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Strategic Sourcing & eProcurement Implementation in a MRO setting - Heavy Machinery
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eProcurement / Sourcing MRO Environment
Utilising Lean Six Sigma
Anand Subramaniam
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“The Internet Is Like Darwinism On Steroids. You Evolve Or Are Eliminated.”
- Paul Fernandez, Proxicom
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Implementation Highlights …
10% Technology 90% Change Management
70% Strategic 30% Paperwork
4
Highlights
MRO - Heavy Machinery Industry (Implementation Highlights)
Strategic Sourcing
eProcurement
MRO - Heavy Machinery Industry (Implementation Highlights)
6
Client’s - Terms & Definition
Purchasing Transactional function of buying products / services or the placement and
processing of a purchase order
Procurement Sourcing products and services required to manufacture a product (direct) or to
operate the organisation (indirect) from point of supply to the point of demand
Strategic Sourcing Broader and more comprehensive than the procurement process where it
focuses more on supply chain impacts of procurement and purchasing decisions, and works cross-functionally within the business firm to help achieve the organisation’s overall business goals
eProcurement Employees’ finds the products they need to buy, requisition generation, approval
if needed, creating the purchase order, and delivering that order electronically to the supplier for confirmation and fulfilment
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Client’s - Vision & Mission
E-Procurement
Access online catalogvia desktop browser
Access online catalogvia desktop browser
Internet Access
Catalog:• Items from contracted
vendor• Product configuration tool• Color photographs,
animation & videos of prod.application,
• Product detailed specifications
• Interview with other users
QuicksearchQuicksearchInventory
CheckOption
InventoryCheckOption
PriceComparison
PriceComparison
TestDriveTestDrive
OnlineSupportOnline
Support OrderCompletion
OrderCompletion
“Buyer” “Supplier”
ElectronicPO
ElectronicPO
WorkflowApprovalWorkflowApproval
Order ManagementSystem
Order ManagementSystem
Ack. &Ship notice/
changes
Ack. &Ship notice/
changes
PaymentProcessPaymentProcess
Self-Service PurchasingOpen Standards &
IP Technologies
Process Workflow
Corporate Contracts
Business Rules
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Brainstorming / Focus Group
Level of AutomationLevel of Automation
End to end processEnd to end process
Requisition to orderRequisition to order
Content (catalogue)Content (catalogue)
Cat managed externallyCat managed externally
Cat managed internallyCat managed internally
Supplier managedSupplier managed
Distribution of FunctionalityDistribution of Functionality ERP basedERP based Free standing integrated best of Free standing integrated best of
breedbreed Distributed functionalityDistributed functionality
OrganisationalOrganisational
Change ManagementChange Management
Regional / DivisionalRegional / Divisional
Legal & Fiscal needsLegal & Fiscal needs
Spend SegmentationSpend Segmentation
DeploymentDeployment
Desktop / MobileDesktop / Mobile
Limited accessLimited access
Purchasing dept onlyPurchasing dept only
Maximise benefits/ Maximise benefits/ Minimise risksMinimise risks
Lean, 6 SigmaLean, 6 Sigma Process MappingProcess Mapping
Deployment StrategiesDeployment Strategies
Phases, stage gatesPhases, stage gates
QA review / sign offQA review / sign off
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eProcurement Process
1. Spend Analysis (Opportunity Identification)
3. Supplier Identification
4. Sourcing(eTendering / eAuctions)
5. Contract Management(Portal)
6. Procurement (P2P)
7. Order Fulfillment
8. Invoicing, Reconciliation &
Payment
2. Supplier Assessment
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What was involved & benefits
2. Employee-
FacingCatalog
Finance
Purchasing
Employees
1. Workflow
for originatingand approving
requisitions
3. PurchasingData and Analytics
SupplierSite
SupplierCatalog
Dire
ctco
nnec
t
Catalog
tools
4.Procurement
Vendor’sSupplierNetwork
4.Procurement
Vendor’sSupplierNetwork
Benefits
• Reduced purchase process costs
• Improved compliance with sourcing policies
• Provided analytical reports for informed decision making
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Business Case Approved
Reduced Product/Process Costs
Improved Compliance
Reduced Inventory Costs
Reduced Maverick Purchasing
Value Drivers
Improved Process Efficiency
Pain Points
• Fragmented data• Unreliable/inaccurate data• Fragmented data• Unreliable/inaccurate data
• Rampant off-contract spend (approximately 27% of indirect spend)
• Rampant off-contract spend (approximately 27% of indirect spend)
• Long lead times result in purchase of large safety stocks
• Long lead times result in purchase of large safety stocks
• Long lead times due to high manual processing, 1/3 time spent reviewing manual requisitions
• Long lead times due to high manual processing, 1/3 time spent reviewing manual requisitions
• High transaction costs• Long supplier negotiation• Non contract compliance
drives up price
• High transaction costs• Long supplier negotiation• Non contract compliance
drives up price
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Scope – Sourcing & eProcurement
Determined the types of purchase and spend categories percentage of addressable spend by category level of compliance by reference to the extent to which corporate contracts are in
place, the level of maverick spend and the number of suppliers by spend categories Stakeholder buy-in with regard to phasing the strategic procurement applying benchmark savings percentages to addressable spend by category
Determined Potential benefits by mapping the procure-to-pay process and defined how the process is undertaken, including technology timings / outcomes for each process step the resources involved in each process step and their cost calculation method - unit costs for order and invoice processing As-Is process and To-Be in line with best practices potential process savings in the selected services and extrapolated the potential
savings across all areas
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Scope (Contd.)
Determined the procurement strategy and policies for the program direction & implementation
Used Value Stream Mapping to define As-Is ~ To-Be process along with metrics
Determined the necessary levels of investment & ROI
Performed procurement process audit & supplier evaluation
Evaluated the effectiveness of the strategic sourcing process including user needs and supplier / vendor relationship
Developed certification process (ISO, TQM) & training requirements
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Scope (Contd.)
Evaluated pricing / cost structures for total cost of ownership (TCO) (direct, indirect, landed, technology, logistics, material, disposal, transaction, relationship cost)
Analysed corporate contracts (including outsourced service delivery) - the number of suppliers : value bands of invoices
Change management strategy and communication management plan
Defined Standard formats and the trade off for Content Management
Determined the system integration points (push and pull) between numerous vendors and deciding on which suppliers to use
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Stakeholder Management Strategy
Reaching critical mass in contract coverage
Risk Strateg
y
Risk Strateg
y
Change Management
Approach
SupplierAdoptio
n
Legal & Fiscal -
Country
BU / Siteconstraints
TechnicalIntegratio
n
Providing Change Management guidance, with a specific focus on the areas relating to e-procurement implementation
Case Studies - extracting lessons learnt from a range of industries (related and unrelated) who had undertaken different approaches to Change Management
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Success Factors
Strategic Freed up front line resources to focus on value-added activities Stakeholder briefed on policies, process and procedural changes Senior management buy-in to improve strategic procurement policies
Process Cross functional teams involvement Well defined project and change management process Staff resources trained on capabilities and competencies Standardisation (processes, documents, specifications, product
catalogues) and streamlined back end processing
Finance Effective and realistic benefits realisation
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Transition (As-Is ~ To-Be) = 7.2 months
Integration
Procurement viewed as key contributor to
business strategy
Value Optomisation
Procurement strategy tied to
business strategy
Value Innovation Sustainability
STAGE 1STAGE 2
INFORMAL-Focus on purchase orders
-Detailed reconciliation
- ‘Back Office’ function
CONTROL
Procurement has some
accountability for overall
cost reduction
STAGE 3
STAGE 4
STAGE 5
As-Is
To-BeTook 7.2 months (11 days ahead
of schedule & $12.8k under
budget)
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Results Achieved
Business Metrics
Governance & Internal Controls
Client Satisfaction
P.O. Processing Cycle Time
e-Transaction: Invoice
Contract: Cycle TimeLength
Ledger Miscodes
Suppliers Connected via Web
Savings via Web
Stock Keeping Unit
Before Implementation
40-50%
40%
23 Days
??
6- 28 months57 pages
78%
0
0
283,000
After Implementation
90%
93%
2.1 hour
98%
45 days6 pages
9%
17,000
$112M
134,000
Strategic Sourcing
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Identify - Sourcing Solution
Solutions Overview
Diagnostic
toolList of key
vendors
Requirements
template and
guidance
Discussion
paper
Experiences of
e-procurement
Output - Deliverables
Input - Questions Addressed
Stakeholder buy in - Increase awareness & understanding
What solution types are
available ?
What & why on solution
fit?
What lessons from dis /
similar firm?
What & why to capture?
Who are leaders /
visionaries?
Specific Solution
highlights, why?
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Strategic Sourcing - Roadmap
Source: Adjoined Consulting. LLC
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Drivers - Strategic Sourcing
Increase customer focus Focus on supplier economics Drive continuous improvement Assess the total cost of ownership Reduce costs and delivery cycle times Increase number of global competitors Improve quality/long-term financial performance Deliver more innovative products more
frequently & cheaply than competitors
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Lean - Supplier Rationalisation Applying Lean concepts for supply base reduction and foster alliance
Fewer supplier management problems Closer and more frequent interaction between buyer and supplier Greater levels of quality and delivery reliability.
Supplier selection & termination conducted with cross functional teams included were Supplier certification programs are used Site audits conducted, to identify a supplier’s process capabilities
Purchase cost becomes relatively less important, when evaluating suppliers for strategic partnering
Undertake Value Engineering activities for cost reduction, improve quality, and reduce new product development time.
Outsourcing opportunities / risks reviewed (3PL & 4PL) for Vendor Managed Inventory (VMI)
eProcurement
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Procurement Vision – Reduce Cost
39
43
8
28
33
0
10
20
30
40
50
60
70
80
90
As~Is To~Be Vision
Internal Processing Cost External Processing Cost
Minimise total cost from $82 to $6
Reduce cycle times
Improve Accuracy
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eProcurement Challenges
Gaining initialinterest
Gaining initialinterest
Making thecase
Making thecase
Commit resourcesCommit
resourcesDeliver the
benefitsDeliver the
benefits
Leadership and ownership of
the project
Leadership and ownership of
the project
Management and user buy-in
Selling the benefits
Management and user buy-in
Selling the benefits
Management and user buy-in
Selling the benefits
Management and user buy-in
Selling the benefits
Organisation designCompliance with
corporate contractsand processes
Organisation designCompliance with
corporate contractsand processes
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eProcurement - Roadmap
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Waste Eliminated
Excessive quality checking
Multiple reports highlighting the same
things
Delivering above the agreed service
levels
Excessive paperwork sitting within
departments and on people’s desks
Rework due to incorrect information
provided
Excessive validation of reporting data
Reformatting automatically generated
reports
Excessive downloading and uploading of
data into the ERP system
Multiple printing and binding of reports
Time in process waiting for action
Waiting
Over-servicing
Accumulation
Errors Over-processing
Motion
Movement
Waste
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eProcurement Tools Introduced
Spend Analysis – data on spend patterns
eTendering – receipt of tenders & evaluation
P2P – purchasing, workflow, requisition, ordering
eAuctions – commodity focused, competitive market
Marketplace – contracts, collaboration, management information
Portals – suppliers registration, tender / opportunities, supplier evaluation, risk analysis, contract award
eInvoicing – invoice presentment, automatic match, authorisation & payment
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Take Away
Define metrics to measure and monitor Progress
Ensure on-going supplier certification and evaluation
Benchmark & using proven implementation methodologies for sourcing & eProcurement
Re-engineer process and remove waste (utilise Lean / 6 Sigma concepts)
Develop selection criteria to appoint strategic suppliers (Leichardt scale)
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Take Away (Contd.)
Automate areas to eliminate re-entry / re-work / duplication
Review inventory policies for cycle-times & inventory levels reduction
Manage supplier relationships to support priority or time-critical purchases
Undertake comprehensive analysis and research, to understand procurement price, costing and the total cost of ownership (TCO)
Consolidated details of actual spend with each supplier and product category
Select a Solution Vendor based on - organisational / industry fit, expertise, product strategy, history of success, interview consultants for their competencies / capabilities
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“Latecomers Must Be 10 Times Better Than What They Replace.”
- Peter Drucker
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