Seongmin Ryu Principal Consultant e-Procurement Implementation & e-Marketplace.
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Transcript of Seongmin Ryu Principal Consultant e-Procurement Implementation & e-Marketplace.
Seongmin RyuSeongmin RyuPrincipal ConsultantPrincipal Consultant
e-Procurement e-Procurement Implementation & Implementation &
e-Marketplacee-Marketplace
e-Procurement as a e-Procurement as a Process EnablerProcess Enabler
e-Procurement e-Procurement Implementation ApproachImplementation Approach
e-Marketplace Trendse-Marketplace Trends
e-Market Opportunities, e-Market Opportunities, Risks and UncertaintiesRisks and Uncertainties
AgendaAgenda
e-Procurement Implementation & e-Marketplace
pagepage33
e-Procurement? e-Procurement?
What’s that?What’s that?
pagepage44
Definition of e-ProcurementDefinition of e-Procurement
Alignment with purchasing strategiesAlignment with purchasing strategies– Direct linkages and collaborative planning for strategic components Direct linkages and collaborative planning for strategic components – Exchanges, e-auctions or aggregators for commodities and indirect goods Exchanges, e-auctions or aggregators for commodities and indirect goods
and services and services E-nablement of entire acquisition process -selection, transmission, and E-nablement of entire acquisition process -selection, transmission, and
trackingtracking
““E-procurement is the redesign and implementation of E-procurement is the redesign and implementation of procurement processes between multiple enterprises procurement processes between multiple enterprises using electronic business as a competitive enabler”using electronic business as a competitive enabler”
pagepage55
BuyerBuyer
SupplierSupplier
e-Procurement as a Process Enablere-Procurement as a Process Enabler
Identify Supply Needs
Specify Requirements
Acquire Goods or Services
Manage Materials
Use, Disposeand Settle
Update Catalog ProvideSpecifications
Bid, ProcessOrder
MaterialShipment
ProcessPayment
Desktop Purchasing
E-BiddingReverse Auction
E-SourcingE-Catalog
Procurement Card VMI*
Order Tracking
Automatic Matching for Payment
e-Procurement Opportunities
* VMI =Vendor Managed Inventory
pagepage66
e-Procurement Category Strategye-Procurement Category Strategy
LOW HIGHBuyer influence on supply market
Objective:• Risk reduction
BOTTLENECKBOTTLENECKObjective:
• Competitive Advantage
STRATEGICSTRATEGIC
Objective:• Purchasing Efficiency
NON-CRITICALNON-CRITICALObjective:
• Competitive Cost
LEVERAGELEVERAGE
Bu
sin
es
s c
riti
calit
y
HIGH
Facilities Utilities Raw Materials
OfficeSupplies
Commo-dities
Sub-materials
TravelFreight
A company’s expenditures are characterized in terms of business criticality and buyer influence on the
marketplace.
E-Sourcing
Supplier PortalInfo. Sharing
Team Room
Procurement
Card
Desktop PurchasingE-Bidding
Reverse Auction…
pagepage77
Desktop PurchasingDesktop Purchasing
Enable users to search web-catalogs to make a purchase request, have Enable users to search web-catalogs to make a purchase request, have the requisition go through appropriate approval steps and enable an the requisition go through appropriate approval steps and enable an order to be sent, via the Internet, directly to the supplier.order to be sent, via the Internet, directly to the supplier.
Paym
ent
Paym
entIn
voic
e
Invo
ice
AccountingAccounting
SupplierSupplierDirect Send PODirect Send PO
DeliverDeliver
PO Info. Copy
PO Info. Copy
UserUser
ApproveApprove
CreateCreatePOPO
CreateCreatePRPR E-CatalogingE-Cataloging
InternetInternet
pagepage88
Search potential suppliers on the Internet. Provide application forms Search potential suppliers on the Internet. Provide application forms and receive applications and additional documents, via the Internet, and receive applications and additional documents, via the Internet, from suppliers willing to become qualified suppliers. Update the from suppliers willing to become qualified suppliers. Update the catalogs of qualified suppliers.catalogs of qualified suppliers.
Buyer
USA
Japan
Korea
e-Sourcinge-Sourcing
pagepage99
So, what can you get from it?So, what can you get from it?
pagepage1010
e-Procurement Benefitse-Procurement Benefits
Leverage
Compliance Transaction costs
• Reduced order cycle time
• Data availability/visibility
• Reduced inventory levels
• Consistent workflow/approvals
Hard savings
Soft savings
pagepage1111
1. 1. Increased contract complianceIncreased contract compliance
Electronic procurement enables Electronic procurement enables organizations to ensure organizations to ensure procurement compliance: procurement compliance: Increased use of preferred Increased use of preferred
supplierssuppliers Reduced off-contract spendingReduced off-contract spending Reduced processing errors Reduced processing errors
Results:Results: More goods are purchased at More goods are purchased at
lower priceslower prices
On-contract spend
Off-contract spend
Philips plans to generate savings of $50 million annually through increasing compliance from 40% to over 75%.
e-Procurement Benefits (Cont’d)e-Procurement Benefits (Cont’d)
Business CaseBusiness Case
pagepage1212
BP Amoco is a provider of energy and petrochemical, and estimated potential savings are 5 to 10% from corporate goods and services spend using e-procurement
e-Procurement Benefits (Cont’d)e-Procurement Benefits (Cont’d)
2. 2. Increased purchasing leverageIncreased purchasing leverage
Electronic procurement Electronic procurement provides greater oversight of provides greater oversight of purchasing spend:purchasing spend:
Results:Results: Full purchasing power is Full purchasing power is
leveraged to negotiate leveraged to negotiate increased discountsincreased discounts
Appropriate product categories Appropriate product categories can be targeted for preferred can be targeted for preferred supplier contractssupplier contracts
Business CaseBusiness Case
pagepage1313
3. 3. Reduced transaction costsReduced transaction costs
Electronic procurement Electronic procurement reduces the administrative cost reduces the administrative cost for each transaction shifted for each transaction shifted from paper to the electronic from paper to the electronic channel through:channel through: Reduced error ratesReduced error rates Reduced processing timeReduced processing time Reduced number of Reduced number of
procurement stepsprocurement steps Reduced mail/fax/phone usageReduced mail/fax/phone usage Reduced on-site inventoryReduced on-site inventory
Results:Results: Procurement can focus their Procurement can focus their
efforts on building strategic efforts on building strategic relationships with suppliersrelationships with suppliers
Ericsson Telecom makes over 50% of purchases on the internet. Administrative costs have been reduced by 90%, and the firm is expected to do all worldwide purchasing on the internet by 2001
Cisco Systems has reduced the cost of procurement from an average of $130 per order to $40 per order. Its target is to achieve a cost of $25 per order.
e-Procurement Benefits (Cont’d)e-Procurement Benefits (Cont’d)
Business CaseBusiness Case
e-Procurement as a e-Procurement as a Process EnablerProcess Enabler
e-Procurement e-Procurement Implementation ApproachImplementation Approach
e-Marketplace Trendse-Marketplace Trends
e-Market Opportunities, e-Market Opportunities, Risks and UncertaintiesRisks and Uncertainties
AgendaAgenda
e-Procurement Implementation & e-Marketplace
pagepage1515
Now, you see the benefits,Now, you see the benefits,
But, how can you realize it?But, how can you realize it?
pagepage1616
Implementation ApproachImplementation Approach
ProcurementCouncil
Strategic Sourcing
Local Procurement
Shared Service Center
Sourcing Teams
CEO / COO / CFO
Division/Group Heads
Organization / Culturehybrid example
Co
st S
avin
gs
($ M
)
0
40
80
120
160
200
240
280
320
360
400
2000 2001 2002 2003 2004 2005 2006
Year
Savings without process or organizationchanges
Savings with process and organization changes and continual improvement
Degradation in Realized Savings
All areas must be addressed and aligned...
Process / Technology
SupplierSupplier
ERP Decision
Support E-
Procurement
Strategic Sourcing
2User Requisition1
Ship Goods4
Receiving5
Payment7
SharedServiceCenter
6Purchase Order
3
Seamless support will require a combination of technologies
pagepage1717
e-Procurement Implementations Considerationse-Procurement Implementations Considerations
1. Integration with legacy systems or ERP1. Integration with legacy systems or ERP
2. Concerns regarding implementation of e-Procurement system2. Concerns regarding implementation of e-Procurement system Absence of well-designed, systematic procurement processes and Absence of well-designed, systematic procurement processes and
operation regulations operation regulations Tendency to adhere to pre-e-procurement processes and Tendency to adhere to pre-e-procurement processes and
regulations regulations Internal resistance from employees(apprehension of losing job or Internal resistance from employees(apprehension of losing job or
authority)authority)
3. Lack of supplier capability to participate in3. Lack of supplier capability to participate in e-Procurement e-Procurement processesprocesses or adopt e-Procurement themselvesor adopt e-Procurement themselves
pagepage1818
e-Procurement Implementations Considerations (Cont’d)e-Procurement Implementations Considerations (Cont’d)
4. Diminution of e-Procurement benefits from adverse 4. Diminution of e-Procurement benefits from adverse supplier market conditions or government restrictions.supplier market conditions or government restrictions.
5. 5. e-Procurement risks:e-Procurement risks: Production setbacks from misplaced procurementProduction setbacks from misplaced procurement Security and certification concernsSecurity and certification concerns Inadequate laws and constitutional system regarding e-CommerceInadequate laws and constitutional system regarding e-Commerce
6. 6. Shortage of online data concerning suppliers and their Shortage of online data concerning suppliers and their products. products.
pagepage1919
1. Active participation and support from both users and 1. Active participation and support from both users and executive group.executive group.
2. Overall familiarity “From Demand to Payment”2. Overall familiarity “From Demand to Payment”
3. Buying only from well-qualified supplier groups3. Buying only from well-qualified supplier groups
4. Seamless integration with ERP/Legacy system4. Seamless integration with ERP/Legacy system
5. Triple-win solution for suppliers, internal customers and 5. Triple-win solution for suppliers, internal customers and procurement departmentprocurement department
e-Procurement Implementation Critical Success Factorse-Procurement Implementation Critical Success Factors
e-Procurement as a Process e-Procurement as a Process EnablerEnabler
e-Procurement e-Procurement Implementation ApproachImplementation Approach
e-Marketplace Trendse-Marketplace Trends
e-Market Opportunities, e-Market Opportunities, Risks and UncertaintiesRisks and Uncertainties
AgendaAgenda
e-Procurement Implementation & e-Marketplace
pagepage2121
As you know, As you know,
e-Market is hot!e-Market is hot!
pagepage2222
What is the potential?What is the potential?
Offline B2BSpending
Horizontal Online B2BSpending
VerticalOnline B2B Spending
20102000 2005
B2B onlinePenetration
10
15
20
5
B2B Spending($Trillions)
$11.9 Trillion
$3.7 Trillion
$5.3 Trillion
2% 35% 75%
$20.9 Trillion
Total B2BSpending
Source: PwC analysis, Forrester, Goldman Sachs, IDC, US Census Data
Vertical spending includes industry-specific costs, e.g. raw and capital goodsHorizontal spending includes all non-production operating expenses, e.g., SG&A, MRO, etc.
pagepage2323
NETWORK OPTIMIZATION(Multi-Business)
A
F
D
G
C
EB
Company
Company
Company
Company
Company
CompanyCompany
ENTERPRISE OPTIMIZATION(Single Business)
ProcureProduceProducts
ManageLogistics
ForecastDemand
Physical flow
Information flow
eMarkets optimize a network of businesses rather than a eMarkets optimize a network of businesses rather than a single businesssingle business
eMarkets — Online business trading communities that focus on either eMarkets — Online business trading communities that focus on either indirect or specific direct goods and services. eMarkets can be built indirect or specific direct goods and services. eMarkets can be built around vertical (industry specific) and horizontal (cross industry) marketsaround vertical (industry specific) and horizontal (cross industry) markets
pagepage2424
eMarket Models
Indirect Suppliers
Direct Suppliers
eMarket Intermediary
Model TypeCompany Centric
Indirect Procurement
All suppliers to Company A are
linked with Company A and, where applicable,
each other
Characteristics
Industry VerticalDirect and
Indirect
Vertical Exchange
Community forms around common
exchange of direct and indirect goods
“Platform” built for eBusiness within a
vertical market enhancing
processes across the value chain
Industry Vertical Indirect
Procurement
Groups of buyers with common
interests align to gain leverage
Meta-Market
Industries
Horizontal S
er vices
Multiple industries integrate
processing leveraging buying, selling, and cross-industry horizontal
services
Company A
Company A
Company CCompany B
Company A
Company A
Company CCompany B
eMarkets are developing around a lot of different modelseMarkets are developing around a lot of different models
Company A
pagepage2525
Meta-Market Operations
VAC Development• Identify, launch or roll up VACs• Identify new customer bases• Create critical mass
Technology Infrastructure• Provide Technology
Platform/Integration Capabilities
Cross Community Support• Sales/Marketing• Customer Service• Cross VAC Optimization• Broader communities to allocate
R&D
Seller/Seller/SuppliersSuppliers
HR Benefits
Logistics
MRO
Marketing
Oil
& G
as
Au
to
Te
leco
m
Hig
h T
ec h
BuyersBuyers
Meta-Market
Meta MarketsMeta Markets
Meta-Market DriversMeta-Market Drivers The larger the network, the greater its power to create value for its membersThe larger the network, the greater its power to create value for its members
– Increased leverage with suppliersIncreased leverage with suppliers– Broader market accessBroader market access– Greater integration across market supply chainsGreater integration across market supply chains– Expanded community/collaboration opportunitiesExpanded community/collaboration opportunities
The larger the Meta-Market, the faster it can form and launch new eMarkets and provide greater The larger the Meta-Market, the faster it can form and launch new eMarkets and provide greater functionality to its portfolio membersfunctionality to its portfolio members
Markets of Markets: Meta-MarketsMarkets of Markets: Meta-Markets
e-Procurement as a e-Procurement as a Process EnablerProcess Enabler
e-Procurement e-Procurement Implementation ApproachImplementation Approach
e-Marketplace Trendse-Marketplace Trends
e-Market Opportunities, e-Market Opportunities, Risks and UncertaintiesRisks and Uncertainties
AgendaAgenda
e-Procurement Implementation & e-Marketplace
pagepage2727
Looking beyond the hype:Looking beyond the hype:
Let’s Get Real!Let’s Get Real!
pagepage2828
e-Market Opportunities, Risks and Uncertaintiese-Market Opportunities, Risks and Uncertainties
What are the Opportunities?What are the Opportunities? e-Market value leverse-Market value levers Strategic optionsStrategic options
Risks and UncertaintiesRisks and Uncertainties eMarket IssueseMarket Issues Internal issuesInternal issues
A Plan of ActionA Plan of Action Building a strategyBuilding a strategy Effective implementationEffective implementation
pagepage2929
First, the Good News...First, the Good News...
pagepage3030
The Five eMarket Value LeversThe Five eMarket Value Levers
Potential Benefit
Ex
ten
t o
f C
han
ge
Purchasing
Power
Process
Efficiency
Market
Efficiency
Supply Chain
Integration
Aggregation
pagepage3131
Basic Strategic Options Basic Strategic Options
Do nothingDo nothing
Join an existing e-Market:Join an existing e-Market: ParticipateParticipate Equity partnerEquity partner
Develop a new e-Market:Develop a new e-Market: PrivatePrivate PublicPublic
Combination (portfolio approach)Combination (portfolio approach)
“Ostrich”
“Follow”
“Lead”
Confused?!
pagepage3232
A Continuum of Increasing Opportunity (and Risk)... A Continuum of Increasing Opportunity (and Risk)...
Risk of being frozen out
Higher Control, Costs & Rewards
Risksand
Uncertainties
Opportunities
Investment capital
No one else joins
Equity upside Control own
destiny Process, COG
savings Industry
synergies
Developpublic
e-Market
Suppliers refuse to join
Systems expense
No equity upside
Process, COG savings
Developprivate
e-Market
Investment capital
Equity upside Process, COG
savings Industry
synergies
Join existinge-Market as
equity partner
Others get bigger share of benefits
Process, COG savings
Participate in industry synergies
Join existinge-Market
as a participantDo nothing
Fall behind competitors
Low cost
Option 2a Option 2b Option 3a Option 3b
Combination (portfolio approach)Option 1
pagepage3333
Next, the Bad News...Next, the Bad News...
(or Every Silver Lining(or Every Silver Lininghas a Cloud)has a Cloud)
pagepage3434
eMarket IssueseMarket Issues
Technology: Reality versus HypeTechnology: Reality versus Hype
Remorseless change - unpredictableRemorseless change - unpredictable
Critical mass is crucial: size countsCritical mass is crucial: size counts
Market perceptionMarket perception
Trust is fundamentalTrust is fundamental
pagepage3535
TechnologyTechnology
HypeHype the technology is readythe technology is ready integration is easyintegration is easy fastfast technology solves the problemstechnology solves the problems
XML is the new exchange XML is the new exchange
mediummedium
the technology is stablethe technology is stable
RealityReality the technology is still evolvingthe technology is still evolving integration is not easyintegration is not easyslowslowpeople and process issues are people and process issues are
significantsignificantXML is not ready, except in limited XML is not ready, except in limited
cases (e.g. RosettaNet)cases (e.g. RosettaNet)constant evolution and new entrantsconstant evolution and new entrants
“75% of eBusiness projects will fail”Source: Gartner Group December 1999
pagepage3636
Market Entrants
Source: Forrester Research, Goldman Sachs, Bear Stearns, PwC analysis
0
100
200
300
400
500
600
1997 1998 1999 2000
Source: PwC analysis
Market Potential
B2B online Penetration
($Trillions)
Online B2B Spend$15.6 T
Offline B2B Spend$4.3 T
20102000 2005
10
15
20
5
2%
November
forecast
March forecast
November forecast
35% 75%
Nestle USA signs agreement with Ariba
Earthgrains save time and money with Ariba
ECFood.com holds its first food auctions online
Pepsi selects Peoplesoft/ Commerce One
E-Steel starts up
Alliant foodservices implements i2
Efdex launches 1st global food and drink e-market
PwC introduces E.conomy - marketplace
Diageo to use Ariba B2B e-Commerce platform
Kraft selects Ariba B2B platform
GM, Ford, Diamler Chrysler form Auto-Pts Exchange
Sears, Carrefour, Oracle form Retail marketplace
Worldcatch.com splashes with seafood community
General Mills, Land O’Lakes in a web deal
Unilever launches B2B initiative on Ariba platform
March99
April99
May99
June99
July99
Aug99
Sept99
Oct99
Nov99
Dec99
Jan2000
Feb2000
March2000
Atlas Ventures Makes Investment in eFoodmanager
Remorseless changeRemorseless change
pagepage3737
Source: Forrester Research, Goldman Sachs, Bear Stearns, PwC analysis
Entry Expansion Dominate Consolidation
Level of eMarket Adoption
CustomerLock-In Competitor
Lock-Out
eMarketDevelopment Stage
Number ofeMarketCompetitors
First to market is not the objective,achieving critical mass is crucial
Achieving “critical mass” is crucialAchieving “critical mass” is crucial
SIZE COUNTS!
pagepage3838
The Problem
• If you do not do it, market punishes you
• If you do it wrong, market also punishes you
• The risk is high; the reward is great - you’ve have to get it right
How to succeed
• Clear articulation of strategy to market is important
• The strategy can cover all or any element of the value chain
• Arriving at the right strategy involves rethinking conventional business models
Market perceptionsMarket perceptions
pagepage3939
Trust is fundamentalTrust is fundamental
(Lack of) trust is consistently identified is the top inhibitor to participation basic security infrastructurebasic security infrastructure
– authentication (who?)authentication (who?)– privacy (confidential?)privacy (confidential?)– authorisation (permitted?)authorisation (permitted?)– integrity (what was sent?)integrity (what was sent?)– non-repudiation (binding?)non-repudiation (binding?)
credit rating - ability to paycredit rating - ability to pay transaction insurance - willingness to paytransaction insurance - willingness to pay performance - on time, in full, to specificationperformance - on time, in full, to specification co-operating competitors - boundaries, individual versus communityco-operating competitors - boundaries, individual versus community
PKI (Public Key Infrastructure) technology can provide some answers ; PKI (Public Key Infrastructure) technology can provide some answers ; however, implementation can be costly and time consuminghowever, implementation can be costly and time consuming
pagepage4040
Internal IssuesInternal Issues
How prepared is your organisation?How prepared is your organisation?
Need to realistically assess performance in the key areas of:Need to realistically assess performance in the key areas of: StrategyStrategy Organisation and CompetenciesOrganisation and Competencies ProcessesProcesses Performance ManagementPerformance Management Systems and TechnologySystems and Technology Delivery and OperationsDelivery and Operations LegalLegal TaxTax SecuritySecurity
pagepage4141
How to get the most silverHow to get the most silverfor the smallest storm...for the smallest storm...
pagepage4242
What is happening in your What is happening in your industry?industry?
Key Question 1Key Question 1
pagepage4343
What are your competitors What are your competitors and customers (suppliers) and customers (suppliers)
doing?doing?
Key Question 2Key Question 2
pagepage4444
Do you have an e-Market Do you have an e-Market strategy?strategy?
Key Question 3Key Question 3
pagepage4545
Is your e-Market strategy owned Is your e-Market strategy owned (understood?) by the CEO / Board?(understood?) by the CEO / Board?
Key Question 4Key Question 4
pagepage4646
Can you successfully Can you successfully implement your e-Market implement your e-Market
strategy?strategy?
Key Question 5Key Question 5
pagepage4747
Most will Fail...Most will Fail...
“75% of e-Business projects will fail”
Source: Gartner Group December
“Many of the solutions announced are not real e-Markets, and of those that are, many will not be built; many of those built will not survive; and many of those that survive will
consolidate into super-e-Markets”Source: IDC July 2000
pagepage4848
“90% of eBusinesses have suffered significant disruption since launch”
Source: PwC September 1999
ReliabilityReliability
pagepage4949
Create a Realistic StrategyCreate a Realistic Strategy
Realistically assess performance in the key areas of:Realistically assess performance in the key areas of: StrategyStrategy Organisation and CompetenciesOrganisation and Competencies ProcessesProcesses Performance ManagementPerformance Management Systems and TechnologySystems and Technology Delivery and OperationsDelivery and Operations LegalLegal TaxTax SecuritySecurity
Build a strategy that identifies and aligns:Build a strategy that identifies and aligns: ObjectivesObjectives RisksRisks ControlsControls
Your worlds Our people
Your E-Business Partner !