Purchasing Methods

Purchasing Methods
Matt Grove
Ariba, an SAP Company
21-22 October, 2015
Public

© 2015 Ariba – an SAP company. All rights reserved. 2Public
Objectives
Discuss various different spend categories and use cases
Review how to approach the process of category enablement
Understand the value of Category Flight Planning and Category Enablement

Agenda
Introduction
Use Cases for Purchasing Methods
Category Deployment Process
Category Flight Plans
Questions

Summary of Purchasing Methods
 Central vs. Desktop Receiving
 Auto Receiving vs. Manual Receiving
 Asset Information (i.e. Serial Numbers)
 Receiving by Amount
Order Receive Invoice
 Electronic Invoicing
 Auto invoice (cXML Invoicing)
 PO flip
 Fully/ Partially Hosted Catalogue
 Punch Out Catalogue
 Non-Release Contract (BPO)
 Collaboration (N Bids and a Buy)
 Non Catalogue order
 Supplier panel
ARIBAOther
 Credit card  Invoicing outside of the system Outside the system receiving

Standard Purchasing Process
With Purchase Orders
Buyer Supplier
Regular PO Process
Buyer Supplier
Send order confirmation
Send PO
Send advanced ship notice
Delivers goods / services
Sends Invoice
Credit
Payment
Sends BPO / contract
Sends BPO release order
Sends order confirmation
Sends advanced ship notice
Sends invoice
Credit
Payment
Blanket PO Process

Standard Purchasing Process
Without Purchase Orders
Buyer Supplier
Buyer Supplier
Maybe requests goods / services
Sends invoice
Credit
Payment
Maybe requests goods / services
Send no-release BPO / contract
Credit
Payment
Sends Invoice referencing contract
Non Release Contract
Non PO Invoice

Tail
Managed
Ariba Network Invoicing
Strategic
Bulk
High Volume Moderate Volume Low Volume, Low Tech
Electronically Enabled
cXML and EDI
Catalogs
Invoice: PO Flip
Invoice Conversion or Manual
Entry
Paper Invoices
Solutions for electronically
processing
• High Volume
 >200 Invoices/month
• Moderate Volume
 > 2 Invoices/month
• Low Volume, Low Tech
 < 2 Invoices/month
Supplier Base

General Goods and Simple Services
Categories Include:
• Office Supplies
• Software
• Capital Equipment
Standard PO Process
PayReceipt
Approve
(Order)
Request
Pricing Mechanism
Master Contract (Pricing)
Standard PO
Catalogue (Static or Punch out)
Set by User
Invoice/
Reconcile
Buying Process
Utilise discovery, spot buy, electronic
RFQ and Catalog
Reconciliation Method
3 Way Match (PO, Receipt, Invoice)
Auto Receipt within predefined thresholds
Solution Recommendation: Full, Partial or Punch out Catalogue Items; Purchase Orders; Manual and Threshold Based
Auto Receipt; PO Invoices
• Training
• Printed/Promotional Materials
• Consumables

Recurring Fees and Outsourced Services
Categories Include:
• Cleaning/Security/Catering
• Help Desk/Call Centre
• Equipment and Property
Lease
Pricing Mechanism
Master Contract (Pricing Terms)
Paid on delivery of services or milestone
May be recurring fees
Buying Process
Contracts, allocations and suppliers
based on usage
Strategic sourcing to determine what
users buy and at what price
Sourcing activity results in a Contract
(and Blanket PO) generated
Catalogue/Item Master
Collaborative 2 Way (for recurring) or 3 Way Match
(Contract, Usage, Invoice) and Rules-based
exception handling
Solution Recommendation: Ariba Blanket Purchase Order/ Non Release Contract; No receipt with validation on each
invoice; Invoice directly against contract
• Software Licensing and
Maintenance
• Telecom Services
• Outsourcing
Collaborative Invoice Process
PayInvoice
Contract/
Blanket PO
Receipt/
Reconcile
• Property Maintenance
• Property Leases
• Telecom Services
• Share Registry

Estimate Based Services and SOW’s
Categories Include:
• IT Projects
• Equipment Installation
• Construction Engineering
Pricing Mechanism
Master Agreement (General Terms)
Amount Based Catalogue
Line items as Milestones
Paid on delivery of services
Buying Process
Strategic Sourcing or Electronic RFQ
with collaboration
Collaborative PO or Blanket PO against
Master Agreement
3 way match (Contract, Amount Based Receipt,
Invoice)
Rules-based exception handling
Solution Recommendation: Ariba Blanket Purchase Order/ Amount Based PO; Amount Based Receipt (if PO); No Receipt
and reconcile on invoice(if BPO); PO Invoice with 3 way match
• Project Management
• Repair Services
• Research and Development
• Consulting
• Professional Services
• Legal Services
PayInvoice
Approve
Order/SOW
Request
Estimate
Receipt/
Reconcile

Inventoried Indirect and Direct Goods
Demand Planning Process
Pricing Mechanism
Master Contract (Rates & Terms by commodity)
Pricing based on components (e.g. bill of materials)
Category-level attributes/ Volume/ Formula-based
Pricing
PayGoods Receipt
Approve
(Order)
Request
(ERP)
Invoice/
Reconcile
Buying Process
Utilise RFI/ RFP/ Auction for
Strategic Sourcing to select
suppliers
Forecasts (quantity and delivery
schedule) defined through demand
planning process with suppliers
3 way match (PO, Inventory/ Usage,
Invoice)
Solution Recommendation: Ariba PO and Invoice Automation, Ariba Requisition Import
Categories Include:
• Raw Materials
• Retail Merchandise
• Equipment
• Contract Manufacturing
• Transportation

Professional Services
Sub Categories
Professional Services
Marketing Services
Legal Services
Debt Collection
Pricing Mechanism
Pricing based on inputs (e.g. hours
worked), outputs (e.g. deliverables)
and components (e.g. bill of materials)
Milestone/ Volume/ Formula-based
Pricing
Buying Process
Utilise RFI/ RFP/ Auction for Strategic Sourcing to
define preferred suppliers
Rates, hours and delivery schedule defined through
a collaborative requisition process with preferred
suppliers
Supplier engagement and performance history
captured
3 way match (PO, Capacity/ Utilisation,
Invoice)
Collaborative Requisition Process
PayInvoice
Approve
Order/SOW
Request
Estimate
Receipt/
Reconcile

Printed Materials
Sub Categories
Design
Production
Distribution
Pricing Mechanism
Design Pricing Based on collaborative
quote from suppliers
Production pricing from rate card with
vendor
Maintain catalogue for distribution to
end users of printed materials
Buying Process
Design fees and production costs defined through a
collaborative requisition process with preferred
suppliers
Invoice)
Collaborative Requisition Process
PayInvoice
Approve
Order
Request
Estimate
Receipt/
Reconcile

Sub Categories
Security Guards
Cleaning Contracts
Document Destruction
Waste Management
Pricing Mechanism
Pricing based on fixed fees and
variable contracted component
Fixed Pricing Component against
contracted rate cards
Account charge out after the fact
Buying Process
Rates, hours and delivery schedule defined through
a sourcing process to defined preferred suppliers
Supplier engagement and performance history
captured
Invoice)
Property Services
PayInvoice
Contract/
Blanket PO
(Receipt)/
Reconcile
Collaborative Invoice process

Telecom
PayInvoice
Contract/
Blanket PO
(Receipt)/
Reconcile
Focus is on auditing of invoices against contractual
prices and terms
Collaborative 3-way match (contract, inventory/ usage
and invoice)
Bill Audits - Track Usage and Rates and Prepare Usage
Profiles by Sub-Category, Region and Carrier
Optimise service contracts, allocations and carriers
based on usage
Buying Process
Strategic Sourcing based on opportunity
assessments to determine what users
buy and at what price
Sourcing activity results in a Contract
(and Blanket PO) generated that is then
services by vendor, i.e. no subsequent
POs are created for the specific contract
Pricing Mechanism
Invoice reconciliation in
conjunction with Paid on delivery of
services. That is, each invoice
groups a few deliveries.
There may be recurring fees,
where certain services are
assumed delivered
Sub Categories
Cell Phones
Fixed Lines
2 - Collaborative Invoice process

Energy and Utilities
Buying Process
Strategic Sourcing based on opportunity
assessments to determine what users buy and at
what price
RFPs, eRFX, Reverse Auctions needs to
compare pricing, contract terms and processes
Pricing Mechanism
Fee Based recurring amounts for
fixed components
Fixed price for contracted ad hoc
spend
Bill Processing
Invoice Reconciliation
Audits Recovery
Compliance and Savings Monitoring
PayInvoice
Contract/
Blanket PO
Receipt/
Reconcile
Collaborative Invoice process

Transportation
Demand Planning and Management
Sourcing of Carriers and Rates
Identifying Carriers
Analysing Carriers
Recommending Carriers
Route Optimisation
Implementing Carriers
Ramping Up
Optimised Scenarios
Performance Monitoring
Solution Recommendation: Ariba Upstream
Bill Audits and Payment
Solution Recommendation:
Ariba Invoice Pro (Contracts, Receiving,
Basic invoice exceptions, Recurring Fee,
Matching)
Ariba Requisition/Receipt Import: (Import
each route as a purchase order to be
invoiced directly against)
Import Receipt against contract
PayInvoice
Contract/
Blanket PO
(Receipt)/
Reconcile
2 - Collaborative Invoice process
Sub Categories
Express Mail
Freight
Couriers

Category Enablement
To realise value from an Ariba solution you must have content
• Training and communications to both end users and suppliers must be clear and concise
• There must be content for users to raise requisition in the application. This means catalogues and
contracts
• The purchasing method must be simple enough for end users to raise a compliant requisition
Content for an Ariba solution comes with category enablement

Category Deployment Process
Process Repeated for Each Enabled Category
Purchasing
Definition
Supplier
Identification
Tax
Definition
Receiving
Definition
Accounting
Mapping
Accounting
Mapping
UNSPSC
Mapping
UNSPSC
Mapping
Category
Identification
CommodityApprovers

Category Deployment Processes
1
• Commodity Item Definition
• UNSPSC Mapping
• GL Account Mapping
2
• Supplier Identification
3
• Receiving Method
4
• Purchasing Method
5
• Invoicing Method
6
•Tax Definitions
7
• Commodity Approvals
Supplier
Enablement Plan
Category Onboard
Plan
Category Flight
Plan
Catalog
Enablement
Supplier
Integration

Which categories do we want to target?
 Standardised commodities are
necessary to develop effective
system processes
 Ariba uses the standard UNSPSC
classification to achieve
standardization
 4 level categorization
“What do we buy…”
IT goods
Items UNSPSC Account
Notebooks 43211503 XXXXX12 - Computers and Laptops
Keyboards 43211706 XXXXX99 - General IT Office
LCD Monitors 43211902 XXXXX34 - Displays and Monitors
“…from which accounts?”
 Can any accounting information be
defaulted by commodity?
 Best practice to default GL account
information by commodity
 Default fields by commodity are not
editable except by power purchasing
and accounting users
1 2

Who do we buy from?
 Who are the suppliers for the goods
and services?
 What is the supplier spend?
IT GOODS
Items Supplier Spend
Notebooks 1800 Notebooks $10 M
Notebooks Laptops R Us $5 M
Notebook Pear Technologies $1 M
Keyboards Fancy Electronics $0.02 K
Keyboards J & R $0.01 K
LCD Monitors New Vision $1 M
 Which suppliers are already trading on the
ASN?
 Which suppliers will we encourage to join
the ASN to allow end to end electronic
transactions?
 Work to enable suppliers onto the ASN
representing 80% of spend
“Which suppliers do we have… “…and which do we enable?”1 2

How do we receive
How is the item Received.
Central vs. Desktop Receiving
Auto Receiving vs. Manual Receiving
Does any Asset Information (i.e. Serial Numbers) need to be captured
Receiving by Quantity/Amount/Timesheet
Any additional approvers on Receipt necessary
IT GOODS
Items Receipt Type Asset Information Additional Approvers
Notebooks Centrally by IT Yes, serial numbers Requester must also
approve once he receives
laptop from IT.
Keyboards Auto Received N/A N/A
LCD Monitors Manual Receipt by Count Yes, serial numbers and
asset location
N/A

How do we apply tax?
How is this item taxed?
Sales Tax, Local Tax, GST, Withholding Tax?
Are any items tax exempt?
Is there any other criteria other than commodity code that determines the
taxability of an item?
 Taxability may be configured for non-GST items.
Item Tax Type Tax Percentage Additional Criteria
Notebooks GST 10% N/A
Charitable
Donations
GST 0 N/A
Courier GST 0 N/A
Courier International Tax 0% No GST for international courier
charges

Category Enablement
Category planning must be a formal process for best results
All elements of the category needs to be investigated for an appropriate:
• Delivery date
• Supplier engagement, training and enablement
• Clear and simple processes within the application
• Effective policies to support procurement objectives
Using a framework ensures that all aspects are covered, and that the process of category
enablement is consistent

For effective delivery, Ariba recommend categorization of processes where the
following are common:
• Purchasing Process
• Contract Terms
• Supplier Fulfillment and receipting
• Invoicing process
Generally this is in line with your procurement taxonomy
A category enablement plan should use this framework
This will facilitate implementation speed, economies of scale, process standardisation
and better user adoption
• Also assist with less overheads required for the category enablement project
Category Enablement Process Groups

Procure-to-Pay Wave Planning
Process Groups
Process
Category
Off-Contract Purchases
SKU-Based
Purchases
Professional
Services
Recurring, 3rd Party
or Emergency
Purchases
Direct & Inventory-
Managed Goods
Buying
Process
Requisition via Non-
Catalog
Requisition via
Catalog
Collaborative Invoice Against
Contract
Requisition Import
Pricing
Compliance
 3 bids and a buy
 Audit
Catalog &
Contract
 Contract
 Rate card
Contract Contract
Fulfillment
Goods or Services
Receipt
Goods Receipt  Milestones
 Payment schedule
No Receipt  Goods Receipt
 No Receipt
Invoice
Reconciliation
PO & Goods or Services
Receipt
PO & Goods
Receipt
 Contract/ PO
 Milestone/
Schedule
Contract  PO, Contract &
Receipt
 PO & Contract
Spend
Examples:
 Purchase items that are
not on a catalogue or in
a contract.
 One off event based
purchase
 Office Supplies
 IT
 Promotional
Items
 Training
Courses
 Business
Consulting Services
 Project based audit
services
 Lease/Rent
 Facility services
 Benefits
 Compensation
• Stock-Based Items
(MRO)
• Raw Materials
Implement.
Effort
Low Low to Med Low to Med Medium Medium

In addition to structuring your rollout by Process Groups, prioritization will impact
your rollout strategy
Prioritise categories for rollout based on:
• Savings opportunity – largest addressable spend areas typically should be targeted first
• Compliance of spend – ensure spend is being captured correctly
• Current level of automation - contracting, requisitioning, invoicing & payment
• Contract enablement – last time the category was sourced impacts savings
opportunities. Changes in P2x process generally coincide with contract negotiation
• Client culture considerations – level of business unit/region willingness to let
Procurement manage this category
• Integration requirements - Linkages needed with systems outside the Ariba process
may add additional requirements for technical development
Devising a Rollout Strategy

Wave II Wave III
Example Flight Plan
$710M $245M $82MTotal:
SKU-Based Goods
IT Hardware $ 10M
Marketing Commercial Print $ 2M
Invoice Against
Contract
Courier $ 250M
IT Maintenance $ 75M
Telecom Services $ 15M
Facility Site Services $ 25M
Tradeshows and Exhibits $3M
Print $ 175M
Insurance Services $ 10M
Foodservice $ 80M
PO Release Against
Contract
Legal Services $ 200M
Marketing Services $ 60M
Auditing Services $ 50M
Consulting (HR/FIN/MKTG) $ 5M
Construction Management $ 10M
IT Consulting $ 25M
HR Services $ 10M
HR Training $ 5M
Business Consulting $ 20M
Engineering Design Services $ 5M
Marketing Agency Services $ 2M
Wave I Wave II Wave III

Supplier Enablement is an important element for realizing forecasted savings
Ariba are here to help with supplier enablement activities
• Assist with Supplier and Flight Planning
• Communications
• AN Training
Even with Ariba, you will need a resource to manager your supplier enablement
Supplier Enablement

Analysis Methodology
Gather
Inputs
• Spend data by supplier
Cleanse
Data
• Matching along with de-duplication, rationalisation and classification
• Supplier names are matched on the Ariba Network and their activity
on the Network is highlighted
• Only those suppliers accounting for the top 80% of the PO and Invoice
Count is mapped to a category
Analyse
Data
• Certain Suppliers deferred for Network Enablement (e.g. Government)
• All Platinum suppliers recommended for enablement
• Suppliers with limited economic value to the customer reserved for low
tech options
Present
Results
• For suppliers selected for enablement derive the applicable savings
• Recommend enablement method for transaction
• Prioritize suppliers based on value and effort and spread them across
waves

Category Analysis
By UNSPSC – PO and Invoice Count

Supplier Wave Planning
Segmentation and Ramp by PO and Invoice Count

Supplier Flight Plans
Catalog Recommendation – Supplier and Spend

Annual Savings Opportunity
Benefits ($K)

Questions
Matt Grove
Senior Ariba Consultant
Email: matt.grove@sap.com
Mobile: 0466 525 177

Purchasing Methods

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