Optimising Supplier Spend the new financial management task

Transcription

1 Optimising Supplier Spend the new financial management task Brigitte Ley Manager Product & Solution Marketing SAS Germany

2 Facts! On average manufacturing spends 50 % of revenue on purchasing! Banking and insurance are at ~ 35 %! Automotive spends up to 70 %! Telco / Pharma 35% ~ 60%

3 Consequences no. 1:! Success is based on external relationships! Costs of production are dominated by purchasing it is equal to the 35% / 50 %/ 70%! High dependency, high risk

4 Supplier Relationship Management vs. Customer Relationship Management Supplier Supplier Supply Chain Optimization Supplier 1st tier SRM CRM Customer Supplier Supplier Quality e-collaboration, Supply Chain Optimization 4

5 The SRM-Hard-Saving-Potential: 5 15 % Profit 5 M 45 M other costs Profit 7.5 M 45 M + 50%! A 5% reduction in purchase cost can result in a 50% increase in profit margin. 50 M total procurement costs 47.5 M -5%! To achieve the same in profit, an organisation would have to increase sales by 30%, reduce overhead by up to 20%, or significantly reduce staff numbers. PriceWaterhouseCoopers 2000/ Mckinsey

6 Consequences no. 2:! Purchasing has the largest ratio of all costs across the enterprise! Example: How to leverage buying power? How to Revenue manage the largest 2 ratio bill. of $ all costs? 50% spend Where to 1 start? bill. $

7 Possibilities:! Purchasing is the largest block of all costs across the enterprise 50% spend = 1 bill. $! Example: Revenue How to leverage 2 buying bill. power? $ Do better deals! 50% Get spend better prices! 1 bill. $ Improve services! Improve negotiation capabilities!

8 Possibilities:! Purchasing is the largest block of all costs across the enterprise 50% spend = 1 bill. $! Example: How to manage this largest ratio of all Revenue costs? 2 bill. $ 50% Improve spend controlling! 1 bill. $ Get total transparancy! Develop, implement & control savings-strategy!

9 Possibilities:! Purchasing is the largest block of all costs across the enterprise 50% spend = 1 bill. $! Example: Where to start? Revenue Take out time & 2 costs bill. of $ 50% purchasing-processes! spend 1 bill. $ Let off people! Save money! Leverage buying power!

10 Savings: Cost-Savings for a company with $ 1 Billion of Spend 160,000, ,000, ,000, ,000,000 80,000,000 60,000,000 40,000,000 20,000, ,300,000 Request Automation 6,000,000 Procurement Operations 150,000,000 60,000,000 50,000,000 Reduction of Spend 10 Benchmarking Partners Research: 2000

11 Possibilities:! What does SAS Supplier Relationship Management has to do with? Understand your supplier relationships by consolidating, classifying and analyzing your Purchasing Data Capitalize on this Supplier Knowledge to develop, implement and control the most Profitable Saving Strategies

12 The Problem: TOXIC-DATA! Data issue! Supplier Data is not organised to give accurate, consistent and timely information enterprise-wide! Material Data is not organised to give accurate, consistent and timely information enterprise-wide! Aggregating information at an entity-/commoditylevel is difficult! Linking entities accurately to a family tree is near impossible Technology issue! Operational systems are not built for effective decision making

13 Business Challenges! Mergers & acquisitions! Pressure to cut costs! Global economy! Time-to-market! Supplier s & customer s organisations! New business channels! Internet! Outsourcing 13

14 14 Copyright 2002, SAS Institute Inc. All rights reserved.

15 SAS Supplier Relationship Management 15

16 Supplier Relationship Management: Save significant money is athree legged stool! strategy / process software people 16

17 Different types of SAVINGS! Strategy soft savings- more & active partnerships! Process: soft savings- reduce time! Software: hard savings- spend reduction! talented people: realize savings» more deals» better deals» better informed» increase leverage of buy 17

18 Purchasing-Processes: Different Sell & Deliver Services purchasing processes - but the same need Sell & Deliver Projects for Information Sell & Deliver Products 18

19 Your personal SRM-benefits esmart Provides Opportunities To Analyze/Decide Five basic questions Who is buying? What? From whom? How much? From where? Trends, dependencies, performance ratings, etc. To Perform Effective management of your Supply base Effective communication of supplier information across ABB Global sourcing and volume aggregation to obtain cost reductions To Experience/Reuse Standard global view of Supplier performance Supplier quality Contract & frame agreement etc Reduction of administrative efforts Improvement in process efficiency and productivity Above all esmart will: Reduce your time looking for information and creating reports Improve quality & quantity of information as basis for your decisions Create time that you can spend on supplier development and Professional Contracting. Make you the most informed person at the negotiating table 19

20 20 Copyright 2002, SAS Institute Inc. All rights reserved.

21 Supplier Relationship Management: SAVINGS! Software: hard savings - spend reduction: Examples:» Fraud» Dependency ratio» Linkages» Leverage 21

22 Supplier Relationship Management: Savings! Fraud:! What are we paying for? Who are our suppliers? Who ist buying? 22

23 Supplier Relationship Management: SAVINGS! Fraud: Outsourcing of photocopies: price per click all inclusive BUT: $ invoices paid for toner per year, no goods received! What are we paying for? Who is providing us with which products? Where is the stuff? 23

24 Supplier Relationship Management: SAVINGS! Dependency ratio: Car-manufactors strategy: No supplier will ever more depending than 1 %. Deal: Car-manufactor is named reference to supplier who have to sell with 5% discount on their production-cost!! Which supplier are highly or very low depending on our company? 24

25 Supplier Relationship Management: SAVINGS! Linkages: Analyses on make or buy for assembled container. First result: The container prices went down, but the air-conditioning was extremely expensive! Who are the owner, shareholder of our suppliers? Second result: The aircondition-company was a shareholder of the container-company. Descion: The aircondition was bought elsewhere. 25

26 Supplier Relationship Management: SAVINGS! Leverage: Four suppliers are providing us with cabinetts (= 45 mio $) Who would like to get 80 % of the whole volume? Result: Three suppliers competed volume split: 60%:10%:10% - price-reduction: 35 %! How much supplier we have for a certain product? 26

27 SRM: Close-the-loop From knowledge into action! 27

28 SRM References! ABB AG! Schneider Electric! Aventis CropScience! GAK BV! Other industries: Banking, Healthcare, Construction, Telekommunication 28

29 Implementation: Six month and the rest of today...! 26 years experience 6W U DW HJL F 3XU FKDVL QJ! Optimised implementation of Data Warehouses and Business Intelligence! First production after 120 days 6HU YL FH 29

30 Return on Supplier Intelligence The Investment has definitely paid for itself in less than 1 year! The general manager of purchasing was able to sit down and without knowing anything about it could find the information he wanted within ten minutes. That is priceless. 30

31 Schneider Electric! Start: January 2000! Workshops und concept phase: 2 Months! Implementation: 3,5 Months! Data: 15 different data delivery systems! Production since: 20. June 2000! Savings (customer estimate): many hundred million French Francs 31

32 Supplier Intelligence: ABB AG SAS is preferred vendor for ABB's esmart, a global strategic sourcing initiative esmart= electronic Supply Management Action Report Tool highest quality at the most competitive cost develop a preferred supplier base transparency for internal business opportunities. analytical decision tool for Key Supplier Mgmt. globally coordinated procurement for direct materials across the enterprise 32

33 ABB AG! Start: May 2001! Workshops and concept phase: 1 Month! Implementation of BUILD 1 to BUILD 3 3 month for each! Spend included in the system (today): 6,5 bill $ / 250 reporting units / August bill $! Spend integration into system since: 20. November 2001! Savings (customer estimate): two digit sum (mio) 33

34 Conclusion: 34

35 Do you need to.....have better margins?! See your supplier base profile?! Which suppliers, what do we buy, how much?!! Enhance your negotiating position? Financial, technical and performance info!! Reduce time to look for info? Standardized reports on the fly 35! Leverage your buying power?! Target only the best suppliers?! Enhance internal cooperation?! Lower costs for small volumes?! Improve design for manufacture?! Reduce lead time for contracts?! Better control your risks?! Increase internal sales?! Limit the number of suppliers?! Move & aggregate volumes to key suppliers! Profiles of successful/unsuccessful suppliers! Organize partnerships between BAs/BAUs! Smaller factories benefit from contracts in larger! Establish Cross teams with Key Suppliers! Access & reuse already approved contracts! Assessment reports & performance score cards! Locate/identify potential internal customers! Availability of primary and secondary sources

36 Where are we today? Strategy Processes Integration Technology Software Organisation Buyer External ANALYSIS Buyer Internal 36 Source: Aberdeen Group, September 2000 Copyright 2002, SAS Institute Inc. All rights reserved.

37 37 Copyright 2002, SAS Institute Inc. All rights reserved.

38 38 Copyright 2002, SAS Institute Inc. All rights reserved.