1 Copyright © 2012, Oracle and/or its affiliates. All rights reserved. · • Eliminate...


Moving to Value Driven Procurement

Bill Tokheim

Director, Product Strategy


The following is intended to outline our general product direction.

It is intended for information purposes only, and may not be

incorporated into any contract. It is not a commitment to deliver

any material, code, or functionality, and should not be relied upon

in making purchasing decisions. The development, release, and

timing of any features or functionality described for Oracle’s

products remains at the sole discretion of Oracle.


Program Agenda

Strategic View of Procurement

Transformation Strategies

Our Direction


PROCUREMENT MATTERS


Pharmaceuticals 56%

Semiconductor 56%

Utilities 39%

Other Industries 48%

Financial Services 22%

Indust. Mfging. 55%

Metals & Mining 44%

Petroleum 43%

Aerospace & Defense 47%

Chemical 53%

DOE/NNE Contractors 46%

Eng. & Const.53%

Source: CAPS Research

Strong procurement is a fundamental fiduciary responsibility.

Average 47% of Revenue on External Spend Total Spend as a Percentage of Sales, up 15% since 2004 … and Rising


0

25

50

75

100

Before After

Profit

Payroll, Tax, & Other Expenses

Purchases

Spend -5%

Profit +50%

Procurement’s Disproportionate Margin Impact Small Changes. Big Difference.

5% Reduction in Spend Increases Profit by 50%

In order to obtain an equivalent impact, a firm

would have to...

• Increase Sales by 50%

• Cut Overhead by 20%


($ millions)

$100 $161

$270

$476

Financial Services Telecom Airlines or Specialty Retail

Food/Drug Retail

Revenue, By Industry, Needed to Generate $10M Profit

A Penny Saved is Up to Fifty Earned

Procurement can maintain margin growth in the absence of market growth.


BUT THE CEO AND CFO HAVE THEIR

DOUBTS


Gulf Between Claimed Savings & Financial Impact

Less than 10% of Finance

executives believe in

procurement savings

Reported savings are

discounted by >30%

Source: Hackett Closing the Gap Between Claimed Savings on Indirect Spending

0%

25%

50%

75%

100%

Procurement Finance

Strongly Agree

Somewhat Agree

Neither Agree Nor Disagree

Somewhat Disagree

Strongly Disagree

Perception

Gap

“Savings claimed by procurement are falling to

the bottom line and can be proved”

Procurement vs. Finance


By Itself, Marginal Cost Reduction Has Limits

• LOBs resist procurement’s

involvement because

• Lack domain expertise outside of

negotiating deals

• Fears that procurement will focus on

cost to the exclusion of other critical

success factors

• Limited alignment with MBOs

• Suppliers resent procurement

as an adversarial agent of

margin transfer

Total Revenue

Cost of Revenue

Gross Profit

R&D

SG&A

Non Recurring

Total Operating Expense

Operating Income

Total Other Income/Expense Net

Earnings Before Interest & Taxes

Interest Expense

Income Before Tax

Income Tax Expense

Net Income From Operations


Tidjane Thiam

Group Chief Executive, Prudential PLC

“For me cost is hygiene. It is necessary in the same way

that breathing is, but breathing has never been your life

strategy. It’s a necessary condition to be alive, no more.

… You don’t cut your costs into greatness”


Transformation Strategies


Leading CPOs Are Diversifying Playbook To Better Align with Enterprise Goals

Source: AT Kearney Excellence in Supply Management 2011

Align with the

Business

Manage Risk

Systemically

Consistent

Supplier

Relationship

Management

Tailored Procurement and Sourcing Strategies

Adopt Technology Win War for Talent

Contribute to the

Top and Bottom

Lines “…leading procurement organizations are

becoming more strategic, playing an active role

in developing and executing top-line strategies

for growth.”


PRODUCTS

ASSETS SUPPLY

DEMAND

RISK

SUPPLIERS

SPEND

Creating Alignment Via Key Value Drivers Extend Reach of Procurement Knowledge


• Process Simplification & De-duplication

• Increased Flexibility & Agility

• Compliance & Oversight

• Innovation & Supply Rationalization

• Accelerated Launch

• New Category Creation

Operations Markets & Products

• Reduced Tax Obligation

• Accelerated Cash Flow

• More Efficient Asset Utilization

Financials

Diversifying the Value Portfolio


Requires a Sea Change in Priorities

Staff Reduction through automation

Margin Transfer from suppliers

Adding Talent for increased involvement

Knowledge Transfer across value chains

Loss Reduction following disaster

Growth Assurance through contingencies


Transforming from Cost to Value Driven Builds on Transaction & Cost Management

Transaction Enablement

Spend & Cost Management

Value Driven Procurement

• PO Management

• Overhead Reduction

• Strategic Sourcing

• Total Cost Reduction

• Finance Collaboration

• New Categories

• Shared Services

• Customer Value

• Shareholder Value

• Societal/Environmental Value

• Employee Value


A DETAILED VIEW OF VALUE

DRIVEN PROCUREMENT


Data Mgmt

Risk

Mgmt

Data Mgmt

Risk

Mgmt

1. Spend Analysis

2. Supplier Assessment

3. Supplier Identific-

ation

4. Sourcing

5. Contract Lifecycle Manage

ment

6. Procure

ment

7. Order Fulfillm’t (Services

Proc)

8. E-Invoice

Procurement Business Process Value Driven Procurement: Supporting Complete Cycle

Process

Efficiency

Cost Savings


Intelligent Spend Optimization


Organize Spend

Into Logical

Categories

Automate

Expensive Data

Management

Employee

Expense

Analysis

Spend

Analysis

LEGACY A/P

P-CARD FEEDS

OTHER

Adapt to Changing

Spending Patterns

Using Information as a Fundamental Enabler Spend Classification


• Configurable & Extensible

• Prebuilt warehouse, metadata, & ETL

• Best Practice library of over 250 reports and alerts

• Complete solution for

• Spend

• Procurement Performance

• Supplier Performance

• Employee Expenses

• Suited to heterogeneous back-end applications

• Pinpoints and prioritizes savings opportunities

• Monitors key trends and period comparisons

• Measures key operational efficiencies

To Create Insight and Understanding Procurement and Spend Analytics


Execute on Category Strategies Through Center-Led Global Shared Services

• Complete from Planning & Budgeting through Payment

• Integrated Financial and Procurement systems of record

• Shared Contracting, Ordering, & Payment Processes

• Multi language, currency, country support

• Centralize, standardize, and consolidate common processes

and suppliers

• Enable localization for unique categories and practices

• Generate cost, scale, and tax benefit


Collaborative Supplier

Management


Procurement

Research & Development

Suppliers Operations

Shorter time to market

Faster cycle times

Access to new technologies

Total cost reduction

Compliance to negotiated agreements

Improve Strategic Sourcing Outcomes Strategic Sourcing & Contracts


Institute Supplier Management Improve Supplier Data, Qualification & Compliance


Case Study: Supplier Collaboration

Collaborative

Focus

Enabled centralized,

interactive 24x7 interactive

collaboration for ~800

suppliers

Drove mutual SG&A

reductions by eliminating

manual processes, payment

research, paper mail, faxes,

etc.

Improved cash flow

predictability and visibility

throughout the supply chain by

eliminating mail-float and late

payments

Growth Orientation

CSR Emphasis

Systemic Risk

Mitigation

Financial

Integration


Predictive Risk Management


Risk Has Moved to Center Stage

Geopolitical and Macro Economic Threats

Chronic Uncertainty and Volatility

Weakening Supplier Viability

Supplier Conduct Impacts to Company

Image, Brand, and Revenue


Breadth and Severity of Value Chain Risk Threats and Vulnerabilities

Labor Action, Force Majeure / Natural Disaster / Security

Liens and Claims, Insurance Coverage

Product/Service Delivery Delay / On-Time Performance

Product Quality Issues – Out of Specification, Warranty Support

Negative Media – Code of Conduct, Product Safety Standards

Potential Criminal Investigations

OFAC / Suspect / Debarred Watch-list

Country - Potential for Civil Unrest/Military Action, Public Health

Code of Conduct / Hazardous Chemical Usage / Worker Cond.

Contract / SLA compliance

Financial stability - Ability to Grow, Credit Problems, Bankruptcy

Business Losses

Reputation

Compliance

Financial

Transaction

Operational

Other


Eliminate Information Blind Spots With Supplier Data Hub

Trusted

Master

Data

EBS

Peoplesoft

SAP

Custom Apps

External

EBS

Peoplesoft

SAP

Custom Apps

BI

• Consolidate information

across heterogeneous

applications

•Cleanse and enrich

supplier records

• Share information

across silos


Monitor and Improve Supplier Performance Next Generation Supplier Performance Analytics

WHAT – Proactive management of supplier performance

– Across key financial & operational dimensions

– That’s already integrated to transaction systems

WHAT – Scorecards

– KPIs

– Performance Trends

RESULTS – Fewer unpleasant surprises

– Higher performing suppliers


A private networking & telecommunications solutions provider in China.

Provides next generation telecommunications networks.

Global supplier with products deployed in over 100 countries.

Evaluate supplier qualification and performance to complement sourcing

activities for end-to-end Supplier Relationship Management (SRM)

Eliminate duplicate supplier records and create central repository of supplier

data to be used globally for all supplier management activities

Supplier performance monitoring, corrective action tasks management and

Spend analysis for effective supplier spend management and cost savings

opportunities

Streamlined End-to-End SRM solution for the Procurement Business House

Supplier lifecycle management and hub tools

Synergies with EBS Advanced Procurement portfolio

Business

Supplier

Management

Challenges

Why Oracle

Supplier Management Customer Case Study


Development Roadmap


Modular Portfolio for Value Driven Transformation For Moving Beyond Transactions & Spend Reduction


Increase savings by expanding use of

negotiated prices

• Locate items easily with searches that span all stores and

catalogs

• Perform side-by-side comparisons from search results to

find the right product at the best price

Reduce maverick spending

• Lead employees to selected vendors and approved products

• Eliminate non-catalog purchase requests for catalog items

Improve the productivity of requesters and

buyers

• Provide a familiar on-line shopping experience and eliminate

help desk calls

• Present a single user-interface for all purchase types from

office supplies to mobile devices to laptops

iProcurement, Transformed


Real-Time Supplier

Communications

Online Negotiation of

Contracts with Suppliers

Supplier NDA Process

Sourcing Cost Calculation

Solution Roadmap

Effective Supplier Management

Supplier Network

Suppliers Buying

Organization

Supplier Hub

Supplier Lifecycle Management

Supplier Data Steward

A solution to enable 1000’s of suppliers …


MS Word Integration/ Formatting

Improvements

AME Approval Management

Repository Contract

Enhancements

Usability Improvements

Embedded Best Practices

Solution Roadmap

Key Customer-Driven Improvements

Customer Satisfaction


iPad access to EBS Self-Service: • OA Framework being certified on Safari

• Application Examples:

• Expenses

• HR Self-Service

• Projects time entry

• iProcurement

• Order Information Portal

Specialty Mobile Applications for EBS: • ADF Mobile-Based

• Native Mobile UIs

• Mobile device services

• Disconnected access

• Application Examples:

• Mobile Field Service

• Mobile Maintenance

• Mobile Shop Floor Manager

• Mobile Warehouse Manager

Endeca for EBS enhances user experience: • Endeca Applications:

• Order Management

• Asset Maintenance

• Projects

• Discrete Manufacturing

• Field Service

• Channel Management

Oracle Business Intelligence Mobile: • Business Intelligence content on iPhone & iPad

Mobile Application Strategy


Oracle Procurement for Public Sector Contract Lifecycle Management for Public Sector

Catalog Items

Off the shelf, standard procurements

Shopping cart model

Non-standard procurements

Some support today for more complex items and services

Progress payments

Major System Acquisitions

FAR and DFARS Compliance

IAE (ex…FPDS-NG, CCR) support

Federal Nomenclature

Supports complex and routine contracting

Integrated with Financials and other ERP processes

… and with CLM:

More complex direct

procurement

Routine commodity-

based procurement


Project Driven Supply Chain Planning Coordinate Supply With Project Execution, While Streamlining Cash Flow

Customer Experience, Synchronize Supply, Project Profitability, Financially Predictable


Monday, October 1

4:45 pm iProcurement to Dramatically Improve Business Performance across the Enterprise

10:00 am – 6:00 pm Demogrounds #3335, 3339, & 3340 Moscone West

Tuesday, October 2

11:45 am Oracle Procurement Versus Niche Solutions: Achieving Interconnected Procurement

11:45 am General Session: Sourcing and Procurement—Vision, Strategy, and Future Directions Moscone West 3014

1:15 pm Oracle Procurement and Spend Analytics for Oracle E-Business Suite

5:00 pm EBS Purchasing and iProcurement: Ten More Tips to Supercharge Operations


Wednesday, October 3

11:45 am Oracle E-Business Suite Supplier Management: Strategy, Update and Roadmap

1:15 pm Supplier Lifecycle Management and Supplier Hub for Better Supply Base Management

3:30 pm EBS Sourcing & Procurement Contracts: Strategy, Update and Roadmap

5:00 pm Electronic Supplier Collaboration: World Class Performance Without Delay


Thursday, October 4

11:15 am Which Oracle Contracts Solution Is Right for You? Moscone West 2002/2004

12:45 pm Public Sector Strategy: Overview of Contract Lifecycle Management

12:45 pm Meet the Oracle Procurement Application Experts Moscone West 2001A

EBS Advanced Procurement

Inter-

Continental

– Sutter,

unless

noted


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