S&P
Control your indirect
spend with SAP SCM
2013 – Implement Procurement Event

Contents
1
Understand the Indirect Spend
2
Traditional Indirect Procurement pitfalls
3
Simplify the indirect procurement processes
4
How Technology can improve Indirect Procurement
5
Focus on Alignment between Operations, Finance and Procurement
6
Response-Ability: Delegate to focus on more strategic activities
7
Viewpoints
2

1
20
3

1
“Currently, indirect spend is recognized as a major
area for potential improvement, with up to 20% of
all purchases (by value)”
BusinessWeek
4

1
70/90
5

1
“Currently, indirect spend is recognized as a major
area for potential improvement, with up to 70/90% (by
number) of purchase orders, shipment expenses, and
invoices processed attributed to materials and services
that are not used in the finished product”
BusinessWeek
6

2
Key Challenges of Indirect Procurement
Poor
Maverick
High number of
Complexity of
Standardization
Buys
Suppliers
the Market
High
number of
Stakeholders
Poor
Fragmented
Demand
Visibility
into spending
Indirect Procurement deals with the acquisition of all those goods and services not directly involved
in the core business of the organization. This is the reason why the contribution that indirect goods
and services are able to offer to the company is very often misunderstood or underestimated.
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Traditional Indirect Procurement pitfalls
1
Manual approvals are the major cause of long lead times in Ind. Proc.
2
No standard processes
3
4
5
Lack of visibility into contracts or contracts not in place
Lack of strategic tools for sourcing, suppliers qualification & evaluation
“Where is my money going to?”
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2

2
“If you want to truly understand something, try to
change it.”
Kurt Lewin
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2
Indirect Procurement vs. Direct Procurement
Process
Supply market
Number of
transactions
Number of used suppliers
Number of categories
Buying power
Number of supply chain
integration issues
Transaction
price
Other
Number of requisitioners
Maverick spend
Indirect Procurement
Business focus
Direct Procurement
Buying power
Power of procurement
department
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3
“Problems can be complicated.
Solutions cannot.”
Implement
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A guideline to approach Indirect Spend Management
FOLLOWING THE STAR
• SIMPLIFY the Indirect Spend and apply a category-wise
sourcing strategy and procurement process
• Provide employees with the right TECHNOLOGY which
creates a compelling purchasing experience
• ALIGN the different stakeholders involved and let them
gain a common understanding of the new processes
• Delegate, under certain conditions and rules, people giving
them the RESPONSE-ABILITY of their actions
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3

3
Simplify!
“Simplicity is the ultimate sophistication”
Leonardo Da Vinci
13

3
Start by Categorizing products and services
Indirect materials
and services
MRO
IT
Administrative services
Travels
Telecoms
Facility management
Utilities
Marketing
Office Stuff
All products and services
Root
44 Office equipment and accessories
and supplies
Segment
Family
Class
10 Office machines and their supplies
15 Duplicating machines
Commodity
Class
01 Photocopier
31 Printer and facsimile and
photocopier supplies
Commodity
03 Toner
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Define a purchasing channel for each category
Indirect Spend needs CONTROL that:
FLEXIBILITY is needed, when control:
• Is sufficient enough to meet the defined goals
for cost reduction
• Stops the business from operating
• Is possible to implement and is aligned with
strategic goals and objectives
• Builds up rule books just to make rules
• Establishes ineffective routines
• Provides “reasonable assurance”
• Adds value to the business
Flexibility
Control
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3

4
Technology
“Technology does not drive change – it enables
change”
Anonymous
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4
Traditional vs. e-Procurement process
E-Procurement
Traditional Procurement
LEADTIME REDUCED BY 67% IN TOTAL
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4
Technology support
SPEEDING UP THE JOURNEY TOWARDS PROCUREMENT EXCELLENCE
Paperless
processes
Reduced
lead
times
Increased spend
visibility
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Automated
checks
Reduced
transactional
costs

Examples of purchasing channels using SAP SRM
– placing a service order
4
SERVICE PROCUREMENT WITH GOODS RECEIPT
Shopping cart
Purchase Order
Service entry sheet
Goods receipt
Invoice receipt
This function is used to create purchase orders for services performed by service provider. Service entry sheet is created for each service
provided, and the consumed time can be entered in the entry sheet. Once the service entry has been confirmed, invoice can be posted.
Addressed challenges
Business benefits
• Services are often procured locally, which leads to poor
visibility in the spend. Saving opportunity not fully
captured
• Having visibility on the spend
• Maverick purchases for services and use of
unauthorised suppliers
• Providing an easy procurement system for
employees
• Manual process and long processing time of
purchasing documents
• Increase the contract compliance
• Aggregating the demand and increasing the
procurement power
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Examples of purchasing channels with SAP SRM
– processing a contractual invoice
4
DIRECT CONTRACT REFERENCE FOR INVOICE
Incoming invoice
Contract history update
in ERP
Contract reference
Contract release
in SAP SRM
This function is used to create invoices with a direct reference to an SRM central contract. The invoice with the contract reference updates
the history of the contract in SAP ERP. A release is then created for the reference central contract in SAP SRM.
Addressed challenges
Business benefits
• Invoices for unplanned services are often posted
without reference to any purchasing document and are
therefore difficult to trace
• Better agreements for services through higher spend
visibility and lower maverick buying
• Automated processes, review and approval plus
accounting of contractual invoices
• Manual handling of recurring contractual invoices take
up unnecessary manual resources
• Consistent verification of invoice validity, amounts,
terms, etc.
• Suppliers do not invoice according to the agreed-upon
terms and conditions
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Examples of purchasing channels with SAP SRM
– buying direct materials
4
PLAN-DRIVEN PROCUREMENT
Planning
Process purchase
requisition
Process PO
Goods receipt
Invoice receipt
This function is used to process Direct material requirements that have been generated in systems other than SAP SRM. The demand for
products can come from several different planning systems such as material requirements planning (MRP). Using SAP SRM, contract is
assigned automatically to the PO.
Addressed challenges
Business benefits
• Fragmented demand for MRO activities
• Bundle all the requirements into one request which
can be sourced by professional buyers instead of
operational purchasers
• No contract visibility
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Examples of purchasing channels with SAP SRM
– buying indirect materials through e-Catalogues
4
PURCHASES OVER CATALOGUE
Shopping cart
Purchase order
Goods receipt
Invoice receipt
Make purchasing easy to increase compliance
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5
Alignment
“The present contains nothing more than the past, and
what is found in the effect was already in the cause”
Henry Bergson
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5
Alignment between operations, procurement and finance
BRIDGING THE GAP
Account Payable
Invoice posting
Ok?
Yes
Invoice posted
Invoice
queue
No
Purchasing
Correction
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Operations
Correction

6
Response-Ability
“Technology is nothing. What’s important is that you
have a faith in people, that they’re basically good and
smart, and if you give them tools, they’ll do wonderful
things with them”
Steve Jobs
25

6
Response-ability
The key to minimise the operational and tactical tasks in purchasing department is to DELEGATE, whenever possible, tactical, non-valueadded work. This will give employees the ability to react to their needs in a faster and more flexible way leaving the procurement
department the time to focus on the above-listed strategic tasks.
Contract
negotiation and
implementation
Spend analysis
Forecasting
Supplier
development
Supplier
relationship
management
Strategic
sourcing
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7
Viewpoints
Define KPI´s
Response-Ability
Alignment
Define clear and
measurable key
performance
indicators
Identify your
categories and
underline their
corresponding
procurement
challenges
Keep It Simple
Tailor a sourcing
strategy and a
purchasing
channel on
each category
Adopt the right
technology
Technology
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Identify and
align all the
stakeholders
involved
Use a
phased
approach

Implement Consulting Group
Learn more about how we work with SAP Supply Chain Management
Learn more about how we work with Procurement
Go to Implement Consulting Group's main website
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