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The Critical Role of Procure to Pay (P2P) in the New Economy: Hidden - - PowerPoint PPT Presentation
The Critical Role of Procure to Pay (P2P) in the New Economy: Hidden - - PowerPoint PPT Presentation
Go to View>Master to Update Pres. Title The Critical Role of Procure to Pay (P2P) in the New Economy: Hidden Value Levers Bill Dempsey Director, Procurement and Strategic Sourcing Todays Agenda Introduction P2P at MillerCoors
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Page 3 May 2010
Who am I?
- Director of Indirect Procurement and Sourcing at MillerCoors
- Background in Industrial Engineering, Supply Chain and
Consulting
- Team that Manages ~$2.0B in spending; 8,000 suppliers, too
many PO’s
- Live in Golden, CO… wife, 3 boys… skiing, outdoors, hiking
and a little golf
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Page 4 May 2010
Today’s Agenda Introduction P2P at MillerCoors Definitions of the “New Economy” Hidden Value Levers
– Shareholder Value and Strategic Sourcing – Integrating with Others in P2P – Strategic Alliances – Cash Conversion Cycle – Non-Recurring Expenditures
Where do we go from Here?
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Page 5 May 2010
Suppliers Customers
Purchase Make Deliver Sell
Plan MillerCoors Supply Chain
How Procurement fits into the MillerCoors supply chain To ensure that MillerCoors’ receives the RIGHT quality materials and services at the RIGHT place, at the RIGHT time, for the RIGHT cost.
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Page 6 May 2010
Procurement in the P2P Process
Invoice & Pay Receive Purchase Order Requisition
Supply and Risk Management
Strategic Sourcing
PEOPLE • PROCESSES • TOOLS
Operational Procurement
- Commodity Risk Mngt
- Introduction of Innovation
- Supplier Diversity Progr. Mngt
- Supplier Performance Mngt
- Supplier Development
- Corporate Social Responsibility
- Supply Chain Modeling
- One-off Requirements
- Maverick Spend Monitoring
Conduct Spend Analysis Assess Customer Requirements Develop Category Strategy Select Suppliers & Negotiate Agreement Develop Implementation Plan Analyze Supply Markets Manage Supplier Performance
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Page 7 May 2010
Our Definition of P2P
Requestor Need Supplier Selection
- Find the
“right” suppliers
- Vendor set up
PO Creation
- Requisition
Approval
- Contract
negotiation
- Data Integrity
- Get rid of
manual work
Pay as late as we can Make Payment
- Checks
- ACH
- Credit Card
- Get rid of
manual work
Who Does the P2P Process Involve?
- Procurement
- Central Receiving
- Accounts Payable/Shared Services
- Other Purchasers outside of Procurement
- Requestors/Stakeholders
- Internal Audit and Internal Controls
- Suppliers
What Does the P2P Process Entail?
Invoiced
- Invoice
Approvals
- Get rid of
manual work There are five methods to buy
– SAP SRM 5.0 (APEX or MiBuy) – Request-to-Buy Form – Corporate Credit Cards (department p-card or your own T&E card) – Intranet/Website Requests – Contact Functional Department (transportation group) Note: The sixth method is MRP. Not user generated
How do you know which one to use?
– All you need to know is what commodity your items falls into…. And then use the Sourcing Buying Guide
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Page 8 May 2010
Formation of a P2P Team
1. Ensure processes that involve all 4 functional areas are established and documented in each organizational area 2. Ensure procedures are interpreted and implemented consistently across
- rganizations
3. Act as governing body to propose changes to procedures and ensure adherence to policy 4. Establish links among key functional areas involved in P2P process 5. Pursue continuous improvement 6. Communicate changes 7. Reduce gaps in processes due to changes 8. Participate in forum for discussion and perform as interface role among the
- rganizational areas (learn what’s on each other’s plates)
9. Report progress on a regular basis
- 10. Meet with the Sponsor group and raise issues to high level management as needed
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Page 9 May 2010
Opportunities List for our P2P Team
1. Reporting – MRBR/Tolerance reports, ATF reports 2. APEX/MiBuy issues – open PO’s, confirmations 3. Signature Authorization/Approval Process – Request to Buy, Business Cases 4. Receiving 5. Buying Guide 6. Paying – invoices, approvals, payment terms, HP 7. Suppliers – Ownership of supplier relationship, who can communicate what to them 8. Vendor Set Up Process – standardize process between location, clarify functional area roles 9. Red/Green PO’s 10. P-Card applications and use 11. T&E Card use in the Field 12. Check Requests 13. Receivable and Non Receivable PO’s 14. Split PO Report 15. Score-carding
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Page 10 May 2010
Today’s Agenda Introduction P2P at MillerCoors Definitions of the “New Economy” Hidden Value Levers
– Shareholder Value and Strategic Sourcing – Integrating with Others in P2P – Strategic Alliances – Cash Conversion Cycle – Non-Recurring Expenditures
Where do we go from Here?
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Page 11 May 2010
What is the New Economy
- Global Scope / Competition
- M&A – Fewer, larger competitors
- Commodity Fluctuations
- Cash is King
- Alternate Service-Delivery Solutions
– Insource/Outsource… off-shore/on-shore
- Social Responsibility
– Green – MWBE
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Page 12 May 2010
What is the New Economy
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Page 13 May 2010
Today’s Agenda Introduction P2P at MillerCoors Definitions of the “New Economy” Hidden Value Levers
– Shareholder Value and Strategic Sourcing – Integrating with Others in P2P – Strategic Alliances – Cash Conversion Cycle – Non-Recurring Expenditures
Where do we go from Here?
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Page 14 May 2010
Today’s Agenda Introduction P2P at MillerCoors Definitions of the “New Economy” Hidden Value Levers
– Shareholder Value and Strategic Sourcing – Integrating with Others in P2P – Strategic Alliances – Cash Conversion Cycle – Non-Recurring Expenditures
Where do we go from Here?
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Page 15 May 2010
A holistic view of supply management and sourcing can improve cost, productivity, competitive advantage and shareholder value.
Best in class companies influence both demand and supply behaviors through this integrated approach and invest in supply management as a core competency.
Increased Profit and Shareholder Value Increased Revenue Reduced and Avoided Costs
Reduced spend on external goods/services Elimination of low/no value added work Reduced cost of capital invested in raw materials and WIP Improved asset utilization and productivity New/enhanced products/services through alliances Increased customer recognition of product/service value – Delivery – Quality – Reliability – Responsiveness – Service – Technology Faster, more effective new product development & introduction
Linking P2P to Shareholder Value
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Page 16 May 2010
Sources of Value in P2P
Transactional Efficiencies Enable Strategic Sourcing Facilitate Demand Management Sources of Value Creation from World-Class P2P 10% of Value 90% of Value
- Efficient and
accurate processing
- Lower AP staff costs
- Faster cash mgmt
- Preferred Suppliers
- Volume
Consolidation
- Negotiated terms
- SKU Reduction
- Buying Behaviors
–Supplier lockouts –Maverick buys
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Page 17 May 2010
Three phases of Procurement
- Strategic Sourcing
– Leads sourcing projects utilizing consistent tools and methodologies. – Responsible for supply market analysis, project leadership and commodity management.
- Supply Management
– Takes sourcing projects through to implementation and execution. – Responsible for supplier performance management, supplier continuous improvement activities and ongoing business relationship.
- Operational Procurement
– Day-to-day tactical execution of buying, expediting and supplier administration
Strategic Sourcing Supply Management Operational Procurement
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Page 18 May 2010
MillerCoors Strategic Sourcing Process
- Develop incentives
- Develop scorecards
- Maintain market intelligence
- Develop performance
management plan
- Establish performance
accountability
- Decompose spend
- Review spend with customers
- Identify buying points
- Understand characteristics
- Rank / weight characteristics
- Validate & finalize requirements
- Define market
- Analyze trends / competition
- Market provider analysis
- Purchaser buying power
- Supplier bargaining power
- Identify options
- Complete cost benefit
- Review with management
- Select category strategy
- Prepare negotiation strategy
- Prepare activity based analysis
- Understand future requirements
- Validate & finalize requirements
- Assess total cost of ownership
- Supplier presentations
- Supplier ratings vs. needs
- Supplier short list
- Prepare and send RFP
- Analyze results
- Select supplier
- Negotiate terms
- Prepare agreement
- Review with management
- Sign agreement
- Identify key users
- Develop communication plan
- Develop reporting & compliance
- Develop transition plan
Conduct Spend Analysis Assess Customer Requirements Develop Category Strategy Select Suppliers & Negotiate Agreement Develop Implementation Plan Analyze Supply Markets Manage Supplier Performance
Successful completion of the seven step process generates value but requires significant resource investment
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Page 19 May 2010
Today’s Agenda Introduction P2P at MillerCoors Definitions of the “New Economy” Hidden Value Levers
– Shareholder Value and Strategic Sourcing – Integrating with Others in P2P – Strategic Alliances – Cash Conversion Cycle – Non-Recurring Expenditures
Where do we go from Here?
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Page 20 May 2010
Integration Beyond Company’s Supply Chain Full value will be released by looking at the broader Supply Chain perspective, including interfaces to a company’s supplier and customer supply chains.
Industry Supply Chain
Productio n/ Projects Cycle Custom er Order Cycle Replenis h-ment Cycle Supply Mgt Cycle
Company Supply Chain Supplier Supply Chain Customer Supply Chain
The total value provided from the supply management process and strategic sourcing will be determined by the ability to link the supply elements across supply chains to identify win-win-win points of value. Industry Supply Chain
Productio n/ Projects Cycle Custom er Order Cycle Replenis h-ment Cycle Supply Mgt Cycle Productio n/ Projects Cycle Custom er Order Cycle Replenis h-ment Cycle Supply Mgt Cycle
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Page 21 May 2010
Collaboration Model
sweet spot sweet spot
Conflict
- Bureaucracy
- Functional silos
- Waste of time/energy
Co-Existence
- Some cooperation
- Awareness vs. buy in
Collaboration
- Full alignment
- Maximize synergies
- True value creation
Key to our work is the collaboration model
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Page 22 May 2010
Today’s Agenda Introduction P2P at MillerCoors Definitions of the “New Economy” Hidden Value Levers
– Shareholder Value and Strategic Sourcing – Integrating with Others in P2P – Strategic Alliances – Cash Conversion Cycle – Non-Recurring Expenditures
Where do we go from Here?
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Page 23 May 2010
The Problem How do you leverage the many touch points with external companies to increase profitability?
Buying from and selling to the same company
Sales & Marketing Procurement
Customer / Supplier
Seller Buyer
Information Technology
Service Provider
Sales & Marketing
Customer / Supplier
Buyer
Suppliers/service providers selling to the same companies
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Page 24 May 2010
A Possible Solution - Strategic Alliances Strategic Alliances provide an opportunity to leverage these touch points and increase profitability. Strategic Alliances…
– …can be an arrangement between two companies who have decided to share resources in a specific project, such as joint marketing, complementary products, or integrated technology. – …hope to achieve: common goals or objectives such as reducing costs or inhibiting competitors, gaining entry to new markets, supplementing critical skills or expertise, sharing the risks and costs of major projects, or acquiring access to new technology. – …may be between companies, or between a company and its customers, its suppliers, or its competitors.
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Why Create a Strategic Alliance? Strategic Alliances aim to produce a competitive advantage for all parties involved
– Reduce costs through economies of scale – Knowledge sharing – Increase access to new technology – Inhibit competitors – Enter new markets – Reduce cycle time – Improve research and development efforts – Improve quality
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Alliance Methodology
Define
- Define a
business vision and strategy in
- rder to
understand how an alliance fits company
- bjectives
Evaluate
- Evaluate and
select potential partners based on the level of synergy and the ability of the firms to work together Develop
- Develop a
working relationship and mutual recognition of
- pportunities
with the prospective partner Implement
- Negotiate and
implement a formal agreement that includes systems to monitor performance
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Page 27 May 2010
Today’s Agenda Introduction P2P at MillerCoors Definitions of the “New Economy” Hidden Value Levers
– Shareholder Value and Strategic Sourcing – Integrating with Others in P2P – Strategic Alliances – Cash Conversion Cycle – Non-Recurring Expenditures
Where do we go from Here?
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Page 28 May 2010
The Cash Conversion Cycle
CCC = # days between disbursing cash and collecting cash in connection with undertaking a discrete unit of operations. = Inventory conversion period + Receivables conversion period – Payables conversion period =
- Avg. Inventory
COGS / 365 +
- Avg. Accounts
Receivable Revenue / 365 –
- Avg. Accounts
Payable COGS / 365
The Cash Conversion Cycle (CCC) measures how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth
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Cash Conversion Cycle Impact
- Can you receive income prior to paying for its inputs to
production
– What is your top competitors/similar industry CCC?
- Decreasing the Cash Conversion Cycle will provide improved
cash flow
– Additional promotional resources/pricing abilities – Favorable financing options
- You must implement initiatives to increase procurement
synergies without the consequences of a terms change to suppliers
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Page 30 May 2010
Today’s Agenda Introduction P2P at MillerCoors Definitions of the “New Economy” Hidden Value Levers
– Shareholder Value and Strategic Sourcing – Integrating with Others in P2P – Strategic Alliances – Cash Conversion Cycle – Non-Recurring Expenditures
Where do we go from Here?
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Page 31 May 2010
What are We Buying? Reoccurring
- Frequently purchased
- Potential risk to company
- Beer production could stop
- Greater potential to
leverage spend Non-Reoccurring (NRBE)
- One off or ad hoc purchase
- Low risk to company
- Limited leverage with
supplier
- More complicated than
catalog transaction but less return vs. strategic initiative
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Page 32 May 2010
Breaking Down the Spend
Spend Importance
Low (Tactical) High (Strategic) High (Recurring) Low (Ad hoc)
Recurrence of Spending Strategic Sourcing
Large predictable purchase of goods and services
Tactical Buying
Catalog-based low dollar goods and services
Non-Recurring Business Expenditures (NRBEs)
Not “tactical” but managed through tactical buying channel
- Frequently purchased
- Potential risk to company
- Great potential to leverage
spend
- One-off / Ad hoc purchase
- Low risk to company
- Limited leverage with supplier
- More complicated than catalog
transaction but less return than strategic initiative
- Greatest possibility to DRIVE VALUE
- Time intensive initiatives produce large
returns Source: Adapted from the Hackett Group 2009 Performance Study
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Procurement Organizations are not Engaged Early Enough
75% 71% 53% 37% 17% Creating contracts and Pos Negotiating with supplier Evaluating suppliers Identifying suppliers Creating specifications
% of Procurement Organizations engaged at each step in NRBE sourcing
Procurement spends considerable time in the final steps of NRBE process
Source: “Untapped Savings Opportunity” The Hackett Group and ICG Commerce; 130 Enterprise Study Jan- Mar 2009
Zone of Potential Lost Leverage
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Page 34 May 2010
NRBE Potential Opportunities
- Restructure of Procurement Organization
- “Deeper” Spend Analysis
- Contract Management Process Improvements
(including Technology)
- Procurement Delegation Process
- Outsourcing of NRBE Work
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Page 35 May 2010
Today’s Agenda Introduction P2P at MillerCoors Definitions of the “New Economy” Hidden Value Levers
– Shareholder Value and Strategic Sourcing – Integrating with Others in P2P – Strategic Alliances – Cash Conversion Cycle – Non-Recurring Expenditures
Where do we go From Here?
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Page 36 May 2010
- Results driven, value creators
- Customer driven excellence
- Committed to life-long learning
- Accountable
- Assertive
- Collaborative and aggressive
- Connects well with people
- Managers driven by fact
- Risk takers
- Project managers
- Change leaders
- Leading practice professionals
- Visionary leadership
- Customer driven excellence
- Organizational and personal learning
- Valuing both employees and partners
- Agile
- Focused on future
- Managing for innovation
- Manage by fact
- Socially responsible
- Focused on results and creating value
- Possess systems perspective
Transformation… The Shift from Reacting to Leading
TODAY TOMORROW
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Leading with Discipline
People Processes
- We evaluate people accurately and in depth
- We care about both the "what" and "how" of performance
- We invest in development and training
- We collaborate with stakeholders – not co-exist
Strategy Processes
- Our projects are questioned for value-add / ROI… especially projects we generate
- We are methodical in our approach – not haphazard; we plan before we start
Operations Processes
- Our communication are clear and concise
- Our executive communications are reviewed by multiple people before sending
- Our work does not grow to the length of time it is given; we hold ourselves
accountable to deadlines
- We return emails in 1-2 days.. not 1-2 weeks (or notes sent explaining the delay)
- Numbers are doubled checked (totals total, glaring errors cannot be found in
minutes); sanity and accuracy checks are performed
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