IBM India e-Procurement 07 06 2004 deeper Rahul

IBM India e-Procurement 07. 06. 2004 deeper Rahul Pasrija © Copyright IBM Corporation 2004

IBM India Contents e-Procurement Benefits of e-Procurement for Public Sector Case Study 2 © Copyright IBM Corporation 2004

IBM India Introduction § Procurement is a competitive differentiator Revenue 100 Profit 5 Other Costs 45 External Expenditures 50 100 +50% 7. 5 0% 45 - 5% 47. 5 • Increase sales by 50% • Reduce overheads by up to 20% 3 © Copyright IBM Corporation 2004

IBM India Procurement challenges and expectations Procurement organizations are expected to lower the material cost coupled with high process efficiencies Negotiation Material costs Prediction Centralized procurement Vendor Leverage Item standardization Vendor base rationalization Process efficiency 4 Activity costs Eliminate non value adding activities Time © Copyright IBM Corporation 2004

IBM India Procurement process The opportunities lie across the procurement process Vendor Base Rationalization Conduct Market Analysis Prediction Models Centralized procurement Develop Category Strategy Complete Supplier Evaluation Select Suppliers & Negotiate Agreement Supply Pay High value buying Conduct Spend Analysis & Determine Customer Requirements Cycle Time Low value buying Value Vendor Leverage Item Standardization Transaction Costs No. of Transactions 5 © Copyright IBM Corporation 2004

IBM India Procurement process Multiple options are available at various points Vendor Base Rationalization Conduct Market Analysis Prediction Models Centralized procurement Vendor Leverage Item Standardization Develop Category Strategy Complete Supplier Evaluation Supply Pay High value buying Conduct Spend Analysis & Determine Customer Requirements • • Value Select Suppliers & Negotiate Agreement e-Requisition e-Approval RFI, RFQ, RFP Tenders • Reverse Auction • e-PO • e-Release • e-Changes • e-Confirm • e-documents: • ASN • Ship status • Receipt • Supplier web report card • e-Invoice • EFT • Credit auth. • Debit auth. • e-Credit/Debit No. of Transactions 6 © Copyright IBM Corporation 2004

IBM India Procurement process Multiple options are available at various points Prediction Models • e-Catalog • Pricing • Availability • Commit • e-Configure Centralized procurement Conduct Spend Analysis & Determine Customer Requirements Low value buying Value Transaction Costs No. of Transactions 7 © Copyright IBM Corporation 2004

IBM India Contents e-Procurement Benefits of e-Procurement for Public Sector Case Study 8 © Copyright IBM Corporation 2004

IBM India e. Procurement benefits Value Drivers Pain Points Mitigation/Savings Estimates 2 3 Improved Process Efficiency Purchase requisition processing time reduction of 70%-80%; averaging a week faster Reduced Product/Process Costs • High transaction costs • Long supplier negotiations • Non contract compliance drives up price Purchase requisition processing expense reduction up to 73%; price of goods 5%-10% less on average • Fragmented data 1 • Long lead times due to high manual processing, 1/3 time spent reviewing manual requisitions Data integrity is improved through contract compliance, strengthening a company’s supplier negotiation leverage Improved Compliance 4 Reduced Maverick Purchasing 5 Reduced Inventory Costs 9 • Unreliable/inaccurate data • Rampant off-contract spend (approximately 27% of indirect spend) Maverick spending decreases up to 51% • Long lead times result in purchase of large safety stocks Inventory expense reduction between 25% - 50% © Copyright IBM Corporation 2004

IBM India Contents e-Procurement Benefits of e-Procurement for Public Sector Case Study 10 © Copyright IBM Corporation 2004

IBM India e-Procurement for Public Sector e-Procurement, a significant opportunity within E-Governance q. Government – an attractive case for e-Procurement Probably the “single largest buyer” of goods and services in a state q. Serious initiatives underway from Austral. Asia to Europe to USA Important Value Drivers w Potential savings – aggregated demand w Cost reduction – process efficiency w Compliance Attractive business models – Public Private Partnership (PPP) As many as 42 states in the USA, in addition to the Federal Government, will embark on some form of e-Procurement project by 2004 (Gartner) 11 © Copyright IBM Corporation 2004

IBM India Case Study – Public Sector National Procurement Limited, Copenhagen-Denmark Solution Challenges Adhere to EU and WTO rules for public procurement processes Ensure transparency and efficiency for both suppliers and buyers An open, secure and scalable e-procurement solution – Electronic Tender Handling, Information and Communications (ETHICS) Solution caters to around 8200 institutions in EU 12 © Copyright IBM Corporation 2004

IBM India Case Study – Public Sector National Procurement Limited, Copenhagen-Denmark Benefits Business Technical è Doubled productivity with same è An end to end, open standards è è è staff Knowledge transfer among employees Improved vendor satisfaction Double digit growth in contract turnover Reduction in administrative costs by 40 -50% Increased transaction transparency and auditing Improved decision making via well defined transparent evaluation process based tender solution based on IBM Lotus Domino è State of the art security including PKI Infrastructure è More user friendly design questionnaire to help buyer automate decision making process è A robust, secure decision support system, based on Lotus Quick. Place and Sametime, enabling teams to meet and collaborate virtually in an online voting room and gain access to important proposal related data Solution caters to around 8200 institutions in EU 13 © Copyright IBM Corporation 2004

IBM India Contents e-Procurement Benefits of e-Procurement for Public Sector Case Study 14 © Copyright IBM Corporation 2004

IBM India Case Study - The IBM Way In 1993, IBM was in midst of a severe financial crisis 1990 1992 1993 $69 B 10 Revenue Op. Income 1991 $65 B 4 $ 65 B 3 $ 63 B -4 IBM Cash Flow IBM Debt 5 1 2 þ 1990 þ 1991 þ 1992 þ 1993 -3 15 © Copyright IBM Corporation 2004

IBM India Case Study - The IBM Way IBM adopted a holistic approach to

IBM India Case Study - The IBM Way The approach encompassed strategic, tactical and operational initiatives as highlighted. . . Strategic Sourcing Global Sourcing Aggregated Sourcing Supplier Relations Management Value Engineering Skills Upgrading 17 Outsourcing Tactical Tax Chain e-Procurement Operational © Copyright IBM Corporation 2004

IBM India Case Study - The IBM Way Supplier Relations Management (SRM) seeks to map the supplier into appropriate relationships. . . Competitive Leverage Preferred Supplier Performance Partnerships Strategic Alliances Relative supplier management skills and effort required Operational, simple trade offs Problem solving Strategic, complex issues Influence stakeholders Influencing the Board agenda Trading Negotiation Complex, multi-dimensioned Limited Team-working Price testing/quotations Confrontational Secure best deal available 18 Market analysis Behaviour Values Cross functional, joint-supplier Market, competitors, technology Principled, trust-based Urgency to prove model works © Copyright IBM Corporation 2004

IBM India Case Study - The IBM Way Effective SRM with appropriate technology support paid rich dividends for IBM. . . Before SRM High and unmanaged Constant Problem Slow 19 Part Cost Design Cycle Time-to-Market After SRM Reduced part cost 15 -25 % Eliminated 50% of parts Reduced cycle time 75% Reduced design cycle time 35% Reduced time to market 70% © Copyright IBM Corporation 2004

IBM India Case Study - The IBM Way e-Procurement applications facilitate the transformation process and enable organisations to sustain the benefits… Sourcing Fulfillment Settlement 20 Internet quoting Auctions On-line contracts Buyers / Requesters Suppliers Authentication / Authorization Information warehouse Requisition / ERP Electronic catalogs "Buyerless" automation Skills matching EDI EFT e-Invoices © Copyright IBM Corporation 2004

IBM India Case Study - The IBM Way IBM realized significant benefits from e-Procurement… Business Metrics Acceptable Business Controls Client Satisfaction P. O. Processing Cycle Time Today 30% <0. 5% 40 -50% +90% 40% Escapes (By Pass) Early 1990's >80% 30 Days 1 hour e-Transaction: Invoice Hands Free ? ? 20% 95% +80% Contract: Cycle Time Length 6 -12 months 40 (+) pages 30 days 6 pages Cost Savings >3% >30% 5% Suppliers Connected via Web 0 27, 000 Savings via Web 0 $380 M Supplier Survey Rating 5 1 Competitive Advantage Ledger Miscodes 21 © Copyright IBM Corporation 2004