The journey and lessons from three engaging customer stories -- how they moved to centralized procurement, achieved sustainable savings, understood cost drivers, used cost modeling in negotiations, and more.
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Deutsche Bank’s Source-to-Pay Journey
From Fragmented and Decentralized to Unified and Centralized
One of the keynote speakers was Mark Warren who is the Global Head of Source-to-Pay for Deutsche Bank, the world’s third largest bank. The bank has grown through many diverse acquisitions; each one with a different operating model, culture, and set of systems. Until about 10 years ago, Deutsche Bank had a highly localized AP model, typically doing payables within a country or regional finance organization. In 2004, they started outsourcing a lot of those activities to three offshore centers. That brought centralization of AP and prompted them to create a unified procure-to-pay (P2P) platform. Their first attempt at building a centralized P2P platform was not flexible enough, so in 2008 they decided to implement an on-premise version of Ariba procure-to-pay (first implementing Invoice Management then Buyer). They were able to pretty quickly increase PO coverage from low 10% to about 70%.
Last year, they launched Ariba e-Sourcing OnDemand and are currently integrating it with on premise P2P—a hybrid strategy. Mark said it was hugely successful, with great functionality and a high speed of delivery. Now they have a large number of initiatives in progress, including a new contract management system (harmonizing all contracts into a single repository).
Driving Sustainable Savings
When Mark joined, they had a centralized strategic sourcing organization which had category managers who were used to negotiating large complex service contracts, but who lacked a real understanding of how the lines of business and users want to interact with and use those contracts (a classic problem). They have made efforts to fix that, such as focusing on the quality and usability of catalog content, taking the user’s perspective.
Building on that, Deutsch Bank now has an initiative to drive €4.5B of sustainable cost reduction. To make them sustainable starts with contract negotiation, driving it through to compliance, and critically understanding where in the P&L those savings should show up and then adjusting budgets accordingly. They call that P&L effectiveness to drive sustainable savings.
They brought together Finance and Procurement into one new organization to not just allocate cost, but to understand the actual cost drivers. This organization starts with cost planning (including salaries, not just external spend) and includes source-to-pay, accounting, and reporting to get one single set of quality numbers that the bank operates on. A critical function is “stakeholder management,” understanding the business units’ strategies, needs, and cost drivers. This enables them to do “primary cost management intervention.”
No Budget, No PO
They widened their coverage beyond “sourceable spend” to all external spend. And toughening the rules to ensure optimum compliance purchasing behaviors—getting people to treat the money as if it was their own. That means not just “no PO, no pay” but now also “no budget, no PO.” That means you have a cost plan at the right level, make sure you are booking actuals, understand your commitments, so you know whether you have the money or not before you spend it.
Capturing All Spend, Including Complex Services
It was important for Deutsche Bank to get as much spend through the system as possible. They went from 40% up to about 75% and shooting for stretch goal of 95% by end of this year. Critical to success was also having the heads of the lines of businesses tied in—not just a scorecard, but agreement on the aligned plan, including things like advisory services, commission payments—lots of things not easily fitting on a P.O. The central finance and procurement organization needed to work with them to understand the spend. Critical to capturing and managing that spend has been the launch of Ariba payment for services, to meet a lot of those complex requirements.
Make the Right Process Easy
Mark said “We are trying to make the right process easy and the wrong process more difficult.” Many organizations do the opposite, layering so many controls onto the right process that people circumvent them. Deutsch Bank is challenging its organization to understand the real business requirements across the divisions, harmonize them, and incorporate them into the platform. A good example is IT, which created their own portfolio management system that had 13 levels of pre-approval before they even got to creating a requisition. They were able to zero in on what they were actually trying to achieve, simplify and bring it down to 4 or 5 levels of approval.
The bank continues to grow in complexity, as do the regulations it must meet. They are going to continue to evolve their hybrid on-premise and on-demand platform. They still have outliers like legal and temp labor which they are trying to move onto the platform so they can get to ‘all spend in Ariba.’ Vendor Master data is another key challenge, being able to link a contract to complex transactional environments in multiple countries. Deutsche Bank provides a good example of managing scale and complexity, and a roadmap on how to get there. Here’s Mark’s full presentation, if you are interested in viewing it:
Figure 1 - Video of Deutsche Bank Presentation by Mark Warren at Ariba Live
MSC Industrial Supply—A Seller’s Perspective
We also heard from a supplier on Ariba Network, MSC Industrial Supply. Their President, Erik Gershwind, talked about how they signed up as a seller on Ariba Network over a year ago, which has allowed them to collaborate with customers. One of their customers, ZF group (a top 10 automotive supplier) buys a lot of cutting tools from MSC. These are mission critical, custom made, from a German manufacturer with up to 15 week lead times. They used to have at least one urgent rush order every week. Those have stopped completely because of visibility provided by the Ariba platform. This has resulted in a $200K annual reduction in cutting tools expense, a 20% increase in production, a reduction of inventory from 8 weeks to 2 weeks, and reduction in time spent generating reports from 8 hours per week, down to 15 minutes per week. This shows some of the benefits that can accrue to a supplier on the network.
Kohl’s Evolution to an End-to-End Solution
Savings from Sourcing Implementation Used to Fund Further Implementation
On day two, we heard from Dave Maley, VP of Strategic Sourcing and Procurement at Kohl’s, the Wisconsin-based retailer with over 1,000 stores and 140,000 employees. His group manages not only the sourcing and distribution of supplies to the stores. Their primary focus is on non-merchandise indirect spent, totaling about $2B for store supplies, logistics, store IT, construction, and other areas. Kohl’s started using Ariba sourcing in 2006 for reverse auctions on private label merchandise. In 2008 they implemented the full upstream on-demand sourcing suite.1 Then in phase three they implemented the downstream procure-to-pay on-premise. This is a hybrid approach, but the opposite of what Deutsch Bank did (which was on-premise sourcing and on-demand P2P). He said they were able to generate savings with sourcing and use that to fund further implementation. Dave felt that the sourcing was the quickest path to value.
“Should Cost” Modeling
One sophisticated thing Kohl’s does is cost modeling. This is not an Ariba function, but one they use to drill down into a “should cost” model in their negotiations with suppliers. For example, for fluorescent lighting they look at all the elements down to what the glass, rare earth minerals, aluminum cap, electrode, gases, labor, manufacturing overhead, and profit should cost and use those to discuss and negotiate the right price in an informed, fact-based manner.
Creating an End-to-End Process and Visibility
Dave’s group focused first on fixtures and visual items used during new construction and remodeling of stores. Some of these items get shipped directly to the store and others are shipped through one of Kohl’s DCs. They use a custom iPhone application from Ariba called eForm, which allows them to scan and track items as they flow through the network. This gives them the ability to track items end-to-end from PO issue, to supplier confirmation, ASN sent when ready to ship, receipt at the DC, if items are damaged or missing a real-time alert is sent, then receipt at store, and finally the invoice. This provides Kohl’s with a complete end-to-end process, compliance to negotiated prices, and supply chain visibility.
Precision delivery is critical for remodeling a store, which is being done while the store is open. It is very complex, with literally tens of thousands of items that must arrive at the right time, sequence, and location. One reason they opted to use the on-premise version of downstream procurement was so they could customize it for these needs, including incorporating CAD drawings, applying PO split rules, and electronically transmitting those to suppliers over the networks. It used to take 3 weeks to cut all the POs for a major project. Now it takes 3 hours – more than a 100X reduction in elapsed time.
To efficiently confirm that all those items were received, Ariba developed an iPhone app for Kohl’s for delivery verification. The data on expected shipments is downloaded to the phone, which is used to scan the barcodes and confirm the quantity. If there are damaged items, you enter those and can take pictures of the damage and attach those along with comments. These are sent to both the buyer and the supplier.
As you can see, Kohl’s implementation of Ariba goes well beyond what a sourcing and procurement system typically does, including some pretty sophisticated supply chain functionality. This demonstrates the customizability of Ariba’s on-premise platform. If interested, you can view Dave’s whole presentation here:
Figure 2 – Video of Kohl’s Presentation by Dave Maley at Ariba Live
Customers Tell the Story
There were many other equally intriguing customers stories shared at Ariba Live. To me, these are what make attending these conferences worthwhile—seeing what real people and companies are actually doing with these systems, hearing the journey they went through, how struggles and obstacles were faced and overcome, the success achieved, and their vision for what’s next. These customer tales not only provide proof points, but can be engaging and inspiring human stories that draw you in.
1 Kohl’s ERP system is PeopleSoft. Non-SAP implementations like this one help make the case that Ariba is still agnostic to the ERP. SAP has publically stated their intent to continue with this open, ERP-neutral approach. -- Return to article text above
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