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On February 9th 2009 Andrew Bartolini Vice President & Group Director, Global Supply Management for Aberdeen Groups gave this tremendous presentation on many different facets of the Procure to Pay cycle. Bartolini breaks of costs of processes and best practice benchmarking to deliver real value.
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© AberdeenGroup 2008
Andrew BartoliniVice President & Group Director,
Global Supply ManagementFebruary 9, 2009
P2P Rising
2 • © AberdeenGroup 2009
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Table of Contents
Introduction2009 – Revive, Refresh, RenewCPO RisingA/P RisingSummary & RecommendationsQ&A
© AberdeenGroup 2008
Introduction
4 • © AberdeenGroup 2009
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My BioTitleVice President & Group Director
Summary• Recognized expert in sourcing, procurement, and supply management• Leader of Global Supply Management Research at Aberdeen Group• Twice named a “Pro to Know” by Supply and Demand Chain Executive
ExperienceLeadership roles in sales, marketing, and services at Ariba and Commerce One; Rich experience in strategic sourcing, business process transformation, and software implementation. Background also includes consulting and investment banking
Education• MBA – Indiana University• BA – Holy Cross College (MA)
5 • © AberdeenGroup 2009
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Founded in 1988 394,000+ Panel Members and over 2 million readers Benchmarked over 700,000 enterprisesAberdeen research is used by more than 90% of the Fortune 100010 distinct research coverage areasAberdeen will publish over 1800 Reports in 2009 which will be read by more than 1 million readersALL Reports are FREE (some for limited time)
About Aberdeen Group (Boston, MA)
6 • © AberdeenGroup 2009
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Global Supply Management (GSM)ManufacturingSupply ChainEnterprise TechnologyService ChainCommunicationInformation TechnologySales & MarketingProduct InnovationEnterprise Administration
Over 5500 On-Line Research Documents are available serving 300,000+ User Sessions / Month
Aberdeen’s Research Coverage
7 • © AberdeenGroup 2009
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Aberdeen’s GSM Research Coverage
Analyze Source Contract PayProcureRole-Based Research
Complex Categories
T&E
Contract Labor & Professional Services
Real Estate & Facilities
Strategic Meetings
Print/Marketing
CPOCFO CIOSuppliers
Source-to-Settle
8 • © AberdeenGroup 2009
P2P RisingP2P Rising
51%
20%
11%
18%
<$50M $50-$250M $250M - $1B >$1B
Size of Companies% of Users By Revenue
8%
43%34%
15%
C-Level VP/Dir. Manager Other
Roles at Companies% of Users By Title
62%22%
13% 3%
N. America EMEA Asia Pac. Rest of World
Geographical Representation% of Users by Region
Global Supply Management Research Panel:68,893 & Growing
Research Advisory Council24+ Industry Leaders
9 • © AberdeenGroup 2009
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Research and Demographics (for today’s discussion)
900+ ProfessionalsSize
Large (Greater than $1B) – 58%Mid-Market ($50M to $999M) – 29%Small (Less than $50M) – 13%
RegionNorth America – 62%EMEA – 31%Asia Pacific – 7%
IndustryManufacturing – 11%Technology – 8%Finance – 7%29 other categories
HypothesisAberdeen believes that 2009 will be a year of significance for the Procurement & Payables, a year of the “P2P Rising” – rising to meet new challenges, rising to new operational heights, and rising in prominence within the enterprise. Yet, with increased visibility comes an expectation of consistent execution and delivery.
ApproachAberdeen Group conducts web-based surveys to target professionals in our research membership poolWe then followed up with interviews from survey respondents
© AberdeenGroup 2008
2009 – The Year Ahead
Revive, Refresh, Renew…..Rebound?
11 • © AberdeenGroup 2009
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“It is not necessary to change. Survival is not mandatory.”
- W. Edwards Deming
“If you don’t like change, you will like irrelevance even less.”
- General Eric Shinseki
“Change is inevitable…. except from a vending machine.”
- Robert C. Gallagher
Times are Changing
12 • © AberdeenGroup 2009
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Times are Tough
Tough Times Demand Smart Strategies
Global CrisisBailouts & Credit CrunchLayoffs & Uncertainty
13 • © AberdeenGroup 2009
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2009 - The Year Ahead
2009 will be a very challenging year71% of CPOs expect significant increase in Supply Risk
44% of CPOs have already delayed major initiatives
Budgets are constrained or shrinking
CPOs remain focused on increasing Spend under Management
Cost Savings remains the top goal
14 • © AberdeenGroup 2009
P2P RisingP2P RisingSmart Strategy #1 – Manage Supply Risk
Case Study — Supply Risk and Contingency Planning
A Global manufacturer (and Fortune 100 company) noted that supply base risk management is the absolute top priority for his team in 2009 and has invested significant training in financial ratio analysis and contingency planning for a team of 30 buyers of the most risky categories.
"We expect the recession will have severe consequences for our top tier Canadian suppliers. We don't know which suppliers will be impacted, but we spent the last six months developing a contingency plan for every North American-based supplier.“
North American VP of Direct Materials
15 • © AberdeenGroup 2009
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What if a CEO had:
A CFO who did not know the company's cost of capital and lacked visibility into calculating its gross margin or quick ratio
16 • © AberdeenGroup 2009
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What if a CEO had:
A CFO who did not know the company's cost of capital and lacked visibility into calculating its gross margin or quick ratio
A VP of Sales who did not know the company's average deal size or sales win percentage and
lacked visibility into the current sales pipeline
17 • © AberdeenGroup 2009
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What if a CEO had:
A CFO who did not know the company's cost of capital and lacked visibility into calculating its gross margin or quick ratio
A VP of Sales who did not know the company's average deal size or sales win percentage and
lacked visibility into the current sales pipeline
A VP of Manufacturing who did not know a
product‘s total cycle time and lacked visibility into
any utilization or quality metrics
18 • © AberdeenGroup 2009
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Incompetence or Malfeasance?
What are the Implications?
Should someone lose his/her job?
Should many people lose their jobs?
Does the Board need to be involved?
Would you buy stock in this company?
19 • © AberdeenGroup 2009
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What if a CEO had a Chief Procurement Officer (CPO) that….
Does not have a formal spend analysis program Lacks good visibility into overall spend Fails to leverage spend data in sourcing activities
20 • © AberdeenGroup 2009
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What if a CEO had a Chief Procurement Officer (CPO) that….
Does not have a formal spend analysis program Lacks good visibility into overall spend Fails to leverage spend data in sourcing activities
26%
42%
52%
Percentage of all enterprises
21 • © AberdeenGroup 2009
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WHAT ARE THE IMPLICATIONS?
For the CEO……
For the CPO…….
For the Procurement Dept…….
For the enterprise……
22 • © AberdeenGroup 2009
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Smart Strategy #2 – Analyze Your Spend
Source: AberdeenGroup October 2008
Performance Metric Incremental Benefit1
Average savings achieved from a sourcing effort 93.0%
Spend under management 39.4%
Contract compliance rates 30.6%
Maverick spend reduction 16.3%1 Average incremental gains achieved by 280+ survey respondents
The Impact of Spend Analysis on Procurement Performance
23 • © AberdeenGroup 2009
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Spend Analysis Automation
Source: AberdeenGroup October 2008
26%
50%
11%
13%Fully manual
Partially automated
Fully automated, disparatesystems
Fully automated, commonenterprise-level system
24 • © AberdeenGroup 2009
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Average Savings by Level of Automation
Source: AberdeenGroup October 2008
11%
8%
5%4%
Fully automated, singlesystem
Fully automated,disparate systems
Partially automated Fully manual
25 • © AberdeenGroup 2009
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Why What You Do Is Important: Top-Line versus Bottom-line Impact
$10 Million in Savings equates to…..
$0
$50
$100
$150
$200
$250
$300
$350
Finance CPG Mfg. Hi-Tech
Savings Impact: Income Statement & Market Capitalization
Revenue (in millions)
© AberdeenGroup 2008
CPO Rising
27 • © AberdeenGroup 2009
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“The intelligence and fidelity exercised in the purchase, care, and use of supplies, influences directly the cost of construction and operations, and affect, therefore, the reputations of officers and the profits of owners…The subject needs elucidation on many accounts."~ Marshall M. Kirkman, The Handling of Railway
On The Procure-to-Pay Process
Supplies: Their Purchase and Disposition; 1887
28 • © AberdeenGroup 2009
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Purchasing Clerical
Independent function in railroad industry
Limited traction in other industries
Purchasing is established as a clerical role
Obtaining raw materials, supplies, & services became vital to operations
Pre-1900 Pre-WWI WWI & WWII 1950s-1960sOperations Managerial
1970s-1980s
Procurement Strategies
Processes become more standardized
People trained for the function
Emphasis on purchasing strategy and developing the ability to source goods at an efficient price
Best practices
Supply Management
Evolution of Procurement/Supply Management
29 • © AberdeenGroup 2009
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Supply Management - Recent History1980’s & 1990’s
Dominant supplier strategy for key commodities“Spend Under Management” via long-term contractsBuying power / aggregationStrategic SourcingQuality
2000’sTechnology-enabled transformationGlobalizationCPO (C-Level procurement executive)
30 • © AberdeenGroup 2009
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The CPO’s Strategic Agenda
21%
34%
45%
No formal plan
Formal one-year plan
Formal multi-year plan
Source: AberdeenGroup
31 • © AberdeenGroup 2009
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Top Ten KPIsKPI % Selected
Identified cost reduction/savings 72%
% of spend under management 64%
Cost avoidance 58%
Implemented / realized cost reduction savings 55%
Procurement ROI (savings / operating costs) 52%
% of suppliers = 80% of spend 51%
Supplier performance (price, delivery, quality, service, etc.) 49%
Procurement spend as % of revenue dollars 46%
Requisition, PO or invoice transaction volume 34%
Procurement spend per procurement employee 33%
79% of Enterprises track Supply Assurance
32 • © AberdeenGroup 2009
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Maturity Framework
Definition of Maturity Class Mean Class Performance
Best-in-Class: Top 20% of aggregate performers
More than 70% of spend under management
Industry Average:Middle 50% of aggregate performers
Between 40% to 70% of spend under management
Laggard: Bottom 30% of aggregate performers
Less than 40% of spend under management
Source: AberdeenGroup,
33 • © AberdeenGroup 2009
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CPO’s Top Priorities
Source: AberdeenGroup,
44%
69%
39% 42%33%
51%
67%
47%
People Suppliers Spend Technology
BIC All Others
34 • © AberdeenGroup 2009
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CPO Goal: Increase SPEND Under Management
30%
36%
49%
49%
74%
Increase procurement automation
Policy changes and mandates
Improve visibility into compliance
Demonstrate/market the value of theprocurement group
Analyze and distribute spend data
What strategies will CPOs employ to increase spend under mgmt.?
Source: AberdeenGroup,
35 • © AberdeenGroup 2009
P2P RisingP2P RisingCPO Goal: Improve SUPPLIER Development & Collaboration
18%
33%
36%
62%
66%
74%
Supplier diversity
Product and process innovation
Supply market constraints and inflation
Develop/improve capabilities and capacity
Remove time/cost from supply chain
Product quality and supplyperformance
Source: AberdeenGroup,
What do you hope to gain from supplier-focused efforts?
36 • © AberdeenGroup 2009
P2P RisingP2P RisingCPO Action: Improving SUPPLIER Development & Collaboration
66%
41%34% 34%
Improve supplierperformancemeasurement
Improve planningand forecasting
Dedicated supplierdevelopment teams
Improve electronic"supplier
enablement" acrossSource-to-Settle
ProcessSource: AberdeenGroup,
Risk
Cash
37 • © AberdeenGroup 2009
P2P RisingP2P RisingCPO Goal: Increase Process Automation (TECHNOLOGY)
34%
36%
39%
42%
48%
55%
34%
32%
38%
32%
31%
26%
Supplier Network orPortal
E-Payables
Contract Management
E-Sourcing
Spend Analysis
E-Procurement
Planned
In Use
Source: AberdeenGroup,
38 • © AberdeenGroup 2009
P2P RisingP2P Rising
CPO Goal: Enhance PEOPLE Skills and Capabilities
46%
53%
74%
Need morepeople dueto growth
Need peoplewith bettereducation
Need peoplewith different
job skills
Source: AberdeenGroup,
39 • © AberdeenGroup 2009
P2P RisingP2P Rising
Barriers to Procurement Transformation
65%62%
42%
27%
18%
50%
42%39%
45%
76%
Misalignedprocesses and
systems
Recruiting andretaining skilled
talent
Supplier contractcompliance
Lack of budget Lack of executivesupport
BIC All OthersSource: AberdeenGroup,
40 • © AberdeenGroup 2009
P2P RisingP2P Rising
Laggards Industry Average Best in Class
Cost Savings Rate • 0-2%• Minimal visibility
• 2-5%• Reported with visibility outside of procurement
• 5% or more• Tied to enterprise financial metrics
Procurement ROI • 100-300% • 300-700% • 700% or more
Spend Under Management
• 0-40%• Includes common categories (e.g., supplies)
• 40-70%• Includes core categories (e.g., raw materials)
• 70% or more• Includes complex categories (e.g., services)
Budgetary Process • Independent of procurement
• Based on input from procurement
• Procurement is an integral part
Finance Relationship
• Ad hoc interaction • Regular interaction• Reporting to CFO
• Continuous interaction• Have trust of CFO
Technology Utilization
• Basic or partial supply management suite
• Broad suite• Linked to finance• Strong analytics
• Full Suite• Strong linkage to finance• CPM systems in place
CPO Operational Excellence Framework
Source: AberdeenGroup 2009Source: Aberdeen Group 2007
© AberdeenGroup 2008
Accounts Payable Rising
Yes, Accounts PayableIs Rising
42 • © AberdeenGroup 2009
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The A/P Department is Coming of Age
In the past 2 years, role of A/P has become more strategic in 56% of
enterprises. 18 months ago, 40% of enterprises believed A/P was playing a
“more strategic” role.
43 • © AberdeenGroup 2009
P2P RisingP2P Rising
However, Paper Remains The “Rule,” Not The Exception
38.5%
61.5%
ElectronicPaper/Manual
PAYMENTS INVOICES
21%
79.0%
ElectronicPaper/Manual
Source: AberdeenGroup September 2008
44 • © AberdeenGroup 2009
P2P RisingP2P Rising
Maturity Framework
Definition of Maturity Class Mean Class Performance
Best-in-Class:Top 20% of aggregate performance scorers
$2.18 cost to process an invoice 2.8 days to process an invoice
Industry Average:Middle 50% of aggregate performance scorers
$9.38 cost to process an invoice 15.8 days to process an invoice
Laggard:Bottom 30% of aggregate performance scorers
$34.11 cost to process an invoice 35.1 days to process an invoice
Source: AberdeenGroup September 2008
45 • © AberdeenGroup 2009
P2P RisingP2P RisingBest-in-Class: Real-Time Visibility
Source: AberdeenGroup September 2008
12%
13%
12%
27%
30%
26%
36%
40%
40%
44%
44%
44%
Discounts, rebates,and other terms
Line item detail ofnon-PO invoice
Avoidance of missingbills and late pmts.
Status of POs
Line item detail of POinvoice
Liabilities/credits byvendor
All Others Best-in-Class
46 • © AberdeenGroup 2009
P2P RisingP2P Rising
Best-in-Class: Fully Automated A/P Activities
27%
19%
14%
16%
25%
13%
22%
40%
49%
44%
56%
55%
55%
64%
Duplicate invoice verification
E-documents for invoice approval
PO matching
Electronic payment processing
Payment scheduling
Electronic receipt of invoices
Payment status tracking
Best-in-ClassAll Others
Source: AberdeenGroup September 2008
47 • © AberdeenGroup 2009
P2P RisingP2P Rising
Best-in-Class Technology Usage
82%
55%45% 44% 40% 40%
60%
38%
12%
30% 28%22%
Electronicpayment system
Imaging andworkflowsolutions
Supply chainfinance solutions
ComprehensiveA/P automation
(EIPP)
Suppliernetworks, XML, or
EDI
Spend analysissolutions for
invoices
Best-in-Class All Others
Source: AberdeenGroup September 2008
48 • © AberdeenGroup 2009
P2P RisingP2P Rising
Best in Class Characteristics (Strategies for Success
Place a significant emphasis on gaining clear visibility into A/P operations (process and data)Leverage e-payables solutions to a significant advantage Strong collaborative ties with internal and external stakeholders Strong audit controls
© AberdeenGroup 2008
Summary & Recommendations
50 • © AberdeenGroup 2009
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Top Pressures… Top Areas for Innovation…
Global CEO’s View1:
40%
83%
64%
45%
Risk
AssetUtilization
CostReduction
RevenueGrowth
40%
43%
64%
BusinessModel
Operations
Products &Services
1 - Source: IBM Global CEO Study 2006
P2P Will Matter MORE in the Future
It is one of the things that keeps me awake at night – ensuring that we have a source of supply at the right cost to be competitive.
Clay Jones, Chairman & CEORockwell Collins
“
“
51 • © AberdeenGroup 2009
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Innovator & Pioneer
Thomas Alva Edison
The Big Picture
52 • © AberdeenGroup 2009
P2P RisingP2P Rising
70 years to “invent” the electric light bulb?
The first electric light was made
in 1809
In 1882,Thomas Edison
got it right.
53 • © AberdeenGroup 2009
P2P RisingP2P Rising
Edison’s Innovation: Network
DistributionEfficient & Accessible
Many Participants Multiple Uses/Types Leveraged Infrastructure
54 • © AberdeenGroup 2009
P2P RisingP2P Rising
Procurement’s Light Bulb
Analyze Source Contract PayProcureSupplier Management
Supply ManagementSource-to-Settle (aka P2P) Process
Automated Data-DrivenNumerous Supplier Touch-PointsLinear
55 • © AberdeenGroup 2009
P2P RisingP2P Rising
Aberdeen Recommendations - Procurement
People (Internal & External)Formalize your people management program
Establish competency modelsDevelop a career path planning program Utilize strategies from other functions
Intensify efforts to collaborate with business and functional stakeholdersExpand supplier enablement programs
56 • © AberdeenGroup 2009
P2P RisingP2P Rising
Aberdeen Recommendations - Procurement
ProcessChampion the standardization of source-to-settle processes across the enterprise Work with finance to define how all enterprise-level savings metrics are measured and tracked Develop and track a spend management pipeline
TechnologyIntegrate Spend Analysis Solution with Sourcing Tools and ProcessesSupport Accounts Payable investment in e-payables solutions
57 • © AberdeenGroup 2009
P2P RisingP2P RisingAberdeen Recommendations: Accounts Payable
Drive for enterprise-level visibility across A/P operationsIf the case for full A/P automation cannot be made, start with the most labor-heavy tasksIntegrate e-payables solutions with transactional systems. Develop a comprehensive supplier enablement strategy Set goals to convert a significant percentage of manual payments to electronic
58 • © AberdeenGroup 2009
P2P RisingP2P Rising
The Search for “CPO” - Results
Center for Prosthetics Orthotics (CPO.biz)University of Tennessee - CIRCLE PARK ONLINECPO Science (cpo.com)CPO Makita, CPO Bosch & MANY CPO-Tools SitesCorn Products International (ticker:CPO) – MANY SitesCPO Ltd (Imaging Products & Document Mgmt Services)Wiki – Chief Petty OfficerCPO® certification courses… Certified Pool/Spa OperatorWiki – Certified Pre-Owned – MANY other Car sitesCitizen Participation Organization (CPO) Program Washington County, OregonCPO Community Properties of OhioCertified Paraoptometric Examination
59 • © AberdeenGroup 2009
P2P RisingP2P Rising
The Search for “CPO” - Results
The Correctional Peace Officers (CPO) Foundation CPO Commerce, Inc. of www.cpooutlets.com “fame”CPO is the third largest food pantry in North Carolina Contingency Planners of OHIO (CPO) Chief People OfficerNOAA's Climate Program Office (CPO) CPO of Myrtle Beach is a promotional company “Welcome to the Goatlocker” (CPO History and Traditions)Charged Particle Optics Software “What does CPO Stand for?”
48 Results including Czech Philharmonic Orchestra & Chief Petting Officer, Copiapo Chile airport (“CPO”)
60 • © AberdeenGroup 2009
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Aberdeen Recommendations
Visit Google.comSearch for CPOAdvance until you see “CPO’s Agenda” or CPO Rising”Repeat every day for 3 monthsMake all staffers perform this twice per day for 3 months
CPO Rising……. in Search Results!
61 • © AberdeenGroup 2009
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Q&A (and Contact Info)
For More Research Please Visit: www.aberdeen.com/channel/procs.asp
Andrew Bartolini, Vice President & Group DirectorGlobal Supply Management,
617.854.5310