Kaushik BasuAshwin B

Increase Profitability

Increase Cash Flows

Decrease DPO

Industry Characteristics – Oil Service Industry

* -> Human Factors

Root Causes:1.Lack of Centralization2.Lack of Standardization3.Process Complexity4.Lack of Controls5.Lack of Training, documentation and Knowledge management6.Lack of Incentives (Poor alignment of Performance Objectives)7.Lack of interoperability8.Lack of Automation9.Lack of Collaboration10.Lack of Planning Software

CSFs

1. Standardization, Centralization and Simplification of the PTP processes

2. Designing interfaces and optimizing EDI and e-catalogs to ensure communication through the system

3. Automating manual processes to reduce errors

4. Leveraging MRP Planning Features5. Conducting Training for the operators 6. Ensuring adequate documentation

about the processes and policies7. Making documentation and help

accessible to operators throughout the organization

8. Suitable goal alignment and controls

Standardization, Centralization & Simplification of PTP ProcessesProcess Technology People

Process Technology PeopleStandardization, Centralization & Simplification of PTP Processes

Standardization, Centralization & Simplification of PTP ProcessesProcess Technology People

Field Service Level (Plant)

Purchasing Organization(Field Service Level)

Order<=Threshold Value

Purchasing Organization(Shared Service Level)

Order>Threshold Value

Simplify contract terms, if possible renegotiate contracts

Create tolerance groups to limit field level purchases to the threshold value, have different MRP controllers, limit purchase at field services to petty cash, use role based access controlIntegrate the various purchase

processes at L2 level (sub process level) where ever possible for further standardization and simplification, to re duce errors

Run batches for consolidated procurement reports at the country level

Have 2-way match processes for field level procurement through a manual approval process for FI invoices. Run audit reports to monitor the extent of such activities.

Run audit reports on automatic reconciliation accounts for monitoring mismatchAlign performance incentives to metrics

like 1)Procurement with PO 2)Automatic Reconciliation Account differences for the particular user, etc

Take up change management initiatives to get buy in on the centralization and standardization and use of P Cards from the field services and vendors

Run audit reports to keep track of FI invoices – number and status

Standardization, Centralization & Simplification of PTP Processes

Cost Savings due to economies of scale, Higher buying leverage, Lower Errors, Easier monitoring and control

Limiting the dollar value of errors due to FI invoices and Nonstandard Procurement Process

Easier Training and Tracking, Simplification leading to lower number of errors

Greater standardization and simplification, less errors and ease of training

Fixing accountability and having dedicated owners and teams to reduce error and delays

Process Technology PeopleInteroperability & Automation

Process Technology PeopleInteroperability & Automation

Interoperability & AutomationProcess Technology People

•Content Standards•Standardize the Product and Service attributes master data, preferably based on universal guidelines like the UNSPSC(United Nations Standard Products and Services Code)•Standardize supplier catalogs to agree with the above•Define EDI schema for seamless integration

•Transaction standards•Define secure channels and protocols for communication via EDI and E-portal including encryption and transaction protocol

Take up change management initiatives to get buy in on use of P Cards from the field services and vendors

Take up change management initiatives with suppliers for consistent use of EDI and E Catalogs

Supplier Development may be necessary

Depending on volume and criticality of purchase suppliers can be divided into two groups:• One with whom seamless integration is mandatory. If needed take up supplier development initiatives with them•Others who will be encouraged to move to EDI in a phased manner using bargaining power

Take up change management initiatives to get buy in from field services and other employees on the automation and standardization of interfaces

Interoperability & Automation

Less training for employees, more user friendly

Fixing accountability and reducing human errors and delay

Reduction in cost, errors and delays

Process Technology PeopleForecasting and Planning

Forecasting and PlanningProcess Technology People

MRP planning at the field service level to cater to need of each location

Optimized parameters for MRP derived from SAP BW

In case of substantial difference manual override of MRP parameters

Parallel validation by MRP controller at the plant level by monitoring Requirement and Stock levels

Audit data capture on such modifications for monthly reviewIncremental orders

captured for monthly reviews

Monthly exception reports for demand supply mismatch to monitor efficiency of MRP process

All data validated against actual consumption

Training MRP controllers on configuring MRP parameters

Training MRP controllers on the use of various reports

Aligning performance initiatives of MRP controllers to accuracy of forecasting

Forecasting and Planning

Tailor made Matching to Individual Field Service Requirement

Monitoring at aggregate and granular level for measuring efficiency and initiating changes as required

Concerted effort at Material Planning to reduce shortages and rush orders

Implementation of Best Practices and Forecasting Methods, Reduction in delays and Rush Orders

Process Technology People2 Way Match

2 Way Match Process Technology People

FI invoices allowed below certain tolerance limits by defining tolerance groups and role based access control

Goods receipt from same vendor within those tolerance limits extracted in the form of reports and matched to invoice values using default pricing

Contract terms extracted from company code level data for vendors

Detailed dashboard showing aging of invoices and those approaching payment as per contract terms along with goods and services delivered by the vendors made available to the MRP controllers

Two way match made automatically within tolerance limits and verified manually by MRP controllers

Manual Override if MRP controller wants to add or remove goods and services

Custom flags updated for selected goods on release of payment to remove them from matching list

Invoice and Goods Receipt automated through EDI and manual scanning and data upload by interfacing batch

•Migrating to accurate OCR software like Omnipage or Presto

Audit metrics based on aging of invoice aligned to performance incentives of MRP controller

Audit metrics based on difference in goods receipt and invoice date monitored for control

Control limits on centralized and decentralized service ordering based on tolerance groups

2 Way Match

Reduction in Default in Payments, Increase in FI invoice processing rate

More accurate matching of Goods to Invoices through aging and matching dashbards

Monitoring age of invoices through dashboards to avoid default

Knowledge Management

Knowledge Management

Employees are sure about the processes and protocols to follow

Easy resolution of on job technical and process related issues

Lower resistance to use processes and workflows and automated software, Lower errors

Propagation of best practices through training and communities of practice

Recognition for contribution to knowledge development and dissemination to act as a trigger for active participation by employees

Goal Alignment & ControlsGoals Controls

Standardization •Clearly lay down policies for country specific procurement processes. Define metrics to measure compliance to policies. Align compliance with performance appraisals

Centralization •Tolerance Groups to disallow purchase above a threshold value at the field service level•Monitoring through audit report the amount of decentralized purchases, purchases without POs and aligning these metrics to performance appraisals

Efficiency •Monitoring the aging of invoices assigned to a MRP controller through reports and aligning the metrics to performance appraisal•Monitoring the mismatch between goods receipt and invoice receipt dates through reports and reviewing them in monthly status meetings•Enforce PTP workflows through logical access controls and tolerance groups, monitor aging of tasks through audit reports and enforce the performance of tasks in such cases through redressing mechanisms. Align such metrics to performance appraisal•Monitor the use of FI workflow in the fields. Give incentives based on % utilization. If 100% of FI invoices had been processed through the workflow system, 100% utilization is achieved.•Follow a top down approach to refer to PTP metrics during monthly status calls with field services to encourage their usage

Accuracy •Monitoring the performance of purchase officers based on incremental orders above MRP planned limits and consumption of such materials, manual modifications of MRP parameters, etc through audit reports and aligning that to performance reviews•Monitor % mismatch in invoice values and goods delivered through audit reports, automatic reconciliation accounts and internal dashboards

Change ManagementSteering Committee Project Charter System Development

Pilot Project -> All Features, Some Locations

•Preferably at one US and one non US location•Locations with low resistance to change and where high vendor collaboration

Early Wins

Steering Committee Meeting

Organization Wide Deployment

Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21Contract Signing Further As Is Study Steering Committee Meeting Development Testing UAT Steering Committee Meeting Pilot Project Steering Committee Meeting Go Live Milestones 1 2 3 4

KPIs Impact Reason

Product Price variance (Percentage price variance between contract unit price and international unit price for focus products)

5% Methodology for demand forecasting is put into place of direct services and consumables and controls

P-Cards Transactions Processed per FTE 10% Issues and barriers that prevent expansion of E-catalogues and P-card and e-procurement transactions are eliminated because of automation and policy

changes

% of POs automatically set up via Requisition 5% Greater training of personnel and greater documentation of workflow processes to encourage employees to create purchase requisitions in SAP

Supplier Performance 5% Supplier development programs and use of E Catalogs and EDI to decrease manual effort for suppliers, greater accuracy through automation will also give

incentives

Number of requisitions created in SAP 5% Automation is the key driver behind the cost cutting and hence the check runs and manual payments are completely eliminated

Automation of Entry of Invoices in SAP 10% All invoices will be centrally received at shared service centre , EDI data transfers and timely OCR scanning will eliminate reconciliation problems and inconsistent data entry

% Payments manual checks at sites 10% FI invoices being limited to petty cash purchases

KPIs Impact Reasons

Procurement Cycle time 10% As the Requisition and PO are getting processed quickly this will automatically lead to decrease In lead and cycle time

Procurement cost (ordering cost) 5% Cost savings will be through indirect method as reduction in processing time will lead to decrease in setup costs

FI Invoices Processed per AP FTE 5% Automatic management of FI invoices which is in consistent with availability of workflow system

% of BSC Payments Automated Clearing House (ACH) / Electronic Funds Transfer (EFT)

5% Due to standardization of processes and focus on using P Cards and E Payments

% of Payments that are Checks at Transaction Centres

5% Receiving is done at the perfect time and no delay in GR-IR match and invoice processing

Staff Training (Total number of procurement FTEs)

5% All performance metrics in the field to measure PTP efficiency will be used and shared service level procurement centers set up, staff will be trained

Number of procurement FTEs as a %of the total number of company employees

2% Standardization and centralization of processes will require a lesser number of procurement FTE

Invoice scanned and Processed per FTE 2% Increases due to goal alignment and centralized reception at shared service level, decreases due to emphasis on EDIs

% of orders via PO 10% Due to standardization and emphasis on PO creation

Process Related KPIs Cost Savings

Dead weight

Cost Savings

Focus Areas pertaining to the process

Identifying the need

Product Price variance (Percentage price variance between contract unit price and international unit price for focus products)

2% 2% 2% •Standardization•Leveraging MRP

Product Price variance(Percentage by value of purchases made under simple purchase orders, annual contracts, and multi-year contracts )

2%

PO Process

P-Cards Transactions 1%

1% 8%

•Optimizing EDI and E-catalogue

•Standardization•Automation

Ordering Through POs 3%

Supplier performance(Percentage of orders in compliance with contract criteria )

2% •Centralization•Leveraging MRP

•Optimizing EDI and E-catalogue

•Goal Alignment

Procurement system( Indicates system[s] utilized by manufacturer to track

materials purchasing and production planning)

2%

Ordering Costs 1%

PTP Cycle Procurement Cycle time reduction 3% 0% 3%•Leveraging MRP

•Standardization and centralization

Process Related KPIs Cost Savings(KPI) after

change mgmt

Dead weight

Cost Savings after change

mgmt

Focus Areas pertaining to the

process

Processing AP FI Invoices Processed 2% 2% 3% •Automation•Documentation

about process and policies

•Dashboards and workflows

% of BSC Payments Automated Clearing House (ACH) / Electronic Funds Transfer (EFT)

1%

% of Payments that are Checks at Transaction Centres 2%

Management Issues

Staff Training 1% 2% 2% •Goal alignment•Conducting

training for the operators

Number of procurement FTEs as a percentage of the total number of company employees

1%

Total Spend Under Management 2%

Sources for Tentative Cost Reduction: 1)http://www.navca.org.uk/blog/view/cost-of-procurement2)NSW Department of Public Works and Services3)Genpact, Impact from Bottom line of Source to Pay4)Hritabrata Basak, SAP BW Expert, TCS

Best Case: Change management is completely accepted by the employees of the company . Suppliers are collaborating as anticipated and there is a complete removal of manual transactions and large volume of purchases made automatic with SAP and demand forecasting is perfect. There is no delay in updating of FiI. 10 % reduction in costs from the normal case

Average Case: Change management is still a work in progress. Not all suppliers are collaborating successfully .There are delays in updating FIs and manual PO still exists in some cases .Inconsistent timing of scanning of OCR

*All Figures are in Million Dollars,

Worst Case: Due to the resistance from the employees change management is not accepted and hence most of the process are not automated with no addition of updated technology. The problems I delay and matching still remains and there is no scope of improvement in the near run (30 % increase in costs from normal case)

Sales/year (Mn $) NO of POS /yr Avg value of PO Total PO8000 85000 .022 1700

Standardization 0Designing Interfaces EDI 0.20Automation 0.20Leveraging MRP (SAP BW Reports) 0.15Training 1.00Adequate documentation 0.10Goal Alignment 0Investment -1.65 NPV:76.70 Million Dollars