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Business Benefits and ROI from Oracle 11i iProcurement
Cap Gemini Ernst & Young
© 2002 Cap Gemini Ernst & Young - All right reserved
One of the world’s largest consulting firms providing world class
management consultancy, IT design and integration and
systems outsourcing services on a global basis.
CGE&Y has over 6,500 employees based inUK & Ireland.
Cap Gemini Ernst & Young UK ~ No 1 Forge End, Woking Surrey GU21 6DBTel: 44 20 74 34 21 71 ~ www. cgey. com
© 2002 Cap Gemini Ernst & Young - All right reserved
Services» Management and technology consulting» Systems transformation» Systems management (outsourcing)» Local professional services
Competitive Advantages» Customised Services and Solutions» Industry Experience & Documentation» Seamless approach to strategy, operations, and
information technology Revenues: €1.1bn
© 2002 Cap Gemini Ernst & Young - All right reserved
“Our culture is one which encourages people
to aim high, to exceed expectations,
andto have fun while doing it!”
© 2002 Cap Gemini Ernst & Young - All right reserved
Executive Conclusions
“CGE&Y’s initial project with Oracle 11i Financials was extremely successful. We
have continued this progress with the Procurement and HR modules. This has
made CGE&Y a more effective organisation, better able to deliver superior solutions to our
clients.” Brian Bodsworth, CIO
CGE&Y, UK & Ireland
© 2002 Cap Gemini Ernst & Young - All right reserved
© 2002 Cap Gemini Ernst & Young - All right reserved
Executive Conclusions
“CGE&Y had four strategic requirements to improve our sourcing operations
Reduce the cost of our external purchases through strategic sourcing
Use highly integrated systems to support the simplification of our purchase to pay processes
Produce management information to monitor and enforce compliance for sustained cost savings
Web enabled technology for low maintenance cost, whilst allowing access for all staff to allow de-
centralised purchasing processes.”
Brian Bodsworth ,CIO CGE&Y, UK & Ireland
© 2002 Cap Gemini Ernst & Young - All right reserved
Cap Gemini Ernst & Young UK & Ireland Procurement Challenges Develop Strategic Sourcing Expertise
Improve Relationships with Suppliers
Eliminate Localised Procurement Process
Correct Inefficient Procurement Systems- Not integrated- Manual workarounds
Achieve a Competitive Advantaged Cost Structure
© 2002 Cap Gemini Ernst & Young - All right reserved
Cap Gemini Ernst & Young UK & Ireland Procurement Challenges
Develop Strategic Sourcing Expertise
Improve Relationships with Suppliers
Eliminate Localised Procurement Process
Correct Inefficient Procurement SystemsNot integratedManual workarounds
Achieve a Competitive Advantaged Cost Structure
Solution: Strategic Sourcing &
Business Process Change
iProcurement Enabled
System to Sustained Process Improvements
Oracle 11i
© 2002 Cap Gemini Ernst & Young - All right reserved
Responses to Procurement Challenges
One Stop Shop for all Procurement Web enabled ApplicationOffers spend Analysis and Supplier performance trackingIncreases strategic focus by automating and simplifying routine transactionsEnables discipline around the purchasing process eliminating non preferred vendor spendingControl & Visibility of Spend before Commitment is made
Solution : iProcurementOracle 11i
© 2002 Cap Gemini Ernst & Young - All right reserved
• Disparate Systems & Processes
• Localized Buying
• Manual Purchasing & Approval Processes
• Poor Service
• Lack of Standardisation
Resulted In
Various Prices Realized
Discounts Based on “Local Volume”Economies of scale lost
Manual Administration Effort
Low account focus and priority
Poor Supplier Management: Loss of leverage through proliferation of products & service standards driven by supplier variances.
NO Visibility of Spend before Commitment was made!!
Procurement Pre-Oracle 11i
© 2002 Cap Gemini Ernst & Young - All right reserved
Results!
1 Instance
Complete
Procurement
Information
•Information Available to Negotiate Lowest Price with Key Vendor
•P.O. Mandatory
•Automated Purchasing & Approval Process
Lower Prices for Products & Services
Administrative savings with automated business process enabled by iProcurement
Spending diverted (Controlled) to Preferred Vendors
Post-Oracle 11i - Procurement & Business Process Re Engineering
© 2002 Cap Gemini Ernst & Young - All right reserved
Executive Conclusions “Strategic sourcing in CGE&Y has been enabled by Oracle iProcurement. We now have better visibility into our detailed spend, commitments & supplier
contracts. CGE&Y is now enabled to strategically source,
leveraging our expenditures through fewer suppliers improving terms. Supplier consolidation promotes our
technology governance strategy, whereby we determine the best technological solution to a
particular type of problem. We use these products and services wherever
possible rather than starting with a ‘clean sheet of paper’ on each project.” Wendy Irvin, Chief Purchasing Officer
CGE&Y, UK & Ireland
© 2002 Cap Gemini Ernst & Young - All right reserved
Using eProcurement as part of an Sourcing Transformation project
• Increase benefit• Increase speed to benefit
Benefit
Time
Sourcing Transformation
Speed
Additional value
eProcurement alone
Commodity/Supplier Management alone
Strategic sourcing delivers benefit buteProcurement sustains benefit over time
eProcurement must be implemented as part of a Sourcing Transformation programme in order to deliver sustainable benefit
Plus 40-50% of the cost of buying the goods/servicesThe total opportunity for large companies could be
around $1bn +
Supply Base Management, e.g.Volume leverage/redistributionBid-based re-negotiationPrice/performance benchmarkingEnhanced competitionSupply base consolidation/preferred
suppliers
Demand Management, e.g.Standardised itemsReduced contract “leakage”Visibility of contractsPolicy compliance and measurementItem substitutionRequirements and specification
management
Total Cost Management, e.g.Lifecycle costing/total cost of ownershipTransaction costs (requisition, order,
approve, pay)Payment terms managementTax / customs optimisation
3-5%
5-10%
5-10%
Typical benefits achieved (as %
of prices)
Source: CGE&Y
© 2002 Cap Gemini Ernst & Young - All right reserved
Procurement Delivered Cost Reduction
2002 2003 2004Actual Forecast Forecast
-1.1%
-8.7%
0%
-2%
-4%
-6%
-8%
-10%
-4.8%
ExternalSpend
These are REAL Benefits, not contracts. These savings are DELIVERED, IN PLACE and are CONSISTENTLY MONITORED
Savings are extracted to the P&L or used to selectively to Drive Revenue Growth
© 2002 Cap Gemini Ernst & Young - All right reserved
Executive Conclusions
“Before iProcurement we did not have a formal procurement team and much of the purchasing was done locally, in an uncontrolled manner.
With Oracle 11i, procurement is now centralised. The system has excellent management
information, enabling a more disciplined processwhich allows us to consolidate purchases with key
vendors to acquire lower prices. Our purchase order mandatory process achieves compliance
with approved vendors.” David Strickland
Purchasing Consultant CGE&Y, UK & Ireland
© 2002 Cap Gemini Ernst & Young - All right reserved
2002€4.8M
2003€ 20.1 M
2004€ 36.9M
Enabled by Oracle11i iProcurement
Procurement Contract Yearly Savings
Delivered to P&L Savings are Cumulative
© 2002 Cap Gemini Ernst & Young - All right reserved
IT 71%
Other 29%
2002 €4.8M
Procurement - Where have wereceived the Benefit?
0%
20%
40%
60%
80%
100%
Communications
Cleaning
ElectricityCouriersStationery
2002
© 2002 Cap Gemini Ernst & Young - All right reserved
2003 Cumulative Gains €20.1M!
IT 62%
Flex Resourcing 21%
Other 17%
Procurement - What Benefits areForecast and Targeted?
0%
20%
40%
60%
80%
100%
2003
Data Comms
Cleaning
Pensions
Electricity
Office ConsumablesCouriers
© 2002 Cap Gemini Ernst & Young - All right reserved
2004 Cumulative Gains € 36.9M
IT 60%
Other 29%
Flex Resourcing
11%
Procurement Areas ofContract Savings
-6% Cost
Reduction
-7% Cost
Reduction
-11% Cost
Reduction
© 2002 Cap Gemini Ernst & Young - All right reserved
Executive Conclusions
“When CGE&Y-UK &I made the decision to implement a strategic
sourcing process using purchasing best practices, Oracle's iProcurement
module was an enabler and allowed us to pin down the change.
The system prevents employees from reverting back to the old way of doing things over time. The sourcing gains will continue, and not be a one time
occurrence.” Jeff Clarke, Project Manager
CGE&Y, UK & Ireland
© 2002 Cap Gemini Ernst & Young - All right reserved
Example of Process Improvement World Class end-to-end automated flexible
resource process for our external contractors!
“Before Oracle iProcurement, each business would cut its own deals, clearly not an optimal situation. An additional benefit enabled by
Oracle Technology is the Self Billing function for our Flexible Resource Process. We eliminated a weekly invoice for each contract worker
saving €670k annually.” Nicholas Mabin
Director Recruitment & ResourcingCGE&Y, UK & Ireland
© 2002 Cap Gemini Ernst & Young - All right reserved
Flexible Resource Self BillingImprovement
Pre Oracle0
Post Oracle 11iSelf Billing via Timecard
Administrative Savings of € 670k per year!!
YearlyInvoices 16,200
360 contractors45 invoices/Yr
© 2002 Cap Gemini Ernst & Young - All right reserved
Using the Benefits Achieved to Direct Business Growth
In today’s extremely competitive marketplace, pricing flexibility with the lower cost structure enabled by the Oracle Implementation and
outstanding execution gives CGE&Y the ability to be more aggressive in obtaining profitable new business.
© 2002 Cap Gemini Ernst & Young - All right reserved
Revenue
Earnings
€0
€5
€10M
2003 2004 2005 2006
3.0
12..0
9.0
6.0
1.0 2.1 3.14.2
Shareholder Value Impact+ € 7.7M
€15M
“We developed an innovative contracting approach which is allowing us to drive incremental growth and increased earnings of €10.4m across 4 years.
This is a complex contract process and Oracle eProcurement allows us to manage and monitor progress. Top-notch execution and Oracle have allowed us
to achieve a competitive edge..... enabling us to win extra business”
Strategic Procurement strategies with our key IT Suppliers have fuelled growth
iProcurement InitiativeFinancial SummaryFinancial Summary
© 2002 Cap Gemini Ernst & Young - All right reserved
Financial Performance MeasuresiProcurement Initiative
Project Net Present Value (Increase in Shareholder Value) = € 118.1M
IRR >500% infinite ROI >100% (6515%) (Oracle Definition) Pay Back Period <1 Year
© 2002 Cap Gemini Ernst & Young - All right reserved
Productivity & Growth Benefits NPV (€M)iProcurement Initiative
NPV€ 118.1
CostProductivity
€ (M)
Project Costs
IncrementalGrowth
© 2002 Cap Gemini Ernst & Young - All right reserved
Economic Value Measures Total Business Value Effect!
Economic ProfitChange vs. Base Case
€ 0M
€ 30M32.4
2002 2003 2004 2005 2006
€ 15M
33.131.7
17.9
2.9
Economic Profit is a complete measure that takes into account earnings, as well as the assets employed to generate those earnings.
Successful Strategic Sourcing Upfront Effort enabled Project to be Self Funding
€ 45M
iProcurement
Executive ConclusionsExecutive Conclusions
© 2002 Cap Gemini Ernst & Young - All right reserved
Executive Conclusions
“The strategy of implementing Oracle 11i iProcurement
really paid off. The low system implementation cost meant that we
were more than able to fund the whole project, including strategic
sourcing and process simplification, from year one savings alone!”
Brian Bodsworth , CIO CGE&Y, UK & Ireland
© 2002 Cap Gemini Ernst & Young - All right reserved
Executive Conclusions
“The Rainbow initiative was led by the Uk & Ireland Purchasing Team, But the real key to success was facilitated to all of the areas of the business in a joined up way.
Rainbow touched every facet of CGE&Y. We used cross functional teams from many
disciplines (PRM, consulting, accounting, legal, facilities...). Without this teamwork we would
not have achieved these sizable gains so quickly.”
Wendy Irvin Chief Purchasing Officer
CGE&Y, UK & Ireland