vehicles, one of their most complex spend areas.
Collected price and non-price factors, including fuel economies, end-of-contract damage costs, financing charges.
CombineNet replaced use of hundreds of spreadsheets.
Results:
– 10% + cost savings
– $4 M in OEM rebates
– 5% reduction in lease prices
“This is a mature spend category for Schindler, one that we’ve strategically sourced for 10 years. Yet with CombineNet, we were able to achieve excellent cost savings.” – VP of Purchasing Excellence and Indirects, The Schindler Group
17,000 vehicles
7 vehicle types per region
24 countries and leadership teams
CO2 emissions
Case Study Fast Facts
27 cost elements
Quarterly price changes
2 million price points
Schindler mobility solutions move one billion people every day.
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How Advanced Sourcing Works
Advanced Sourcing Technology Is Built upon Optimization
Opening e-sourcing activities up to:
– Collecting a larger set of data – no limitations on items, suppliers, bid elements
– Encouraging supply options from suppliers via Expressive Bidding®
– Evaluating suppliers in the context of operational and strategic business rules/constraints with integrated RFI
– Identifying the best sourcing decisions across any spend category with true Optimized “What if?” Scenario Analysis
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Sourcing Optimization
Is… Is Not…
Utilizing mathematical models (algorithms)
Utilizing spreadsheets or Consultants
Evaluating real-world business scenarios
Evaluating pre-built, canned scenarios
To find the optimal solution
To find a “good enough” solution
In seconds
A process A buzzword
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• Easily support events involving larger #s of items, suppliers, and/or bid attributes (involving hundreds of thousands of bid data points).
• Support spend aggregation across item types, overlapping supply bases, locations, and/or business units.
• Support complex categories, such as direct materials, packaging, services, transportation.
Combinatorial Optimization Powers These Advanced Sourcing Capabilities
Scalability & Performance
• Collect both detailed price and non-price bids from suppliers. • Solicit alternative item proposals, conditional offers, packages, etc. • Drive competition and price compression with Expressive Feedback. • Suppliers put their “Best Foot Forward” in a collaborative bidding
process.
Expressive Bidding®
• Create robust “What if?” scenarios with unlimited # of rules. • Scenarios optimized and results returned in seconds. • Easy to collaborate with stakeholders on preferences. • Find the best scenario balancing cost, innovation, value, and risk.
“What If?” Analytics
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How Traditional E-Sourcing Works
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Basic RFX Input
Low-Cost Award Incumbent Award Split 2 Suppliers Supplier Score
or or or
Microsoft Excel
Ad Hoc Analysis
How Sourcing Optimization Works
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“Expressive” RFX Input
Corporate Rules
20% to M/WBE 60 Day Payment Terms
Supply Chain Goals
Supplier Capacity Continuity of Supply
Supplier Relationships
35% to Incumbents 45% to Strategic
Suppliers
Brand “A” Rules
A+ Supplier Rating 65% to Incumbents
Item #128 Rules
Favor Supplier “ACME” 50% Recycled Content
Plant 12 Rules
95% On-Time Delivery Need 2-Day Lead Time
Real-World Constraints
Optimal Sourcing Award
Simultaneous Optimization of Unlimited Bid Data and
“What if?” Scenario Rules
When to Use Advanced Sourcing?
Does your event have any of these criteria?
- Is it for a category traditionally considered a complex material or service – Or a “Sacred Cow”? (Transportation, Global Packaging, Marketing, etc.)?
- Are there internal stakeholders with business preferences that require consideration within sourcing decisions?
- Will you be sourcing > 50 items?
- Do you have > 2 or 3 price or non-price bid elements to collect and evaluate?
- Will you be splitting item awards to multiple suppliers at different locations?
- Will you be evaluating your suppliers’ Capacity to meet demand?
- At the Item level?
- By Delivery Location, Region, Across Items, or other?
- Do you want to evaluate multiple allocation models?
- Will you need advanced, “If, then” or formula-based cost models?
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Learn More About Advanced Sourcing
“Adding Advanced Sourcing to SAP, Ariba, Oracle, IBM, and Other Procurement Suites”
– A White Paper located in the Resources folder, and available from http://www.combinenet.com/resource-center/whitepapers/add-advanced-sourcing.php
Watch our Advanced Sourcing Introduction and Product Tour Videos on CombineNet’s YouTube channel – http://www.youtube.com/user/CombineNet
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Thank You. Questions & Discussion
CombineNet, Inc. www.combinenet.com [email protected] Phone: +1 877-293-5480
Copyright © 2013. CombineNet, Inc.