Over-the-Counter Medicines

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1 Strategic and Competitive Value-add Global Spend Insight at Over-the-Counter Medicines #1 manufacturer of over-the-counter medicines with Spend Analytics SAP PROCUREMENT SUMMIT SAP Americas HQ, Newtown Sq., PA JULY 31 AUGUST 1, 2012 Riyaz Rawoof Enterprise Architect Sourcing & Procurement 1

2 What We ll Cover Global challenges faced by J&J in compiling spend data Our business case for choosing the SAP Spend Performance Management (SAP BOBJ SPM) solution Our Solution Demo Strategic and Competitive Value-add to our Strategic Sourcing organization J&J s Implementation Strategy J&J s Roadmap on Spend Analytics Wrap-up 2

3 What We ll Cover Global challenges faced by J&J in compiling spend data Our business case for choosing the SAP SPM solution Our Solution Demo Strategic and Competitive Value-add to our Strategic Sourcing organization J&J s Implementation Strategy J&J s Roadmap on Spend Analytics Wrap-up 3

4 Johnson & Johnson Company Background Global Presence Global Leader in Health Care More than 250 Operating Companies in 60 Countries Selling Products in more than 175 Countries 128,000 Employees Worldwide 4

5 Consumer Health Care Areas of Focus OTC/Nutritionals Skin Care Baby Care Women s Health Oral Care Wellness & Prevention Driven by strong science, deep consumer insight and professional recommendations. Sarah Snow with her family Uses JOHNSON S NATURAL baby products 5

6 Global challenges in compiling Spend Data Your data here Pain Points A diverse landscape of systems Silos of data Inefficient and costly to create actionable global procurement information Delivering global procurement data is labor intensive Needed a One-stop-shop of procurement/spend information so that we can gain visibility into our spend trends and draw insights on savings opportunities 6

7 Our Procurement Analytics Strategy Silos of Regional Data stored in various types of databases. Organized Warehouse of Global Information 7

8 What We ll Cover Global challenges faced by J&J in compiling spend data Our business case for choosing SAP SPM Our Solution Demo Strategic and Competitive Value-add to our Strategic Sourcing organization J&J s Implementation Strategy J&J s Roadmap on Spend Analytics Wrap-up 8

9 J&J Business Case An enabler for achieving our already high world-class savings targets. Savings targets were being achieved using manual and laborious methods. To sustain current world-class savings targets, we need to invest more in automated solutions such as Spend Analytics. We also assumed an additional conservative 0.1% savings on total direct Raw Material spend. Other savings levers include: 1) additional sourcing events can be held each year 2) More time available for strategy and supplier bid analysis. How will Spend Analytics help achieve our Strategic Plan: Spend Concentration Concentrate Spend with our Top Preferred Suppliers through rationalization via Category & Supplier. Efficiency / Savings Potential Savings through leveraging and price comparisons. Visibility into spend and volume at supplier, category level and item price optimization. Sourcing Risk Management Mitigate single/sole sourced materials through visibility into what we are buying and who we are buying from. 9

10 Alternatives We Considered for Spend Analytics SAP R/3/ECC Standard Reports: You can run various reports in such as General Analyses, Order Value Analysis in the MM module of R/3 or ECC. However, this is not considered spend data! The source of spend data is invoice values from A/P. LIS/PURCHIS: You can perform some basic analytics on order values and invoices using the LIS/PURCHIS functions in R/3 or ECC. However, the invoice values here are driven by PO order dates and still not considered accurate spend data! SAP SRM Analytics: If you are using SAP SRM and use SAP Netweaver BW for analytics, you can perform Spend Analytics using standard SRM content. However, this solution does not enable you to combine spend from non-sap systems. You will also need to implement Special Ledger to combine purchasing and A/P data. SAP SCM and FI content in BI: The standard SAP BI content contains data relating to purchasing and A/P. However, this data is independent and not combined to be able to see spend and associated relationships. Custom SAP BW content: You can build your own Spend Analytics content by combining standard content in SCM and standard content in FI-AP and building your own custom content on top of it to build relationships between Purchasing and A/P data. You can also buy third-party data to enrich the content. However, you will need the requisite knowledge on how to customize and combine the data and you will have to build everything from the ground-up. This can be cost prohibitive to build and maintain. SAP Spend Performance Management Solution: Standard SAP tool for performing Spend Analytics from heterogeneous systems. Add on to SAP Netweaver BW. 10

11 Why SAP SPM to fulfill our Business Case? Comprehensive application that provides end-to-end Spend Analytics. Out of the box capability; fits nicely with our J&J SAP roadmap SAP SPM is a SAP BW bolt-on based on Netweaver BW 7.0 Provides normalized global view of procurement spend. Data Cleansing and enrichment capability to support the aggregation & harmonization of spend data across source systems. Ability to integrate spend data from SAP and non-sap systems. Standard reports provide actionable data in relevant user intuitive Web based Dashboards, Reports and Briefing Books. User-friendly functionality to build your own custom queries. MS Excel, PDF and integration. Integration with SAP E-Sourcing. 11

12 What We ll Cover Global challenges faced by J&J in compiling spend data Our business case for choosing the SAP SPM Solution Our Solution Demo Strategic and Competitive Value-add to our Strategic Sourcing organization J&J s Implementation Strategy J&J s Roadmap on Spend Analytics Wrap-up 12

13 SAP SPM Demo of Capabilities J&J Leveraged Portal Integration & Menu Standard Reports - Example Spend by Category Functionality: Export Data to Excel and Adobe Acrobat Functionality: Drill Down Analysis Functionality: Ad-hoc reporting Functionality : integration 13

14 We have integrated SPM within our SAP Portal There are about 200 out-of-the-box Reports & Dashboards to support your immediate analysis. The report content is organized in folders and subfolders, using a tree-logic structure. This can be customized. We selected about core reports and customized them for J&J needs. We are using SPM version

15 Standard Report - Spend by Category Reports can be displayed in a dashboard channel or executed and viewed in full view as shown here. We established a category hierarchy consisting of various commodities Category Managers can analyze their commodity spend at all levels of the category hierarchy. 15

16 Export Data to Excel and PDF Often users want to collaborate on their findings offline. The tool supports this requirement in many ways, including... 1) Acrobat (.PDF) output for easy ing of read-only report output and sharing. 2) Export to MS- Excel for further processing and analysis of data. Our users like this feature very much. 16

17 Drill Down Analysis Capabilities Tool supports multiple hierarchical category structures and sophisticated analysis and complex drill down Can drill from Itemlevel views into spend. While analyzing spend at the top level, you can drill down and view PO details or Invoice details. 17

18 Supplier Segmentation Visibility Drill down analysis uncovers opportunities that can drive additional savings. Ability to view same items that we buy from different suppliers at different prices provides us rationalization opportunities. In this example the organization is purchasing the same commodity from three different suppliers and paying three different prices. There is a potential consolidation opportunity. 18

19 Ad hoc Reporting Capabilities Ad hoc reporting makes it easy for users to customize reports in order to get the information they need to take action. In this case, the user modifies a report using the intuitive drag and drop to feature to add the Buyer dimension to an existing report. The user can now have visibility into spend by category, by supplier and by buyer to further investigate the opportunity. 19

20 Integration After reviewing a report, a user will want to take action based on their analysis. Tool promotes collaboration and facilitates actionable analytics. Through integration with your system, a user can forward results to another user. A web link in the causes the same report to open for the recipient. 20

21 Develop Briefing Books SPM includes a feature called the briefing book, to capture the output of your organization s analysis. This may include daily status information or periodic rollups of performance KPIs. We used this feature to keep our CPOs and Management teams informed of critical KPIs and trends on a monthly basis. 21

22 Develop Briefing Books You can flip through the book page by page to review each report. 22

24 Leverage Opportunities Global Spend Visibility Supplier Comparisons Spend Concentration Savings Efficiency Strategic Advantage Contract Compliance Parent / Child Forecast vs. Actual 24

25 Global Spend Visibility In Millions USD Local Supplier Region A Region B Region C Region D Total Local Supplier A $0.1 $0.2 $0.3 $0.4 $1.0 Local Supplier B $0.1 $0.2 $0.3 $0.4 $1.0 Local Supplier C $0.1 $0.2 $0.3 $0.4 $1.0 Local Supplier D $0.1 $0.2 $0.3 $0.4 $1.0 Local Supplier E $0.1 $0.2 $0.3 $0.4 $1.0 Local Supplier F $0.1 $0.2 $0.3 $0.4 $1.0 Local Supplier G $0.1 $0.2 $0.3 $0.4 $1.0 Local Supplier H $0.1 $0.2 $0.3 $0.4 $1.0 Local Supplier I $0.1 $0.2 $0.3 $0.4 $1.0 Total $0.9 $1.8 $2.7 $3.6 $9.0 Data shows spend across regions by supplier for Category X. Better leverage based on visibility of spend across regions. Ability to view Spend not only in our Global reporting currency of USD, but also ablility to see spend in regional/local currencies based on different exchange rate methods. 25

26 Supplier Comparisons Item Local Supplier Spend Volume Min Unit Price Max Unit Price Weighted Avg. Unit Price Item A Local Supplier A $100, units $50/unit $75/unit $100/unit Local Supplier B $200, units $100/unit $250/unit $200/unit Local Supplier C $400, units $150/unit $500/unit $400/unit Ability to compare prices for commodities and items by Suppliers. Ability to see not only spend, but also volumes, lowest unit price, highest unit price and weighted average unit price. 26

27 Spend Concentration In Millions USD Commodity # of Suppliers Total Spend Top 75% of Spend # of Suppliers in Top 75% Bottom 25% of Spend # of Suppliers in bottom 25% Commodity A 150 $180 $ $ $7 Potential 15% Commodity B 57 $89 $68 7 $21 50 $3 Commodity C 161 $87 $65 18 $ $3 Commodity D 170 $78 $59 15 $ $3 Commodity E 228 $59 $44 12 $ $2 Commodity F 143 $47 $34 15 $ $2 Commodity G 142 $25 $19 20 $6 122 $1 Commodity H 42 $10 $8 7 $2 35 $0.30 Commodity I 76 $6 $5 10 $2 66 $0.23 Total 1169 $581 $ $ $22 For Category X, if we move the bottom 25% spend to preferred suppliers who account for 75% of spend, this is the potential savings we can realize through consolidation and leverage. 27

28 Forecast vs. Actual Commodity Forecast Spend Forecast Volume Forecast Weighted Avg. Unit Price Actual Spend Actual Volume Actual Weighted Avg. Unit Price Variances Commodity A $100, units $100/unit $150, units $150/unit ($50,000) Commodity B $200, units $133.3/unit $180, units $120/unit $20,000 Commodity C $400, units $160/unit $300, units $120/unit $100,000 Ability to compare forecast spend to actual spend and measure how well we are doing against the forecast and business plan. You also have the ability to use the planning/budgeting capability of SPM to track planned/budgeted spend. 28

29 Parent-Child and Spend Aggregation Parent Supplier Supplier ID Local Supplier Source System Spend Parent Supplier X Supplier A B C SAP A $100, Supplier A-B-C SAP B $200, Supplier A.B.C SAP C $400, Supplier A B C Non-SAP A $500,000 Totals $1.2MM The normalization, cleansing and enrichment process gives us the ability to group together suppliers belonging to the same corporate entity (Parent-Child relationships) and be able to see spend at an aggregated level. This give us better leverage for pricing and negotiations. We currently use the DSE solution through an outsourced process for cleansing and enrichment. Another option is to use the newer DEC option for this, which can also be used as a self-service in the Cloud. We are currently exploring DEC as an alternative. 29

30 Contract Compliance Item Region Standard Price Actual Price Volume Standard Spend Actual Spend Unit Price Variance Total Variance Item A Region A $100/unit $80/unit 1000 units $100,000 $80,000 $20/unit $20,000 Region B $200/unit $220/unit 1000 units $200,000 $220,000 ($20)/unit ($20,000) Region C $400/unit $375/unit 1000 units $400,000 $375,000 $25/unit $25,000 Regional Head Offices establish contracted prices. Countries are required to buy based on contracted prices. We have visibility to the prices they are paying and have the ability to track variances and enforce contract compliance. If you are using CLM, contract data can be extracted from there as well. Here, you can leverage the integration between CLM, ECC and SPM. You also have the ability in SPM to track contract vs. offcontract spend, contract expiration, remaining contract dollars/quantities, etc. 30

31 Savings Efficiency Saving Goal - Commodity A: $100,000 Item Standard Price Bid Award Price Historical Price (Actual Price Paid) Actual Volume Cost Avoidance Cost Reduction Savings Item A-1 $250/unit $260/unit $280/unit 1000 units $20,000 $20,000 CA Savings Type Item A-2 $270/unit $260/unit $280/unit 1000 units $20,000 $10,000 $30,000 CA & CR Item A-3 $240/unit $220/unit $240/unit 1000 units $20,000 $20,000 CR Totals $40,000 $30,000 $70,000 CA Cost Avoidance; CR Cost Reduction Standard Price, Actual Price, Volume and Spend is exported to Excel and combined with Targeted Savings Goal from another Savings Tracker BW application to compare Targeted Savings Goal to Actual Savings by Savings Type to determine Savings Efficiency. 31

33 J&J Consumer - Implementation Scope Locations Latin America Europe, Middle East, Africa Asia Pacific North America Source Data Transaction Data Contracts, Purchase Orders, Invoices Volumes consistent with a large Consumer Products company. Key Master Data Material, Buyers, Buying Orgs, Categories, Suppliers, Plants, Geography, Management Organization (plus many more attributes) Source system data is not standardized Master data values not standardized Transaction data configurations vary Spend Scope: Direct Material Spend (Raw Materials & Finished Goods) Technical Installation of SPM V2 on our existing J&J SAP BW 7 SP 18 system. Integration with 12 source systems File transfers to/from external cleansing 3 rd party. Upgraded to SPM v2.1 last year. Source System Technology BPCS SAP 46C with SPM V2 extractors SAP 46C SPM V1 extractors SAP 47C SAP ECC5 SAP ECC6 Global & Regional End Users: 100+ (CPOs, Sourcing Managers, Buyers, Finance, etc.) 33

34 Phased Implementation Approach 2009 End User Reporting External 3 rd party Data Cleansing NA OTC Status: Raw Materials & Finished Goods LATAM EMEA NA ASPAC Data Load Management Support Global Spend Analytics LATAM Key Capabilities Direct Material Spend by Supplier, Category, Materials, etc. (Raw & Finished Goods) Current year and history Summary and drill down to details Reports, Graphs, Dashboards & Briefing Books Data cleansed & enriched Multiple currencies EMEA Source 1 EMEA Source 2 EMEA Source 3 EMEA Source 4 NA ASPAC

35 Project Team Structure Partners Global Steering Committee Regional / Local SAP Third Party (data cleansing) *Please note: Team size will vary based on your timeline and Business / Technical environment. What is shown is our Core Team from Phase 1. Project Management Team CoreTeam* 1 Project Manager 1 Global I/T BRM 1 Functional Expert 1 R/3 Developer 1-2 BW Developers Basis Support Business Teams Finance & Procurement I/T & Basis Support Teams The J&J Spend Analytics team is a global team with resources in multiple time zones. 35

37 J&Js Roadmap on Spend Analytics Planned Initiatives Integrate Business Plan or Forecast Spend Provides the ability to compare and measure actual spend to planned/forecast spend in one place. Integrate External Manufacturing Raw Material Spend. Enrich with J&J specific custom attributes through our MDM initiative for further insights. Explore usage of Risk Analytics capabilities in the next version. Explore the usage of the tool as a One-stop Shop for Sourcing Analytics. Explore the usage of HANA to facilitate tool performance improvement. Explore the usage of SAP Business Objects as a front-end so that we can evolve towards a One-stop Shop Sourcing Analytics solution. Potential to evolve this into an Enterprise level tool and add Indirect Material Spend. 37

38 Your Turn! How to get in touch with me: Riyaz Rawoof: 38