Describe about E-Procurement

1. IBM India
e-Procurement
07.06.2004
deeper
Rahul Pasrija
© Copyright IBM Corporation 2004

2. IBM India
Contents
e-Procurement
Benefits of e-Procurement
e-Procurement for Public Sector
Case Study
2
© Copyright IBM Corporation 2004

3. IBM India
Introduction
 Procurement is a competitive differentiator
Revenue
100
MARGINS
Shorter Product Lifecycles
10 years
5 years
2000
5
45
External
Expenditures
50
+50%
7.5
0%
45
- 5%
47.5
SQUEEZED
Pressure on Prices
1980 1990
Profit
Other
Costs
Technology Explosion
World Competition
100
3 years
Increased fixed costs
Non Materials
+ Increased
fixed costs
%
1980 1990
3
2000
• Increase sales by 50%
• Reduce overheads by up to 20%
© Copyright IBM Corporation 2004

4. IBM India
Procurement challenges and expectations
Procurement organizations are expected to lower the material cost coupled with
high process efficiencies
Negotiation
Centralized procurement
Vendor Leverage
Material
Material
costs
costs
Prediction
Item standardization
Vendor base rationalization
Process
Process
efficiency
efficiency
4
Activity costs
Eliminate non value adding
activities
Time
© Copyright IBM Corporation 2004

5. IBM India
Procurement process
The opportunities lie across the procurement process
Vendor Base
Rationalization
Conduct
Market
Analysis
Prediction
Models
Centralized
procurement
Develop
Category
Strategy
Complete
Supplier
Evaluation
Select
Suppliers &
Negotiate
Agreement
Supply
Pay
High value buying
Conduct Spend
Analysis &
Determine
Customer
Requirements
Cycle Time
Low value buying
Value
Vendor
Leverage
Item
Standardization
Transaction
Costs
No. of Transactions
5
© Copyright IBM Corporation 2004

6. IBM India
Procurement process
Multiple options are available at various points
Vendor Base
Rationalization
Conduct
Market
Analysis
Prediction
Models
Centralized
procurement
Vendor
Leverage
Item
Standardization
Develop
Category
Strategy
Complete
Supplier
Evaluation
Supply
Pay
High value buying
Conduct Spend
Analysis &
Determine
Customer
Requirements
•
•
•
•
Value
Select
Suppliers &
Negotiate
Agreement
e-Requisition
e-Approval
RFI, RFQ, RFP
Tenders
• Reverse
Auction
• e-PO
• e-Release
• e-Changes
• e-Confirm
• e-documents:
• ASN
• Ship status
• Receipt
• Supplier web
report card
• e-Invoice
• EFT
• Credit auth.
• Debit auth.
• e-Credit/Debit
No. of Transactions
6
© Copyright IBM Corporation 2004

7. IBM India
Procurement process
Multiple options are available at various points
Prediction
Models
• e-Catalog
• Pricing
• Availability
• Commit
• e-Configure
Centralized
procurement
Conduct Spend
Analysis &
Determine
Customer
Requirements
Low value buying
Value
Transaction
Costs
No. of Transactions
7
© Copyright IBM Corporation 2004

8. IBM India
Contents
e-Procurement
Benefits of e-Procurement
e-Procurement for Public Sector
Case Study
8
© Copyright IBM Corporation 2004

9. IBM India
eProcurement benefits
Value Drivers
Pain Points
Mitigation/Savings Estimates
1
Improved Process Efficiency
• Long lead times due
to high manual processing,
1/3 time spent reviewing
manual requisitions
2
Reduced Product/Process
Costs
• High transaction costs
• Long supplier negotiations
• Non contract compliance
drives up price
Purchase requisition processing expense reduction up to
73%; price of goods 5%-10%
less on average
• Fragmented data
Data integrity is improved
through contract compliance,
strengthening a company’s
supplier negotiation leverage
3
Improved Compliance
4
Reduced Maverick
Purchasing
5
Reduced Inventory Costs
9
• Unreliable/inaccurate data
Purchase requisition processing time reduction of 70%-80%;
averaging a week faster
• Rampant off-contract spend
(approximately 27% of
indirect spend)
Maverick spending decreases
up to 51%
• Long lead times result in
purchase of large safety
stocks
Inventory expense reduction
between 25% - 50%
© Copyright IBM Corporation 2004

10. IBM India
Contents
e-Procurement
Benefits of e-Procurement
e-Procurement for Public Sector
Case Study
10
© Copyright IBM Corporation 2004

11. IBM India
e-Procurement for Public Sector
e-Procurement, a significant opportunity within E-Governance
Government – an attractive case for e-Procurement
Probably the “single largest buyer” of goods and services in a state
Serious initiatives underway from AustralAsia to Europe to USA
Important Value Drivers
 Potential savings – aggregated demand
 Cost reduction – process efficiency
 Compliance
Attractive business models – Public Private Partnership (PPP)
As many as 42 states in the USA, in addition to the Federal Government, will
embark on some form of e-Procurement project by 2004 (Gartner)
11
© Copyright IBM Corporation 2004

12. IBM India
Case Study – Public Sector
National Procurement Limited,
Copenhagen-Denmark
Solution
Challenges
Adhere to EU and WTO rules for
public procurement processes
Ensure transparency and
efficiency for both suppliers and
buyers
An open, secure and
scalable e-procurement
solution – Electronic Tender
Handling, Information and
Communications (ETHICS)
Solution caters to around 8200 institutions in EU
12
© Copyright IBM Corporation 2004

13. IBM India
Case Study – Public Sector
National Procurement Limited,
Copenhagen-Denmark
Benefits
Business







Technical
Doubled productivity with same
staff
Knowledge transfer among
employees
Improved vendor satisfaction
Double digit growth in contract
turnover
Reduction in administrative
costs by 40-50%
Increased transaction
transparency and auditing
Improved decision making via
well defined transparent
evaluation process




An end to end, open standards
based tender solution based on
IBM Lotus Domino
State of the art security including
PKI Infrastructure
More user friendly design
questionnaire to help buyer
automate decision making process
A robust, secure decision support
system, based on Lotus
QuickPlace and Sametime,
enabling teams to meet and
collaborate virtually in an online
voting room and gain access to
important proposal related data
Solution caters to around 8200 institutions in EU
13
© Copyright IBM Corporation 2004

14. IBM India
Contents
e-Procurement
Benefits of e-Procurement
e-Procurement for Public Sector
Case Study
14
© Copyright IBM Corporation 2004

15. IBM India
Case Study - The IBM Way
In 1993, IBM was in midst of a severe financial crisis
1990
1992
1993
$69 B
10
Revenue
Op. Income
1991
$65 B
4
$ 65 B
3
$ 63 B
-4
IBM Cash Flow
IBM Debt
5
1
2
1990
1991
1992
1993
1993
-3
15
© Copyright IBM Corporation 2004

16. IBM India
Case Study - The IBM Way
IBM adopted a holistic approach to cost reduction which was critical to
its turnaround...
US$ 9
Billion
Saved
$B
120
100
Market Value
80
Revenue
60
40
20
Profit
0
-20
16
'85
'93
'97
'98
© Copyright IBM Corporation 2004

17. IBM India
Case Study - The IBM Way
The approach encompassed strategic, tactical and operational
initiatives as highlighted...
Strategic
Strategic
Sourcing
Global
Sourcing
Aggregated
Sourcing
Supplier
Relations
Management
Value
Engineering
Skills
Upgrading
17
Outsourcing
Tactical
Tax Chain
e-Procurement
Operational
© Copyright IBM Corporation 2004

18. IBM India
Case Study - The IBM Way
Supplier Relations Management (SRM) seeks to map the supplier into
appropriate relationships...
Competitive
Leverage
Preferred
Supplier
Performance
Partnerships
Strategic
Alliances
Relative supplier management skills and effort required
Operational, simple trade offs
Problem solving
Strategic, complex issues
Influence stakeholders
Influencing
Influencing the Board agenda
Trading
Negotiation
Complex, multi-dimensioned
Limited
Team-working
Price testing/quotations
Confrontational
Secure best deal available
18
Market analysis
Behaviour
Values
Cross functional, joint-supplier
Market, competitors, technology
Principled, trust-based
Urgency to prove model works
© Copyright IBM Corporation 2004

19. IBM India
Case Study - The IBM Way
Effective SRM with appropriate technology support paid rich dividends
for IBM...
Before SRM
High and unmanaged
Constant Problem
Slow
19
Part Cost
Design
Cycle Time
Time-to-Market
After SRM
Reduced part cost 15-25 %
Eliminated 50% of parts
Reduced cycle time 75%
Reduced design cycle time 35%
Reduced time to market 70%
© Copyright IBM Corporation 2004

20. IBM India
Case Study - The IBM Way
e-Procurement applications facilitate the transformation process and
enable organisations to sustain the benefits…
Sourcing
Fulfillment
Settlement
20
Internet quoting
Auctions
On-line contracts
Buyers / Requesters
Suppliers
Authentication / Authorization
Information warehouse
Requisition / ERP
Electronic catalogs
"Buyerless" automation
Skills matching
EDI
EFT
e-Invoices
© Copyright IBM Corporation 2004

21. IBM India
Case Study - The IBM Way
IBM realized significant benefits from e-Procurement…
Business Metrics
Acceptable Business Controls
Client Satisfaction
P.O. Processing Cycle Time
Today
30%
<0.5%
40-50%
+90%
40%
Escapes (By Pass)
Early 1990's
>80%
30 Days
1 hour
e-Transaction:
Invoice
Hands Free
??
20%
95%
+80%
Contract:
Cycle Time
Length
6-12 months
40 (+) pages
30 days
6 pages
Cost Savings
>3%
>30%
5%
Suppliers Connected via Web
0
27,000
Savings via Web
0
$380M
Supplier Survey Rating
5
1
Competitive Advantage
Ledger Miscodes
21
© Copyright IBM Corporation 2004

22. We all live under the same sky …
We all live under the same sky …
IBM India
… but have different horizons
… but have different horizons
Thank You
Thank You
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© Copyright IBM Corporation 2004