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					   Supplier Management
e-Procurement for Manufacturers
     64157 电子商务模式设计与应用
          国立中山大学企管所
        2002 Spring, Week 3-1

          黄光彩 博士
          太世科公司
          2002/04/13
                                CONFIDENTIAL
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Agenda

    e-Business Transformation & Internet
    What is e-Procurement?
      •Production vs Non-production goods
      •The e-procurement cycle
    Why is the e-Procurement top-management issue?
      •Benefits: bottom and top line
      •The next wave of cost reduction
    Key management of considerations
      •Process integration
      •Roadmap to success
    The future: the emergence of e-Communities
      •Buy-side vs sell-side procurement
      •e-Sourcing and e-Auctioning




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e-Business Transformation -- Where to start with?

   Significant benefits of undertaking e-business transformation: one client
   has identified up to a 23% reduction in supply chain costs

               Procurement            Product           Manufacturing       Sales &       Distribution              Retail
                                    Development                            marketing



Supplier                                                                                                                                   Consumer

                 Sourcing:
               40% Internal                        Inventory turns: 8
               60% External

Typical CE Player             $42                 $44               $55                $65                                             $100
   PC -typical                $25                 $35               $45                $57                                            $77-82
               Activities:                                                 Activities:                     Activities:
           Procurement planning                                         Business planning                   Advertising
           Vendor management                                                Marketing                      Transporting
                Purchasing                                                  Advertising                      Stocking
              Transportation                                            Managing Channel                    Presenting
                Payments                                                Financing Inventory                   Selling
           Quality Management                                            Tracking service


                                                                                          Bold:   Digital Marketplace impact activities
                                                                                                  Cost impact areas potentially impacted by
                                                                                                  Digital Marketplace changes
                                                                                                  New opportunities



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e-Procurement Management

                                                    Buyer Intelligence
     Supplier Management                      Sourcing/Negotiations                              User Empowerment
      Market Intelligence                    •Supplier Sourcing
     •Forecast                                        –Create/Maintain Quote
     •Parts/Product Availability                      –Analyze Quotation                     Requisition Processing
     •Technology Roadmap                     •Contract Management
     •Performance Reporting                                                                      •Create Requisition
                                                      –Create Contract                           •Maintain Requisition
     •Cost Savings                                    –Maintain Contract
     •Readiness                                                                                  •Validate New Requisition
                                                      –Monitor Performance
     •Inter-Enterprise Collaboration         •Pricing
                                                      –Create/Maintain Pricing
                                                      Intelligence


                                       EDI/XML            Purchase Order Process
                                                          •Create Purchase Order – Manual
                                                          •Create Purchase Order - Auto


                                              EDI/XML               Receiving
                                                                    •Receive/Reject Goods
          Supplier                                                  Quality/Vendor Evaluation
                                                                    •Initial Evaluation
     Procurement Strategy                    EDI/XML                •Continuous Performance Monitoring
   Analysis & Communication                                         Reporting/Control/Output
                                                                    •Information Retrieval
    Information Warehouse                                           •Output documents
    Procurement Website            EDI/XML

                                                  Settlement / Accounts Payable
                                                  •Receive/Process Invoices/Credit Notes
                                                  •Process Payments
                                                  •Process Advance Payments
                                                  •Periodic Processing



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What is e-Procurement?

  Procurement
    • Includes purchasing, transportation, warehousing and inbound
      receiving
    • A closed-loop process that begins with the requisition and ends
      with payment
  Product related: raw materials, components and assemblies
    • Typically automated by ERP systems
  Non-production related (ORM): goods and services required for
   day-to-day business operations
    • Capital equipment, MRO products, office/computer/industrial
      suppliers, travel and entertainment
    • Accounts for up to 30% of annual revenue
    • 10% decrease in indirect procurement equals up to 50%
      increase in profit margins
        – Alternative: increase sale by 50% and significantly reduce
          headcount




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What is MRO Procurement?


   MRO e-Procurement = Online procurement processing
     •Not electronic purchasing – a complete cycle
     •Browser-based, self-service purchasing application that
      allows employees to make ORM and MRO purchases
      over the Internet
       – Creates desktop requisitioning environment
       – MRO items account for up to 40% of all company
         purchases (EcomWorld, 8/2000)
       – Automates purchasing procedures
     •Integrated preferred suppliers
     •A starting-point for organizations moving towards e-
      Business




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The Next Wave of Cost Reduction
  Cost Savings
   Purchase of goods and services represents the largest single cost
    item for an enterprise
      • $0.5 -$0.6 for every $1.00 earned
      • Non-production goods account for >30% of corporate expenditure
   Large corporations traditionally spend between US$36-US$70 and 22
    days processing each expense report
      • Employee self-service applications = US$8 and 3 days to process
      • Ford process 1M expense reports annually (US$28M possible saving)
   Generally, 20% of Paper and pen based orders are incorrect in some
    way
      • Resolution requires human intervention that drive cost overheads
      • E-Procurement POs are always correct
   Where are the cost savings?
     • Employee compliance with pre-negotiated contracts
     • Improved leverage with suppliers
     • Process improvement
        – Compliance can be worth twice the reduction attained by leverage
        – And up to 10 times the reduction from process enhancements
        – Employee compliance is traditional as low as 30% for indirect procurement
   Payment in approx. 6-12 months

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The Next Wave of Cost Reduction
   The situation for Asia:
     • Cost of goods sold is significant
        – Regional dispersions (e.g. 14M CPG retailers in China)
        – Quality of distribution systems and supply chain management
     • Cost of procurement remains higher (30+%)
        – Limits capital available for market expansion
     • Cost savings provide you with two options
        – Add those savings to your bottom-line increase profit
        – You can reinvest the savings into your regional value chain
           – Invest in growth and market expansion opportunities
           – Improving sales and distribution channels




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E-Procurement Strengths

   Manage, automate and accelerate all order
    processes between the producer and
    supplier community.
   Support the placement, management,
    approval, tracking, etc, of all purchases by
    the producer from the supplier.
   Offer a natural migration path to the trusted
    E2E (end-to-end) B2B (business-to-business)
    Marketplace.




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E-Procurement Features I
  Approval management

     • Registration, administration and management of
       individuals that procure goods and services from
       suppliers. Sensitive to position changes, reporting
       structure, promotions and absenteeism. Once the credit
       line is setup, orders are automatically routed to the???
        Confirmation management
     • Order approval and confirmation process is facilitated
       through automatic generation and delivery of an e-mail
       alert function. An e-mail is forwarded to the appropriate
       party in each step of the order approval processes.
  Credit limits

     • Management of credit limits on an individual or project
       basis. Defines the purchasing power of each buyer.




                                                              CONFIDENTIAL
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e-Procurement Features II

  RFP, RFI, RFQ generation
     • Enables the Producer to seek the best products through
       formal requests. Suppliers electronically receive requests
       and respond online.
  Bill of materials

     • BOM support will speed up purchasing by automatically
       displaying products that are related in a hierarchical
       structure. This will avoid random searches.
       ??? Tracking
     • View/search, reorder/modify, schedule orders on
       demand, tracking status including shipping status, and
       order confirmation.




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e-Procurement Features III
  Entitlement Catalog

     • Ability for suppliers to establish specific prices and terms for
       selected buyers. Although the supplier has a single master
       catalog, separate entitlement catalogs can be established for
       separate procurement organizations.
  Group Sales Model

     • The basic concepts of the group sales are delivered through
       the Entitlement Catalog functions coupled with dynamic
       pricing capabilities.
  Smart Sales

     • Supplier – system will automatically initiate up-sale, cross-
       sale or replacement-sale, or package-sale when the situation
       permits
     • Buyer – system will do comparison sale when requested;
       system supports a buyer configuration engine.




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e-Procurement Features IV


  Auction
     • Enable suppliers to auction off excess or unwanted
       goods to buyers
  Reverse Auction

     • Enables buyers to submit orders to several suppliers to
       procure the optimum deal
  Negotiation
     • Provides the means for electronic negotiation between
       buyers and suppliers for certain goods and services
       where appropriate




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e-Procurement Features V


  Personalization

     • Deliver personalized features such as: creating a
       personal order catalog built from data mining
       results; personalize recommendations based on
       previous buying habits; personalized web content
       delivers information to user based on profile and
       habits.
  Order Suite

     • Provides a robust set of ordering features such as:
       quick order, spot order, smart query, reorder,
       schedule order, partial order/back order




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Benefits of e-Procurement

 Efficiency
   • Lower procurement costs
   • Fast cycle times
   • Reduced maverick (unauthorized) buying
   • More highly organized information
   • Tighter integration of procurement function with back-office
     systems
 Effectiveness
   • Increased control over supply chain
   • Proactive management of key procurement data
   • Higher-quality purchasing decisions within organizations
 Competitiveness
   • Supplier quality
   • Product delivery
   • Product development




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Process Integration

    The need for integration
      • E-Procurement chain management
      • Create a direct link between suppliers and employees
    Must be designed for casual use by untrained employees
    Numerous integration alternatives
      • Management control
      • Online product selection
         – Dynamic catalogues
      • Order management
         – Transition for requisition to purchase order
      • Application integration
         – Avoids duplicating efforts
      • Information and reporting
         – Critical for supplier negotiation and month-end reconciliation




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Roadmap to Success

   Objective
    • Deliver maximum business impact at the lowest possible cost
       – Leverage enterprise-wide buying power
       – Quick results, low risk
       – Supplier integration
       – Cost reduction by automating best practices
   Challenges
    1. Reduce order processing costs and cycle times
    2. Provide enterprise access to corporate procurement
       capabilities
    3. Empowering desktop requisitioning through self-service
    4. Achieving integration with key back-office systems
    5. Elevating procurement to a position of strategic importance
       within the organization



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Roadmap to Success


 Clarify your e-Procurement Chain Goals

 Construct a Procurement process audit

 Create a business case
 Develop a supplier integration mix

 Select an e-Procurement Application

 Application integration is everything

 Educate, Educate, Educate




                                          CONFIDENTIAL
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Emergence of e-Communities

   E-Supplier Procurement
     • Existing applications link directly with suppliers on Internet
     • Analysis and management tools
     • Approval controls, etc.
   E-Trader Procurement
     • Reduces the cost of goods sold
     • Online trading “community” or e-marketplace
        – Aggregated supplier catalogues
        – Vertical Industry Portals
   Sourcing
     • Decision based on product functionality and characteristics
        – Not product classification and price
     • Internet sourcing
   Auctioning
     • Auction vs Reverse Auction
        – Tender is either transparent or “private”
        – Creates e-Marketplace for competitive bid for products and
          services
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Procurement Trends

     Web auctions and bidding
     Electronic marketplaces and portals
     Consortium buying
     Procurement Outsourcing
     Direct OEM buying




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Global Procurement Network


                                                           Supplier
                                                Supplier                 Supplier
     Supplier
      Supplier
       Supplier                   Supplier
         Supplier                                                 Manufacturing

                                    Supplier           Internet
                                                                        Manufacturing
   Manufacturing
                                    Web/EDI
     Manufacturing
                                                                      Supplier
                                 Supply Chain Mgmt.

            VAN                     Financial Tools
                          EDI
                                 Procurement Systems

                                    ASP Services

             Pacific                                             ABC
                                                                Global
          Manufacturers
                                Trading Center               Procurement



                                                                         CONFIDENTIAL
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