Retail companies in fashion, grocery and hard goods are innovating on how they procure and collaborate with their suppliers. Direct, Indirect and Services spend can be optimized across key procurement spend categories which in turn can drive sustainable savings from sourcing and contract compliance strategies, procure to pay optimization and automating supplier collaboration along the PO and Invoice cycle.
Attend this session to hear how Retail companies have achieved procure-to-pay excellence. Learn more about Ariba LIVE at http://spr.ly/LIVE2014LV-d
13. 13
American Eagle Outfitters, Inc. (NYSE: AEO) is a
leading global specialty retailer offering high-quality,
on-trend clothing, accessories and personal care
products at affordable prices under its American
Eagle Outfitters® and Aerie® brands.
The company operates more than 1,000 stores in
the United States, Canada, Mexico, China, and
Hong Kong, and ships to 81 countries worldwide
through its websites.
American Eagle Outfitters and Aerie merchandise
also is available at 62 licensed international
franchise stores in 12 countries. For more
information, please visit www.ae.com
American Eagle Outfitters
14. 14
Primary Goals & Deliverables
Centralize and standardize procurement operations globally
Implement a strong but flexible technological backbone
Staff with professional procurement talent
Promote speed and efficiency with no-touch catalog purchasing of goods
Develop a transactional “Buying Center” to rapidly process low level bidding with
standard T&Cs and approval limits up to $100,000
Develop a Strategic Sourcing “Center of Excellence” to develop and qualify new
suppliers in international markets where negotiations are complex and high touch
is required
The Mission of the Non-Merchandise Procurement (NMP) team is to develop
guardrails required to build a global procurement network to support American
Eagle Outfitters’ corporate strategy and fortify global growth.
Procurement Strategy
15. Current State
Decentralized
Organization
Customized
Technologies
Disparate Systems
Non-scalable
Manual Process
Untrained
Personnel
Unpredictable
Outcomes
Domestically
Focused
Reactive
Slow
Unmanaged
Suppliers
Future State
Centralized Shared
Services
Organization
Standardized
Policies and
Business Processes
Trained
Procurement Staff
Globally Focused
Efficient and
Scalable
Proactive
Strategic
Fast
Managed Suppliers
Nearly 90 FTEs have
been identified as
performing purchasing
functions outside of NMP
There is no enterprise
Procure-to-Pay (P2P)
technology at AEO.
Technologies that do exist
are piecemeal
approaches which are not
integrated to work
together, making global
integration impossible
Therefore, visibility and
categorization of the
spend is severely limited
Standardize the
technology platforms,
policies and
procedures to create a
process which is
consistent and scalable
Centralize strategic
sourcing and
contracting activities to
NMP
Requisitioning stays
within the business
units
Develop long-term
business strategies by
category
Gain the ability to
Source and Transact
globally
Non-Merchandise Procurement Roadmap
17. All figures are estimates and in $ millions
$1.3B in non-merchandise spend annually
$557M is considered “addressable” spend
$0
$100
$200
$300
$400
$500
$600
Addressable Spend Corporate Services Store Operations Construction &
Facilities
IT/IS Marketing
Addressable spend varies year to year and is dependent on individual
contract length and expirations dates
Non-Merchandise Procurement Spend Categories
22. How Procurement works at Coach
Procurement Organizational setup at coach center-led reporting to finance
Sourcing and Procurement Operations Teams focused on Indirect
>7,000 suppliers in 20 countries
Undergoing significant changes to improve
Improved compliance to policies
Ability to pay suppliers on-time
Contracts/agreements are honored
Source to Settle process improvements
Procurement Challenges & Operations at Coach
23. Sourcing has yielded savings in excess of $40MM on an annual basis
Wave 1 has launched and completed with significant improvements
– Improved compliance
– Pre-purchase approval
– Significant usage/acceptance of the Ariba Network
– Great engagement from users
Wave 2 and 3 in process now
International Business Units next fiscal year
Success Highlights at Coach with Ariba
24. Ariba Procurement Solutions @ Coach
Ariba Sourcing
Deployed in 2009 as an On Demand cloud solution
Strategic sourcing and project management
Leveraged globally for centralized spend categories
Heavy use in North America, China, Japan ~100 users
Ariba Procure to Pay
Operational procurement system for end user requisitioning, catalogs, contract
compliance, approvals and purchase orders
Global deployment currently in progress as an On Demand cloud solution
FY14 North America, leveraging Ariba Consulting Services
FY15 China, Asia, Japan, Europe
25. Key Accomplishments/Lessons Learned
Don’t underestimate change management
Leverage any relevant HR, Training or Change teams
Capture their experience in deploying other large systems
Be as clear as possible with users regarding the rationale
Utilize a phased approach
Decide what dimensions of deployment are important to you, spend
category, region, process type, etc.
Deploy in chunks that are strategic for success, not necessarily immediate impact
26. • Look at the big picture: policy, technology and process
• Continually revalidate your base procurement data
• Make it easy for staff to do the right thing with standard processes
• Identify and use all available communication and governance channels
• Get buy-in from the top and get your execs to deliver communications
• Implement in phases; apply learnings to each go-live
• Include SMEs and Ariba in your project; work as one team
• Hire a change manager to help reduce resistance and inertia
• Engage suppliers early, often and consistently
• Don’t underestimate how much effort is involved
Quick Thoughts on Developing Your Program
29. 5/31/2012
Who is Delhaize America?
Delhaize America, one of the nation’s largest supermarket
operators, has more than 1,500 stores along the East Coast.
Delhaize America companies include Bottom Dollar Food, Food
Lion, Harvey's, Hannaford Supermarkets, Reid’s and Sweetbay. Each
banner has a distinct identity and well-established brand image within
its respective markets across 18 states, offering market-specific
products and services to meet the unique needs of its customers.
Delhaize America employs more than 100,000 full-time and part-time
associates. The company is part of Delhaize Group (NYSE: DEG), an
international grocery retailer based in Brussels, Belgium.
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30. 5/31/2012
Direct and Indirect:
Strategic Sourcing leads the price negotiation for both Direct Non-Branded
(for resale) and Indirect (not for resale) Categories of spend for Delhaize
America.
Annually we support the following volumes of sourceable spend;
• Indirect> $2b
• Direct> $3.1b Cost of Goods
We execute 400 RFx events annually; approximately 30% of these events are
in new categories or previously unsourced.
Our “run rate” of average savings delivered annually is:
• Indirect = 9%
• Direct = 3%
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31. 5/31/2012
Value proposition:
Strategic Sourcing reports through Supply Chain at Delhaize America.
The Team was created with Indirect in 2005, and grew to include
Direct in 2009.
Our core value proposition is to provide a systemic, transparent and
repeatable process to our internal Business partners that consistently
delivers value.
The foundation of our process is “Six Step” sourcing methodology. We
offer fact based analytics to our Stakeholders who make all award
decisions. We ensure that Suppliers invited to our events are treated
fairly and provided as much information as possible regarding our
award intentions and business strategies.
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32. 10/03/2014
632
Strategic Sourcing Process
Six Step Sourcing Process / COGS, Expense & Capital
• Review Statement
of
Work, Specificatio
n for
product/service
• Review current
Supplier(s)
performance
• Review current
contract
• Determine award
strategy / goals
for event
• Develop scoring
metrics for event;
price and non-
price factors
• Set timelines and
next steps
E V E N T
P R O F I L E
M A R K E T
A N A L Y S I S
E V E N T
S T R A T E G Y
E N G A G E
M A R K E T
A W A R D /
C O N T R A C T
• Identify additional
/ new Suppliers in
Category
• Research market
conditions, and
industry trends
• Evaluate SOW /
specification to
marketplace norms
• Create RFx
Questionnaire to
assess suppliers
ability to provide
non-price factors
determined at Kick
off
• Start QA/Test
process
• Finalize Suppliers
to participate in
event
• Sourcing
coordinates
potential site
visits, reference
checks, capacity
confirmation
• Sourcing executes
price collection;
selected Suppliers
invited to
participate in
event ; using
eSourcing
tool, model, or
negotiation
M A R K E T
N E G O T I A T I O
N
• Sourcing provides
event
reporting, includi
ng Supplier
results and award
scenarios for
Stakeholder
review /decision
• Stakeholder Team
determines next
steps; ( additional
negotiations, adv
anced auction)
• Contract terms
are considered
and included as
part of final
negotiations
• Stakeholder review
of market, Supplier
discovery, and
QA/Test results
• Consider change of
SOW /
specification, (if
warranted)
• Review award
strategy ; confirm
or update
• Sourcing
recommends price
collection method
based on Business
Owner event goals
and market
findings
• Stakeholders finalize
award decision
• Sourcing issues award
/ denial letters to all
event participants;
letters approved by
Business Owners
• Sourcing initiates DA
contract process and
manages red-line
process through
contract execution /
upload
• Event Summary is
finalized and
submitted; Indirect -
(FP&A, Direct –
Category)Direct Sourcing
• Center Store
• Produce/Meat/Seafood
• Deli/Bakery/HMS
• Pharmacy
Indirect Sourcing
• DC Supplies and Equipment,
• Corporate Services
• Store Supplies, Equipment, Retail Services
33. 5/31/2012
Delhaize and Ariba:
Delhaize Group has used several sourcing tools in our
sourcing evolution prior to Ariba; WWRE, Procuri and AGX.
We began our relationship with Ariba in 2010 and purchased
the Sourcing and Contract Management modules.
We continually evaluate additional modules and their potential
value to Delhaize. We are currently considering opportunities in
our Contract Management processes and are considering an
additional Ariba module to assist as we deploy a new
organizational contract management vision.
33
34. 5/31/2012
Strategic Sourcing Success Stories:
Telecommunications;
• Partnered with a new Business Team to execute an RFx event in one of the
largest areas of spend for this Team
• Long term (20+ year Incumbent), significant disruption and risk if we moved
to new Supplier for these services
• Utilized Total Cost of Ownership (TCO) early in process where Business
Team quantified non-price factors and their associated values as well as
hurdle amount to make transition
• Event achieved a 58% savings over previous costs, delivered over $6m in
first year savings and we negotiated with new Supplier to cover all our
transition costs
34
35. 5/31/2012
Strategic Sourcing Success Stories:
Our Brands Snack Nuts Sourcing Project:
• Conducted extensive supplier discovery. Worked closely with all of the
suppliers and coach new ones to increase participation and competition
• Partnered with our economic insight team and leveraged their input to
identify potential opportunities and future projections based on the crop
• Worked with our R&D team to establish clear product specifications for the
suppliers to match during the sourcing project
• Utilized Total Cost of Ownership (TCO) early in process where Business
Team quantified non-price factors and their associated values as well as
hurdle amount to make transition
• Event achieved a 26% cost of goods savings($3.5M) versus historical costs
35
36. 5/31/2012
Categories with Best Traction:
Initially, the Indirect Team focused on commodity categories to drive results;
e.g. front end bags, deli oil, product packaging, small wares, and office
supplies.
As we ran these categories multiple times, we have sought not only new
approaches to the repeating categories but also looked for new areas of
addressable spend. We applied our same processes and methodology
providing a quantifiable result to our Business Owners in Services.
Our most recent successes have been in more highly complex services
categories; e.g. Corporate and Store Bank Fees, Insurance Brokers, Waste
Services.
36
37. 5/31/2012
Strategic Sourcing Challenges:
Sustainability of Sourcing:
• How do we grow our influence, consistently deliver great results and
continue our momentum year over year?
• Drive the evolution from transactional sourcing to strategic relationships
Suppliers:
• As commodity markets and Supplier bases shift, how do we drive
successful events and strategies in categories with highly volatile
commodities and limited Suppliers? We currently tie pricing to commodity
and index and adjust at mutually agreed intervals. Crop based event are
typically annual awards due to the volatility of the markets.
37
Source: AEO AP, P-Card, and Travel data:1Other includes internal company spend, charitable contributions, Employee BSS, and non-sourceable spendBusiness ServicesHR expenditure related to talent acquisition, temporary labor, and insurance and benefitsFees paid to credits cards, banking institutions, and accounting and auditing servicesFees for consulting, legal, and other professional servicesTravel related expenditures for air, hotel, car, meetings, and other travel related areas(Store) OperationsFixtures, cabinetry, and other design elements used during construction, repair, and maintenance of storesSecurity services and equipment for both store, distribution, and office facilitiesSupplies and consumables used in stores for selling and operations activitiesNon-inbound merchandise and non-merchandise transportationFacilitiesExpenditures related to the design, construction , repair and maintenance of all facilities and trade typesMarketingMarketing spend that includes the full creative process; idea development through execution in various forms of mediaExpenditure related to the acquisition of data and market intelligence from third party content providersExpenditures related to the printing and fulfillment of print materialsMiscellaneous expenditures related to in-store promotionsMISIT expenditure for Laptops, Desktops, Servers, Storage, Software, and Services to maintain and support applications and IT infrastructureExpenditures for voice and data services and the related telecom equipment infrastructure