Global food giant creates central procurement portal, achieving transformational gains with SAP and IBM

Published on 08-Dec-2010

Validated on 07 Jan 2014

"SAP Supplier Relationship Management proved to be a win in terms of cost savings that produces the budget for the next quarter. To make it happen, IBM provided a fully integrated service, from blueprint right through go-live to business-as-usual support." - Global Process Owner for Procurement

Customer:
Leading global food company

Industry:
Consumer Products

Deployment country:
United States

Solution:
Business Integration, BA - Business Intelligence, Enterprise Resource Planning, Optimizing IT, Optimizing IT

IBM Business Partner:
SAP

Overview

This global food manufacturing behemoth operates by allowing considerable independence to its regional marketing, sales and product development teams. By empowering regional units the company can act on a global level and retain flexibility in local markets. However, decentralized procurement processes did not allow for real economies of scale, and seriously hampered analysis capabilities, financial control and real opportunities to reduce total global spend.

Business need:
A $10 billion global food leader operates through a network of highly entrepreneurial business units within each of its geographic regions. This approach serves the company extremely well for marketing, sales and product development but also lead to decentralized procurement processes. This contributed to poor analysis and control of its supply chain and missed opportunities for cost reductions, efficiencies and better global spend levels.

Solution:
Implemented SAP Supplier Relationship Management within the larger SAP application landscape, starting with UK and US operations and later extended to the Europe and Asia Pacific regions. Shifted more than 70 percent of UK and Ireland indirect purchasing transactions onto authorized catalogs. Deployed IBM InfoSphere Master Data Management Server to integrate data between SAP ERP applications, SAP Supplier Relationship Management and legacy BPCS applications.

Benefits:
Enabled double-digit cost reduction in a variety of procurement categories in the UK, Ireland and the USA, positively impacting the company’s bottom line. Cut procurement authorization bands from 40 to six, reducing requests on executives’ time for review and approval. Purchasing data that previously took more than nine weeks to collect and analyze is now captured real time, giving management full visibility of procurement opportunities. A single catalog-based purchasing system reduces paperwork, increasing efficiency and providing an audit trail for improved financial control.

Case Study

This global food manufacturing behemoth operates by allowing considerable independence to its regional marketing, sales and product development teams. By empowering regional units the company can act on a global level and retain flexibility in local markets. However, decentralized procurement processes did not allow for real economies of scale, and seriously hampered analysis capabilities, financial control and real opportunities to reduce total global spend.

The company wished to transform its procurement processes in order to reduce supplier costs, generate operational efficiencies and improve spend visibility. To do this, it implemented SAP Supplier Relationship Management within the larger SAP application landscape in the UK, Ireland and the US.

The manufacturer – the owner of some of the world’s highest-ranking food brands – now places more than 70 percent of its indirect purchasing transactions through a centralized catalog, and has achieved double-digit cost reductions in a variety of procurement categories across the UK, Ireland and the US. These savings make a direct contribution to the company’s bottom line. Based on this success, the savings generated from the initial deployments are helping to fund subsequent rollouts world-wide and fueling international benefits.

The food giant’s Global Process Owner for Procurement explains, “We wanted to make it as easy as possible for people to buy from where we need them to buy. Through SAP Supplier Relationship Management, we will gain the high-quality information we need to reap the business benefits of leveraging our global spend.

“SAP Supplier Relationship Management proved to be a win in terms of cost savings that produces the budget for the next quarter. To make it happen, IBM provided a fully integrated service, from blueprint right through go-live to business-as-usual support.”

Discovering the truth about purchasing
Combining the strength of a global leader with the agility of a local producer, the company enjoys a significant market share in the food industry in over 50 countries. It employs some 30,000 people world-wide and achieves annual sales of more than $10 billion.

Across this highly successful enterprise, the answer to one question remained elusive, ‘What does the company spend on indirect purchases across all regions?’ Systems, including SAP and BPCS, were not integrated at the enterprise level, and purchasing processes were not standardized across regions. A review team looked at some of the major indirect spend categories – such as marketing and information technology – and realized that, globally, total expenditure amounted to hundreds of millions of dollars.

The Global Process Owner for Procurement notes, “The data required for enterprise-wide analysis took around four months to collect from all the regional offices, often requiring manual extraction from local systems. In some cases, we had to ask our suppliers to provide consolidated reports of what they had sold to us.”

The aim was to build a picture of actual purchasing behavior, prices and suppliers, and select a shortened list of approved suppliers on an internal catalog available through a simple web portal. By leveraging the company’s scale both regionally and globally, procurement was able to negotiate deals and build a single catalog with prices not available locally. As a result the company benefits from standard processes, sharp pricing, and consolidated international sales volumes.

Indirect purchases through the web catalog always follow a standard process: selection, authorization, purchase order, purchase, receipt and payment. This standardization helps avoid situations where purchase orders are raised to match supplier invoices, or the delivery of goods before a purchase order authorization. Uniform processes and ease of use of the catalog helps drive quick adoption of the catalog-based purchasing system leading to business and administrative efficiencies. The solution positively impacted enterprise-wide procurement costs achieving an estimated 20 percent reduction in Europe alone.

The Global Process Owner for Procurement says, “After only 15 days from go-live, from an initial 4 percent with the previous system, the catalog was being used for 70 percent of all procurement transactions, and shopping carts of more than $9 million were created and approved.”

Selecting IBM for training and insight
The food manufacturer’s European business units were already using SAP ERP applications, which offered a known technical integration path and reduced training for the introduction of SAP Supplier Relationship Management.

The first step was to discover existing vendor relationships, contract volumes and value. Both the company and IBM Global Business Services teams spent time learning what people were actually doing, and collating data from suppliers that could be used to build a purchasing catalog. SAP Supplier Relationship Management provides simple non-negotiable workflows to manage the complete procure-to-pay process, which is then made available to users as a browser-based portal application.

Working with IBM Global Business Services, the company team rolled out SAP Supplier Relationship Management to some 700 users at UK and Ireland locations in a 12-week rollout, with a further 1,000 users in the US added in a subsequent eight-week period. The team prepared the training materials and schedules, and was able to train more than 90 percent of the users prior to go-live.

One senior executive explains, “IBM Global Business Services offered the experience and resources to create an extremely robust blueprint. During realization, the focus shifted to us owning the solution, while seamlessly integrating to the IBM application management service team in India. This has really enabled us to accelerate our ability to deploy in sharp, focused releases.”

InfoSphere Master Data Management Server links the multiple source systems and the SAP Supplier Relationship Management application. It ensures consistent management of supplier data across all of the enterprise’s operations, enabling an end-to-end management that is central to its global network. The integrated IBM and SAP applications ensure consistency and integrity of data throughout the organization, and created much-improved and business-critical analysis capabilities.

IBM Global Business Services handles SAP Basis activities and maintains the applications, hosted on HP servers managed by IBM Global Technology Services – Strategic Outsourcing. Oracle data is stored on an IBM System Storage XP24000 disk array. The solution serves approximately 1,500 users in the UK and Ireland, 1,200 in the US, managing 6,000 vendors offering more than 60,000 indirect items in 740 product categories. The system generates approximately 50,000 purchase orders annually.

“After only 15 days from go-live, from an initial 4 percent with the previous system, the catalog was being used for 70 percent of all procurement transactions, and shopping carts of more than $9 million were created and approved,” says the Global Process Owner for Procurement

Generating procurement benefits
Both the company and IBM teams knew that many indirect purchases were not being centrally recorded. During the research and discovery phase, it became clear that the total volumes and monetary value were very high.

SAP Supplier Relationship Management offers faster order processing and greater control. Before implementation, there were 40 possible bands of authorization for purchases across the globe. The new system enabled a contraction of these bands to a total of just six categories. This has reduced overall complexity and improved business processes on executives’ time for review and approval of authorization requests.

Each country gains access via a simple browser-based interface to a uniform, centralized catalog, presented in their local language. This catalog-based purchasing reduces paperwork for both the company and its suppliers, increasing administrative efficiency, as well as providing an all-important audit trail for maximum financial control. Managers can also approve purchase requests via email and PDA, such as a Blackberry, provided through a connector developed by SAP and IBM.

The Vice President for European IT, comments, “‘For someone like myself, who spends much of their time on the road, the ability to review requisition details via a Blackberry, and then subsequently accept or reject the requisition, is invaluable.”

In Europe, for smaller amounts, self-approved purchase orders can be authorized. Staff, internal finance teams and business analysts now rely on the system for accurate, timely reports, offering improved order integrity with fewer supplier disputes. The same data feeds into corporate-level requirements for auditability, including compliance with financial regulations such as GAAP and Sarbanes-Oxley.

For the first time, procurement executives are able to easily analyze and compare purchasing costs of indirect goods and services, and based on the transaction data captured from the catalog purchases, identify opportunities to consolidate suppliers and negotiate lower prices. Furthermore, obtaining global purchasing data has been reduced from more than nine weeks to just one increasing business administration efficiency and the ability to make vital cost-cutting decisions at a much faster rate. This will lead to further rounds of purchasing improvements and cost reductions, self-funding the rollout of the solution to the US and AsiaPac regions.

The Global Process Owner for Procurement remarks, “By leveraging SAP Supplier Relationship Management, we have driven process standardization, full spend visibility and system-enabled compliance, allowing us to achieve significant savings across multiple indirect categories.

“We now have a better understanding of what it takes to bring in SAP Supplier Relationship Management in both the SAP and non-SAP environment. We are committed to driving productivity gains through people, processes and systems. This means working with the right people, like IBM Global Business Services, and with the right tools, to gain sustainable improvements.

“The combination of our own team, IBM and the SAP Supplier Relationship Management solution brought our procurement executives’ vision to life in less than a year.”

Products and services used

IBM products and services that were used in this case study.

Software:
InfoSphere Master Data Management Server

Service:
GTS Strategic Outsourcing, GTS Strategic Outsourcing: Data Center, IBM-SAP Alliance, IBM Global Business Services

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