Value of Supplier Relationship Management (SRM) - The APICS ...

Value (and Future) of SRM 

November 2008 

Robert Shecterle 

VP/Group Director, SCM, GSM and Retail 

© AberdeenGroup 2007

Who is Aberdeen 

Fact Based Research 

1200 Reports in 2008 

5500 Document Library 

640,000 Primary 

Benchmarks Conducted 

35,000 Personal Interviews 

438,000 Panel Members 

2.5M Readers 

90% Fortune 500 

75% Global 500 

140 Publication Partners with 

over 14M Readers 

2 • © AberdeenGroup 2008

PACE – A Research Framework 

Pressures: External forces that impact an organization’s 

market position, competitiveness, or business operations (e.g., 

economic, regulatory, technology, competitive, etc.) 

Actions: The strategic approaches that an organization takes 

in response to industry pressures (e.g. product/service 

strategy, target markets, go-to-market, and sales strategy) 

Capabilities: The business process competencies required to 

execute corporate strategy (e.g., skilled people, brand, market 

positioning, viable products/services, financing, etc.) 

Enablers: The key technology/solutions required to support 

the organization’s business practices (e.g. development 

platform, applications, connectivity, user interface, training and 

support, etc.) 


4 • © AberdeenGroup 2008 

Aberdeen’s Research Methodology: 

The Competitive Framework Key

Aberdeen’s Research Coverage 

Supply Chain Management 

Global Supply Management 

Retail 

Manufacturing 

Enterprise Technology 

Service Chain 

Communication 

Information Technology 

Sales & Marketing 

Product Innovation 

Enterprise Administration 

Over 5500 On-Line Research Documents are available 

serving 300,000+ User Sessions / Month 


Agenda 

The View From Above – Overall Drivers 

The Supply Management Perspective 

The Foundation - Spend Analysis 

Building the Framework – Sourcing & CLM 

Day to Day Living – Procurment 

Paying the Bills – AP & Settlement 

Putting the Pieces Together 

Q&A 


The Only Constant – Change 

Supply Chain Transformation 

Supply Chains Constantly Changing 

 

 

 

 

 

 

Globalization of Supply, Low Cost Country Sourcing 

Increased Competitive Pressures 

Growing Markets 

Shorter Product Lifecycles/New Offerings 

Industry M&A Activity 

Corporate Social Responsibility 

What is Driving Transformation Today 

 

800+ Supply Chain Executives Gave us Their Priorities 


Supply Chain Pressures 

Two-thirds of respondents site cost containment as key 

pressure for engaging in supply chain transformation 

“We needed to reduce procurement operation costs, improve supplier 

relationships, and locate our people globally near the processes they were 

managing.” ~ VP Global Purchasing, High Tech Mfg 

Source: AberdeenGroup 


Agenda 





Day to Day Living – Procurement 



Q&A 


What’s on the CPO’s 3 Year Agenda 


Increase Spend Under Management 

"E-procurement 

has given us the 

traction to 

increase spend 

under our 

control and to 

monitor 

compliance" 

~ VP, Supply Chain 

Food & Beverage 

Industry (Fortune 500 

Company) 


Improving Supplier Development 

"We expect to see a 

severe global 

economic storm this 

year. We'll survive but 

some of our suppliers 

will not. Every one of 

my managers asks his 

team every day: 

Who are they 

(bankrupt suppliers) 

going to be 

Can we get out of the 

way 

What's the back-up" 

~ CPO, Global Retailer 

(Fortune 500 Company) 


Procurement Automation 

"Our plan for 2008 

includes a move to a 

completely centralized 

department and the design, 

development, and 

implementation of an 

automated solution that 

extends from spend 

analytics to AP 

automation… strategic 

sourcing and internal 

collaboration are major 

areas of focus. 

~ Bob Kane, Director, 

Strategic Sourcing & Supply 

Weyerhauser (Fortune 

500 Company) 


Top People Challenges 

"Our credibility suffers 

every day that I have to 

put an under-skilled buyer 

in front of a savvy 

business customer." 

~ Director of Procurement, 

Technology Industry (Fortune 

500 Company) 

"Change is happening so 

fast in the marketplace 

and in my company that 

you have to have a talent 

strategy." 

~ CPO, Global Manufacturer 

(Fortune 500 Company) 


Barriers to Procurement Transformation 

"Critical success factors in 

transforming the 

department 

Clearly articulated plan with 

financial and personnel 

investments, deliverables, 

and milestones outlined 

Executive buy-off 

User community 

involvement 

Continuous and pervasive 

communication 

Celebration of success” 

~ John Mayes, CPO, 

Yale University 


Global Supply Management – More Detail 

Analyze Source Contract Procure Pay 

Source-to-Settle 

Complex Categories 

T&E 

Meetings, Incentives, Conferences, Exhibitions 

Real Estate & Facilities 

Contract Labor & Professional Services 

Print/Marketing 


Agenda 








Q&A 


The Foundation…Spend Analysis 

Imagine that the Chief Executive of a global enterprise…. 

 

 

 

Had a Chief Financial Officer who… 

did not know the company's cost of capital and 

lacked any visibility into calculating its gross margin or quick ratio. 

Had a Vice President of Sales who… 

did not know the company's average deal size or win percentage 

lacked visibility into the current sales pipeline. 

Had a Vice President of Manufacturing who… 

did not know the products' total cycle times 

lacked visibility into any utilization or quality metrics. 


Spend Analysis Program Maturity 

"We can run 

detailed reports that 

reflect commodity 

spend by region and 

by business. This 

has been our main 

success within 

spend analysis, 

leading to 

significant global 

cost reductions." 

~ CPO, Small North 

American Firm 


Spend Analysis – The Process 

 

 

 

 

Data Collection and Extraction. 

 

 

Identify the key spend data and develop a plan 

Variety of sources, including e-procurement, accounts payable, ERP, and other backend 

or transactional systems. 

Data Cleansing and Classification. 

 

 

 

Assimilated and organized into a usable format 

Deleting duplicate entries 

Organizing for both enterprise-level and source systems. 

Data Enrichment. 

 

 

Mapping of all data to a standard commodity structure 

69% of enterprises participating in our study us a custom structure 

23% of enterprises utilize UNSPSC 

Add or link to other internal and external data sources 

Internal Supplier Performance Management system 

External supplier information service for diversity or risk measurement. 

Access & Reporting 

 

 

 

Standard reports 

Ad hoc 

Slice & Dice 


SA Automation vs. Average Savings 

11% 

8% 

5% 

4% 

Fully automated, 

single system 

Fully automated, 

disparate systems 

Partially 

automated 

Fully manual 


Hurdles to Successful Spend Analysis 

Poor data quality 

55% 

Too many sources 

51% 

Lack of standardized 

processes 

45% 

Insufficient process 

automation 

43% 


The Payoff 

Enterprises report an average improvement of 

92% in savings from sourcing activities after a 

spend analysis program is initiated. 

Enterprises report an average increase in total 

spend under management of 39.4% after a 

spend analysis program is initiated. 

Enterprises report an average increase in 

contract compliance of 30.6% after a spend 

analysis program is initiated. 


Where is SA Going 

Full Automation 

Additional Classification Schemas 

Increased Frequency 

More Commodities 

Web-based Dashboards and Tools 

On Spend Analysis: "Purchase 'Engineers' should aid buyers in investigating 

potential areas of cost reduction….the scientific, systematic collection of data, 

by specialists, [should serve] as a basis for purchasing decisions." - Norman 

F. Harriman, Principles of Scientific Purchasing; 1928 


Agenda 








Q&A 


Building the Framework 

What is Strategic Sourcing Process 

 

 

 

 

Identifying 

Evaluating 

Negotiating 

Implementing 

Optimal mix of goods and services that best 

support the objectives of the enterprise 


Sourcing Pressures 

Pressures to reduce 

costs 

70% 

Need to develop or 

improve category 

management strategies 

39% 

Need to improve 

supplier capabilities 

and performance 

31% 

Need to 

rationalize/reduce 

supply base 

28% 

Decrease sourcing 

cycle time 

22% 


Strategic Sourcing Program Maturity 

8% 

More than 5 years 

8% 

6% 

12% 

26% 

2 to 5 years 

1 to 2 years 

Less than one year 

Progarm to start within 12 

months 

None, but considering 

program 

None planned 

14% 

26% 


Centralization – Yes; Standardization - No 

25% 

16% 

Standardized at 

business unit or region 

Standardized across 

enterprise 

16% 

18% 

Standardized only for 

most critical or strategic 

commodities 

Decentralized 

25% 

No formal process 


Strategic Sourcing - The Benefits 

Performance Area Best-in-Class Industry 

Average 

Laggard 

Spend under management 75.0% 42.7% 39.1% 

On-contract spend 56.3% 37.6% 35.9% 

Identified savings 11.4% 9.6% 4.2% 

Realized savings 10.1% 9.3% 3.7% 


Where is Sourcing Going 

 

 

 

 

E-sourcing, 

Currently utilized by 83% of Best-in-Class enterprises 

Earlier in the process – PLM 

More categories 

Link to Web-based supplier discovery 

Integration with end to end processes 

Fully-automated spend analysis 


Negotiate more effectively 

Contract lifecycle management solutions 


Prevents savings leakage 

Links sourcing to execution 

Supplier performance and risk management 

Increased use of low-cost country sourcing (LCCS) 

Geopolitical disruptions 

Compliance 

Sustainability & Corporate Responsibility 


A Little more on CLM – Buy & Sell 

Key Elements of CLM Processes 

Proposal development 

Creation / authoring 

Assessment of risk 

Negotiations 

Approval / review (including final signatures) 

Analysis and reporting 

Auditing 


Pressures Driving CLM 

Pressures to better assess and mitigate 

internal and external risks 

42% 

Regulatory and reporting requirements 

34% 

Increased complexity of enterprise-wide 

contracts and relationships 

31% 

Poor visibility into contractual relationships 

23% 

Need to improve sell-side and buy-side 

compliance 

19% 


Benefits – Performance & Efficiency 

Metric Best-in-Class All Others 

Procurement contracts 19.7 days 31.3 days 

Sales contracts 16.6 days 22.2 days 

Other contracts (i.e. NDA, IP, real 

estate, employment, healthcare, IT, etc.) 

14.6 days 25.8 days 


Where is CLM Going 

• Single Solution – Buy & Sell 

• Pre-Approved Terms and Workflows 

• External Collaboration 

• SaaS 

33% 

35% 

10% 

7% 6% 7% 

Best-in-Class 

All Others 

Procurement contracts Sales contracts Other contracts (i.e. 

NDA, IP, real estate, 

employment, healthcare, 

IT, etc.) 


Agenda 








Q&A 


Maturity of E-Procurement 

Average Maturity: 5.3 Years 


E-Procurement Delivers 

Performance Area Before After 

Requisition-to-order costs $51 $26 

Requisition-to-order cycle time 9.6 days 3.4 days 

Spend under management 42% 60% 

Percentage of maverick spend 33% 20% 


E-Procurement Trends: 2001 - 2008 

Performance Area 2001 2008 

Total suppliers enabled 30 326 

Total end-users 1,000 1865 

User adoption rate 12% 63% 



E-Procurement: Improvement 

Performance Area 2007 2008 

Maverick spend 23% 20% 

Requisition-to-order cost $31 $26 

Requisition-to-order cycle 

time 

4.4 days 3.4 days 

User adoption rates 52% 63% 

E-Procurement delivering Year-over-Year Value 


Successful Procurement Performance 

Performance Metric 

Best-in-Class 

Industry 

Average 

Laggards 

Requisition to order cycle cost $23 $27 $30 

Average time to on-board a new 

supplier into system 

Average time to process and 

implement a catalog change 

Percent of suppliers enabled to 

receive and deliver electronic 

transactions 

12.4 days 18.2 days 21.5 days 

3.1 days 10.1 days 11.6 days 

27% 22% 17% 


Procurement Outsourcing 

45% 

23% 22% 

10% 

Full procurement 

outsourcing 

Incremental - By 

procurement 

process 


category 


category and 

procurement 

process 


Expected Outsourcing Benefits 

Improved pricing 

56% 

Lower procurement costs 

47% 

Headcount reduction 

46% 

Market & supplier intelligence 

46% 

Improved spend visibility 

44% 


Where is Procurement Going 

Complex Categories! 

Continued Centralization & Standardization 

Continued Supplier Rationalization 

Improved Visibility 

Outsourcing 


T&E Spend: A Rising Wave 

80% 

7% 6% 9% 

Increased 

Remained the 

same 

Decreased 

Don't know 

14% average increase! 

Source: AberdeenGroup May 2008 


Which T&E Expenditures Are Affected 

88% 

78% 76% 73% 73% 

66% 65% 

Source: AberdeenGroup April 2008 


Top ACTIONS to Control T&E Spend 

Audit T&E expense reports 

54% 

Direct deposit for T&E reimbursements 

50% 

Establish formal T&E policies and processes 

49% 

Consolidation / centralization of travel & expense 

management programs 

Establish a list of preferred suppliers for each area of 

T&E 

39% 

48% 

Strategically source different T&E categories 

33% 

Regular communication and education about 

corporate travel polices 

28% 

Source: AberdeenGroup April 2008 


Aberdeen’s MICE Framework 

Strategic Meetings 

Management 


Strategic Meetings Spend 

2006 2007 

Average meetings and events 

spend per year 

Meetings and events spend as a 

percentage of revenue 

$15.8 M $17.3 M 

2.7% 2.8% 

Source: AberdeenGroup, February 2008 


Strategies for Cutting Costs on Print 

Applying procurement 

principles to print spend 

35% 

60% 

Aggregating spend and 

leveraging for volume 

discounts 

44% 

59% 

Establishing standard 

processes and policies for 

purchasing and managing 

print 

31% 

46% 

Rationalization of 

marketing materials and 

services supplier base 

18% 

37% 

No Collaboration 

Collaboration 


Contract Labor Technology Usage 

53% 

47% 

North America 

Europe 

39% 

40% 40% 

24% 

18% 

15% 

Payrolling service 

Automated requistiontracking 

system 

Portal for candidates and 

approving/hiring 

managers 

Workflow management 

program 


REFLM – Pressures & Savings 

Rising REFLM costs 

38% 

Improve or maintain competitive position in 

market 

31% 

Better manage and prioritize capital spending 

29% 

7.0% 

Rising costs of facilities maintenance costs 

5.2% 

5.6% 

28% 

5.8% 

4.0% 

Best-in-Class 

Improve workplace productivity 

2.7% 

3.0% 

23% 

2.4% 

All Others 

Total cost of 

occupancy 

Cost per square 

foot leased 

Maintenance cost 

per square foot 

Cost per 

employee to move 


Agenda 








Q&A 


AP Hub – Conversion of Interests 

Best-in-Class A/P Departments cite higher levels of collaboration 

with Procurement, Finance, and Suppliers. 

Procurement 

Finance 

Contracts 

Spend under 

SOX 

Financial 

Management 

Compliance 

Reporting 

Source to Settle 

Cash Flow Mgmt. 

Process 

A/P 

Visibility 

Supplier Perf. 

Department 

Mgmt. 

Key 

A/P 

Processes 

Invoice receipt & handling 

Approvals & Inquiry 

Validation & Reconciliation 

Suppliers 

Deliver goods and services 

Invoice & receive payment 

Settlement 

Internal & external service 

support 


Priority Assigned to Improving AP 

27% 

8% 

Critical/High 

Moderate 

Low 

Not important (0%) 

65% 


ePayables Framework 

Invoice & 

Expense Report 

Receipt 

Approval & 

Inquiry 

A/P Black Department 

Hole 

Validation & 

Reconciliation 

• Reporting & Analytics 

• Integration 

Settlement 

Pay 

"The greatest impact on 

our AP department has 

been the implementation 

of an invoice imaging and 

workflow solution. This 

has given us visibility 

into invoice status, as 

well as given us the 

ability to assign 

accountability to the 

processes that are holding 

up payment. We need to 

have an automated 

payment solution put in 

place." 

~ Karen Apps, Finance Manager, 

Gate Petroleum, North America 


A/P Automation Impact on Processing Costs 

Automation Results 

Invoice Type Manual Electronic 

Incremental 

Improvement 1 

Purchase Order (PO) $13.53 $8.67 36% 

Non Purchase Order (Non-PO) $15.62 $9.19 41% 

Other $12.98 $8.70 33% 


1 

Average incremental gains achieved by 120+ survey respondents 


A Key Approach: Card Programs 

Top Pressures for Implementing Card Programs 

All Users 

70% 

North America Asia/Pac Europe Latin America 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Expenditure 

cost savings 

Process and 

transaction 

cost savings 

Improved 

visibility into 

cash flow 

Employee 

productivity and 

convenience 

Supplier 

acceptance & 

ease of use 

Provide 

reporting data 



Card Programs – Moving into SCM 

Supply Chain Categories & Card Programs 

Current & Planned Usage in Traditional Supply Chain 

Currently Use 

Maintenance, repair, and operating (MRO) supplies 84% 

Plan to Use 

Semi-custom and custom production materials, parts and 

assemblies 

54% 

Temporary labor 51% 



Aberdeen Research: Card Programs 

Transaction Costs Savings for Mature Programs 

“Paying via Card 

Programs versus on 

invoice saves us 

approximately $18 

for every transaction 

that is processed.” 

Purchasing Card 

Manager, Fortune 

100 company 



AP Outsourcing Activity 

“Outsourcing costs us half 

of what we would spend 

on automating internally 

and has lowered our 

processing costs are 

now one-third lower. 

We’ve also streamlined 

our department by 

reducing out headcount 

by about the same.” 

~ Director of Finance, Large 

Medical Devices enterprise 


Pressures Driving AP Outsourcing 


AP Outsourced Processes 

Current 

Planned 


Performance after Outsourcing 


Where is AP Going 

Automation 

 

 

EIPP 

Scan & OCR 

Supply Chain Finance 

Dynamic Discounting 

Card Programs 

Outsourcing 


Agenda 








Q&A 


Priority & Expectations of Supplier Enablement 


Enablement Actions 

Currently Use 

Plan to Use 

67% 

48% 

32% 

52% 

15% 

38% 36% 

45% 

32% 

48% 

24% 

17% 

XML EDI EIPP Supplier 

Networks 

P-Cards 

Electronic 

fund transfer 


Benefits of Supplier Enablement 

Performance Area Before After 


Percentage of maverick spend 28% 19% 

Requisition-to-order cost $37.43 $28.58 

Invoice-to-payment scheduled cost $32.38 $22.55 

Requisition-to-order cycle time 16.6 days 9.4 days 

Invoice-to-payment scheduled cycle time 26.0 days 18.3 days 


Where is Supplier Enablement Going 

Automation – Break Today’s Long Cycle 

Use of Supplier Networks 

Simplified Integration 


Agenda 








Q&A 



Supply Chain and Expense Management Trends 

 

Demands to continue to lower costs 

Increasing volumes – transactions & $$ 

 

 

Manage complex spend categories – T&E, MICE… 

Outsourcing to lower costs and focus on core 

Approaches to Assemble a Complete Solution 

 

 

 

End to end process automation 

Better data – improved insight & control 

Drive existing tools into new areas 


Thank You 

Robert Shecterle 

Robert.shecterle@aberdeen.com 

617-854-5369 

www.aberdeen.com 

© AberdeenGroup 2007

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