Accelerating Supplier Enablement Through Five Steps

Transcription

1 the way we see it November 2007

2 Table of Contents Prepared by: Adrian Penka Bryce Roebke Randy Smith Date: November 15, Executive Summary 1 2 Synopsis 2 3 The Challenges of Supplier Enablement 4 4 Supplier Enablement Addresses People, Process & Technology Sourcing Order Generation Receiving / Confirmation Invoicing and Payment Monitoring Supplier Performance 13 5 Capgemini Facilitates Supplier Enablement A Quick Note on Operational Change Management 14 6 Summary/Conclusion 17 Synopsis 2

3 1 Executive Summary Procurement organizations continue to face increasing pressure to enhance operational efficiency, decrease cost of goods and services, and improve supplier performance to provide additional value for the enterprise. These pressures require organizations as well as their suppliers to be able to quickly respond to changing business needs and supply chain requirements. Supplier Enablement initiatives have underestimated the technical complexity and level of organizational change management required. Many companies tend to adopt a one-size fits all approach and fail to develop or clearly articulate the Supplier Value Proposition. Supplier enablement efforts also become road blocked because the level of technical complexity and the amount of change management required within the business is often not fully understood and properly planned for. It is only through a combination of effective people, processes, and technology that a procurement organization is truly able to effectively enable its supply base in the areas of Sourcing, Order Generation, Receiving/Confirmation, Invoicing and Payment, and Monitoring Supplier Performance. Capgemini, through our project experience and the above change management components, understands the nuances of enablement and can address stakeholders effectively to increase adoption. The key is our experience at facilitating global collaboration, communication, and education with stakeholders through these components and our proven Five Step Approach. Executive Summary 1

4 2 Synopsis Procurement organizations continue to face increasing pressure to enhance operational efficiency, decrease cost of goods and services, and improve supplier performance and relationships to provide additional value for the enterprise. These pressures require organizations as well as their suppliers to be able to quickly respond to changing business needs and supply chain requirements. An effective Supplier Enablement program can bring these efficiencies and improvements and provide immediate value if some of the common stumbling blocks can be avoided. Supplier Enablement can be defined as the processes and technology that enable and facilitate business interactions and transactions between two or more parties in a complimentary fashion such that each party realizes benefit. Such initiatives are becoming a central tenet of procurement strategy as it becomes clear that in addition to internal process efficiency, effective and efficient collaboration with the supply base across a multitude of dimensions is required to successfully respond to these increasing pressures. Based on a sample of Capgemini supplier relationship management implementations over the past two years, we found that more than 75% of the time Supplier Enablement was a part of the initiative. (See Figure 1.) Figure 1. Supplier Enablement Functions 100% 80% Supplier Enablement Functions 70.6% 60% 40% 20% 41.2% 35.3% 11.8% 11.8% 0% Leverage a Channel Partner Content Management Transaction Management (PO Confirmation, Invoice, etc.) Supplier Registration Bidding / Auctions The common element of these implementations is that the organizations got stuck on the content management portion of Synopsis 2

5 the way we see it Supplier Enablement, thereby hindering them from enabling the more value added transactions. Organizations that are able to get beyond content management enable more efficient transactions and provide more strategic opportunities for the procurement professionals within their organization by elevating the workforce to a higher level. Further automation of the back office transactions enables strategic front office action enabling the procurement professional to focus on strategic thinking. Advances in Supplier Enablement processes and tools provide an enterprise the capability to extract the maximum value from internal operations as well as leverage the capabilities of their suppliers. By enabling the supply base, Procurement organizations can optimize efficiencies in all aspects of the procurement cycle and reduce Sourceto-Pay process times while maintaining process controls, but the pitfalls have to be avoided. The Challenges of Supplier Enablement 3

6 3 The Challenges of Supplier Enablement Over the last few years there have been significant technological improvements that have reduced the complexity of implementing Supplier Enablement leading practices. However, most organizations fail to address common barriers that can impact and hinder the success of their Supplier Enablement projects. Supplier Enablement requires an organization to focus on extending and integrating business processes to be successful, and to forge trusted relationships with suppliers for successful execution. Knowing up front how to address internal functional stakeholders concerns and external supplier needs, through a focus on change management activities, an organization s success in Supplier Enablement will improve. Figure 2. Procurement s Stakeholders Supplier Management Procurement enables me to focus on my primary function while providing a healthy challenge on what I would like to purchase. Shareholder Finance End User Supplier I can control cost efficiently. I know exactly what our contractual commitments are. Purchasing Procurement is easy. Support is on hand when it is needed. I get an update on my order. Shareholder Supplier Legal IT Shareholder I know exactly what is expected of my organization. We receive orders in line with our agreements. Our invoices are paid on time. We are protected as a company. We are compliant with the law. We are using solutions that are in line with our IT strategy and are easy to maintain. I know exactly what is expected of my organization. We receive orders in line with our agreements. Our invoices are paid on time. Supplier Enablement as a concept is not new; although, the willingness to utilize these processes continues to be a significant opportunity for those companies wanting to improve cost of supply and operational efficiency. The Challenges of Supplier Enablement 4

7 the way we see it To date, the adoption of Supplier Enablement strategies has been sporadic and at varying levels of sophistication for a number of reasons including: Buying organizations resort to offline methods for supplier communication (usually due to internal compliance issues or technological capability). Supplier Enablement initiatives have underestimated the technical complexity and level of organizational change management required. Many companies tend to adopt a one-size fits all approach and fail to develop or clearly articulate the Supplier Value Proposition. Absence of universally accepted standards for content and messaging, and shortcomings in standards. Low priority for suppliers; limited value transactions are being enabled and suppliers lack budget, infrastructure, and resources to support and sustain e-enablement initiatives. Offline Methods Prevail Because Nothing is Easier Than Picking Up the Phone Enabling a supply base to utilize an e-enabled approach to doing business is a multi-year journey which should be approached in a methodical fashion. Classifying the supply base (or segmenting your suppliers into tiers based on attributes that define value to the business) to make sure the most valuable suppliers are enabled first is obvious, but this may not necessarily align with an end-user s perspective of the types of suppliers that are enabled and ready to transact electronically. For this reason, purchasing professionals and other process stakeholders may not be aware that a supplier should be transacted with electronically. Clear documentation of the e-enabled channels and the tools to facilitate them should be distributed to the business. Also, reporting should be used to track usage of the different tools and enablers in order to make sure the correct behavior is being followed. This is especially important during the first threefourths of the transformation process because when fewer suppliers are enabled, it is even more confusing to the end users as to which suppliers are enabled and which ones are not. Supplier Enablement Addresses People, Process & Technology 5

8 Figure 3. Evolution of the Transformation Process Adoption/Effectiveness of Enabled Channels High Low 50% Suppliers Enabled (Planned) One-Size Fits All is Not a Supplier Enablement Proposition Supplier Enablement efforts also become road blocked because the level of technical complexity and the amount of change management required within the business is often not fully understood and properly planned for at the beginning of the initiative. Many companies approach the effort with a one-size fits all approach. For instance at the start of the initiative the supply chain organization will assume that they can develop a Direct Connect (point to point XML connection) and that each company will be able to eventually comply with this end solution. Figure 4 demonstrates some of the standard enablement options for procurement transactions. The Challenges of Supplier Enablement 6

9 the way we see it Figure 4. Enablement Options for Procurement Transactions R2I Messaging Direct Connect Direct system-to-system connections to facilitate electronic exchanges of P2P electronic exchange of P2P documents Self-Connect Buyer-hosted or third-partyhosted application accessed by suppliers to receive and generate P2P documents No Connect Traditional means of document exchange: , paper, fax Most efficient means of electronic communication; no manual intervention required; frictionless Suitable for high transaction volume suppliers Cost of implementation; should be undertaken only with key suppliers Technical capabilities of suppliers a consideration Least room from error Suitable for small and midsized suppliers with moderate transaction volume Minimal cost to supplier Potential stepping stone to the Direct Connect route Manual data entry by supplier can create room for error Off-loads data entry to supplier Suitable for suppliers with low transaction volumes that do not justify on-boarding cost and effort Least efficient means of communication; requires data entry on part of Buyer Manual data entry creates room for error Requisition-to-Invoice Transactions include PO, Change Purchase Orders, PO Response, ASN and Invoices In reality some suppliers will never want to directly connect to the company s procurement system. Some suppliers may have little ambition to do more than fill orders via a process that entails receiving the purchase order via and filing the order by printing out the e- mail and passing it on to the warehouse or loading dock. Even for more advanced suppliers, the amount of orders received in a year may keep them satisfied with a similar simple process. Other suppliers would like to be able to see data about an order real time and therefore they may find value in utilizing a supplier portal to Self Connect to the buyer s system. The key to overcoming this hurdle is to define a comprehensive set of Supplier Enablement Routes, classify your suppliers into these routes, and then build a repeatable process that targets your suppliers in their order of total value to the organization. A Lack of Standards Only Confuses the Matter Although great strides have been made in the area of standardization around the data formats required for Supplier Enablement, the adoption of these standards has still been slow in the market. Supplier Enablement Addresses People, Process & Technology 7

10 Furthermore, there are many standards, which puts the burden on the supplier to bend over backwards in order to meet the buying organization s needs. If you look at catalog standards for instance, eclass is a leading standard in Europe, but UNSPSC is widely adopted in the U.S. Many organizations that do business globally face the challenge internally and externally. A buying organization must first decide internally across their many business units, what format they want to use to categorize their catalog data (and the downstream spend classification that it drives). Once this is decided (hopefully with a unified single standard) they must then work with a supplier who also does business globally, to convert their catalogs into the data classification standard chosen by the buying organization. If the buyer chose UNSPSC, then the European arm of the supplier s business may need to convert their catalog data, systems, or punchout sites to handle a UNSPSC classification. Further confusing the matter is which version of UNSPSC is required, or are there industry specific standards that this buyer may want to use. For example a buying organization in the Oil and Gas sector may require a general MRO supplier to provide classifications using GUNK (an oil and gas specific nomenclature for classifying catalog data). The same issue rears its head in the transactional data environment. XML is quickly becoming the way to transfer electronic data for a number of reasons (one being the ability to avoid some VAN charges driven by EDI), but XML has been slow to be adopted in Europe. In the U.S., where it is more accepted, there are often many industry specific XML standards such as XBITS (a standard for the media and book publishing business). A supplier can quickly become overwhelmed when having to meet the varying needs of all of its different customers. Make Your Supplier Enablement Initiative Stand Out Against your Competition This brings us to our next point, making sure that the value proposition exists for each supplier (or supplier segment) that you hope to enable. Selling the Supplier Enablement initiative externally to the supply base is as equally important as it is to sell the SRM initiative internally. Suppliers often fear that they are being marginalized or transactionalized. Building a message of value to the supplier into the sales pitch makes sure that the suppliers you plan to involve in the initiative will actually participate. A couple of common win themes that resonate well with most suppliers are transactional efficiency, order accuracy, and speed to payment. After The Challenges of Supplier Enablement 8

11 the way we see it all, e-enabling the PO creation process and the invoice process can arguably bring more value to your suppliers than it does to your own internal organization. A PO sent electronicly ensures that the order is clear and easy to read on a portal or is transmitted directly to the supplier s backend system without the risk of erroneous re-entry by the supplier. An electronic invoice transaction in the portal or from a supplier s backend saves the supplier s organization time by allowing the supplier to flip POs into invoices without the need for data reentry. Also, the accuracy with invoices that are generated directly from a PO minimizes the number of match exceptions generated, thereby increasing speed of payment. Sustaining savings from a SRM implementation is dependant upon proper Supplier Enablement (catalog liquidity and transaction efficiency), but if you can t convince your suppliers to participate then savings can quickly dry up. Supplier organizations can sometimes be a challenge for proper Supplier Enablement. Two common reasons why a customer s Supplier Enablement initiative can fall low on the priority list for a supplier is because the transactions being enabled are of low value to the supplier s agenda, and because the supplier s organization does not have the budgeted resources and funds, or a proper infrastructure to support the initiative. The chart below taken from CAPS Research FOCUS ON eprocurement April 19 th, 2006 demonstrates the types of transactions that are facilitated most frequently via a supplier portal: Use of Portals in Supplier Enablement: Over 50% of Buying organizations are using Portals for Transactional Collaboration. Percent that provide the following: Transaction Percentage Purchase Orders / Releases 69 RFX 52 Payment Status 41 Specifications / Drawings 31 Inventory Status 30 Quality Reports 21 One could draw a conclusion from these numbers that buying organizations realize that catering to the supplier is critical in order to entice them to connect electronically with the buying organization. Supplier Enablement Addresses People, Process & Technology 9

12 Yet the e-enablement of Quality Reports still show a low level of enablement and the ability to provide invoice processing directly from the PO (although not listed above) would also provide a great deal of value to the supplier. The second reason for low supplier participation, inadequate funding and resources from the supplier s organization, is driven by the different needs and requirements of each of the buying organizations competing for the supplier s resources. As noted earlier, the lack of standardization and the diversity of the customer base often drain a supplier s ability to participate in every customer s e-initiative. Furthermore, when resources are applied to an enablement initiative by the supplier, they are going to be directed to the most value adding initiatives. By looking internally and externally for roadblocks to a Supplier Enablement initiative your organization can be better prepared to ensure success of your efforts. The Challenges of Supplier Enablement 10

13 4 Supplier Enablement Addresses People, Process & Technology It is critical to view Supplier Enablement not just as it pertains to an SRM application, but as a concept involving effective resource training and communication, well defined processes and procedures, and a well-implemented SRM application. It is only through a combination of effective people, processes, and technology that a procurement organization is truly able to effectively enable its supply base. A best-in-class Supplier Relationship Management application is the strongest asset to a procurement organization aiming to enable its supply base. Through effective Supplier Enablement, a procurement organization maximizes the benefits of implementing an SRM application. Discussed below is just a sample of processes where procurement organizations can achieve significant benefits through enablement. Reductions Due To Supplier Enablement Functionalities: Functionality Savings Sourcing Cycle Time (1) 40% Order Generation Cycle Time (1) 30% Invoicing and Payment Reduction in Exceptions(2) 82% (1) - Aberdeen - "The E-procurement Benchmark Report", December 2004 (2) Capgemini Client Experience 4.1 Sourcing The most commonly utilized Supplier Enablement function is the ability for a supplier to respond to a bid invitation. SRM applications provide self registration tools for suppliers while the organization must define the processes and procedures that control this tool. Also, a supplier s participation in electronic bid invitations ensure adherence to bidding policies and procedures, reduce the cycle time from bid creation through supplier selection, and offer the supplier and buying organization visibility to the sourcing process. Note: The bidding process is further optimized by the creation of standard bid templates. Such templates reduce the effort of creating a bid while ensuring each bid clearly and concisely articulates the Supplier Enablement Addresses People, Process & Technology 11

14 bid questions deemed most important for supplier response evaluation. 4.2 Order Generation Here Supplier Enablement facilitates the transmission of orders and change orders to the supplier, saving them additional effort and risk of error inherent in the reentry of orders into their backend. In addition order acknowledgements can save the buying organization time and the risk of having outdated information. Proper policies come into play to help define, for instance, how late changes can be accepted by a supplier. 4.3 Receiving / Confirmation Effective confirmation enablement begins with the identification of the resource or business function who can best determine the receipt of a supplier s goods and services. This can be a difficult process for many organizations. For an organization whose main procurement activity is focused around services, there is no central location such as a receiving facility which can confirm delivery of the service. Effective procurement organizations enable the supplier to enter the goods receipt (in the form of a timesheet) and then utilize a set of approval rules to make sure that the appropriate business resources have correctly confirmed the supplier s service performance. This enablement takes the burden of goods receipt entry off of the buying organization while providing the security of a match against a PO, receipt and invoice. Note: Where suppliers are entering their own confirmations, it is important to have a well-defined procedure related to the business no longer entering confirmations against purchase orders from that supplier, so that duplicate entry of the confirmation document is avoided. 4.4 Invoicing and Payment The process of entering a supplier s invoice and initiating a payment is often overlooked in the planning and design of a best-in-class procurement organization. However, effective procedures and welltrained resources are equally important as in other steps of the procurement process. Enablement of a supplier to post their own invoice electronically (either based on a PO or directly from their system) is a great benefit to both the buyer and the supplier. The entry Supplier Enablement Addresses People, Process & Technology 12

15 the way we see it of paper invoices by a buying organization s AP functions can sometimes lead to a backlog of invoices to enter, or invoices which require issue resolution. Equally important, a delay in the cycle time for supplier payment can lead to an inability for the organization to take advantage of negotiated payment terms, and can even lead to the organizations being forced to pay late payment penalties which were previously agreed to. 4.5 Monitoring Supplier Performance Effective supplier management is greatly enhanced through effective Supplier Enablement. Enabled suppliers can utilize SRM tools to access real-time data on their performance. Giving a supplier the opportunity to pull performance information in real time ensures that issues are remedied quickly and that quarterly reviews are spent validating improvements rather than dealing with issues for the first time. Supplier Enablement Addresses People, Process & Technology 13

16 5 Capgemini Facilitates Supplier Enablement Today, organizations are faced with customers requiring more for less; a quicker turnaround, a better quality, and improved communication a trend that is not likely to slow down or level off. Organizations over the last decade have focused on internally improving their operations to meet the goals of their customers and their business, but to meet these new demands, organizations must look at new ways of doing business. To meet customer delivery and cost improvement goals continuously, enterprises must look outside their organization and find suppliers that will support them in achieving their overall objectives. 5.1 A Quick Note on Operational Change Management Before we discuss Capgemini s Five Step Approach to facilitate Supplier Enablement, it is important to understand that successful implementations take a holistic change management approach. Specifically, focusing on change management components through our approach accelerates results for our clients. We address and overcome internal and external resistance to change by focusing on: Governance internal and external policy changes to maximize Supplier Enablement Compliance Management enforce compliance through a combination of carrot (incentives) and stick (non-compliance escalation and consequence management) measures Competency Development - comprehensive training and tools to internal and external stakeholders to increase adoption Metrics internal and external scorecards to monitor the success of the Supplier Enablement program Communication - continuous communications to increase awareness and engage all stakeholders Capgemini Facilitates Supplier Enablement 14

17 the way we see it Capgemini, through our project experience and above change management components, understands the nuances of enablement and can address stakeholders effectively to increase adoption. The key is our experience at facilitating global collaboration, communication, and education with stakeholders through these components and our proven Five Step Approach. The advantages of this Five Step Approach to enablement are that we work collaboratively with our clients, use our experience to avoid common pitfalls and build organizational capability. This brings speed to value to our clients whom without these lessons and strong methods will find Supplier Enablement initiatives to take much longer to bring to fruition. Our involvement in leading Supplier Enablement programs suggest that the following critical steps be followed: Plan Supplier enablement requires significant cultural, process, technology and organizational changes that require the enterprise s total support directly from top management, down through the organization and across business functions Assess It is important to create an understanding for all the cost components, internal and external efforts and blueprints required for enabling targeted suppliers Develop Based on the blueprint provided during the assess step, the team will engage, enable and integrate the suppliers per the company s scope and priorities. Each dimension (people, process, and technology) must be addressed to developing a robust enablement project Deploy Supplier enablement implementations involve significant change management challenges. To this end, it is important to view organizations systemically; a small change in one area of the organization can significantly affect another. Copyright 2006 Capgemini All rights reserved Capgemini Facilitates Supplier Enablement 15

18 5.1.5 Maintain The final step of our approach ties together all of the elements necessary for a successful implementation. There is a large knowledge transfer during these projects and it s necessary to continue investing in workforce skills and capabilities to sustain the new processes and business performance. Figure 5. The Time-Value Of The Capgemini Methodology Time-Value "Go It Alone" Collaborate with Capgemini Plan Assess Develop Deploy Capgemini Facilitates Supplier Enablement 16

19 6 Summary/Conclusion Supplier Enablement can be a complex challenge, and there is no such thing as a one-size fits all solution. The most effective purchasing organizations have a robust methodology and toolkit for assessing and identifying opportunities to enable their supply base with the most appropriate facets of Supplier Enablement. Communicating the buying organization s Supplier Enablement goals and assessing the supply base s awareness and understanding of those goals leads to an optimized environment for both parties. When an organization works with Capgemini, they benefit from our Collaborative Business Experience. Combining Consulting, Technology, Outsourcing, and Professional Services, it s an unrivalled ability to work together to produce the most innovative business solutions. The Collaborative Business Experience is designed to help our clients achieve better, faster, more sustainable results through seamless access to our network of world-leading consultants, our technology partners and collaboration-focused methods and tools. Our consulting teams work with companies to quickly solve missioncritical problems by identifying, designing, and implementing value added changes in their strategies and operations. With our experience and proven methodology, Capgemini can work with any organization to put the Enablement in Supplier Enablement. Summary/Conclusion 17

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