Managing Spend in a Distribution Environment Supplier Relationship Management and the Distribution Enterprise
Executive Summary Behind the scenes of any distribution business whether a distributor of software, toys, electronics, or produce is an intricate network of materials and services that must be carefully managed in order to ensure a smooth and successful operation. Hundreds of suppliers and thousands of parts are needed for day-to-day operation, and like most industries, distributors are under relentless pressure to cut costs, reduce waste, eliminate inefficiency, and consolidate operations. The mandate is clear: control expenses now. To survive in today s economy, every enterprise must put the reins on spending across every location and category. Rogue spending infiltrates even the most disciplined distributors, and is even more apparent in organizations with remote locations and employees. Vendor lists grow like weeds. There is confusion over who manages what service area, and manual approval procedures for requisitions and invoices are cumbersome. The ability for a distribution enterprise to effectively source, procure, and manage its spend must keep pace with the demand for promptness and compliance in supplier relationship management (SRM). Savings from SRM, which industry analysts report at 5-15% or more, drop straight to the bottom line, positively affecting profit, or earnings per share. With the tremendous amount of goods and services required for operating a distribution enterprise, online purchasing has become an increasingly necessary business collaboration model. Web-based sourcing and procurement solutions provide extensive flexibility and reach by allowing a buying organization to more effectively manage competitive bidding on contracts and control the entire requisition-to-reconciliation cycle. Wholesale distributors typically source and procure goods and services that they need quickly, are ordered in multiples, and are constantly being reordered. For both direct and indirect goods and services, a comprehensive and integrated SRM solution is required for cost-effective spend management. If you can minimize overhead costs and focus your people on the job at hand, you are more likely to increase profitability. Significant savings await organizations that exploit world-class applications and best practices to manage supplier relationships. These technology-related savings, which industry analysts report at 5-15% or more, drop straight to the bottom line, which can have an effect on profit, or earnings per share (EPS). SRM as part of an overall distribution enterprise strategy: SRM solutions allow you to handle the complexities of the ever changing marketplace, and then optimize and control the costs, people, and processes associated with running your operation Source Procure Pay Analyze
Table of Contents Supplier Relationship Management 1 SRM in the Distribution Enterprise 1 A Comprehensive Solution 2 Strategic Sourcing 2 Efficiency and Control with Procurement 4 Streamlined Invoice Processing 4 Spend Analysis 5 How Does It All Fit Together? 5 How Your Team Benefits From SRM 6 The Epicor SRM Suite: A Comprehensive Buy-Side Solution 7 About Epicor 7 Managing Spend in a Distribution Environment i
Supplier Relationship Management You hear a lot of buzz in the market today about SRM and may wonder what it is and how it can help your organization. The most commonly accepted definition is that SRM is an integrated and comprehensive approach to manage and streamline the day-to-day interactions with an organization s supplier base. Generally this is made up of the software and business processes that create collaborative communications and align an enterprise with its suppliers. Similar to customer relationship management (CRM) suites, which gained prominence by helping companies acquire, service, and retain customers, SRM focuses on helping companies maintain relationships with suppliers by mutually driving down costs and managing risk associated with those relationships. Without careful management of supplier relationships, companies risk paying too much for goods and services, ultimately bearing the consequences of poor supplier performance, while carrying the costs of undisciplined spending, and squandering the opportunity to focus purchasing professionals on the most strategic activities. Without careful management of supplier relationships, companies risk paying too much for goods and services, ultimately bearing the consequences of poor supplier performance. The automation of the purchase order cycle can represent significant cost and time savings, contributing directly to bottom-line profitability. Industry experts project cost savings of 5-7% as a result of more effective e-procurement processes. SRM in the Distribution Enterprise A distribution enterprise deals with, in some cases, hundreds of suppliers and thousands of items on a daily, weekly, monthly, or annual basis. These enterprises buy and sell raw materials and capital goods, rate card services (such as advertising or package shipping), maintenance services (like landscaping, pest control, warranty, and service license agreements), and contract labor. Distribution enterprises are facing the same trials and tribulations that they have seen for years: How do you choose the right suppliers, get the best mix of prices, terms, and non-price attributes, and then easily and intuitively go to purchase, track and pay for them while still maintaining performance measures for your suppliers? Managing Spend in a Distribution Environment 1
The specific challenges facing a distributor today in this area are: Distributed purchasing groups and suppliers Minimizing the risk of uncontrolled new product introductions Lack of global visibility into enterprise spend Separate procedures for direct, indirect, spot, and services spend Manual, paper-based processes Fragmented systems Limited measure of supplier performance and compliance Uncontrolled maverick (or off-contract) spending Different levels of technology savvy within the supply chain A Comprehensive Solution While your business is ultimately measured by the bottom line, it is essentially defined by relationships with your customers and suppliers. How well you manage these relationships has a dramatic impact on your bottom line. An SRM suite provides enterprises with the necessary tools and solutions to achieve optimal performance in supplier relationships, including: Sourcing Automates the pre-procurement process of analysis and contract negotiation with the right mix of suppliers, products, services, and prices, using RFQs (requests for quotation) and auctions. Procurement Manages purchasing execution by monitoring and controlling the purchasing process from requisition to receipt. Spend Analysis Provides a global view and tracking of an enterprise s total spending, process cycle times, and supplier performance. Strategic Sourcing Sourcing is the process of vetting suppliers, items, prices, and other critical attributes for goods and services purchased by an organization. There are two fundamental parts to an effective sourcing solution. First is the strategy or methodology, which is a long-term approach to rationalizing spending throughout the enterprise. Second is the tactical sourcing process that consists of implementing an automated B2B sourcing solution that includes RFPs, RFQs, and general events. Sometimes this is handled by professional buyers within the organization, and other times it is outsourced to a smart agent, or expert with specialized knowledge. In the end, a sourcing framework should begin the procurement cycle and allow you to implement purchasing strategies that save you and your suppliers both time and money. It should also provide tools for liquidating excess goods and services. Sourcing is one of the most important, value-added activities that procurement professionals perform for their company. According to AMR Research, conservative Return on Investment (ROI) from bidding events alone is over 2000%, which translates into 10% to 15% gross margin improvements; incremental benefits are still to come as technology and business practices are refined. i i AMR Report, December 26, 2002 Strategic Sourcing Brings Stunning Returns to Retailers Managing Spend in a Distribution Environment 2
Doing sourcing well requires a wide range of skills and subject matter expertise. Doing it manually also requires an inordinate amount of time gathering and comparing offerings from multiple suppliers. Automating many of those tasks not only allows the purchasing professional to focus more time and energy on strategic activities, it also provides for online collaboration and fosters competition that amplifies the value of their work. Bottom line: Sourcing leverages purchasing power for substantial cost savings and earnings growth. Whether your organization buys, sells, or sources indirect materials, services, or spot purchases, you need a solution that has the ability to grow and adapt to the way you do business. You need a comprehensive package to maximize your sourcing capabilities and include powerful search capabilities, alerts and notifications, proxy bidding, event monitoring, sequential start-time, item lots, multi-line capabilities, and configurable event types. This will save time, automate control and consistency, and accelerate mass adoption. A solution must automate RFx (requests for information, quotes, or proposals) tasks, accelerating the process and helping negotiate the best value, whether for purchasing a new raw material or general goods and services such as office supplies, legal, and marketing support. Buyers evaluate suppliers on price and non-price parameters with weighted attribute RFx. Streamlining the manual request for quote or proposal process allows buyers to evaluate and select suppliers based on value to the organization. Supplier report cards allow buyers to introduce additional attributes into the decision process that were established outside of a specific sourcing event. Managing Spend in a Distribution Environment 3
Efficiency and Control with Procurement Allowing end users to create their own requisitions 24/7 from any location while improving purchasing controls may seem like a paradox, but it can be achieved if users have access to catalogs and supplier e-commerce sites within the security and approval framework established by the purchasing department. The result is better control over who buys what and when with less work on everyone s part. This is particularly true in distribution companies that have multiple locations spread across a wide geographical area. Suppliers across a wide range of technical capabilities should be allowed to participate and benefit from an e-procurement solution. From the local provider of raw materials that has a printed price list and accepts faxed orders to the large multinational supplier who requires EDI or XML, the solution should handle it all. The expression time is money is especially true for the fast-paced distributor, where the late arrival of a shipment of products, components, or other materials can mean the loss of your largest customer. Freeing up the staff throughout the organization from clerical tasks and preventable delays, allows them to concentrate on more important customer- and revenuefocused activities. Companies who have implemented an e-procurement solution have enjoyed tremendous reductions in requisitioning and approval cycles. Employee self-service through an intuitive procurement portal gives every authorized user access to what they need when they need it. Buyers and CFOs can sleep better at night knowing that a procurement solution offers the tools to ensure organizational compliance to approval rules. The entire lifecycle of a requisition and purchase order is facilitated by electronic notifications and reminders, so all users are confident that nothing will fall through the cracks. Electronic procurement solutions can cut off contract (maverick) buying by as much as 50%. People behind the scenes see tremendous benefits as well. Buyers get to focus more of their time on sourcing, negotiating, and supplier performance management strategic tasks they are uniquely trained to do to deliver greater value to the company. Administrators establish catalogs and the business rules that allow access and enforce best practices and compliance throughout the enterprise. Accounting staff benefit from impeccable accuracy with purchase orders, receipts, and accounting codes to make the payment cycle smoother and faster. Streamlined Invoice Processing Even if you are receiving invoices electronically, there are still many ways to squeeze additional costs out of invoice and payment processing. To pay or not to pay? That is the question that accounts payable clerks ask day after day, hour after hour. In many organizations, paper invoices still get routed for a signature. The first missing piece of the puzzle in almost all cases is whether the invoice matches the goods or services ordered and received. The second piece is what accounts should be charged. Because getting paid is the most important thing to a supplier, it is fundamental that supplier relationship management solutions should help that occur as effortlessly and accurately as possible. Automated payment processing enables companies to streamline the process of receiving and handling invoices and paying suppliers, including the labor-intensive steps of three-way matching and posting for payment. Ultimately, this reduces costs by eliminating manual steps, ensuring accuracy and improving trading partner relationships. Paying invoices accurately and on-time improves the bargaining position of the buying company, potentially yielding more favorable terms or services from suppliers. Managing Spend in a Distribution Environment 4
Spend Analysis Pre-packaged analytics solutions should include automated cube building, a powerful yet intuitive user interface, roles and security, user personalization, and process scheduling, tracking, and logging. Combining a variety of metrics and dimensions will provide you with potentially thousands of key performance indicators (KPIs) to perform detailed analysis of your spend, your processes and your suppliers performance. Enterprise-wide spending and supplier performance can be graphically monitored and measured using the spend analysis capabilities of procurement solutions. How Does It All Fit Together? Whether you distribute items such as toys, electronics or produce, your organization must blend sourcing with transactional processes to maximize the benefits of an SRM solution. You ve now got the final piece of the puzzle. Suppose your organization needs to outfit a new warehouse location. You examine a number of vendors, whether they are providers of industrial equipment, construction firms, or fullservice organizations. Then you assess your day-to-day needs such as staffing, computer supplies, or other high-reorder items that are necessary to your operations. Finally you decide which goods and services you need, on what time schedule, from what vendors, and at what total mix of price and non-price attributes. On top of all of this, you must have an easy, intuitive, and fast way for all sites to place orders. Utilizing an SRM solution, a distributor can now create an RFx for any or all of these goods and services, get the results, analyze, and integrate with an electronic procurement system for approval workflow, audit trails, and transmission of purchase orders to suppliers. Managing Spend in a Distribution Environment 5
How Your Team Benefits From SRM Remote Locations Get corporate negotiated pricing on all standard products as well as the flexibility to have regional catalogs based on their unique needs. The local manager has the resources to make the right purchasing decisions and the corporate office is satisfied with the necessary consistencies it has set up to leverage discounted pricing across the enterprise. Employees Get the right goods and services faster and at the best price from approved corporate suppliers using a catalog-based, streamlined, and easy-to-use process. Real-time status of requisitions means no more phone calls to Purchasing. Managers Whether searching for additional resources and services, approving purchases or reviewing expenditures, enjoy the speed and simplicity of electronic sourcing and procurement processes. Rest assured that employees and remote locations are making the most efficient purchases to do their jobs. Freeing up staff from manual tasks allows them to concentrate on more important customer- and revenue-focused activities. Purchasing Cut down on administrative tasks and allow them to spend more time planning and enhancing supplier relationships. The power of electronic sourcing drives competitive bidding to optimal prices, services, and terms. Sell off surplus or obsolete assets and excess inventory or even excess production capacity with auctions. Suppliers From spreadsheet catalogs and faxed purchase orders to full-blown EDI and e- commerce sell-side integration, all suppliers get to play. Integration and automation lead to more accuracy and speed in the order to-cash cycle. Reduction in days sales outstanding (DSO) means suppliers can get paid faster and Epicor s portal products provide up-to-the-minute secure self-service access to supplier-specific information. IT Departments Deliver solutions designed for business users, utilize the latest industry standard and Internet technologies to provide 24/7 global availability and automated real-time integration with other systems. All control of roles, policies, supplier transmissions, and workflow is in the hands of business administrators who can optimize the system without bothering IT. Epicor SRM provides a distributor with the necessary tools to achieve worldclass performance in supplier relationships. Managing Spend in a Distribution Environment 6
The Epicor SRM Suite: A Comprehensive Buy-Side Solution As part of the Epicor for Distribution offering, the Epicor SRM suite provides the ability to quickly elevate, manage, and leverage win/win relationships broadly across your supply base. Using leading technology and an intuitive interface to meet the most demanding requirements for enterprise applications, it provides a lower total cost of ownership and can be deployed rapidly. Common features across the product suite include multi-currency support, an intuitive user interface, and performance management. Integration capabilities to your back-office solutions whether from Epicor, another vendor, or a homegrown system use XML and simple publish-and-subscribe mechanisms. About Epicor Since 1984, Epicor has been a recognized leader dedicated to providing leading edge enterprise software solutions to mid-market companies around the world. With over 15,000 customers, Epicor delivers end-to-end, industry-specific solutions that enable companies to immediately improve business operations and build competitive advantage in today s real-time global economy. Epicor s comprehensive suite of integrated software solutions for Customer Relationship Management, Financials, Manufacturing, Supply Chain Management, and Services Execution and Control provide the scalability and flexibility to support long-term growth. Epicor s solutions are complemented by a full range of services, providing a single point of accountability to promote rapid return on investment and low total cost of ownership. Trademark and Copyright Acknowledgement Copyright Epicor Software Corporation 2007. Epicor is a registered trademark of Epicor Software Corporation. All other trademarks acknowledged. Epicor reserves the right to make modifications or changes to the functionality, and plans described herein without further notice. This document is intended solely to inform the audience of Epicor's current intentions. Epicor makes no warranties, express or implied in or by this document. The contents of this document are believed to be current and accurate as of its date of publication. For a complete description of the product features, please refer to the product s user guides, reference manuals and release notes. Managing Spend in a Distribution Environment 7
For more information on the Epicor SRM and Epicor s industry-specific solution Epicor for Distribution, contact: Epicor Software Corporation 18200 Von Karman, Suite 1000 Irvine, California 92612 www.epicor.com 800-997-7528