How close is your company to Spend Management Best Practices? Ariba Consulting August 2011 © 2011 Ariba, Inc., All Rights Reserved. The contents of this document are confidential and proprietary information of Ariba, Inc. How close is your company to P2P Best Practices? Traditional/Base line Advanced Best In Class P2P processes for spending and payment No formal written P2P processes. Written P2P processes, but often not followed by users or groups. Electronic P2P policies are followed by all groups and regions. End user training No formal training or only done occasional. Written manuals used to train new users. Written, class room, and/or WBT (Web Based Training) Pre-spending approval (PO/Contract) Users can often order what they want without a PO/Contract. Have PO/Contract process, but users often do not use them (often claiming “need now”” or “one time buy” as reason for no PO/Contract). All spending is pre-approved via PO/Contract or uses an approved exception process. Approval workflow Purchasing approvals are manual. Purchasing approvals are static electronic, but are often not followed or Approvers do not approve quickly. Purchasing approvals are dynamic electronic, with automated escalations to support quick approvals. PO/Contract execution (signatures) and transmission method Original documents are manually signed (wet signature) and mailed. Original or faxed documents are manually signed and mailed, faxed, or emailed. Documents are electronically signed and transmitted via EDI or Internet. Invoice creation and transmission method Supplier creates invoice and sends via mail. Company creates invoice created from PO/Contract Supplier creates invoice from PO/Contract and sends via EDI or Internet. Invoices approvals and supplier updates Invoices are manually matched (either 2 or 3 way match). Supplier frequently calls A/P for updates. Some invoices are electronically auto matched, but many are manually match. Supplier often calls A/P All invoices are auto matched. Minimal creation of “after the fact” invoices. Frequent use of Invoices created directly from Contracts. Supplier gets updates electronically, so seldom calls A/P. Early pay discounts Never take early pay payment discounts (often since approvals are too slow) Take some early pay discounts, but manual process limits use. Electronic processes for approval and discounting allows dynamic use of early pay discounts Payments Payments by check. Payment by check and purchasing cards (Pcards). Heavy use of electronic payments (Pcards, Electronic Funds Transfer [EFT]). Reporting Reports are missing key P2P information and are not considered useful. Reports have more information, but users still need outside help to run key reports. Few exception reports. Automated reporting that highlights exceptions. Reports can be run and modified by users without outside help. © 2011 Ariba, Inc., All Rights Reserved. The contents of this document are confidential and proprietary information of Ariba, Inc.. How close is your company to Contracts Best Practices? Traditional/Base line Advanced Best In Class No formal written contracts processes, thus often use “third party paper” instead of your own contract Word file. Have written contracts processes, but often not followed by users or groups, and often still use “third party paper”. Have electronic contracts policies (with checklist/tasks) that are followed by all groups and regions. But still may have to use “third party paper”. End user training No formal training or only done occasionally. Written documents (like Quick Reference Guides) to train new users. Written, class room, and/or WBT (Web Based Training) are used for new users. Types of contracts electronically supported No electronic contract system for any type of contract (Buy side or Sell side or Misc (like NDA) Electronic contract system for at least one type of contract. Electronic contract system for all types of contracts. Approval workflow Contract approvals are manually done by paper signatures. Contract approvals are static electronic, but are often not followed or Approvers do not approve quickly. Contract approvals are dynamic electronic, with clause level approvals, with automated escalations if approvals are delayed.. Contract execution (signatures) and transmission method Original documents are manually signed (wet signature) and mailed. Original or faxed documents are manually signed and mailed, faxed, or emailed. Documents are electronically signed and electronically transmitted. Contract template (Word file) used to create contracts and for the amendment process Separate Word file used for different contract types, with manual Word file update of each different Word file. Correct Word files is electronically selected for use with different contract types, with manual Word file update of each different Word file. Correct Word file is electronically selected for the correct contact type. Contract template Word files are electronically mass updated for common changes (via clause library) Invoices for goods/services covered by contracts Invoices are manually created and mailed to your company. Some invoices are created electronically from the contract to reduce invoice errors. Many invoices are created from contract by suppliers/customers and electronically sent for auto matching to contract before payment. How is legal team involved for contract changes/edits Legal team called for all changes for all contacts (no pre-approved alternate clauses used). Legal team advice is in contract Word file (must remove before executing) or in associated separate document. Legal team often called for routine changes. Use common clauses in Word files. Legal team advice is accessible from the contract Word file but not part of the Word file. Standard pre-approved alternate clauses available so legal team only called for unusual edits or situations. Integration Contracts software is stand alone. Share contract base data (suppliers, users, categories, etc) with other software system. Contracts software integrated to other software for base data, sourcing, procurement, compliance, payment, etc. Contract storage, searching, reminders and metrics. Paper contracts stored in file cabinets, and must be manually searched. No electronic reminders nor contract metrics. Electronic storage, with electronic searching of header data and electronic reminders of upcoming contract expiration. Some contract metrics. Electronic storage, with electronic searching of header data and document free text searching, with electronic reminders of multiple events (such as expiring certifications or contract renewals). Use contract metrics. Contract processes (including editing and amendments) © 2011 Ariba, Inc., All Rights Reserved. The contents of this document are confidential and proprietary information of Ariba, Inc.. How close is your company to Sourcing Best Practices? Traditional/Baseline Advanced Best In Class Sourcing Process No documented sourcing process in place. A sourcing process exists 65% of time, however it is only partially in use, partially automated and has limited visibility. Fully documented sourcing process has been agreed upon business-wide and is being used across the organization 100% of the time. Pipeline Planning/Knowledge Management/Spend Under Management •Adhoc/reactive sourcing, no strategic targets or goals •Less than 40% of spend under managed structure •A list of projects exist, but without a measured goals or strategic plan for execution •Over 40% spend under management by sourcing teams •Pipeline is established with targets, goals, scheduled progress reviews and tracking via ESourcing tool •About 75% of spend under management by sourcing teams Supplier Selection/ Performance No certification/ framework/ structured research A process, however with limited qualification criteria, exists but is not always applied A formal identification/certification process and performance metrics exist, with minimum requirements for various levels of spend Data Collection/Quality Consolidated spend data is not available. •Data can be extracted at the Invoice/Purchase Order level with limited descriptions of goods and services. •Historic documentation exists but is not centrally organized •Consolidated data can be extracted including Purchase Orders, requisitions, invoices, contracts, sourcing projects, supplier performance metrics or scorecards etc. •Documents and Project Data are kept in one tool available to teams for reference Historical Spend/ Savings Goals Limited/no data available, no defined metrics Historical/baseline spend is established. Some documented definitions of savings measurements •Detailed process of agreeing upon baseline spend and savings measurements, approved by Finance and used as a metric for defining various approval requirements in process. •Average savings per event usually 2-3% higher when processes/goals are in place. Contracts No integration/data sharing Draft Contracts are sent out with RFP/RFQ, but not no online link between the two Data is shared between Sourcing Initiatives and the Contract Repository in one software application to enable contract lifecycle mgmt and compliance *** Percentages reference Aberdeen Group 02.2007and 05.2008*** © 2011 Ariba, Inc., All Rights Reserved. The contents of this document are confidential and proprietary information of Ariba, Inc.. How close is your company to Sourcing Best Practices continued….. Traditional/Baseline Advanced Best in Class Reporting All reports are manually compiled Limited data can be extracted from current process/ application All data can be extracted, pre-scheduled and auto-emailed standard and custom reporting E-Sourcing/ Technology The process is entirely manual Limited use (about 16% of spend) of an online system which supports RFPs with attachments and few Auctions, and limited reporting. •A sophisticated E-Sourcing tool is in place, allowing online collaboration (internal & external), multi-stage events, project management, optimization, supplier scoring, with full export and reporting capabilities. •At least 30% of all sourcing initiatives are lead via e-sourcing tool. End user training No formal training or only done occasional. Written manuals used to train new users in system use. Written, class room, and/or WBT (Web Based Training) for e-Sourcing as well as industry related skills training, change management Integration Entirely Manual Some complementary technologies in place Extended strategic sourcing footprint including Spend Analysis, E-Sourcing, Contracts, as well as external ERP, Legacy and PLM systems *** Percentages reference Aberdeen Group 02.2007and 05.2008*** © 2011 Ariba, Inc., All Rights Reserved. The contents of this document are confidential and proprietary information of Ariba, Inc.. How close is your company to Spend Visibility Best Practices? Traditional/Base line Advanced Best In Class Spend Visibility processes No standard spend analysis program or process Manual processes for spend reports Spend analysis projects executed on ad hoc basis Spend not visible/shared across divisions, regions Data housed at factory/site level, in filing cabinets, desk drawers, etc. 40% of organization has a formal spend analysis program Semi-repeatable process for Spend Analysis Some spend data cleansing and classification by select groups Spending analysis executed as part of sourcing process 100% of organization has a formal spend analysis program Automation of spend analysis processes Spending analysis projects part of sourcing, compliance, budget, and other business processes Standard spend data cleansing and classification companywide Dashboards created and maintained with automated spend data End user training No formal training, as no process/program exists Written manuals used to train new users Some ad hoc training, possibly limited power user training Written manuals, Class room and/or WBT (Web Based Training) are used for new users Refresh training on-demand Go to power users for additional support Types of spend visibility systems Spend data gathered manually from a select sub-set of financial/ERP/MRP systems Data validation, cleansing, and classification handled manually, as needed, in a once-and-done manner Spend data gathered from financial and transactional systems using mix of manual and flat file methods Manual data cleansing and classification; some internally developed formulas and routines Highly automated spend data extraction, cleansing, and classification Advanced analysis and reporting capabilities Rules created and implemented to further automate enrichment process Regular data refreshes for close-to-current analytics Knowledge Areas within the organization Spend analysis focus on a select group of commodities Spend data classified at a high level, providing only summary information No data refinement Data collected to look at specific opportunity, does not provide visibility to identify opportunities Spend analysis applied to largest spend only Spend data classified at supplier level, little to no parent/child analytics Basic data refinement Spend data classified at the item/invoice level, comparisons of attributes across suppliers and commodities Data refined with contract, supplier, and part information Supplier enrichment No supplier enrichment component included in spend analysis deliverables Minimal supplier enrichment available (normalized supplier names) but provided from a third party and not integrated Supplier enrichment wide and diverse including parentage, financial info, risk scores, diversity certificates, etc., and fully integrated and leverage in commodity classifications Market insight Market insight not included in spend analysis Publicly available price indices assist in identifying opportunities Price indices, sourcing market knowledge, and peer benchmarking information all available in order to identify and prioritize opportunities Sourcing pipeline building strategy Sourcing pipeline driven primarily by expiring contracts Sourcing pipeline consists of known categories that are strategically managed Sourcing pipeline managed through holistic spend analysis of spend vs. market dynamics to constantly identify new categories for sourcing as well as those expiring and up for renewal © 2011 Ariba, Inc., All Rights Reserved. The contents of this document are confidential and proprietary information of Ariba, Inc.. How close is your company to Spend Visibility Best Practices? continued.. Traditional/Base line Advanced Best In Class Compliance monitoring No formalized way to monitor compliance against approved suppliers, contracts, etc. Compliance monitoring possible only for spend through procurement systems Via spend analysis, all spend is subject to compliance monitoring Approval workflow Spend data analysis approvals are manually done by reviewing of paper POs/Invoices Spend data not normalized / classified and in disparate systems Designed manual collaborative process to collect data in a repeatable manner Ad hoc reporting Semi-manual approval process of spend data analysis via fax/email Electronic approvals of spend data analysis done via the formal/established spend analysis program Automated refinement rules approval flow Spend data storage, collection, reporting and transmission Spend data not normalized / classified and in disparate systems Designed manual collaborative process to collect data in a repeatable manner Ad hoc reporting <30% of spend data aggregated, classified, and analyzed regularly •Spend data aggregated in data warehouse but with not normalized / classified •*Designed established standard process for data integration and enhancement •Compliance reporting done on a quarterly basis and ad hoc reporting for planning •Custom mapping done to increase adoption •Ad hoc data refinement done to increase ownership of spend Spend data aggregated and classified with additional enrichment to add value / insight >75% of ERP loads are on time and complete Automated reporting presented on user dashboards *Annual sourcing planning is driven by enriched data *70-80%% of team members actively participate in data refinement Performance metrics <30% of spend data aggregated, classified, and analyzed regularly <60% of spend data aggregated, classified, and analyzed regularly >85% of spend data aggregated, classified, and analyzed regularly © 2011 Ariba, Inc., All Rights Reserved. The contents of this document are confidential and proprietary information of Ariba, Inc.. How close is your company to Supplier Management Best Practices? Program Metrics Laggards Industry Norm (49% of businesses) (36% of businesses) Best In Class (15% of businesses) Have no programs or processes in place, Have programs in place, have seen some and are significantly behind industry improvement (at <20%); generally norm measure <25% of suppliers Have seen supplier performance improve more than 20% since they launched their program; measure well over 25% of suppliers Documented in shared project folders/online; supporting data saved each quarter, along with comprehensive action plans to review the following quarter. Documentation Documentation does not exist. Saved in personal folders or shared drives Lack of organized data or quarterly performance plans. Reporting & Charts No reports exist, due to lack of quantitative data Reporting & trending are manual if it exists; occurs only when users input their information into a master database. Reports populate based on userdefined KPIs; charts populate after each review period & used to graphically track performance. Standardization across groups/divisions No standardization exists Individual buyers have their own review process. Little to no standardization exists Individual users may use standardized scorecards, but have individual review processes. Pre-configured templates & processes in place for various commodities Allows for standardization & repeatability End user training No formal training or only done occasionally. Written manuals used to train users, or Written and/or WBT (Web Based user is given a scorecard & told to fill it out. Training) are used for new users. Integration No integration with other systems exist. No integration with other systems exist; data may be gathered manually from an ERP system. Integrated with sourcing software. Supplier Information Management No onboarding process exists Information gathered during RFI phases stored on local and/or shared drives Onboarding process exists; information is collected & saved in paper format and/or on a shared drive Not indexed, so not searchable Online onboarding process Automated systems in place to capture & report supplier information, diversity information Certificate expiration & document management automated. Supply Risk Management Key metrics unmonitored; supplier information found out through public resources; IE, news. Key financial metrics collected & tallied Process in place as part of SPM to monitor for a Risk scorecard. key metrics; uses supplier performance as Metrics gathered through subscriptionmetrics for risk, as financial information is based resources in order to form unavailable holistic picture. © 2011 Ariba, Inc., All Rights Reserved. The contents of this document are confidential and proprietary information of Ariba, Inc.. How close is your company to Performance Management Best Practices? Laggards Industry Norm Best In Class (49% of businesses) (36% of businesses) (15% of businesses) Supplier Performance Management No process in place Basic process with quantitative metrics & yearly scorecards Advanced, automated process with quarterly reviews, quantitative & qualitative measurements from surveys, scorecards, & reports SPM Publication Process No formal publication processes in place. Relies on emailing suppliers; oftentimes no surveys are published, so no publication process in place. Automated task lists clone & create new scorecards on a quarterly basis; publication takes minutes. Cycle Time/Review Period Yearly if at all. Yearly except for riskiest suppliers Quarterly Scorecard Review Sessions Account reviews are not guided by quantitative metrics, as there is no internal way to track the information effectively. Held in person or via teleconference. Supplier receives scorecard during review session. Meetings for data validation rather than corrective actions. Live meetings. Supplier receives & reviews scorecard prior to session, so meeting can focus on constructive dialogue & improvement plans. Key Performance Indicators Do not exist, except possibly from ERP reports. (IE - Defective rate, on-time delivery) Quantitative metrics tabulated in an ERP system, such as defective rate, on-time delivery, & cost savings. Other KPIs, if they exist, are yes/no questions. Comprehensive quantitative & objective metrics, including ERP metrics, plus survey metrics such as account management from members of organization KPI Values Do not exist Quantitative measurements on a 0-100 scale Qualitative measurements, if they exist, are yes/no format. Rigorous, multiple choice values for all KPIs, with full customization of responses, enables granular detail # of Survey Respondents Zero Typically less than three 10+, accounting for divisions within organization (IE, engineering, finance, sourcing, cust. Service, etc.) No automation. Surveys, scorecards, & quarterly folders automatically created from master copies each quarter Survey scores automatically average & populate scorecards. Automation No automation © 2011 Ariba, Inc., All Rights Reserved. The contents of this document are confidential and proprietary information of Ariba, Inc..