napp 2009 keynote address

Andrew BartoliniVice President & Group Director,

Global Supply ManagementFebruary 9, 2009

P2P Rising

2 • © AberdeenGroup 2009

P2P RisingP2P Rising

Table of Contents

Introduction2009 – Revive, Refresh, RenewCPO RisingA/P RisingSummary & RecommendationsQ&A

Introduction

My BioTitleVice President & Group Director

Summary• Recognized expert in sourcing, procurement, and supply management• Leader of Global Supply Management Research at Aberdeen Group• Twice named a “Pro to Know” by Supply and Demand Chain Executive

ExperienceLeadership roles in sales, marketing, and services at Ariba and Commerce One; Rich experience in strategic sourcing, business process transformation, and software implementation. Background also includes consulting and investment banking

Education• MBA – Indiana University• BA – Holy Cross College (MA)

Founded in 1988 394,000+ Panel Members and over 2 million readers Benchmarked over 700,000 enterprisesAberdeen research is used by more than 90% of the Fortune 100010 distinct research coverage areasAberdeen will publish over 1800 Reports in 2009 which will be read by more than 1 million readersALL Reports are FREE (some for limited time)

About Aberdeen Group (Boston, MA)

Global Supply Management (GSM)ManufacturingSupply ChainEnterprise TechnologyService ChainCommunicationInformation TechnologySales & MarketingProduct InnovationEnterprise Administration

Over 5500 On-Line Research Documents are available serving 300,000+ User Sessions / Month

Aberdeen’s Research Coverage

Aberdeen’s GSM Research Coverage

Analyze Source Contract PayProcureRole-Based Research

Complex Categories

Contract Labor & Professional Services

Real Estate & Facilities

Strategic Meetings

Print/Marketing

CPOCFO CIOSuppliers

Source-to-Settle

<$50M $50-$250M $250M - $1B >$1B

Size of Companies% of Users By Revenue

43%34%

C-Level VP/Dir. Manager Other

Roles at Companies% of Users By Title

62%22%

13% 3%

N. America EMEA Asia Pac. Rest of World

Geographical Representation% of Users by Region

Global Supply Management Research Panel:68,893 & Growing

Research Advisory Council24+ Industry Leaders

Research and Demographics (for today’s discussion)

900+ ProfessionalsSize

Large (Greater than $1B) – 58%Mid-Market ($50M to $999M) – 29%Small (Less than $50M) – 13%

RegionNorth America – 62%EMEA – 31%Asia Pacific – 7%

IndustryManufacturing – 11%Technology – 8%Finance – 7%29 other categories

HypothesisAberdeen believes that 2009 will be a year of significance for the Procurement & Payables, a year of the “P2P Rising” – rising to meet new challenges, rising to new operational heights, and rising in prominence within the enterprise. Yet, with increased visibility comes an expectation of consistent execution and delivery.

ApproachAberdeen Group conducts web-based surveys to target professionals in our research membership poolWe then followed up with interviews from survey respondents

2009 – The Year Ahead

Revive, Refresh, Renew…..Rebound?

“It is not necessary to change. Survival is not mandatory.”

- W. Edwards Deming

“If you don’t like change, you will like irrelevance even less.”

- General Eric Shinseki

“Change is inevitable…. except from a vending machine.”

- Robert C. Gallagher

Times are Changing

Times are Tough

Tough Times Demand Smart Strategies

Global CrisisBailouts & Credit CrunchLayoffs & Uncertainty

2009 - The Year Ahead

2009 will be a very challenging year71% of CPOs expect significant increase in Supply Risk

44% of CPOs have already delayed major initiatives

Budgets are constrained or shrinking

CPOs remain focused on increasing Spend under Management

Cost Savings remains the top goal

P2P RisingP2P RisingSmart Strategy #1 – Manage Supply Risk

Case Study — Supply Risk and Contingency Planning

A Global manufacturer (and Fortune 100 company) noted that supply base risk management is the absolute top priority for his team in 2009 and has invested significant training in financial ratio analysis and contingency planning for a team of 30 buyers of the most risky categories.

"We expect the recession will have severe consequences for our top tier Canadian suppliers. We don't know which suppliers will be impacted, but we spent the last six months developing a contingency plan for every North American-based supplier.“

North American VP of Direct Materials

What if a CEO had:

A CFO who did not know the company's cost of capital and lacked visibility into calculating its gross margin or quick ratio

What if a CEO had:

A VP of Sales who did not know the company's average deal size or sales win percentage and

lacked visibility into the current sales pipeline

What if a CEO had:

A VP of Sales who did not know the company's average deal size or sales win percentage and

lacked visibility into the current sales pipeline

A VP of Manufacturing who did not know a

product‘s total cycle time and lacked visibility into

any utilization or quality metrics

Incompetence or Malfeasance?

What are the Implications?

Should someone lose his/her job?

Should many people lose their jobs?

Does the Board need to be involved?

Would you buy stock in this company?

What if a CEO had a Chief Procurement Officer (CPO) that….

Does not have a formal spend analysis program Lacks good visibility into overall spend Fails to leverage spend data in sourcing activities

What if a CEO had a Chief Procurement Officer (CPO) that….

Does not have a formal spend analysis program Lacks good visibility into overall spend Fails to leverage spend data in sourcing activities

Percentage of all enterprises

WHAT ARE THE IMPLICATIONS?

For the CEO……

For the CPO…….

For the Procurement Dept…….

For the enterprise……

Smart Strategy #2 – Analyze Your Spend

Source: AberdeenGroup October 2008

Performance Metric Incremental Benefit1

Average savings achieved from a sourcing effort 93.0%

Spend under management 39.4%

Contract compliance rates 30.6%

Maverick spend reduction 16.3%1 Average incremental gains achieved by 280+ survey respondents

The Impact of Spend Analysis on Procurement Performance

Spend Analysis Automation

13%Fully manual

Partially automated

Fully automated, disparatesystems

Fully automated, commonenterprise-level system

Average Savings by Level of Automation

Fully automated, singlesystem

Fully automated,disparate systems

Partially automated Fully manual

Why What You Do Is Important: Top-Line versus Bottom-line Impact

$10 Million in Savings equates to…..

Finance CPG Mfg. Hi-Tech

Savings Impact: Income Statement & Market Capitalization

Revenue (in millions)

CPO Rising

“The intelligence and fidelity exercised in the purchase, care, and use of supplies, influences directly the cost of construction and operations, and affect, therefore, the reputations of officers and the profits of owners…The subject needs elucidation on many accounts."~ Marshall M. Kirkman, The Handling of Railway

On The Procure-to-Pay Process

Supplies: Their Purchase and Disposition; 1887

Purchasing Clerical

Independent function in railroad industry

Limited traction in other industries

Purchasing is established as a clerical role

Obtaining raw materials, supplies, & services became vital to operations

Pre-1900 Pre-WWI WWI & WWII 1950s-1960sOperations Managerial

1970s-1980s

Procurement Strategies

Processes become more standardized

People trained for the function

Emphasis on purchasing strategy and developing the ability to source goods at an efficient price

Best practices

Supply Management

Evolution of Procurement/Supply Management

Supply Management - Recent History1980’s & 1990’s

Dominant supplier strategy for key commodities“Spend Under Management” via long-term contractsBuying power / aggregationStrategic SourcingQuality

2000’sTechnology-enabled transformationGlobalizationCPO (C-Level procurement executive)

The CPO’s Strategic Agenda

No formal plan

Formal one-year plan

Formal multi-year plan

Source: AberdeenGroup

Top Ten KPIsKPI % Selected

Identified cost reduction/savings 72%

% of spend under management 64%

Cost avoidance 58%

Implemented / realized cost reduction savings 55%

Procurement ROI (savings / operating costs) 52%

% of suppliers = 80% of spend 51%

Supplier performance (price, delivery, quality, service, etc.) 49%

Procurement spend as % of revenue dollars 46%

Requisition, PO or invoice transaction volume 34%

Procurement spend per procurement employee 33%

79% of Enterprises track Supply Assurance

Maturity Framework

Definition of Maturity Class Mean Class Performance

Best-in-Class: Top 20% of aggregate performers

More than 70% of spend under management

Industry Average:Middle 50% of aggregate performers

Between 40% to 70% of spend under management

Laggard: Bottom 30% of aggregate performers

Less than 40% of spend under management

Source: AberdeenGroup,

CPO’s Top Priorities

39% 42%33%

People Suppliers Spend Technology

BIC All Others

CPO Goal: Increase SPEND Under Management

Increase procurement automation

Policy changes and mandates

Improve visibility into compliance

Demonstrate/market the value of theprocurement group

Analyze and distribute spend data

What strategies will CPOs employ to increase spend under mgmt.?

P2P RisingP2P RisingCPO Goal: Improve SUPPLIER Development & Collaboration

Supplier diversity

Product and process innovation

Supply market constraints and inflation

Develop/improve capabilities and capacity

Remove time/cost from supply chain

Product quality and supplyperformance

What do you hope to gain from supplier-focused efforts?

P2P RisingP2P RisingCPO Action: Improving SUPPLIER Development & Collaboration

41%34% 34%

Improve supplierperformancemeasurement

Improve planningand forecasting

Dedicated supplierdevelopment teams

Improve electronic"supplier

enablement" acrossSource-to-Settle

ProcessSource: AberdeenGroup,

P2P RisingP2P RisingCPO Goal: Increase Process Automation (TECHNOLOGY)

Supplier Network orPortal

E-Payables

Contract Management

E-Sourcing

Spend Analysis

E-Procurement

Planned

In Use

CPO Goal: Enhance PEOPLE Skills and Capabilities

Need morepeople dueto growth

Need peoplewith bettereducation

Need peoplewith different

job skills

Barriers to Procurement Transformation

65%62%

42%39%

Misalignedprocesses and

systems

Recruiting andretaining skilled

talent

Supplier contractcompliance

Lack of budget Lack of executivesupport

BIC All OthersSource: AberdeenGroup,

Laggards Industry Average Best in Class

Cost Savings Rate • 0-2%• Minimal visibility

• 2-5%• Reported with visibility outside of procurement

• 5% or more• Tied to enterprise financial metrics

Procurement ROI • 100-300% • 300-700% • 700% or more

Spend Under Management

• 0-40%• Includes common categories (e.g., supplies)

• 40-70%• Includes core categories (e.g., raw materials)

• 70% or more• Includes complex categories (e.g., services)

Budgetary Process • Independent of procurement

• Based on input from procurement

• Procurement is an integral part

Finance Relationship

• Ad hoc interaction • Regular interaction• Reporting to CFO

• Continuous interaction• Have trust of CFO

Technology Utilization

• Basic or partial supply management suite

• Broad suite• Linked to finance• Strong analytics

• Full Suite• Strong linkage to finance• CPM systems in place

CPO Operational Excellence Framework

Source: AberdeenGroup 2009Source: Aberdeen Group 2007

Accounts Payable Rising

Yes, Accounts PayableIs Rising

The A/P Department is Coming of Age

In the past 2 years, role of A/P has become more strategic in 56% of

enterprises. 18 months ago, 40% of enterprises believed A/P was playing a

“more strategic” role.

However, Paper Remains The “Rule,” Not The Exception

ElectronicPaper/Manual

PAYMENTS INVOICES

ElectronicPaper/Manual

Source: AberdeenGroup September 2008

Maturity Framework

Definition of Maturity Class Mean Class Performance

Best-in-Class:Top 20% of aggregate performance scorers

$2.18 cost to process an invoice 2.8 days to process an invoice

Industry Average:Middle 50% of aggregate performance scorers

Laggard:Bottom 30% of aggregate performance scorers

P2P RisingP2P RisingBest-in-Class: Real-Time Visibility

Discounts, rebates,and other terms

Line item detail ofnon-PO invoice

Avoidance of missingbills and late pmts.

Status of POs

Line item detail of POinvoice

Liabilities/credits byvendor

All Others Best-in-Class

Best-in-Class: Fully Automated A/P Activities

Duplicate invoice verification

E-documents for invoice approval

PO matching

Electronic payment processing

Payment scheduling

Electronic receipt of invoices

Payment status tracking

Best-in-ClassAll Others

Best-in-Class Technology Usage

55%45% 44% 40% 40%

30% 28%22%

Electronicpayment system

Imaging andworkflowsolutions

Supply chainfinance solutions

ComprehensiveA/P automation

(EIPP)

Suppliernetworks, XML, or

Spend analysissolutions for

invoices

Best-in-Class All Others

Best in Class Characteristics (Strategies for Success

Place a significant emphasis on gaining clear visibility into A/P operations (process and data)Leverage e-payables solutions to a significant advantage Strong collaborative ties with internal and external stakeholders Strong audit controls

Summary & Recommendations

Top Pressures… Top Areas for Innovation…

Global CEO’s View1:

AssetUtilization

CostReduction

RevenueGrowth

BusinessModel

Operations

Products &Services

1 - Source: IBM Global CEO Study 2006

P2P Will Matter MORE in the Future

It is one of the things that keeps me awake at night – ensuring that we have a source of supply at the right cost to be competitive.

Clay Jones, Chairman & CEORockwell Collins

Innovator & Pioneer

Thomas Alva Edison

The Big Picture

70 years to “invent” the electric light bulb?

The first electric light was made

in 1809

In 1882,Thomas Edison

got it right.

Edison’s Innovation: Network

DistributionEfficient & Accessible

Many Participants Multiple Uses/Types Leveraged Infrastructure

Procurement’s Light Bulb

Analyze Source Contract PayProcureSupplier Management

Supply ManagementSource-to-Settle (aka P2P) Process

Automated Data-DrivenNumerous Supplier Touch-PointsLinear

Aberdeen Recommendations - Procurement

People (Internal & External)Formalize your people management program

Establish competency modelsDevelop a career path planning program Utilize strategies from other functions

Intensify efforts to collaborate with business and functional stakeholdersExpand supplier enablement programs

Aberdeen Recommendations - Procurement

ProcessChampion the standardization of source-to-settle processes across the enterprise Work with finance to define how all enterprise-level savings metrics are measured and tracked Develop and track a spend management pipeline

TechnologyIntegrate Spend Analysis Solution with Sourcing Tools and ProcessesSupport Accounts Payable investment in e-payables solutions

P2P RisingP2P RisingAberdeen Recommendations: Accounts Payable

Drive for enterprise-level visibility across A/P operationsIf the case for full A/P automation cannot be made, start with the most labor-heavy tasksIntegrate e-payables solutions with transactional systems. Develop a comprehensive supplier enablement strategy Set goals to convert a significant percentage of manual payments to electronic

The Search for “CPO” - Results

Center for Prosthetics Orthotics (CPO.biz)University of Tennessee - CIRCLE PARK ONLINECPO Science (cpo.com)CPO Makita, CPO Bosch & MANY CPO-Tools SitesCorn Products International (ticker:CPO) – MANY SitesCPO Ltd (Imaging Products & Document Mgmt Services)Wiki – Chief Petty OfficerCPO® certification courses… Certified Pool/Spa OperatorWiki – Certified Pre-Owned – MANY other Car sitesCitizen Participation Organization (CPO) Program Washington County, OregonCPO Community Properties of OhioCertified Paraoptometric Examination

The Search for “CPO” - Results

The Correctional Peace Officers (CPO) Foundation CPO Commerce, Inc. of www.cpooutlets.com “fame”CPO is the third largest food pantry in North Carolina Contingency Planners of OHIO (CPO) Chief People OfficerNOAA's Climate Program Office (CPO) CPO of Myrtle Beach is a promotional company “Welcome to the Goatlocker” (CPO History and Traditions)Charged Particle Optics Software “What does CPO Stand for?”

48 Results including Czech Philharmonic Orchestra & Chief Petting Officer, Copiapo Chile airport (“CPO”)

Aberdeen Recommendations

Visit Google.comSearch for CPOAdvance until you see “CPO’s Agenda” or CPO Rising”Repeat every day for 3 monthsMake all staffers perform this twice per day for 3 months

CPO Rising……. in Search Results!

Q&A (and Contact Info)

For More Research Please Visit: www.aberdeen.com/channel/procs.asp

Andrew Bartolini, Vice President & Group DirectorGlobal Supply Management,

AberdeenGroupAndrew.Bartolini@aberdeen.com

617.854.5310

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