Will e Commerce Eliminate Purchasing RIQi Agenda Purchasing

Will e. Commerce Eliminate Purchasing? R=IQi

Agenda Purchasing today, Sourcing tomorrow n e. Commerce to Business n e. Benefits n e. Costs and e. Risks n e. Next steps n Purchasing, eliminated or revolutionized? n Copyright The Pro. Action Group 2001

Purchasing Today n 75% of time spent on transactional tasks – – – – Order placement Order tracking Expediting orders Claims processing Invoice payment and audit Validating perpetual inventory Bill of material creation / re-creation Inspection Copyright The Pro. Action Group 2001

Sourcing Today and Tomorrow Select capable suppliers & build relationship n Lay foundation of information exchange n – n Trust & connectivity Provide suppliers what they need to leverage their infrastructure for you: – – Commitment of supply Demand visibility Strategic plans Customer needs Copyright The Pro. Action Group 2001

Sourcing Today and Tomorrow Align processes to take advantage of tools and technology n Measure and reward n – – – n The supplier Your organization The supply chain (or the supply grid!) Prepare and support change – Leverage supplier expertise Copyright The Pro. Action Group 2001

The Plan Must Tie to the Organization’s Interests n Customer AND Shareholder “Nothing is worse than doing efficiently what should not be done at all” Peter Drucker Copyright The Pro. Action Group 2001

Strategic Sourcing (Eyes / Senses) (Brain) (Muscles) (Skeleton) (Skin) Copyright The Pro. Action Group 2001

Paradigm Shifts e. Business supply chain demand visibility - End User POS to mother earth Supplier Pull - Customer from Supplier Push - Supplier to Customer Utility Time Copyright The Pro. Action Group 2001

A Paradigm Shift Copyright The Pro. Action Group 2001

CAPS - Future of Purchasing & Supply - 5 & 10 Year Forecast n n n The Internet will become the backbone of electronic order communication and metrics publishing. Systems for low strategic value purchases will emphasize electronic efficiency Tactical purchasing will become more automated and consortia and third-party purchasing will become more prevalent – n n head counts will be reduced The Internet will be the front end for proprietary information systems, combining databases accessible by suppliers, purchasing, and customers, to create a seamless link Internet commerce will be commonplace and businesses that do not adopt the world of e-commerce will be faced with extinction Copyright The Pro. Action Group 2001

The Role of the Web 1, 000’s of Suppliers - each with their own system VERY COMPLEX 1, 000’s of Buyers - each with their own system Copyright The Pro. Action Group 2001

The Role of the Web 1, 000’s of Suppliers - each with their own system The WEB 1, 000’s of Buyers - each with their own system Copyright The Pro. Action Group 2001

e. Commerce to Business n n n Web storefront Web marketing Integrated selling Catalog searching Individual to supplier n n n Unassisted selling (VMI) Personalized marketing ERP / Legacy integrated Web configurator Community to many suppliers V=C^i ™ Copyright The Pro. Action Group 2001

Companies Address Business n Enterprise procurement – – n Vertical marketplaces – n Independent Funeral Director’s Cooperative, Chemdex, Plastics. Net, Vertical Net Community Sourcing – – n Ariba, Commerce 1 Suitable for large companies 3 PLEX (Sourcing capacity / shipments) Creates a “virtual Fortune 100” company Research and Sourcing – – – Find Qualify Obtain quotes Copyright The Pro. Action Group 2001

The Purchasing Community Sister Company Loca tion Dept Division Loca tion Dept Sister Company Loca tion Dept Division Dept Loca tion Dept Loca tion Depth of boxes determined by time factor negotiated (zero depth for spot buying) Loca tion Division Sister Company Time Multi-Company Purchasing Volume - units Copyright The Pro. Action Group 2001

e. Statistics n 1997: B to B: $8 B n 1999: B to B: $137 B (Yankee) n 2002: B to B: $327 B (Forrester) n 5% savings increases profits 28% (Killan) Copyright The Pro. Action Group 2001

e. Benefits e. Business saves money 4 e. Business reduces inventory 4 e. Business provides good service 4 e. Business provides good information quickly 4 e. Business makes other systems more effective 4 e. Business provides a new set of internal controls 4 e. Business simplifies administration 4 Copyright The Pro. Action Group 2001

The Ink is In. Dellible “In the future, it will be possible for component suppliers to have a direct window into factory workflow via the Internet. This will enable them to use information to deliver parts in real time, essentially eliminating inventory and further accelerating the pace of commerce. ” Michael Dell, Chairman of the Board and CEO, Dell Computer Corp. Copyright The Pro. Action Group 2001

e. Benefits n Global n 24 x 7 n Incremental revenues w/o incremental costs n Personalized n Customers receive information when it’s convenient for them n Reduced in-house customer service requirements n Provides backbone for multi-link demand visibility Copyright The Pro. Action Group 2001

e. Benefits (con’t. ) n Up-to-minute information n 70% of calls placed to companies are: – What is the price of the product? – Is the product in stock? – What’s the status of my order? n n (source: Open Market) All can be answered with no marginal cost via the internet Copyright The Pro. Action Group 2001

e. Benefits (con’t. ) n Orders placed can be verified for accuracy (algorithms) n Confirm order placement / shipment system to system n Use systems to audit and process payments Copyright The Pro. Action Group 2001

e. Benefits (con’t. ) n n Reduce #, frequency, size of physical catalogs Internet catalogs can be: – – – Searched Views analyzed Secured Personalized by individual / dept / company / group Updated with not printing or postage costs Copyright The Pro. Action Group 2001

e. Benefits (con’t. ) n n Web sites tracking – Where views come from – Path traverse through the site – Where they leave from – How long they stay – Page views Integrate with existing systems – Inventory control – Order processing – Fulfillment – Customer service – Accounts payable – Cash forecasting Copyright The Pro. Action Group 2001

e. Costs System integration n System development (primarily borne by suppliers) n Re-engineering process to enable company to take advantage of e-business n Change management n Copyright The Pro. Action Group 2001

e. Risks Faster communication reduces option to rethink decisions n Internet security n If implemented without holistic approach, benefits may not materialize n Requires specific set of internal controls n Requires acceptance of paperless purchasing n Copyright The Pro. Action Group 2001

e. Next Understand the capabilities of e. Business n Select an approach to e. Business (enterprise, vertical, community) n Review sourcing tasks and company needs n Select capable suppliers and applications n Reengineer processes to capitalize on new tools and suppliers n Test, implement, and monitor n Copyright The Pro. Action Group 2001

Sourcing Approach High Dollar Volume Low Dollar Volume • Supplier Alliance • Community Purchasing • Integrated Supplier • Strategic Supplier Alliance Supported by e. Business • Community Purchasing • Outsource to Primary Supplier • Integrated Supplier • Supplier Alliance • Approved Supplier Lists Non-Critical Product Family Copyright The Pro. Action Group 2001

e. Next Understand the capabilities of e. Business n Select an approach to e. Business (enterprise, vertical, community) n Review sourcing tasks and company needs n Select capable suppliers and applications n Reengineer processes to capitalize on new tools and suppliers n Test, implement, and monitor n Copyright The Pro. Action Group 2001

“The Web is an insidious processreengineering tool” Graeber Jordan, Boeing Copyright The Pro. Action Group 2001

Eliminate or Revolutionize? n Eliminate – – – Purchase orders Invoices Checks Order tracking phone calls Order taking n Revolutionize – – – Inventory management Product evolution Distribution options Expanded community Internal controls Order process Copyright The Pro. Action Group 2001

One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man. — Elbert Hubbard

From n n Thanks! Do not hesitate to call us with any questions Timothy Van Mieghem tvanmieghem@proactiongroup. com www. proactiongroup. com Copyright The Pro. Action Group 2001

References n n n Van. Mieghem, Timothy, Implementing Supplier Partnerships. New York. Prentice Hall, 1995. Anthony J. Bingham, director of operations, Apartments. com. Interview conducted in September, 1998. CNEC; “CNEC – Insights into Electronic Commerce. ” www. cnec. org/ecinsight/insight. html. June 17, 1997. Bronwin Fryer “Straight from the screen. Newfangled software may revolutionize procurement, but not without some old-fashioned reengineering. ” CFO Magazine, November, 1998 V=C^i™ developed by Dan Tiernan of Aatlas Commerce, additional information available at www. aatlas. com “The Beer Game. ” Published by Harvard Business School February 24, 1997, Boston, MA Copyright The Pro. Action Group 2001