Squeezing More Value from Your ePurchasing Efforts: What to Do After eProcurement and eSourcing Andrew H. Bartels VP and Research Analyst Forrester Research June 25, 2008

3 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Agenda eSourcing and eProcurement are just the start of successful spend management What to do next: 1.Supplier network services 2.Contract life-cycle management 3.Automated spend analysis 4.EIPP Conclusions and Recommendations

4 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Enterprises adopting eProcurement, but still lag in adopting sourcing and supplier integration Source: Forrester Business Technographics™ 2005 Enterprise Software and Services Survey Percent of NA and European enterprises buying online

5 Entire contents © 2008 Forrester Research, Inc. All rights reserved. eSourcing and eProcurement just the start eSourcing by itself captures the easy savings »Get better deals in obvious large categories of spending »Make sourcing process more efficient eProcurement captures some process savings »Automates the req-to-PO process »Helps get employee compliance with sourcing deals eSourcing savings eProcurement savings Total spend management potential savings

6 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Spend management is like oil drilling Initial efforts like eProcurement and eSourcing only get the easiest savings To get rest of value, you need more sophisticated techniques

7 Entire contents © 2008 Forrester Research, Inc. All rights reserved. eSourcing and eProcurement just two steps in eight- stage spend management process 1. Spend analysis 3. Supplier identification 4. Sourcing 5. Contract lifecycle management 6. Procurement 7. Order fulfillment 8. Invoicing, reconciliation, and payment 2. Supplier assessment

8 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Where to turn next to squeeze more savings 2.Contract lifecycle management (CLM) tools to tighten linkage from sourcing deals to procurement/purchasing eSourcing savings eProcurement savings Total savings CLM Spend analysis 3.Spend analysis tools to identify more granular and subtle sourcing opportunities, drive more sourcing EIPP 4.EIPP to improve PO-to-pay process Supplier network 1.Supplier network services to streamline document flow with suppliers and simplify catalog management

9 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Invoice receipt Supplier networks help connect buyers with suppliers for document flow Order receipt Procurement Contracting Sourcing Supplier assessment Spend analysis Invoicing Order fulfillment Order management Contracting Bid/proposal Prospect qualification Market analysis Company A buy-side process Company B sell-side process RFx/tender Bid/proposal Draft contract Purchase order Response, ASN Receipt Invoice Advance payment notice B2B buyers have many points of interaction with B2B sellers

10 Entire contents © 2008 Forrester Research, Inc. All rights reserved. The logic of supplier networks for document exchange – for both buyers and suppliers Buyer #1 Buyer #2 Buyer #1 Buyer #N Buyer #2 Buyer #N Vs.

11 Entire contents © 2008 Forrester Research, Inc. All rights reserved. The role of supplier networks in catalog content management Buyer #2 Buyer #1 Buyer #N Customize catalog content for each buyer Check updated catalog content against contract Format for import to procurement catalog Screen out catalog changes that are price increases Updated catalog content Updated catalog content Updated catalog content Updated catalog content Supplier networks can perform key functions in procurement catalog management

12 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Contract lifecycle management What’s involved »Contract repository linked to transaction systems »Contract terms and conditions library to create new contracts »Contract creating and negotiating tools using MS Word »Contract compliance analysis »Contract renewal Benefits »Turns sourcing agreement into action- oriented terms and conditions »Supplier prices and catalogs tied to contract terms »Employee purchases in compliance with contracts and company policies

13 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Contract lifecycle management – What’s involved Contract Renewal Contract Optimization Contract Compliance and Administration Contract Storing and Repository Contract Negotiation Contract Drafting

14 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Four stages of value from CLM 1.All contracts in an electronic repository (Cut costs of finding contracts, tracking renewals) 2.Analysis and reports of contracts (Identify duplicates, conflicts, obligations, and rights) 3.Automate contract creation (More efficient use of legal staff, faster cycle times, acceleration of revenues or savings) 4.Integrate transaction systems to contractual terms and conditions (More complete and effective compliance with contractual benefits and commitments)

15 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Most companies are still at the first stage of value Percentage of CLM clients who have reached each stage Source: Forrester Research, interviews with 30 companies who have bought CLM solutions Most companies want to get to Stage 4

16 Entire contents © 2008 Forrester Research, Inc. All rights reserved. CLM — Tied to process or cross-process? Spend analysis Sourcing Buying processSelling process Opportunity analysis Pricing, configuring and quoting Sales Billing and collection IP, other contracts Contract management CFO CIO GC CPO CMO Contract management Contract management Procurement Invoice and payment

17 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Spend analysis: Three approaches 1.Reports of transaction systems (ERP, procurement, etc.) –Pros: Cheap, leverages existing systems –Cons: Data quality generally poor and incomplete 2.Manual analysis of POs, invoices, receipts, etc. »Consultants help sort and categorize POs and invoices –Pros: Cost-effective one-time snapshot of spending –Cons: Expensive to repeat 3.Automated spend analysis »Specialist software vendors provide automated tools –Pros: Fast, repeatable, complete –Cons: Training system to cut errors; cost

18 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Who needs automated spend analysis? Single ERPA few ERPsMultiple ERPs Technology complexity Definitely yes! Probably yes! Probably no Multiple markets, multiple industries Single market, single industry Business complexity Enterprises in multiple markets and multiple industries with multiple ERPs benefit the most

19 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Automated spend analysis — What’s involved and benefits Benefits »Identifying opportunities to consolidate spending and get volume discounts »Sarbanes-Oxley compliance »Assessing compliance with and results of past sourcing activities What’s involved »Defining a product taxomony, generally starting with UNSPSC »Importing file of PO/invoice/receipt data »System cleanses, normalizes, categorizes and enriches data »Detailed reports and analytical tools

20 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Other sources of value Improved employee and supplier compliance with sourcing policies Improved employee satisfaction and work performance through simplified purchasing of needed services Improved regulatory compliance (e.g., Sarbanes- Oxley) Better services providers, with better quality service

21 Entire contents © 2008 Forrester Research, Inc. All rights reserved. What to look for in a spend analysis solution Ability to cleanse, normalize, and categorize spend data from a variety of sources Efficiency of analysis engine – how much data can it handle, how quickly can it generate results, what level of accuracy? Structure of analysis engine: »Rules-based engines work best on direct and indirect materials »Artificial intelligence engines are best for services In-house software or outsource service? Experience in analyzing spend in your industry Integration with sourcing tools Portfolio of analytical reports and data views If you’re a multi-national, language and currency support

22 Entire contents © 2008 Forrester Research, Inc. All rights reserved. EIPP – What’s involved and benefits What’s involved »Electronic invoice presentment and payment (EIPP) »Often handled by separate EIPP system »Integration point with eProcurement system and financial management system Benefits »Faster invoicing and payment processes »Capturing early payment discounts, avoiding late payment fees »Easier reconciliation »More creative financing and payment options

23 Entire contents © 2008 Forrester Research, Inc. All rights reserved. AP EIPP has four elements 1.Receive electronic invoices 4.Convert suppliers to electronic interactions 2.Automate invoice validation 3.Get creative with payment and funding options

24 Entire contents © 2008 Forrester Research, Inc. All rights reserved. The four stages of value from accounts payable electronic invoice presentment and processing Convert paper invoices into electronic Validate invoices with automated rules & workflow Value-added services of discount management, cash forecasting, financing Full electronic invoice- related buyer- supplier interaction The four stages of value from AP-EIPP Benefits Reduce cost of processing paper invoices Benefits Reduce cost and time to validate invoices Benefits Maximize discounts, minimize cash, streamline financing Benefits Improve visibility, transparency, auditability

25 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Organizing for successful Spend Management What to centralize: »Contract management – to facilitate Sarbanes-Oxley compliance, optimize contract value »Spend analysis – to identify enterprise-wide savings »EIPP – to streamline process of invoice capture, reconciliation and payment and improve payment and financing options »Supplier network services What to both centralize and decentralize: »Services procurement -- deploy department by department, using global platform

26 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Recommendations eSourcing and eProcurement a good start to spend management – but don’t stop there Supplier network services help streamline and improve needed connections with suppliers Contract management and spend analysis are good next steps to improve impact of eSourcing and eProcurement EIPP delivers real transactional savings, but needs eProcurement and contracts for most value Centralize some, decentralize others

27 Entire contents © 2008 Forrester Research, Inc. All rights reserved. Andrew Bartels (516) Thank you