supply chain spends: advancing sourcing beyond procurement suites

Supply Chain Spends: Advancing Your Sourcing Beyond Procurement Suites

Copyright © 2013. CombineNet, Inc.

Speakers & Agenda

Brett Cornell Senior VP, Strategic Sourcing CombineNet

Growing Coverage of Procurement Suites

Sourcing Today – Trends and Opportunities

The Role of Advanced Sourcing

Greg Holt Director of Product Marketing CombineNet

How Advanced Sourcing Works

The Power of Sourcing Optimization


CombineNet Is

The Advanced Sourcing Technology Company

Pittsburgh HQ; London; Hamburg

75% of customers use CombineNet ASAP to complement their procurement suites


CombineNet’s Customers Are Supply Chain Driven

Food & Beverage Manufacturers

Consumer Goods & Pharma Manufacturers

Retailers & Restaurant Chains

Manufacturing


16 of the World’s Top Companies

6 of 12 Largest CPGs Supporting >$10B in transportation sourcing for diverse manufacturers

17 of Top Global Retailers & 10 Largest

U.S. Restaurant Brands

Our 100+ customers include:

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=asmEIHC-ckvtHM&tbnid=k1DdxAcnwFKI4M:&ved=0CAUQjRw&url=http://www.frugalcouponliving.com/2011/05/29/kelloggs-coupons-3/&ei=Iw9wUffuGdT54AO3mYDgBQ&bvm=bv.45368065,d.dmg&psig=AFQjCNHlTil8slLxZmI4XOD35Xd96gDmlA&ust=1366384799588373


Procurement Growth and E-Sourcing Trends

The Reach of ERP & E-Procurement Suites

Spend Analysis

Understand

corporate spend and supplier relationships

E-Sourcing

Negotiate

competitive prices in online sourcing

events

Contract Management

Author and manage contracts

Procurement

Execute purchases and drive

purchasing compliance

Invoicing & Accounts

Payable

Streamline invoice management and

payment

Supplier Management

Attract, on-board and manage

suppliers


SRM Strategic Sourcing Procure-to-Pay

Suites Bring Key Benefits to the Table

Enable advanced planning, scheduling and “group” buying to drive savings, efficiencies and profitability

Greater alignment and visibility across an organization or organizations

Spend Under Management: E-Sourcing Gap


*Procurement Leaders 2013 Benchmark

Spend under management by procurement is reaching 70%+ of all corporate spend in mature organizations, and as high as 78% for advanced organizations*.

Spend being sourced through e-sourcing technology is plateauing around 30% of corporate spend.

Macro-Trends and Opportunities in Strategic Sourcing – According to The Aberdeen Group

Evolution of Strategic Sourcing from being a savings concept to supporting broader organizational challenges & goals

Managing supply chain risks inherent within increasing globalization

Sustainability & CSR becoming more important factors in the context of strategic sourcing

Understanding total cost and introducing supplier innovation beyond just cost criteria


E-Sourcing Expansion Trends

Commercial, supply-chain driven companies are focused on capturing more spend under formal E-Sourcing processes by:

Aggregating spend into larger, consolidated E-Sourcing activities

– Across Business Units, Brands, Plants/Facilities, Products

Addressing categories with more complex information and decision criteria with E-Sourcing Technology

– Sacred Cows

– Direct Materials

– Packaging

– Transportation

– Corporate Services


Unfortunately, most E-Sourcing solutions are ill-equipped to

support these more ambitious sourcing strategies, leading to inefficient and less effective

workarounds


The Role of Advanced Sourcing

Where Advanced Sourcing Fits

Advanced Sourcing Technology is supporting these initiatives to focus on larger, aggregated sourcing events and on spends with complex award decisions.


Why Tackle Aggregated/Large Events?

Gain greater leverage across supply base with larger spend volumes

Show suppliers the larger opportunities within your business and heighten your profile within their organizations

Drive competition and get closer to a true market pricing via a larger collection of suppliers

Reduce effort and increase efficiency of limited staff – One event vs. redundant local/regional events


http://www.google.com/url?sa=i&rct=j&q=consolidation&source=images&cd=&cad=rja&docid=_DNqhMxn7W22vM&tbnid=JzkUlUOnw-my4M:&ved=0CAUQjRw&url=http://sscf.ucsd.edu/n/sscf-consolidation-completed&ei=rGHcUfqNNtLG4AP0l4HoDg&bvm=bv.48705608,d.dmg&psig=AFQjCNGOy17HCzNSl37qKDu48l-ZCk-PuQ&ust=1373483810436871

Challenges with Aggregated E-Sourcing Events

Challenge: E-Procurement suite e-sourcing modules have limited support for large events – Limitation of 1,000 bid elements

< 34 items x 2 bid elements/item x 15 suppliers

Sourcing teams work around this by: – Limiting negotiations to incumbent suppliers

– Conducting separate RFIs to reduce supplier count in RFX, limiting competition and new opportunities

– Creating Lots or Market Baskets, which reduce competition and hide true market costs

– Conducting many redundant local or regional events

– Collecting and evaluating bids in Excel spreadsheets


An Aggregated Event in CombineNet ASAP: Common Area Maintenance Case Study

Large, U.S.-based retailer with over 800 domestic stores.

Sourcing group handling all not-for resale (indirect) purchases.

Wanted to improve results in sourcing common area maintenance services including: landscaping, snow removal, trash removal, lot sweeping, etc.

Selected CombineNet for: – Aggregation capabilities to replace time-

consuming spreadsheet-based approach.

– Expressive Bidding® allowed suppliers to submit “package” offers with further discounts.

– Results: 10% savings, and reduced sourcing project timeframe by 3 weeks.

800+ stores

18 regions

$20 million+ spend

Analyzed 8 different price points.

Many stakeholder preferences.

Case Study Fast Facts

10% savings – half from packaged offers.

Bid analysis conducted 10x faster.

Reduced project time by 3 weeks.

“Being able to inject or take out different suppliers in different districts to see where

the savings lie was a huge benefit to our process. We wouldn’t have had the time to consider this without the bid analysis and

optimization speed of CombineNet.”

– Retailer’s senior sourcing manager


Where Advanced Sourcing Fits

Advanced Sourcing Technology is supporting these initiatives to focus on larger, aggregated sourcing events and on spends with complex award decisions.


Managing more information provides greater transparency for better decisions

– At the Supplier level: evaluating total supplier value, performance history, and growth strategies

– At the Item level: creating total cost transparency with price and non-price factors, and encouraging product innovation from suppliers

– At the Supply Chain level: understanding supply capacity, efficiency, risk

– At the Organization level: aligning stakeholders and spend owners on sourcing strategies and decisions

“A good decision is based on knowledge and not on numbers.”

-Plato


Benefits of Mastering Complexity

Challenge of Complexity in E-Sourcing

Challenge: E-Sourcing tools were built to streamline a simple function

– Collect prices on items and identify low-cost options

Sourcing teams work around this by:

– Focusing on supplier responses to price per unit (PPU)

– Evaluating a supplier’s quality and potential value by “Weighting and Scoring”

– Collecting and evaluating bids in Excel spreadsheets


Total Cost

Supplier Innovation

Supply Risk

Business Preferences

Mastering Complexity: A Packaging Case Study

Market leader in manufacture of medical, dental, and animal health equipment. HQ’d in Ohio, with subsidiaries in France, India, and Italy.

Re-evaluating sourcing of packaging spends.

Key benefits realized:

– 28% savings – attributed to broader competition and Expressive Bids.

– Created and ran 50+ scenarios using bid optimization; final award “sold itself” thanks to collaboration and clear visibility.

– Supplier discovery and optimization – added 3 new suppliers.

– Future potential savings opportunities identified with alternative bids.

– All service levels maintained.

500 packaging items with multiple sub-categories (corrugated, foam, poly bags, and misc. supplies.)

Multiple plants.

30 invited suppliers – 15 qualified and bid.

Ran 50+ scenarios.

Added 3 new suppliers.

All service levels met.

28% savings: Expressive bids accounted for 5.5% of total.



Case Study: The Schindler Group

Initial Project: Fleet Vehicles, one of their most complex spend areas.

Collected price and non-price factors, including fuel economies, end-of-contract damage costs, financing charges.

CombineNet replaced use of hundreds of spreadsheets.

Results:

– 10% + cost savings

– $4 M in OEM rebates

– 5% reduction in lease prices

“This is a mature spend category for Schindler, one that we’ve strategically sourced for 10 years. Yet with CombineNet, we were able to achieve excellent cost savings.” – VP of Purchasing Excellence and Indirects, The Schindler Group

17,000 vehicles

7 vehicle types per region

24 countries and leadership teams

CO2 emissions


27 cost elements

Quarterly price changes

2 million price points

Schindler mobility solutions move one billion people every day.



How Advanced Sourcing Works

Advanced Sourcing Technology Is Built upon Optimization

Opening e-sourcing activities up to:

– Collecting a larger set of data – no limitations on items, suppliers, bid elements

– Encouraging supply options from suppliers via Expressive Bidding®

– Evaluating suppliers in the context of operational and strategic business rules/constraints with integrated RFI

– Identifying the best sourcing decisions across any spend category with true Optimized “What if?” Scenario Analysis


Sourcing Optimization

Is… Is Not…

Utilizing mathematical models (algorithms)

Utilizing spreadsheets or Consultants

Evaluating real-world business scenarios

Evaluating pre-built, canned scenarios

To find the optimal solution

To find a “good enough” solution

In seconds

A process A buzzword


• Easily support events involving larger #s of items, suppliers, and/or bid attributes (involving hundreds of thousands of bid data points).

• Support spend aggregation across item types, overlapping supply bases, locations, and/or business units.

• Support complex categories, such as direct materials, packaging, services, transportation.

Combinatorial Optimization Powers These Advanced Sourcing Capabilities

Scalability & Performance

• Collect both detailed price and non-price bids from suppliers. • Solicit alternative item proposals, conditional offers, packages, etc. • Drive competition and price compression with Expressive Feedback. • Suppliers put their “Best Foot Forward” in a collaborative bidding

process.

Expressive Bidding®

• Create robust “What if?” scenarios with unlimited # of rules. • Scenarios optimized and results returned in seconds. • Easy to collaborate with stakeholders on preferences. • Find the best scenario balancing cost, innovation, value, and risk.

“What If?” Analytics


How Traditional E-Sourcing Works


Basic RFX Input

Low-Cost Award Incumbent Award Split 2 Suppliers Supplier Score

or or or

Microsoft Excel

Ad Hoc Analysis

How Sourcing Optimization Works


“Expressive” RFX Input

Corporate Rules

20% to M/WBE 60 Day Payment Terms

Supply Chain Goals

Supplier Capacity Continuity of Supply

Supplier Relationships

35% to Incumbents 45% to Strategic

Suppliers

Brand “A” Rules

A+ Supplier Rating 65% to Incumbents

Item #128 Rules

Favor Supplier “ACME” 50% Recycled Content

Plant 12 Rules

95% On-Time Delivery Need 2-Day Lead Time

Real-World Constraints

Optimal Sourcing Award

Simultaneous Optimization of Unlimited Bid Data and

“What if?” Scenario Rules

When to Use Advanced Sourcing?

Does your event have any of these criteria?

- Is it for a category traditionally considered a complex material or service – Or a “Sacred Cow”? (Transportation, Global Packaging, Marketing, etc.)?

- Are there internal stakeholders with business preferences that require consideration within sourcing decisions?

- Will you be sourcing > 50 items?

- Do you have > 2 or 3 price or non-price bid elements to collect and evaluate?

- Will you be splitting item awards to multiple suppliers at different locations?

- Will you be evaluating your suppliers’ Capacity to meet demand?

- At the Item level?

- By Delivery Location, Region, Across Items, or other?

- Do you want to evaluate multiple allocation models?

- Will you need advanced, “If, then” or formula-based cost models?


Learn More About Advanced Sourcing

“Adding Advanced Sourcing to SAP, Ariba, Oracle, IBM, and Other Procurement Suites”

– A White Paper located in the Resources folder, and available from http://www.combinenet.com/resource-center/whitepapers/add-advanced-sourcing.php

Watch our Advanced Sourcing Introduction and Product Tour Videos on CombineNet’s YouTube channel – http://www.youtube.com/user/CombineNet


http://www.combinenet.com/resource-center/whitepapers/add-advanced-sourcing.php









http://www.youtube.com/user/CombineNet



Thank You. Questions & Discussion

CombineNet, Inc. www.combinenet.com [email protected] Phone: +1 877-293-5480


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