Services E-Procurement: What It Is and How It Is Helping Texas Instruments Save Millions

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1 Services E-Procurement: What It Is and How It Is Helping Texas Instruments Save Millions Diana Jovin, CEO and Co-Founder, Cascade Works, Inc., San Francisco, CA Luther Harris, Procurement Manager Texas Instruments, Dallas, TX Abstract: With more than 42,400 employees worldwide spread over four continents, Texas Instruments (TI) sought greater visibility and control over its contingent workforce operations. In order to improve operational effectiveness and reduce costs, TI needed to streamline and track the interactions among hiring managers, facility managers, physical security, IT, services vendors and contingent workers. They chose the CascadeWorks Clarity services e- procurement solution to get greater visibility into information on contractor activity and spend, more effectively manage their vendor programs and relationships, and streamline the procurement cycle from requisition to payment. Services e-procurement initiatives have received a lot of attention recently due to the ability of these solutions to significantly and directly impact a company s bottom line. As SunTrust Robinson Humphrey states in a September 6 report, "The time is right for the emergence of a new class of e-procurement and vendor management software tools for human capital and other professional services." Why? Because analysts estimate that services e-procurement solutions deliver significant cost savings to Global 2000 companies in the range of 10 percent to 20 percent of an organization s spend on services. Analysts now see the procurement market as having three distinct and large areas: services, indirect goods and direct materials. With a slowing economy putting increased emphasis on cost efficiencies and financial control, companies that already have embraced the e- procurement of raw materials, capital and operating goods are now looking to realize similar or even greater savings in services procurement. This paper presents a view of how companies can benefit from services e-procurement initiatives, key aspects of successful solutions, and how companies can think about a longterm and cohesive e-procurement strategy that encompasses a variety of services categories. It also includes a profile of Texas Instruments services e-procurement deployment and describes the benefits they are deriving from their system. A View of Services Purchasing Today The purchasing dollars allocated to services are big. According to the Center for Advanced Purchasing Studies, the average Fortune 1000 company spends more than half of its annual purchasing dollars on services. However, services purchasing has remained a largely manual process, based on , phone and fax. Today there is little management or financial discipline over what is largely an ad hoc process, resulting in high inefficiencies and few controls. As a result, there are significant opportunities for hard cost savings. With Fortune 1000 companies spending an average of $1.8 billion a year on services, the 10 percent to 20 percent range of cost savings estimated by analysts indicates a huge potential impact.

2 Services purchasing spans a variety of diverse categories. These categories include laborspecific categories such as staffing and consulting which pertain to the acquisition of contractors and consultants on a per-hour or per-project basis. They also include non-labor specific services, examples of which are repair and maintenance, construction, transportation, and legal services among others. Services e-procurement has emerged as a new enterprise application category that leverages the Internet to streamline the purchasing life cycle and management of the vendor community for any category of service. In addition to a desire to achieve the percent cost savings estimated by analysts, companies embarking on services e-procurement initiatives also cite an interest in gaining a current view into services spending and activity, streamlining the processes and interactions between departments and with suppliers, and enabling vendor management. Beyond Goods and Materials Unlike product procurement systems, which are typically catalog-based and in which items are defined by unit cost, services procurement requires a unique definition of how each service is measured, delivered, tracked and paid, often across multiple invoicing cycles and with changes over the lifetime of the service agreement. Although many companies initially embarked on e-procurement initiatives by implementing systems that deal with the procurement of indirect goods and direct materials, these catalog-based systems do not sufficiently address the complexities of services. In the product world, vendor relationships and agreements are defined in the context of catalogs that ascribe metrics for quantity and cost to various products and enable purchasing transactions to take place within the company. In contrast, most services cannot be readily catalogued. As a result, the front-end process involved in a services purchasing request involves defining the service to be delivered and negotiating until the buyer and vendor reach agreement. The back-end process is more complex as well, requiring the tracking and verification of the service delivery so that the buyer and vendor can be in agreement about what is to be paid at each invoicing cycle. Vendor management becomes central to an application s success because of the more frequent and dynamic nature of the interaction inside the organization as well as with the vendor community. Problems Solved by Services E-Procurement Solutions For many companies, the area most urgently needing to be addressed is the area of staffing services. In response to rapid changes in today s economy and in the market place, Global 2000 companies increasingly rely on the flexibility and cost advantages of a contingent workforce of temporary and contract workers. However, the procurement of these workers remains a largely inefficient process. Manual and disparate procurement processes offer little visibility into services spend, activity and vendor performance. Negotiated vendor contracts are often underused and inefficiencies contribute to a large percentage of costly billing errors. Companies are also faced with federal and state regulatory requirements that present a considerable risk if not sufficiently managed.

3 Another area of significant spend is in the realm of consulting services. Leading companies are increasingly focusing operations on core competencies and complementing internal capabilities with external consulting services. However, most companies have few consistent mechanisms for requesting and procuring consulting services, and face high costs with respect to tracking, reconciliation and payment of these services. Key Features of Services E-Procurement Solutions A solid and strong services e-procurement solution enables companies to better manage these and other service categories across multiple business units, each with their own procurement policies, processes, workflow and individual roles and responsibilities. With this type of solution in place, companies can manage the procurement cycle more effectively, from the initial request to final payment. These systems help companies reduce costs, monitor ongoing activities and drive activities to vendors with consistently high quality. Services e-procurement systems deliver strategic value to a company by providing breakthrough capabilities in a number of areas, including spend, process and vendor management: Spend Management Services e-procurement provides financial management capabilities and captures data on services spend, enabling companies to lower the cost of administering, tracking, reconciling and optimizing the dollars spent on services. Process Management By streamlining the requisition to payment process for services, services e-procurement solutions deliver significant time savings, high adoption rates, and reduced operating costs. Vendor Management Services e-procurement solutions provide tools to manage vendor programs for multiple business units across the organization, driving improvements in vendor relationships, improving vendor performance and service quality, and reducing compliance risk. Benefits accrue to all users. The finance department is able to get a current view of services accruals. The accounting department receives invoices that are complete and contain preapproved data. The purchasing department is able to reduce costs and negotiate better vendor agreements. Vendors are paid on time and have the potential to leverage current contracts into a more significant relationship with the company. The manager requisitioning the service is freed from the administrivia involved in monitoring the paper trail and gains a current view of how services activities are tracking to budget. Vendor managers are able to monitor and improve supplier quality. Configurability is Key The future for services e-procurement lies with enterprise solutions that offer a high degree of configurability. Business units manage vendor programs differently, and the optimal solution is configurable to meet the diverse needs of different business units, including different workflows, vendor program behavior, and user roles and privileges.

4 Procurement professionals, in turn, manage a broad set of services categories. The optimal solutions offer not only application configurability at a business unit level, but also at the service category level so that the same services e-procurement solution that is being used for managing staffing and consulting vendors can also be extended to repair and maintenance, hazardous materials remediation, or other services categories. Finally, by integrating with a company s existing investments in product e-procurement, platform-based services e-procurement solutions offer an organization an integrated approach to solving the complexities involved in deriving the value of e-procurement across both product and services purchasing spend. Enterprise Integration A comprehensive approach to service e-procurement requires powerful enterprise integration capabilities. Leading services e-procurement systems leverage industry standards to link with the core applications that drive both the enterprise and its suppliers. This approach permits quick integration to A/P, HR, product procurement, facilities management and single sign-on systems, among others, enabling companies to leverage their existing investment in enterprise applications. Ease of integration is significant not just at implementation but also over time; the overall process must be extremely flexible and able to accommodate different requirements and changes in processes and applications. In a successful deployment, business events can be configured for each business unit regardless of other endpoint applications; new subscribing applications can be easily added (or changed) to the business process at any time without any modifications. Also, a large variety of off-the-shelf application adapters are available (if needed) for integrating with a customer s back-end applications. Integration efforts are tremendously simplified with a standard, event-based approach. Depending on customer business processes, the appropriate business events are simply activated with no other logic or customization necessary to integrate with other applications. A good example illustrating this approach is the CascadeWorks Clarity implementation at Texas Instruments. Profile of Texas Instruments Deployment of CascadeWorks Clarity TI, a world leader in DSP and analog technologies, chose CascadeWorks Clarity as its services e-procurement solution based on CascadeWorks effectiveness, configurability and expansion capabilities within TI's corporate enterprise systems and the opportunity to expand the savings into other service procurement areas. Using the software, TI expects to save from 5 to 8% on its annual contract labor and consulting services spend through reduced billing errors, streamlined procurement processes and increased use of negotiated vendor discounts. TI sought greater visibility and control over the interaction between hiring managers, physical security, IT, services vendors and contingent workers themselves. With services procurement touching so many business units and systems across the enterprise, integration became a major feature of the TI deployment and was a key reason why the company selected CascadeWorks. CascadeWorks was the only solution offering immediate cost savings and enterprise-ready integration with core applications, especially the integration to the existing

5 facilities and IT systems that are increasingly important to manage efficiently in today s environment. Integration of CascadeWorks Clarity with A/P, IT systems security and physical security systems not only leveraged TI s existing IT investment, but also drove savings by automating numerous IT systems access and badging processes for temporary employees, contractors, consultants. Data passed between these applications and CascadeWorks Clarity triggers automatic notifications for access to the appropriate buildings, systems and data when a contingent worker s contract begins and cancels that access when the engagement is over. For example, CascadeWorks Clarity streamlines security and facilities processes by capturing and communicating to TI s systems information about temporary employees, contractors, and consultants. The initiation of an agreement to hire a contractor or the addition of a consultant or service representative to an existing agreement automatically triggers an internal notification to supply a security badge when and where needed, or to request systems access based on the worker s needs. Another security feature in TI s installation is the authentication/single sign-on system (SSO). Through internal system s login processes, token information is passed to CascadeWorks systems allowing users access to manage their contractors or to request new services. In addition, CascadeWorks Clarity also integrates with TI s accounts payable system to trigger payment based on approved timesheets or consulting expense reports. By streamlining the payment process, CascadeWorks Clarity not only saves time it also reduces billing errors dramatically. REFERENCES Allen, Mark W., Stacey J. Hayes. Raising the Stakes in the Staffing Game: Corporations Are Ready for Web-Enabled Procurement of Professional Services, SunTrust Robinson Humphrey Capital Markets, Business and Technology Services, September 6, 2001, pg 3.