Buying Channel Analysis

Buying Channel Summary Buying channel - is a process to specify a need, locate the supplier of that need, determine the terms of acquiring the need and executing an agreement for the supplier to fulfill the need. An efficient and effective procure to pay process contains processes and buying channels that are designed to “fit” different situations and circumstances encountered by end users of the P2P process . Buying channel analysis examines requester need, material type, location, transaction cost, supplier, PO count and size ($). Balances transaction cost, responsiveness, tracking and risk to identify the right channel mix. 

Transaction Cost per Channel NATCO = 0 NATCO = 0 NATCO Currently 48,000 PO / Year Ave Cost: $150 / PO Cost per PO = $10-15 Cost per PO = $40-60 NATCO = 0 NATCO = 100% Cost per PO = $5-10 Cost per PO = $150 plus

Transaction Cost per Channel NATCO = 20% NATCO Currently 48,000 PO / Year Ave Cost: $150 / PO NATCO = 40% Cost per PO = $10-15 Cost per PO = $40-60 NATCO Objective 48,000 PO / Year Ave Cost: $106/ PO NATCO = 30% NATCO = 10% Cost per PO = $5-10 Cost per PO = $150 plus NATCO Savings 48,000 PO / Year 20 man years

Procurement Capacity Benchmarks NATCO Currently 48000 POs per year FTEs on Org Chart = 14 (not including Engineers time) My Estimate – 650 POs per FTE Requiring 74 FTEs to process (Not including AP) Today = 3428 Ouch! Very painfully With current process Using a lot of Engineers’ And others time The Last Unautomated Frontier: How Technology Is Streamlining The Invoice-To-... Scott Dunlap, AFP Exchange; Jan/Feb 2005; ABI/INFORM Global pg. 14. The Purchasing Card Benchmark Report, Aberdeen, March 2005. 3/31/2017

Top 50 Suppliers by PO Count

Detailed Buying Channel Results Supplier Integration - implementation of e-catalog or e-connectivity with a supplier that is currently a major Natco strategic supplier. $50 million($33/yr) in spend with 4 vendors, 8999 POs (6000/yr) Savings 1-2 man years in procurement, $2-5 million in payment discounts

Classification Benchmarks UN/SPSC Code Universal Standard Product and Service Classification Code. A Global commodity standard - 10 digit, hierarchical code used to consistently classify products and services The UNSPSC is a hierarchical classification with five levels. These levels allow analysis by drilling down or rolling up to analyze expenditures. Each level in the hierarchy has its own unique two-digit code: An example follows: Code: 43 20 15 01 14, Segment: 43, Information Technology Broadcasting and telecommunications Communications Devices and Accessories. Family: 20, Components for information technology or broadcasting or telecommunications Computer Equipment and Accessories. Class: 15, Computers Computer accessories Commodity: 01 Computer switch boxes Docking stations Business Function:14, Retail

Medium Freq Medium Value High Freq High Value e-candidates Low Freq High Value Buyer assisted Medium Freq Medium Value E-catalog or pcard pcard

Buying Channel Results pCard implementation – implement a pcard program for small value transactions, single transactions with a supplier or field transactions in order to reduce transaction costs and improve requester responsiveness.