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Global Solutions for Supply Chain ROI
The Future of Procurement It’s here. And it’s all about innovation and results.
Inside
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table of contents
©
Global Solutions for Supply Chain ROI
Executive Vice President, Technology & Transportation Group Gloria Cosby Vice President, Marketing Gerry Whitty Publisher Jolene Gulley Staff Editor Barry Hochfelder Associate Editor Carrie Mantey Art Director Barbara Pineiro Production Service Representative Suzette Schear Audience Development Manager Angela Kelty Corporate Sales Publisher Jolene Gulley, jgulley@sdcexec.com Sales Stephanie Papp, spapp@sdcexec.com Editorial Advisory Board Tim Feemster, President, Foremost Quality Logistics John M. Hill, Board of Governors, Material Handing Industry of America William L. Michels, President, ADR North America Julie Murphree, Founding Editor, Supply & Demand Chain Executive Andrew K. Reese, Former Editor, Supply & Demand Chain Executive Bob Rudzki, President, Greybeard Advisors Raj Sharma, CEO, Censeo Consulting Group Kate Vitasek, Founder, Supply Chain Visions Circulation & Subscriptions P.O. Box 3257, Northbrook, IL 60065-3257 847-559-7598, Fax: 800-543-5055 Email: circ.sdcexec@omeda.com List Rental Elizabeth Jackson, Merit Direct LLC 847-492-1350, ext. 18, Fax: 847-492-0085 Email: ejackson@meritdirect.com Website: meritdirect.com/cygnus Reprint Services Nick Iademarco, Wright’s Media (877) 652-5295, ext. 102 niademarco@wrightsmedia.com Cygnus Business Media John French, Chief Executive Officer Paul Bonaiuto, Chief Financial Officer Ed Wood, Human Resources Julie Nachtigal, Vice President, Audience Development Curt Pordes, Vice President of Production Operations Rob Brice, Senior Vice President, Cygnus Expositions Lester Craft, Director of Digital Business Development, Technology and Transportation Group www.SDCExec.com Supply & Demand Chain Executive [USPS #024-012 and ISSN 15483142 (print) and ISSN 1948-5654 (online)] is published five times a year: March, May, June, September and December by Cygnus Business Media, 1233 Janesville Avenue, Fort Atkinson, WI 53538. Periodicals postage paid at Fort Atkinson, Wisconsin and additional entry offices. POSTMASTER: Please send all changes of address to Supply & Demand Chain Executive, P.O. Box 3257, Northbrook, IL 60065-3257. Printed in the USA. SUBSCRIPTION POLICY: Individual subscriptions are available without charge in the United States, Canada and Mexico to qualified individuals. Publisher reserves right to reject nonqualified subscribers. Oneyear subscription to nonqualified individuals: U.S., $30; Canada and Mexico, $50; and $75 for all other countries (payable in U.S. funds, drawn from U.S. bank). Single copies available (prepaid only) for $10 each. Canada Post PM842773848. Return undeliverable Canadian addresses to: Supply & Demand Chain Executive, P.O. Box 25542, London, ON N6C 6B2. The information presented in this edition of Supply & Demand Chain Executive is believed to be accurate. The publisher cannot assume responsibility for the validity of claims or p erformances of items appearing in editorial presentations or advertisements in the publication.
INSIDE 4 Executive Memo The Procurement Universe is Expanding It requires a strong network and flexible, forward thinking. Or else… By Barry Hochfelder
5 Cover Story The Next Big Thing The future of procurement has arrived. And it’s all about innovation and results By Editorial Staff
9 Predictions Business Networks: Disrupt and Conquer These aren’t your Father’s networks. They’re smarter, faster and more global than ever. And they promise to transform procurement in ways never thought possible
10 Analyst Viewpoint Finding the Right Network Bigger isn’t always better. But when it comes to business networks, size, scope and total cost matter By Editorial Staff
14 CPO Viewpoint What Keeps Him Awake at Night? SAP Chief Procurement Officer Marcell Vollmer dishes on the state of procurement today and looks into the future of the discipline By Carrie Mantey
17 Buyer Viewpoint Caesars Bets on Business Network and Wins with Diverse Vendors Entertainment giant goes all-in on cloud-based applications and services from Ariba, quickly boosts diverse spend while racking up savings
18 Seller Viewpoint Arizona Uniform Gives Invoicing New Look Company integrates with Ariba Network to more efficiently connect with customers and speed payments; saves three percent on gross billings
19 Financial Viewpoint Flint Hills Resources Gets Smart About Invoicing Global refinery leverages Ariba network to drive zero-touch process
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executive memo
The Procurement Universe is Expanding
It requires a strong network and flexible, forward thinking. Or else…
E
ngineers know all about Moore’s Law. It’s named after Gordon Moore, a co-founder of Intel. In the mid1970s, he said that, in essence, processor speeds, or overall processing power for computers, will double every two years. He was pretty accurate. To borrow from Moore and apply it to supply chain, the field of procurement is rapidly expanding. Fueled by business networks, procurement is enabling new levels of connectivity, collaboration and insight. Dawdle at your own risk. According Andrew Bartolini, Chief Research Officer, Ardent Partners, “In today’s business climate, a clear plan that includes more collaboration, better technology, and superior communication and connectivity is what is needed to succeed. Business networks will continue to play an important role in driving this.” In a recent study, Selecting the Right Network: Collaboration and Networks for a New Economy, Bartolini discovered that 85 percent of enterprises use business networks to support purchase orders, 76 percent to manage invoices and 79 percent to handle payments. And Bartolini predicts these numbers will continue to grow. (For more on the study and choosing the right business network, please turn to Page 10.) One might look at social tools and see an accelerated Moore’s Law, taking off much like Star Wars’ Millennium Falcon blasting into hyperspace. As Zachary Tumin notes in Doing Business the Data Driven Way: Pathways to Success in the Networked Economy, “As never before,
Barry Hochfelder
Editor Supply & Demand Chain Executive
Bhochfelder@sdcexec.com
you can see and be observed, talk to and be talked about, sense the present and predict the future.” What’s making the difference? The combination of social tools and big data. “Everyone is digitally empowered. Social tools have surfaced in the enterprise and are changing the very fabric of business and engagement. We are mobile, and apps on phones and tablets give us new ways to discover and collaborate, one by one or by the millions,” Tumin writes. “Meanwhile, firms have stockpiled huge stores of historical transaction data. Married to the new digital exhaust of our calls, tweets, clicks, and texts, this can create powerful insight to the past, the moment, and the future—and competitive advantage for companies that unlock it.” It’s a challenging time, to say the least, to be a Chief Procurement Officer. Today’s CPO has to be thinking of tomorrow. Why? Because real-time is no longer enough. Globalization, new business models, and an empowered customer and workforce have accelerated the pace of business beyond what seemed possible just five years ago. And old ways of doing business simply won’t cut it anymore. Projecting future market and competitive dynamics is only half the battle. To succeed, businesses must be able to innovate and adapt processes quickly to capitalize on market shifts. Staying ahead of the curve and the rapidly—sometimes suddenly—changing market conditions won’t be easy. But it will be a necessity. Strategy, flexibility and execution are the keys. The times, as Bob Dylan sang, they are a-changing. The convergence of trends like cloud computing, social media, mobility and enterprise applications can deliver the speed and agility required to survive in this New World order. Many already have embraced them. Realizing that they can no longer be competitive on their own,
an increasing number of companies have turned to business networks to efficiently engage and collaborate with their entire universe of trading partners. And they’re driving completely new levels of productivity and performance. According to McKinsey & Company, companies using collaborative technologies to align with their partners outperform their peers in every category of business performance by a wide margin. A CFO Magazine study of global finance executives found that they viewed using cloud-based technologies and business networks to better discover, connect, and collaborate with their customers, suppliers, banks, and other trading partners as a top priority for agility and growth. A CIO Magazine study found that IT executives also are prioritizing investments to improve external collaboration. A decade ago, there was serious debate about the viability of networks as a channel for business, or even a tool to power it. Today, they are clearly a driving force of innovation and growth. In this special issue of Supply & Demand Chain Executive, we look at how business networks have transformed procurement and supply chain and how they will continue to do so in the future. In addition to the previously noted network piece, be sure to read our cover story that looks at the new face of procurement (Page 5); a Q&A with Marcell Vollmer, CPO of SAP, that explores how business networks have opened the door to greater collaboration between procurement and finance (Page 14); predictions for the future of business networks (Page 9) and three case studies, outlining how networks are transforming buying, selling and managing cash at leading companies (Page 17). Enjoy the issue. We hope it brings you greater knowledge and success. ■
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cover story: the future of procurement
The Next Big Thing The future of procurement has arrived. And it’s all about innovation and results
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ost savings. Process efficiencies. They’re synonymous with procurement and among the terms most used to describe its role within the enterprise. And with good reason. Over the last decade, procurement has transformed itself from a backroom function to a strategic capability by delivering them. But a new term has entered the lexicon: innovation. There’s no doubt that procurement today is a different game. It’s more connected, informed and some might even say “social” than ever. Just as consumers tap into personal networks to learn, share and shop better, procurement is beginning to tap into the intelligence from business networks to drive new levels of collaboration and insight. “A paradigm shift in the way trading partners communicate, transact and collaborate is under way and business networks are at the core of this shift,” says Andrew Bartolini, Chief Research Officer, Ardent Partners. According to “Selecting the Right Network: Collaboration and Networks for a New Economy,” a recent study conducted by Bartolini, 85 percent of enterprises use business networks to support purchase orders, 76 percent to manage invoices and 79 percent to handle payments. And Bartolini predicts these numbers will
continue to grow. “In today’s business climate, a clear plan that includes more collaboration, better technology, and superior communication and connectivity is what is needed to succeed,” he says. “Business networks will continue to play an important role in driving this.” In their initial phase, business networks were all about connecting companies more efficiently to perform a discreet process such as buying, selling and invoicing. Today’s networks are smarter, faster and more global than ever. And companies are harnessing the connectivity and insights they provide not only to optimize these processes, but to enable new ones that drive innovation and value across the entire enterprise. Processes like dynamic discounting that allow them to secure discounts that can be reinvested in research and development and funding to expand their business. Or contingent
workforce management through which they can identify and manage highly-specialized resources needed to develop that next-generation product. Social tools much like those used to manage our personal lives have infiltrated the enterprise, and this too is changing procurement. Case in point: there are officially more mobile devices than people in the world. More than a billion of us participate in social networks. Over 15 billion web-enabled devices connect us to the people and information we need to manage our daily lives. And data is exploding—doubling about every 18 months. “We are mobile, and apps on our phones and tablets give us new ways to discover and collaborate with our peers and trading partners,” says Rachel Spasser, Senior Vice President and Chief Marketing Officer, Ariba, an SAP company. “Consumers tap into social networks to keep tabs on their relatives and friends, SPECIAL ISSUE Supply & Demand Chain Executive 5
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cover story: the future of procurement and companies are now leveraging business networks to manage their trading relationships and activities.” As Spasser points out, we live in an “always on” culture in which everyone is digitally empowered. And while business networks may initially have been about connecting buyers and sellers, today, they’re all about making them smarter. Business networks have sparked an explosion of a new class of “unstructured” data—texts , tweets, blog posts, web-based videos, and other social postings. And it is this data—along with all the interactions, transactions and commentary— that will drive the next wave of procurement transformation. “Traditional structured data such as information on production, marketing, sales and pricing, HR, finance, facilities and operations, and transaction-level data from supplier, customer, and partner relationships may serve as the foundation for analytic efforts,” says Spasser. “But by combining it with this unstructured information, companies can gain additional insights that enable them to make better business decisions.” And procurement can lead the way. Leveraging the hundreds of billions of dollars of financial transactions and transactional data along with relationship history that resides in business networks buyers and sellers can make more informed decisions by detecting changes in buying patterns or pricing trends and provide confidence and qualifying information on a potential, yet unfamiliar, trading partner. And, when combined with communitygenerated ratings and content, they can glean not only real-time insights, but also recommended strategies for moving their businesses forward. This is exactly what MSC Industrial Supply Co., is using
“In today’s business climate, a clear plan that includes more collaboration, better technology, and superior communication and connectivity is what is needed to succeed.”
business networks to do. One of the nation’s largest maintenance, repair, and operations (MRO) distributors, MSC signed on to the Ariba Network more than a decade ago, primarily to provide its customers with an accessible and reliable way to identify, order, and receive products quickly and efficiently. And in the process, it boosted its sales by more than 100 percent. Now, CEO Erik Gershwind says the company is leveraging the intelligence within the community to help fuel innovation across its operations and that of its customers. “We are experiencing pockets of resurgence in manufacturing in North America driven by a shift in focus from finding the cheapest source of goods to leaning out the supply chain to become more efficient and decrease the time to market,” Gershwind said. “The key to achieving more efficiency and quicker time to market is flexibility and speed on the part of suppliers, and business networks are at the heart of this.” Through the Ariba Network, MSC is able to access detailed customer purchase data. Using this data, he adds, the company has been able to make recommendations on how its customers can streamline their operations to achieve these goals. “We are able to engage our customers in completely new ways through the network and that gives us a significant advantage over our competitors,” Gershwind says. Like MSC, many companies are
beginning to recognize that they can gain new insights by being connected to a community of their partners and peers. And they are using this information to anticipate trends and risks in their supply chain and adapt their processes to act in ways that create market advantage. It’s called the Predictive Business. And while it may sound like a pipe dream, it is fast becoming a reality. Fueled by business networks, innovative procurement organizations around the world are seizing the future and creating advantage they never thought possible. At pharmaceutical firm Ratiopharm, for instance, breakdowns in its supply chain were often uncovered only after customers complained about overdue orders. To remedy the problem, the company introduced collaboration software that allowed it to detect issues first in weeks, then days, and ultimately hours. And on-time fulfillment rose from 82 percent to 98 percent. Plenty of companies remain on the sidelines watching as business networks continue to take hold. But enticed by the outcomes like this, more will surely join the game. Led by procurement, they will exploit the insights and intelligence of entire communities to break down the barriers to collaboration. They will forge new ways of operating that drive innovation and competitive advantage. And they will transform business in ways never thought possible. ■
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cover story: the predictive business
Delivering the Business of Tomorrow, Today Alexander Kirch/iStock/Thinkstock
Leveraging the insights and intelligence of business networks, innovative procurement organizations are predicting the future and shaping it to their advantage
W
e live in a world where we can see and be seen, talk and be talked about like never before. We can discover, connect and collaborate with peers and partners across the street or around the globe more in ways that simply weren’t possible ten, five or even three years ago. We can glean insights and intelligence from entire networks that enable us to learn from the past, capitalize on the present and chart an effective course for the future—all in real time. But business is moving faster than ever. And real time is no longer enough. To get and stay ahead of the competition companies must not only sense the present, but see the future and proactively shape it to their advantage. They must anticipate risks
and trends in the market and develop plans and adapt processes to execute on them before anyone else. Fueled by business networks, innovative procurement organizations are helping to drive this transformation, seizing the future and creating advantage for their companies they never thought possible. Leveraging input from real-time market dynamics and historical market trends from networks of partners and peers, they are predicting the future with accuracy. Analyzing the actions and results of other enterprises or individuals within their communities that have been exposed to similar conditions in the past, they are assessing a myriad of potential actions and identifying
those with the highest propensity for success. And they are capitalizing on these predictions by rapidly adapting businesses processes to execute the optimal action in advance of market changes or the competition. Why? Because they recognize that what you can’t predict, can hurt you. In today’s fastpaced, global economy, knowing that a key manufacturing site just caught fire and orders will go unfulfilled, or that a key supplier outsourced production to a manufacturer cited for workplace safety issues is unacceptable.” Companies that fail to sense potential market, commodity, or supplier risks face not only higher costs but missed sales opportunities. Businesses without a clear view into their spend will miss opportunities to control their costs and more effectively manage their capital. That’s why, with increasing frequency, procurement organizations are plugging into business networks and mining the intelligence within them as an integral part of their strategies. They’re teaming with logistics and combining in-the-moment purchasing data with historic trends SPECIAL ISSUE Supply & Demand Chain Executive 7
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cover story: the predictive business to predict stock outs before they happen and direct replenishment. They’re identifying future risks in the sub-tier supply chain by analyzing real-time supplier performance inputs such as change in payment status, loss of a key customer, change in leadership, commodity price or supply fluctuations alongside historical results and combining this data with recommendations for alternative suppliers from other likebuyers on the business network to quickly mitigate them. And they’re inspiring a predictive revolution that is transforming every function across the value chain. Following procurement’s lead, marketing is gathering insights from business network transactions to identify prospects and develop optimal offers to reel them in. Think coupons delivered to the mobile devices of window shoppers as they gaze upon the merchandise on display. Sales is engaging customers wherever, whenever, and however
they want to buy – be it online or in physical stores. Engineering and product development is tapping into social sentiment and retail or wholesale buying patterns to detect preferences for new products and features to bring the right products to market at the right time. Service organizations are leveraging realtime diagnostics information from Internet-connected products and cross-reference it with historical usage and wear patterns to predict future product issues and head them off before they happen. The benefits of Predictive Business are both clear and quantifiable. So too are the risks of ignoring it. Everywhere you look, information, objects, and activities are moving at incredible speeds. And companies are using technology to share what they do, buy, think, and watch—at the moment it is occurring. It’s a fundamental shift. And it’s driving the future of procurement. There will be laggards and leaders
Optimize and Compete: COSCO’s Logistics Networks Firms often face tough trade-offs at the margin: safety for speed, speed for accuracy, accuracy for volume. Instead of trading off one highly sought outcome for another, new data helps firms get more of everything. They push the possibility frontiers out, optimize better, and get more value from the same or even a reduced input mix. Take China’s Ocean Shipping Company (COSCO). The company faced a quandary. Its global distribution network was growing by acquisition. Managing for cost, COSCO had to reshape and resize networks and nodes to take best advantage of the new flows now possible. But COSCO had more goals in mind from the acquisitions—from great customer service to reduced carbon footprint. Modeling with “real-time” data on thousands of flows, products, and customers, COSCO struck gold. It closed 60 of 100 distribution centers without, it reported, losing service quality. It also reduced logistics costs by 23 percent, and reduced carbon emission by 15 percent—or about 100,000 tons annually. “We see the work we’ve done to optimize our supply chain as a ‘win-win’ proposition,” COSCO’s chief supply chain officer told reporters. “We are stronger competitively. And better able to meet our goal of corporate social responsibility as we grow.”
in this brave new world. The laggards will remain content to process and react to information in real time. Leaders will understand the need to move faster and sense and predict things to drive smarter, better decisions and deliver the business of tomorrow, today. ■
Socialize Work: Get the Eyes of the Crowd on Your Problem Sometimes “Big Data” is the intelligence many humans together can bring to bear on shared problems. Sometimes, advantage comes from exposing the insight that one person has to someone else who needs it. Supply chains are notorious for glitches—even more so today as they extend around the world. That makes visibility to problems anywhere, anytime essential. But when Tony Martins came on to Ratiopharm as the pharmaceutical firm’s vice president for supply chains, breakdowns were so invisible that management often first learned of them months after failure— when customers complained about overdue orders. After Martins introduced collaboration software, glitches began surfacing in weeks, days, and then hours. “Individuals would post the problem and other individuals would solve the problem,” Martins told a reporter. With that new visibility Ratiopharm improved on-time fulfillment from 82 percent of orders to 98 percent, and held it there for three years.
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cover story: predictions
Business Networks:
Disrupt and Conquer P
lenty of companies have plugged into business networks to collaborate more efficiently. Many are now supercharging their efforts, harnessing the insights and intelligence of entire communities to break down the barriers to collaboration that remain and enable new processes that drive innovation and competitive advantage. But these aren’t your Father’s networks. They’re smarter, faster and more global than ever. And they promise to transform procurement in ways never thought possible. Here’s are five things you can expect:
Lurkers will get engaged Plenty of companies have taken to the sidelines and are watching as innovative companies embrace business networks as a new model for business. But they will join the game and make collaborating via networks a priority.
Companies will get smarter Networks are the most efficient, effective way to connect with a global network of partners and transact business. But their real power lies in what goes on inside them - all the interactions, transactions and commentary, and the massive amounts of insights and data that they generate. Companies will move beyond transactions and tap into these insights and data to drive competitive advantage.
Collaboration will drive innovation Social tools and business networks
have changed the very nature of business and engagement. Companies today are more connected and mobile than ever. And they will leverage this to enable new processes that are only possible in a networked environment and drive innovation across their operations.
networks to find the right partners and optimize their spend and supply chain. Sellers will use them to engage with customers when, how and where they want to be engaged to increase satisfaction and wallet share.
Buyers and sellers will get closer
Just as consumers tap into personal networks to learn, share and shop better, companies will tap the ‘knowledge of crowds’ and insights from business networks to not only sense the present, but see the future and proactively shape it to their advantage by anticipating risks and trends in the market and developing plans and adapting processes to execute on them before anyone else. ■
In their initial phase, networks were all about connecting companies more efficiently to perform a discreet process – buying, selling, invoicing, etc. Today, buyers and sellers are using them to enhance and expand their relationships. And this trend will accelerate. Buyers will harness the connectivity and insights of
The business of the future will be enabled today
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analyst viewpoint
Ridofranz/iStock/Thinkstock
Finding the Right Network Bigger isn’t always better. But when it comes to business networks, size, scope and total cost do matter By Editorial Staff
I
n the world of nature, an ecosystem is made up of all the animals and plants in a particular area, and the way they relate to each other and to their environment. It comes from the word ecology, which The Cary Institute of Ecosystem Studies in Millbrook, N.Y., defines at a deeper level. To them, it’s “the scientific study of the processes influencing the distribution and abundance of organisms, the interactions among organisms, and the interactions between organisms and the transformation and flux of energy and matter.” There’s an ecosystem in the business world, too. It’s called a network. According to a recent study by Boston-based Ardent Partners, business networks are at the core of a paradigm shift in the way trading partners communicate, transact and collaborate. More companies are using business networks more frequently and achieving greater results, says Andrew Bartolini, Chief Research Officer at Ardent Partners, and author of the study—Selecting the Right Network: Collaboration and Networks for a New Economy. While more companies are using business networks more often, he warns that establishing a good network is not just plug-and-play.
“Not all networks are created equal,” he says. “While many offer compelling benefits, the focus, features and models of different networks can and do vary greatly making the selection of a network significantly more complex, but also, significantly more important.”
The TCO Approach Much of the complexity comes from the rapidly accelerating speed of business combined with shifting, expanding, merging and emerging markets in an interconnected global marketplace. The pressure to remain competitive can be excruciating. Ardent Partners, which focuses on supply management strategies, processes and technologies that drive business value and accelerate organization transformation, says the right network can be identified by using a Total Cost of Ownership (TCO) approach. TCO is a method to determine the value and cost of an investment. The approach, Bartolini says, “gained popularity in the 1990s among procurement and sourcing
professionals. The idea is to move beyond looking solely at purchase price and incorporate all costs associated with purchase and maintenance of the item or service over its lifecycle to calculate total cost.” The best way to understand TCO is by looking at a case where it wasn’t followed. Remember the Yugo? If you bought one, you do. In 1985, the Yugo looked like a value. Standard features and a list price thousands cheaper than most other cars. Sales grew rapidly. But, as often is said, if it seems too good to be true, it probably is. Soon owners were complaining of engine failures, faulty transmissions, bad brakes, poor electrical systems, and horrible dealer service. The total cost of ownership was significantly greater than the purchase price. Just a few years later, Yugos were no longer sold in the United States. So, what do you do? Before analyzing the costs and benefits of a specific network, the first decision is determining what kind of network best meets the requirements of your
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analyst viewpoint organization. “The overall growth of the network market has driven the emergence of a number of different types of networks that offer distinct value propositions,” Bartolini says. “Some of the questions that should be answered include: Is there a specific business process [or several] that must be supported? Is there an interest in conducting transactions with partners in a distinct region or vertical market? Are there technical requirements that must be met? Are there specific valueadded capabilities that can benefit the business?” The Ardent report focuses on six different network types, each with a specific target audience. ■■Global Business (B2B): focusing on sourcing, procurement, supply management, accounts payable operations within global enterprises, sales, marketing and finance. ■■Payment: focusing on accounts payable departments. ■■Data Standards: focusing on supply chain. ■■Industry: focusing on trading partners in one specific industry (oil & gas, energy, aerospace, retail, etc…) ■■Category: focusing on trading partners in one specific category (MRO, contingent labor, logistics, etc…) ■■Country/Regional: focusing on trading partners in one country or region.
Network Characteristics As the interest in business networks grows, competition in the arena is growing along with it, so Ardent predicts that different networks will adopt different strategies and develop different capabilities in an attempt to win market share. Along with the cost of choosing the right network,
value generated from different offerings must be weighed in the final outcome. Ask these questions. 1. How many existing and active suppliers are in the network? It stands to reason that the bigger the network, the greater the percentage of an enterprise’s current suppliers is active on that network. That results in a reduction of time and effort to onboard suppliers. That’s a definite plus because it should drive more gains more quickly. 2. What is the geographic reach of the network? This is very important because some networks specialize in ensuring compliance with the unique trade policies and regulations of specific countries and regions. There also are global networks that manage these issues in most major trade regions in the world and have shown an ability to enable suppliers in the most remote places on the globe. Specific language support also is important. 3. What is the vertical focus or expertise of the network? In addition to driving high supplier match rates, networks that can aggregate supply markets, identify excess capacity, set industry standards and promote best practices add extra value. Based on their sheer size, the largest business networks often are able to develop this type of market depth and expertise while remaining horizontally focused. 4. What are the capabilities and information available to buyers and sellers? The easier the method of collaboration, the stronger its impact on supplier relationships and performance. Bartolini says that “collaboration between buyers and suppliers today is primary conducted via traditional methods, such as phone calls, emails and meetings. Networks, however, can enable a higher level of connectivity between
trading partners and can increase the time available for strategic interaction and communication by decreasing the time spend on tactical matters.” In the same way that social networks have impacted personal communication and interaction, the quality of communication can be improved by embedding it within a transaction or around a specific network issue or opportunity. 5. What are the types of business processes and documents supported? Certain networks may specialize in one business, like vendor payments or a sub-process like managing inbound receipts. Other, more advanced business networks support and expanded series of processes. “Those that focus on the Source-to-Settle process,” says Bartolini, “offer cloud-based and network solutions that include spend analysis, sourcing, contracts, procurement, supplier catalogs, supplier information management, master data management, invoice processing and payments.” 6. What is the network business model? Process automation can reduce transaction processing costs by up to 75 percent and that benefit alone can justify the business case for network adoption. However, there are different models that must be evaluated. Some networks, for example, charge subscription fees for network access that are either direct charges for the network or bundled in with the cost of using any on-ramp applications while others take a volume-based approach to fees, charging buyers and often suppliers based upon the number of documents, transactions and catalogs, or the dollar value of the transactions processed over the network. Some networks take a hybrid approach, charging both for access and some level of transactions. Others view SPECIAL ISSUE Supply & Demand Chain Executive 11
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analyst viewpoint one side of the transaction as their core group of customers and may only charge buyers or use a supplierfunded model, while others charge fees from both groups. 7. What associated services are offered? Beyond a network’s core services, it—or third-party providers—may also offer services to enhance network value, including public auction and public catalog functionality, or supplier enablement services to receivables factoring and search-based advertising. 8. What are its related technologies or solutions? Enterprises need on-ramps to access networks and most of the business networks provide it by selling software solutions that automate all or part of the source-to-settle process. As such, Bartolini suggests, a decision on selecting a business network often is part of a larger technology decision. “The reality is that there can be significant differences in the types and quality of solutions offered by network providers and where the same solution footprints are offered there can be great variance in the available features and functionality. A powerful network experience can be eroded if the software used to access it is below grade.” 9. What are its integration capabilities? Different networks will have different approaches and experience with integration to other systems. While pre-built adapters and streamlined integrations can be seen as a benefit, integration capabilities—or lack of them—can create significant costs.
Using TCO to Select a Network Ardent’s study indicates that an investment in a network has become a very strategic decision that will have an impact on operations and results for many years. “It warrants
a detailed analysis that incorporates the value derived from the network, such as expected benefits, incremental benefits and costs savings, as well as the initial and ongoing costs of accessing and using the network,” Bartolini says. Ardent breaks the format into value factors and cost factors, both from the buyer and seller perspectives.
Value factors include: ■■Efficiency and effectiveness gains (the cost savings generated from increased process automation, improved visibility, and resulting better decisions). ■■Network characteristics (differentiators and the value they can generate, including number of existing and active suppliers, geographical reach, focus and expertise, partner ecosystem, capabilities and information available to buyers and sellers, and more). ■■Internal stakeholder value (the value of network participation can easily extend beyond procurement and accounts payable to include finance, treasury, IT, risk management, sales and more). ■■Supplier value (extends to several constituencies within the supplier organization, including finance, accounts receivable, supply chain, and order management. They can leverage process automation to lower costs and improve performance).
Cost factors include: ■■Network (buy side) access (the costs for a buying organization to gain access to a network include network license or subscription fees, IT and other integration costs, and training.) ■■Network (buy side) ongoing
usage (any buyer fees associated with maintenance, support and transaction or volume-based usage fees). ■■Network access and ongoing usage, (these are suppliers’ direct costs and can vary by network and tied to access or volumebased usage. Some networks have no direct supplier charges.) ■■Network access and ongoing usage indirect costs (including resources dedicated to enablement, training and ongoing access and network usage.) ■■Opportunity costs (a very real cost that is often overlooked and most significant in fast-growth and innovative industries like B2B networks). As network providers continue to advance, grow and deliver new services, the factors involved in selecting the right network are expanding. These include current offerings and capabilities, complementary support and services, and many other cost and/or pricing options. Many enterprises assume that the value generated by all networks is equivalent and fail to examine and analyze them beyond their initial start-up and usage costs. “The selection of a business network has become a strategic decision and one that should be based on total value and cost, not simply price,” Bartolini sums up. “There are many factors and variables that go into the selection. By ignoring the benefits of a network’s unique characteristics they fail to incorporate operational and financial factors that should influence their network selection. To avoid these mistakes, Ardent Partners strongly urges enterprises to use the TOC framework to ensure that the right network is selected.” ■
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cpo viewpoint
Procurement and Finance Collaborate to Win through Business Networks Business networks have opened the door to tighter alignment between procurement and finance. And it’s paying dividends. Marcell Vollmer, CPO, SAP, has the numbers to prove it.
Carrie Mantey, Associate Editor Supply & Demand Chain Executive, conducted an interview with Marcell Vollmer, Chief Procurement Officer, SAP.
(e.g. raw materials). At SAP, we try to develop business scenarios, which allow us to mitigate risks and ensure that we can provide the supplies needed - mostly indirect spend.
Marcell Vollmer
SDCE: As a chief procurement officer (CPO), what keeps you awake at night? Vollmer: Unpredictable events. This may be the overall economic situation as we saw back in 2008, unforeseeable climate catastrophes like Fukushima or scarcity of supplies
SDCE: Your vision is for procurement to be a trusted advisor to the business for all procurement-related activities globally. How are business networks helping you to achieve this goal? Vollmer: Business networks contribute significantly to our main goal to achieve sustainable savings for the company by enabling us to purchase goods and services for the best price at the desired quality and ensure in-time delivery (Triangle of
Procurement). We brought 1,100 suppliers onto the Ariba Network within less than six months. And this allowed us to leverage our purchasing power by using e-sourcing and performing e-auctions that in several cases, led to two-digit cost savings. On top of the purchasing benefits, business networks also allow us to reduce our transactional costs. When we send a purchase order (PO) via the business network, a supplier receives and can convert it to an invoice with a few clicks, and send the invoice back based on a PO in a fully automated way. After we receive the goods or services, the invoice is paid automatically according to the agreed payment terms. What is really impressive is that our suppliers are benefiting from the business network in both dimensions: 1. Suppliers get access to a marketplace with more than 1.4 million companies transacting over $500 billion in spend volume on an annual basis, and therewith, they get access to a huge customer base. 2. On top of the additional selling opportunities, they benefit from the automation of key processes, which reduces their transactional processing costs. SDCE: How have business networks improved your processes? Vollmer: In my role as business owner for the entire procure-to-pay
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cpo viewpoint process, the main objective is to provide end-to-end optimization to improve productivity. Business networks—and the cloud-based applications delivered on them—are a fast and efficient way to do this. We have introduced a system through which all processes can be automated —and not just external ones like sourcing and orders, invoice and payment, but internal ones like travel and expense and procurement. For instance, we have enabled an end-to-end reimbursement process that can be completed anytime, anywhere, using any device. When somebody from our company is traveling and gets a travel receipt, it can be scanned on each mobile device, uploaded into the system and get reimbursed as soon as the trip is completed. This saves a lot of time, and is highly appreciated by our more than 16,000 consultants, thousands of sales executives and other travelers in all lines of business. We are doing the same for all purchasing events. All purchase requisitions start in the catalog we’ve created on the Ariba Network as a single point of entry. Ideally, a product or service is available on the catalog, and then the transaction runs through the system, fully automated. If a product or service is not available, the responsible buyer is alerted and can start the process of finding either a preferred supplier who can deliver it or discovering a new one. SDCE: You’ve seen some pretty significant results in terms of cost savings and efficiencies. Can you discuss these in more detail? Vollmer: Overall, we’ve increased our automation rate by 50 percent. We’re automating more than 180,000 invoices. This is 25 percent of our overall transactional volume of more than 720,000 invoices annually.
The global economy is changing fast. We see more and more the importance of networks, which is another kind of innovating, a business model innovation. The cost savings are very impressive, too. Our first e-auctions brought down prices by a two-digit percentage. In the area of office supply, for instance, we reduced our costs significantly. And we are currently performing a couple of e-auctions on more complex material, like network server and storage, with high savings. SDCE: Were you surprised at how quickly you were able to deliver these results? Vollmer: Absolutely, yes. The speed of running procurement on the network is amazing. An e-auction takes less than one hour to see results. A request for information or for proposal is created in a highly automated way by using templates and is available on the network to a selected group of suppliers (or all suppliers if you want to publicly run it) in a very short timeframe. We also didn’t imagine that the implementation time would be so short and easy. My team was able to get four solutions up and running within three months because we applied the best practices Ariba provides and did not try to bring our existing processes into the cloud solutions. SDCE: In addition to procurement, you also head up shared services. How do you see business networks transforming the finance function? Vollmer: In 2008, we created a global finance shared services organization. And we are leveraging the Ariba Network across this
organization and seeing benefits in two areas: 1. We’ve improved PO automation and quality by directly sending documents to our suppliers from an e-sourcing event. 2. As we receive invoices via the network that are directly linked to the PO from our suppliers, we no longer have to scan them or enter any invoice data into the system, which leads to a significant workload reduction in our shared services organization. Overall this has resulted in a 20 percent productivity gain and a 50 percent higher automation rate of our global invoice volume. SDCE: Are business networks changing the dynamic between procurement and finance? Vollmer: As procurement and finance report both to the group chief financial officer, we collaborate quite closely to discuss areas for improvement. But the high automation and optimization of the processes that we are driving through our use of business networks has significantly benefitted both functions. The 50 percent increase in invoice automation and 20 percent productivity increase in the end-toend procure-to-pay process allow us to free up resources and allocate them to other more strategic tasks without hiring new people. SDCE: You talk about becoming more strategic. Can procurement eventually become a platform for innovation? SPECIAL ISSUE Supply & Demand Chain Executive 15
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cpo viewpoint Vollmer: Procurement has to move to become a strategic function and provide solutions for the business of the future. Procurement is more than just purchasing goods and services. It has to understand the business needs, the supplier market, and provide sourcing solutions to ensure the line of business gets the requested goods and services for the best price. Price and savings are not the only things that count. Quality and time matter too. But innovations will play an increasingly key role. In our industry, we have to deliver innovations. As a software company we want to help other companies to implement innovations to optimize their end to end processes. One good example of this is mobile shopping cart approval. About two years back, we developed a solution together with our internal information technology (IT) to make the approval process for buying goods and services internally easier using online shopping carts. Cost center managers like very much the new flexibility they get by reviewing and processing shopping carts on their mobile device and can do it online or offline wherever they are. We then took this functionality external to our customers. So procurement, in essence, led the way on an innovative new product feature. SDCE: What role can business networks play in driving the future of procurement? Vollmer: The global economy is changing fast. We see more and more the importance of networks which is another kind of innovating, a business model innovation. Look at Facebook as one great example, but also Google or eBay. I see a general trend that business is moving into a networked economy. Instead running sourcing in a manual way which keeps the
know-how only on a buyer level, we can now use predefined standards and reach out to a much broader range of suppliers globally. We can see, by ourselves, that we discover suppliers through business networks that we never could find to purchase goods or services in countries where we don’t have the experience or countries we are just expanding business. SDCE: Did you face any internal resistance in shifting to a networked model? Vollmer: At the beginning of the implementation, the people on my team were a bit hesitant about the new solutions and the decision to move strategic procurement to the cloud. They wanted to know what Ariba could offer and how they could use it for the 3.6 billion euro indirect spend that they are responsible for managing on a global level in five categories: IT, Professional Services, Marketing, Facility Management and Mobility Services (Travel and CarFleet). SDCE: How did you overcome this? Vollmer: We did some demos to show the category teams how the future would look, but I have to admit, it takes time to get to the heart
of the people. Seeing something nice is different from using it. The full buy-in came when the team got access to the solutions and really started using them in day-today business. What helped a lot was the success of the first e-auction. Everybody on the team was excited. When they saw how fast it goes and how dramatically the prices were going down. SDCE: What advice would you offer to you peers who attempting to orchestrate similar change using business networks? Vollmer: It starts with the top management and clear guidance of what you want to achieve by when. You need to make this a top priority and an objective for your procurement organization. I was signing the mails to our suppliers by myself and had a lot of discussions to get buy-in from them. We have started with on onsite event for the biggest supplier to provide them first hand with our strategic priorities and to introduce the network by seeing it up and running. Our suppliers, our internal stakeholders and the entire procurement team have to feel that this is an objective and they need to understand the benefits. â–
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buyer viewpoint
Caesars Bets on Ariba and Wins with Diverse Vendors Entertainment giant goes all-in on cloud-based applications and services, quickly boosts diverse spend while racking up savings
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aesars Entertainment Corp. maintains a sourcing culture of economic inclusion and its Horseshoe Cincinnati property aggressively drives public outreach events to actively encourage diverse vendors to participate in RFPs. In sourcing a local supplier of CO2 for the venue, Caesars decided to try a new approach. It took a chance and signed on to Ariba Discovery, the premier service for matching buyers and sellers globally offered by Ariba, an SAP company—and ultimately won big. Delivered via the Ariba Network, Ariba Discovery simplifies the process of supplier discovery by instantly matching buyer requirements to seller capabilities “We created a posting and received strong bids from a number of suppliers, importantly diverse ones as well,” said Kory Manley, Strategic Sourcing Process & Compliance Manager, Caesars Entertainment. “The best price came from a womanowned supplier based in Cincinnati that would have been challenging to find absent the technology and detailed processes found in Ariba Discovery. These allow us to cast a wider net in our quest to find quality, service and price across a large number of small and diverse businesses.” Caesars kept at it, creating additional posts on Ariba Discovery to expand its supply base and increase competition in the sourcing events
it runs using Ariba Sourcing. “It doesn’t take much time to do, and you may just find that there are more suppliers than you think, especially minority, women and disadvantaged businesses,” Manley said. “It’s now an essential piece of our regional supplier diversity outreach program,” said Jessica Rosman, Director of Supplier Diversity and Sustainability, Caesars Entertainment. Caesars received an average of five bids per post and was able to find a new supplier of baked goods for its casinos and lessen its costs by 10 percent. The company also identified low-cost country suppliers of banquet chairs in half the time it used to take before tapping into Ariba Discovery’s supplier base. And because Ariba Discovery is fully integrated with Ariba Sourcing, Caesars was quickly able to add these suppliers to its database and collaborate more efficiently with them across the sourcing process—from discovery and award through contract delivery. “Ariba Discovery is all about simplicity and speed,” Manley said.
“Receiving responses in a single location, with exactly the details we need, makes it easy for us to evaluate, compare, and respond to proposals. And having access to suppliers already transacting on the Ariba Network simplifies things even further. Knowing that Ariba captures diverse suppliers and offers an instant source of opportunities for us to engage those suppliers gives us a competitive advantage in our mandate to drive economic inclusion.” In the past 12 months, more than $5 billion in new business opportunities were offered through Ariba Discovery, more than 15 million leads distributed, and more than 30,000 matches between buyers and sellers made. “With over 1 million sellers worldwide, Ariba Discovery is the fastest, most efficient way for buyers to discover, connect and collaborate with a global network of diverse partners who can deliver goods and services across a comprehensive range of categories at prices and terms that enable them to gain advantage in the marketplace,” said Rob Mihalko, Vice President, Seller Marketing and Ariba Discovery. ■
To learn more about Ariba Discovery and the results it can deliver for your organization, visit: http://discovery.ariba.com SPECIAL ISSUE Supply & Demand Chain Executive 17
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seller viewpoint
Arizona Uniform Gives Invoicing New Look Company integrates with Ariba Network to more efficiently connect with customers and speed payments; saves 3 percent on gross billings
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hen a major customer decided to start processing all of its invoices electronically using purchasing cards, Arizona Uniform & Apparel was staring at approximately $15,000 a year in additional fees, plus the costs of integrating EDI software with its internal financial system. And it would still have to track payments manually. The provider of industrial uniforms and corporate apparel was convinced there had to be a better way. And it found one in Ariba, an SAP Company. Like many companies, Arizona Uniform & Apparel tapped into the Ariba Network and began connecting to its customer and collaborating around invoicing and payments at no cost. Then the company upped the ante and joined the Supplier Membership Program to take advantage of integration services that would enable it to connect its accounting system—Intuit QuickBooks—to the network. And everything changed. “Ariba was the most cost-effective way to connect with our customer, saving us at least 3 percent on gross billings, which is far more than we could have expected from any of the other solutions we were considering,” said Ann Cantu, President, Arizona Uniform & Apparel. Using the Ariba Integration
Connector, powered by Dell Boomi, Arizona Uniform & Apparel has been able to completely integrate its QuickBooks system with the Ariba Network and create a fully automated invoice process through which it can: ■■Receive instant confirmation of invoice receipt ■■Track invoice status in real time ■■Speed customer approvals ■■Eliminate manual follow-up processes ■■Get paid faster And the company was able to get the solution in place in less than two weeks with almost no internal IT resources. “Integration can be a complex and costly process, but it doesn’t have to be,” said Joe Fox, Vice President, Marketing and Strategy, Ariba. “Ariba’s connection solutions eliminate many of the barriers to integration such as the need for additional hardware, installed software or lengthy managed service engagements, making it easy for companies like Arizona Uniform & Apparel to connect to the Ariba Network where they can fully automate their customer transactions and collaborations directly from their preferred ERP and accounting systems.” An out-of-the-box solution
delivered as a service, the Ariba Integration Connector, powered by Dell Boomi, provides a fast, easy and affordable way for companies to connect to the Ariba Network, regardless of the backend systems they use. The connector currently supports integration with Intuit QuickBooks Premier and Enterprise for the United States, United Kingdom and Canada 2009-2013; Sage Peachtree/Sage 50 Complete, Premium, Quantum and Accountant 2009-2013; and Microsoft Dynamics Great Plains 2007-2012 Editions. ■ Arizona Uniform has supplied quality uniforms and corporate apparel to business, healthcare, government, schools, and the hospitality industry for more than 20 years. They help companies develop customized programs to meet any style and budget, with an in-house embroidery facility that guarantees quick turn-around of customized garments. Screen-printing, emblems and alterations are part of the customization program. To learn more about our products, visit www. arizonauniform.com.
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finance viewpoint
Flint Hills Resources Gets Smart About Invoicing Global refinery leverages cloud-based solutions and business network to drive zero-touch process
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en years ago, the notion that the Internet would be a viable channel for business was laughable. These days, e-commerce is commerce. And it’s not just consumers buying gadgets. Freed from the borders and barriers to commerce in the physical world, companies around the globe are leveraging the connectivity of business networks to discover and collaborate around key processes in new and innovative ways that drive competitive advantage. Take Flint Hills Resources (FHR), a leading refinery and chemicals company. The company conducts business with over 2,500 suppliers on the materials side and several thousand on the services side. Through a legacy, EDI-based tool, FHR was able to perform basic purchasing transmission and electronic invoice processing. But the company knew that to gain advantage in today’s digitally empowered business environment, it needed to do more. The question was, how? Enabling a single supplier on its EDI-based system required significant IT effort for both FHR and its suppliers—so much effort, in fact, that FHR had established connections with just five suppliers. In addition, FHR needed to support business logic for developing validation rules and provide critical functionality for managing credit
memos, freight invoicing and blanket purchase orders (POs). Its existing tool offered only basic automation capabilities and limited visibility into transactions, resulting in accounts payable teams spending significant time working with suppliers to resolve line-level discrepancies. Last, but certainly not least, limited data capture prevented FHR from effectively analyzing its data to gain more control over spend. A new system was clearly in order. So FHR went on the hunt for a solution that would enable it to: ■■Create a sustainable competitive edge in the procure-to-pay process by reducing accounts payable costs through a zerotouch process ■■Improve control over spend through better transaction data visibility ■■Eliminate hidden P2P transaction costs between FHR and its suppliers through consistent processes And it found what it was looking for in a business network through which it could seamlessly connect its IBM Maximo Materials Management system and the systems of its suppliers and access applications that would allow the company to collaborate more efficiently with its partners across the entire commerce process. Using Ariba, an SAP company, FHR has put in place a new system through which it has been able to
automate the exchange of outbound POs, PO confirmations, advance shipping notices and inbound invoices and achieve close to 99 percent touchless processing. While many procurement organizations focus their efforts on price negotiations, FHR recognized the value of improving transactional efficiency to lower procurement cost. As FHR sees it, the high cost of an inefficient transaction can wipe out the savings from carefully negotiated pricing. That’s why, out of the gate, the company configured business rules for invoice processing to ensure complete adherence to price and quantity tolerances. This combination of efficient and effective automation and data integrity has resulted in FHR realizing significant savings in its overall cost of procurement. With a more clear and total view into transaction data, FHR can more accurately manage its spend across categories. The company is able to identify bottlenecks and quickly move to fix them before they cause disruptions. “Business networks have been a catalyst for procurement transformation at Flint Hills Resource,” says Dan Carpenter, the company’s Director of Procurement Excellence. “With help from Ariba, we can run a leaner organization and have more control over spend as we capture valuable transaction data that we didn’t have before.” ■ SPECIAL ISSUE Supply & Demand Chain Executive 19
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