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CIT End Term Project Report on

Strategic Sourcing



FORE School of Management, New Delhi

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TABLE OF CONTENTS

CHAPTER Page No.

Acknowledgement...........................................................,......................................................... ...2
Introduction to Strategic Sourcing..........................4
Walmart-Always low prices.7
Hewlett Packard....9
Glaxo Smithkline......11
ToysRUS...13
Novo Nordisk....15
Service Master Clean...17
Comparative Study......20
References



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CHAPTER 1
Introduction to Strategic Sourcing
Defining Strategic Sourcing should be fairly simple. Most companies are already involved with
some form of Strategic Sourcing initiative. Typically, when professionals define Strategic
Sourcing they limit the scope and therefore the impact of a Strategic Sourcing initiative.
However, Strategic Sourcing can go well beyond cutting costs. It can have a profound impact on
a companys financials and can strongly influence the purchasing and procurement processes.
For purposes of this paper, Strategic Sourcing will be defined as the process of evaluating,
selecting and aligning with suppliers or consortiums of suppliers to achieve operational
improvements in support of an organizations strategic objectives. The phrase Strategic Sourcing
was coined and is used when the activities of sourcing are directly tied to a sourcing strategy.
Strategic Sourcing is applicable to almost every procurement activity even though it is usually
more relevant to direct materials because of the inflexible nature of price. However, companies
need to consider all purchases as candidates for Strategic Sourcing. Factors such as quality,
shortened and reliable cycle times, technological capabilities ,and services become key
negotiation items.
Because Strategic Sourcing is so critical and can have such a strong affect on the bottom line,
some buyers prefer managing and developing incumbent suppliers by aligning strategies and
working towards common goals for the procurement of direct materials only. Other companies
utilize their highly skilled procurement staff to manage and source other purchases including
indirect resources, services, utilities, and capital equipment purchases.
Steps In Sourcing
The steps in a strategic sourcing process are:
1. Assessment of a company's current spending (what is bought, where, at what prices?).
2. Assessment of the supply market (who offers what?).
3. Total cost analyses (how much does it cost to provide those goods or services?).
4. Identification of suitable suppliers.
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5. Development of a sourcing strategy (where to purchase, considering demand and supply
situations, while minimizing risk and costs).
6. Negotiation with suppliers (products, service levels, prices, geographical coverage, etc.).
7. Implementation of new supply structure.
8. Track results and restart assessment (continuous cycle).
9. Negotiate payment terms with vendors.
Outsourcing a business practice to another company may also be incorporated into a sourcing
strategy for services. This may involve the transfer of staff and assets to the outsource company.
Results that can be achieved
One advantage attributed to a well-coordinated Strategic Sourcing initiative is gaining an
understanding of how competencies and processes support a clearly defined business strategy.
Obviously, its impractical to meet the requirements of a business without first understanding
them. A Strategic Sourcing initiative presents the opportunity to clarify and communicate
corporate goals and objectives. It also is a means to define and document what an organizations
competencies are and what they should be. Non- value-add functions that waste critical time,
resources and require financial support can be identified and outsourced or eliminated.
As companies grow, many redundancies tend to occur. These redundancies can be in the form of
distributed activities that mirror each other, or they may take the form of similar products being
itemized and purchased separately. After these redundancies are identified, aggregation of
similar products or consolidation of activities can occur. The processes and workflows can also
be redesigned to eliminate the non-value-added work.
Ultimately, an organization will select its suppliers based on their ability to support and assist in
improving a process, providing a product/service at a lower total cost, or offering a better
product/service that helps to differentiate. For example, computer manufacturers differentiate
their computers capabilities by using specific suppliers and noting the suppliers technology on
their computers and marketing materials.
Benefits
Executives are beginning to understand that procurement is a key part of the business or supply
chain process. It is typical for businesses to spend more than 60 percent of revenue purchasing
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goods and services; and it is estimated that approximately 70 percent of all potential savings
from purchasing can only be achieved through the Strategic Sourcing process. The results of a
well-managed Strategic Sourcing initiative can be impressive and the benefits can be extended
well beyond cost reduction.












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CHAPTER 2
WALMART Always Low Prices
A successful supply chain management strategy can lead to lower product costs and highly
competitive pricing for the consumer.
Wal-Mart is the worlds largest and arguably most powerful retailer with:
Highest sales per square foot
Inventory turnover, and
Operating profit of any discount retailer.
Wal-Mart owes its transition from regional retailer to global powerhouse largely to changes in
and effective management of its supply chain.
Wal-Mart began with the goal to provide customers with the goods they wanted when and where
they wanted them. Wal-Mart then focused on developing cost structures that allowed it to offer
low everyday pricing. The key to achieving this goal was to make the way the company
replenishes inventory the centerpiece of its strategy, which relied on a logistics technique known
as Cross Docking. Using cross docking, products are routed from suppliers to Wal-Marts
warehouses, where they are then shipped to stores without sitting for long periods of time in
inventory. This strategy reduced Wal-Marts costs significantly and they passed those savings on
to their customers with highly competitive pricing. Wal-Mart then concentrated on developing a
more highly structured and advanced supply chain management strategy to exploit and enhance
this competitive advantage.
Wal-Mart has been able to assume market leadership position primarily due to its efficient
integration of:
Suppliers
Manufacturing,
Warehousing
Distribution to stores

Its strategy has four key components:
Vendor partnerships
Cross docking and distribution management
Technology
Integration
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1. Vendor Partnerships: Wal-Marts supply chain begins with strategic sourcing to find
products at the best price from suppliers who are in a position to ensure they can meet
demand. Wal-Mart establishes strategic partnerships with most of their vendors, offering
them the potential for long-term and high volume purchases in exchange for the lowest
possible prices.
Recently Wal-Mart announced its strategic partnership with Li & Fung, a Hong Kong
sourcing company.
2. Cross docking and distribution management: Suppliers then ship product to Wal-
Marts distribution centers where the product is cross docked and then delivered to Wal-
Mart stores. Cross docking, distribution management, and transportation management
keep inventory and transportation costs down, reducing transportation time and
eliminating inefficiencies.
3. Technology: Technology serves as the foundation of their supply chain. Wal-Mart has
the largest information technology infrastructure of any private company in the world. Its
state-of-the-art technology and network design allow Wal-Mart to accurately forecast
demand, track and predict inventory levels, create highly efficient transportation routes,
and manage customer relationships and service response logistics.
A new global sourcing strategy adopted by Wal-Mart is been designed to reduce costs of goods,
accelerate speed to market, and improve the quality of products.
The strategy involves the creation of Global Merchandising Centers (GMCs), a change in
leadership and structure, and a strategic alliance with Li & Fung, a global sourcing organization.
Li & Fung is forming a new company to manage the Wal-Mart account, and is expected to build
capacity that would enable it to act as a buying agent for goods valued around US$2 billion
within the first year. The company believes that these centers will create alignment between
sourcing and merchandising and drive efficiencies across various merchandise categories.
The company said the core of its overall global sourcing strategy would be to continue increasing
direct sourcing for the company's private brands.
Conclusion:
Wal-Marts supply chain management strategy has provided the company with several
sustainable competitive advantages, including lower product costs, reduced inventory carrying
costs, improved in-store variety and selection, and highly competitive pricing for the consumer.
This strategy has helped Wal-Mart become a dominant force in a competitive global market. As
technology evolves, Wal-Mart continues to focus on innovative processes and systems to
improve its supply chain and achieve greater efficiency.

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CHAPTER 3
Hewlett-Packard
Hewlett-Packard is a Fortune 11 , global manufacturer of technology products, with annual sales
of $80 billion. HP is the largest information technology company in the world, and has 161,000
employees in more than 170 countries. Annual spend is a staggering $60 billion. Purchasing at
HP is addressing strategic procurement activity, strategic global sourcing, and other initiatives.
In addition, the indirect procurement group is working across business units and geographies to
drive down the total cost of ownership by attacking spend across such horizontal commodities as
print supply chains, labor and software. To achieve aggressive savings and spend reduction
objectives, Indirect Procurement must be able to direct spend to preferred suppliers, enforce
compliance to purchasing policy and have visibility to spend globally.
E-Procurement Strategy
Larry Welch, VP Indirect Procurement for HP, notes that there have been several milestones in
HPs e- procurement strategy. HP selected Ariba Buyer as the companys procurement platform
in 1998. HP saw Ariba as an early leader in spend management technology. When HP merged
with Compaq, the company took another look at available solutions and decided to stick with the
Ariba platform because of its comprehensive functionality that supported HPs worldwide
deployment, the fact that the Ariba platform already was integrated into other critical go-
forward systems within HP, and because HPs platform was more highly developed than the
technology platform that Compaq used.
Solution Selection and Deployment
HP purchasing sought global capabilities in its solution provider, a clear technology roadmap and
vision, superior functionality, and the strong desire to partner with customers. Ariba met all these
criteria, in addition to HPs desire for a speedy implementation, reasonable solution cost, extent
of platform integration, and the presence of many existing installations. Currently deployed are
Ariba Buyer, Ariba Category Procurement, and OB10 (for invoices). HP is in the process of
planning deployment across all procurement functions (direct, indirect, services) of Ariba
Analysis, Ariba Category Management, Ariba Sourcing, Ariba Contract Workbench, Ariba
Compliance, and Ariba Supplier Performance Measurement. HP calls this initiative Enterprise
Strategic Procurement, and the HP procurement team expects this broad adoption of the Aribas
solution to provide numerous opportunities for cost savings and process efficiency
improvements. Ariba solutions are now deployed for indirect procurement in 46 countries where
HP operates. Ariba Buyer is available to nearly all of HPs employees. Approximately 10,000
users purchase through the system each month, and approximately 50,000 HP personnel have
used the system since it was implemented. When the strategic procurement solution is
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implemented, there will be about 1,500 procurement professionals who use the system. HPs
indirect supply base is 45,000 suppliers, but 82% of HPs indirect spend is with 265 suppliers. A
staggering 95% of HPs annual indirect spend of $13 billion flows through the Ariba e-
procurement system. Various spend categories flow through the system, including software, out-
sourced IT services, IT consulting, R&D supplies, marketing materials, real estate and workplace
services, and travel and meetings expenditures. Full Ariba platform rollout and implementation
will be done in 2006 and 2007.
Results
HP has realized significant quantitative benefits:
Through 2005, Indirect Procurement has achieved over $1.8 billion total negotiated
savings and spend reduction.
Operation expense was reduced from 0.95% of total spend in 2002 to 0.75% in fiscal year
2005.
Implementation onto a standardized platform has resulted in the retirement of over 100
legacy systems with estimated savings of $7 million annually.
Contract compliance has reached approximately 80% HP also gained qualitative benefits
from use of the system.
The supply base was decreased significantly and more spend was directed to preferred
sup- pliers.
The spend management solution has enabled HP procurement professionals to address
more corporate spend and focus more on strategic supply initiatives.
Lessons Learned
Executive-level support is crucial to e-procurement success.
Adoption should be facilitated with strong focus on system ease-of-use.
Seamless integration of the spend management system with the overall technology
platform is a major undertaking, especially for a very large organization like HP.
A robust support/operations infrastructure is needed to ensure success.
Only essential customizations should be approved.
Future Outlook
The Indirect Procurement group at HP will focus on standardizing the Ariba spend management
platform across the full procurement process. The group will actively seek to use the integrated
platform to implement more cost-effective processes to drive system compliance and maximize
services.

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CHAPTER 4
GlaxoSmithKline
Business Challenge

GlaxoSmithKline (GSK) is a research-based pharmaceutical company with 100,000 employees
world-wide. The company operates 80 manufacturing sites in 37 countries and 24 research and
development centers globally. Annual revenues total $37.2 billion, and annual corporate spend
exceeds $13 billion. Research scientists spend millions each year on lab supplies. Prior to
implementing e-procurement, GSK scientists relied on paper catalog and phone communication
to order the supplies they needed. Not only did these processes waste valuable time scientists
could otherwise devote to research, the archaic buying process created situations in which GSK
was not getting the benefit of negotiated deals with suppliers. GSK needed a way to make the
most of their global sourcing group management process.

E-Procurement Strategy

GSK recognized the need to improve its buying processes and systems, and provide researchers
with high-quality and accurate content to purchase lab supplies. A cross-functional team was
formed consisting of representatives from procurement, finance, research & development, and
information technology to review available tools and recommended a solution.GSK realized that
gaining significant cost savings from an e-procurement tool required the delivery of accurate and
up-to-date content to end users. The GSK team evaluated a number of e-procurement tools that
would provide a large amount of lab supply content to researchers.

Solution Selection and Deployment

The GSK team opted for SciQuests Spend Director solution. The primary factor in the selection
of SciQuest was that the solution was lab supplier neutral. SciQuest presented an application that
wasnt tied to a particular supplier. Other solutions were offered by laboratory equipment
suppliers, but procurement professionals at GSK believed that choosing a suppliers solution was
not the way to go. The SciQuest solution had excellent functionality and allowed them to include
content from any lab supply company. GSK implemented its e-procurement solution as a pilot in
2001. Time from pilot stage to implementation was about eight months. The application was
rolled out to U.S. and U.K. business units in 2002 and 2003. The e-procurement system, called
eSP, includes requisition creation, approval, distribution and receipt-creation functionality.
More than 3,500 buyers use the system each month. Currently, GSK has about 200 U.S.
suppliers enabled on the companys U.S. and U.K. e-procurement platform. Of that, 160
suppliers are enabled through the Spend Director solution. The GSK site in Italy is currently
piloting the Spend Director application and has enabled 30 suppliers through the tool. The Spend
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Director solution is externally hosted by SciQuest, and the SciQuest tool is integrated with Ariba
Buyer. For other category areas, GSK uses a mix of supplier enablement and content
management approaches, including punchout, aggregated solutions, and internally managed
content. Today, the e-procurement system manages about 50% of GSKs indirect spend. Spend
categories covered by the e-procurement application include lab supplies and equipment; office
supplies; maintenance, repair, and operating (MRO) supplies; computer hardware and software;
print purchasing; facilities services; marketing research; capital goods and construction services;
and training and instruction services.

Results

Contract compliance has improved more than 20%overall. Just as importantly, the higher
compliance rate has been sustained. In addition, implementing supplier content directly through
SciQuest allowed GSK to halt the practice of using a wholesaler, saving more than $500,000 a
year. The e-procurement system has also streamlined GSKs procurement process, allowing the
company to capture more detailed spend information, enhancing spend analysis. Manual
purchase orders have been eliminated, allowing GSK to reduce headcount or reassign resources.

Lessons Learned

Key to successful implementation is creating a strong support structurehelp desks, system
administration, IT support.
You cant do enough change management. And e-learning for a complex system is not
effective, Its better to train face-to-face.
Having high-quality and accurate catalog content is critical to end user compliance.

Opportunities Ahead

GSK plans to increase the percentage of total spend in the e-procurement application. Complex
buying areas, such as marketing and clinical services, will be brought under the e-procurement
umbrella. GSK also is looking to streamline the order and distribution process by ramping up use
of the Ariba Supplier Network (ASN). At the same time, GSK is focused on increasing the
amount of online content that users can access.

Conclusions

GSKs e-procurement system has produced significant benefits, but they would have been
limited had the company not taken the sound steps of choosing an independent solution
provider and ensuring catalog content would be accurate and managed well. GSKs success
underscores the value of upfront planning and involving all affected stakeholders in the solution
selection process.

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CHAPTER 5
ToysRUS
Retail chain Toys R Us operates in a fiercely competitive market in which cost reduction holds key to
market share gains and profitability. The company had been using a software application that did not meet
basic requirements for an e-procurement system, and the software developer no longer supported the
product. Procurement processes and operations involved verbal requests, manual entry of purchase orders
into a standalone system, heavy use of inefficient, paper-based processes, from suppliers to Toys R Us
purchasing, manual matching and codification of invoices and manual re-keying and mailing of paper
checks to suppliers. The inherent procurement inefficiencies also caused major problems for suppliers,
who had to deal with unpredictable and extended payment terms, high error rates, high administrative
overhead, multiple points of contact within Toys R Us headquarters and individual business units, and a
general inability to create strategic offerings for Toys R Us.

Recognizing the potential that a transformation of procurement/supply management could achieve, Toys
R Us wanted to create a centralized procurement organization. The new procurement organization was
faced with several challenges, including:
Keeping up with very high transaction volumes;
Identifying and qualifying new suppliers to upgrade the supply base;
Launching cost-reduction initiatives with suppliers that were accustomed to dictating pricing levels;
Transitioning from a tactical to a strategic focus; and
Implementing formal strategic sourcing and supply management systems and methodologies.

Solution Selection and Deployment
Toys R Us chose the following Oracle solutions to enhance its procurement transformation: Purchasing,
Sourcing, i-Procurement, i-Supplier Portal, Accounts Payable, and Purchasing Intelligence.
Oracle solutions were chosen for their ability to automate and integrate order management functions
across all business divisions, all suppliers, expense payables, and budgeting and planning processes. Also,
management believed the Toys R Us financial value chain had to be seamlessly linked with supply
management to achieve its objectives. The Oracle solutions were implemented in a two-phased approach.
Core Purchasing, i-Supplier Portal, Purchasing Intelligence, and Sourcing went live in just 10 weeks.
Phase One enabled Toys R Us to identify spend categories and end user communities that represented the
best possible candidates for additional streamlining. The second phase extended reengineering and
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automation to end users by implementing electronic requisition management. The iProcurement module
was installed for end user requisitioning, extending process improvement to end users at Toys R Us
stores. Implementation was characterized by the following:
Aggressive use of punch-out to push catalog hosting burdens to the top 15 suppliers;
Aggressive deployment of requisitioning tools to the stores; and
Clearly defining spend thresholds and approval hierarchies to drive fiscal discipline.
The system entered live in mid-2003 with Phase One. Phase Two took considerably longer, starting in
mid-2004 and implemented in a matter of weeks. Tools are used at varying levels throughout Toys R Us.
Seven hundred stores and 72 regional executives were brought online. For corporate offices, the system
was rolled out to three divisions, with a focus on 220 administrative personnel considered power users.
More recently, the system was extended to the companys 217 Babies R Us stores, along with 20 district
managers and three regional directors. The implementation is very broad in scope and includes spend and
supplier analysis, spend category analysis, sourcing, requisition management,PO processing, invoicing,
and accounts payable.
Results
Toys R Us achieved cultural change and process improvement via the systems rollout. As business
leaders and executives gained immediate visibility into requisitions for lines of business and store
locations, their interest dramatically changed the companys culture. Stores had immediate access to
online catalogs for easy ordering, as well as better selection of goods and services, often with higher
quality levels at lower prices. At the corporate level, executives can manage business requirements and
purchase specifications better. The purchasing department has been upgraded dramatically, and is focused
on providing better service to internal customers and external suppliers instead of engaging in numerous
tactical activities that had been required. For procurement, the system has dramatically reduced the
number of verbal requests and amount of effort required to satisfy internal customers. Paper order
processes have been eliminated, and there is seamless integration into the accounting function via
Accounting/General Ledger, Fixed Assets, and Expense Payables. For accounts payable and finance, the
e-procurement initiative has reduced headcount, increased inventory accuracy, eliminated paper invoices,
eliminated manual invoice entry. For suppliers, the e-procurement initiative has resulted in payments
from Toys R Us that meet or exceed payment terms.



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CHAPTER 6
Novo Nordisk
Novo Nordisk is a Danish pharmaceutical manufacturer that had revenues of $13.8 billion in
2013.The company has 20,750 employees. Purchasing expenditures in 2003 totaled $492
million. Novo Nordisk wanted to reduce all costs related to indirect purchases, from item
requisition through final payment to suppliers. Key issues to address were reducing maverick
spending, a general failure to pay invoices on time (30% to 35% of invoices were not being paid
on time), and process inefficiencies.
E-Procurement Strategy
Novo Nordisks e-procurement strategy has three main goals: Optimize contracts, increase spend
under management, and enhance compliance. The company established ambitious goals for
procurement in 2005: a savings goal of $31.7 million, creation of contracts that cover at least
80% of the companys total indirect spend, and a 20% reduction in maverick spending.
Business Challenge
Novo Nordisk sought to reduce costs of indirect purchases and greatly reduce maverick
spending.
Strategy
Optimize use of negotiated contracts, increase spend under management, and enhance
compliance through the rollout of e-procurement.
Solution Selection and Deployment
Novo Nordisk selected SAP e-Procurement and Business Warehouse solutions, along with the
IBX Search Engine and IBX Supplier Network. In 2004, more than 2,500 Novo Nordisk
employees used the e-procurement system and 72 catalog suppliers. In addition, more than 350
other suppliers were enabled through a third-party supplier network, punch-out, and internal
hosting. The e-procurement system is handling about 15% of Novo Nordisks total spend. More
than 100 spend categories are purchased through the system. Novo Nordisk has seen the average
number of monthly transactions increase steadily since the system was implemented in 2001,
when the monthly average was 4,531 transactions.
The e-procurement solution streamlines the entire process by automating requisition and
purchase order generation. IBX e-procurement solution has a catalogue of suppliers which can be
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added on by each company. The catalogue contains possible suppliers to the specific company
and all of the items available for the employees to buy. The solution can be used by anyone in
the company and all orders are routed to authorized personnel which place an order of all
assembled requisitions. The e-procurement solution also contains a catalogue which helps the
companies to find and compare suppliers. These catalogues are often customized to the specific
organizations request and can enable different purchase patterns. Invoice processing changed as
follows:
Invoice capture
Paper invoices are scanned to create digital files. E-invoices are immediately
ready for interpretation.
ReadSofts capture technology reads and interprets all invoice files, regardless of format.
Validation
Captured information is automatically matched and validated against the SAP vendor
master data, purchase order, and goods receipt entry.
Invoices with 100% matches are posted in SAP immediately, with no manual interaction.
Resolution workflow
Unresolved PO-based invoices are automatically sent into a workflow for discrepancy
handling.
An image of the invoice and real-time overview of the workflow are always available.
Once approved, invoices are automatically posted.
Information access
Invoice images can be retrieved from the archive system at any time.
For research purposes invoices can be easily retrieved using business-determined search
criteria.
Vendor portal communication tool and automatic email notification system inform
vendors of the status of their invoices.
Results
Novo Nordisk realized about $20 million of savings in 2003 due to the e-procurement system. In
addition, cost savings achieved through improved spend leverage and sourcing were 15% to
42%, depending on the spend category. Maverick buying dropped to 19% in Q42004 from 52%
in Q42001.

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CHAPTER 7
Service Master Clean

ServiceMaster Invests in the Procurement Function
ServiceMaster is a $3.8 billion company that provides service to U.S. residential and commercial
customers. It serves approximately 10.5 million homes and businesses each year and is known
for leading brands such as TruGreen, ChemLawn, Terminix, and Merry Maids.

Business Challenge
ServiceMasters decision to implement an eprocurement solution was driven by a number of
challenges and potential opportunities: Rationalizing the supplier base, improving the ability to
negotiate best prices, and eliminating maverick spending were areas that showed promise.
Additionally, ServiceMaster wanted better visibility into item-level spend and better tools to
assess supplier performance. Some challenges they hoped to overcome were implementing a
consistent procurement process and enabling a disciplined and decentralized buying practice.

Solution Selection and Deployment
According to Dian Trosclair, VP of Supply Chain Management, the Ketera solution appealed to
ServiceMaster largely due to its high cost-effectiveness. Also, because the solution is delivered
On Demand, there was minimal burden on ServiceMasters internal IT resoures. A key
differentiator was the solutions user friendliness. The solution includes the use of Ketera
supplier services; essentially, Ketera is responsible for enabling suppliers on behalf of
ServiceMaster. This process was carried out by business unit and rationalized by organizational
structure. The solution has been implemented in ServiceMasters largest division, TruGreen
Lawn. Enterprise-wide rollout has been planned using a distributed model, with more than 600
branches and franchise businesses. Currently, approximately 600 users are connected to the
system, with plans for more than 3,000, covering all business units. The amount of spend
transacted via the Ketera solution is $22 million, with an annualized run rate of $100 million.
Approximately 70 suppliers are on the system. Supplier enablement approaches used were
internally hosted or punch-out, based on the number of catalog updates and complexity of
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offerings. ServiceMaster has a good mix of direct (chemicals, fertilizers) and indirect materials
(office supplies, safety equipment, vehicles) being purchased via the system. The system was
implemented within 90 days, then deployed at TruGreen Lawn. Users were trained within six
months.



Table 3: Summary of Processes Carried out by the Solution
Processes Steps Involved
Product requisition Custom catalog to the branch level
Supplier catalog (punch out and
hosted)
Lease products (capital equivalences)
Order execution and approval By commodity
By spend limits (commitment
authority)
By supplier
Invoice process Supplier PO flip
Supplier cXML/EDI interfaced
Automated Invoice audit/rejection
Manual invoice rejection

Results
The solution has provided significant savings and improvements, some of which include cost
savings through improved contract pricing and pricing compliance, which is conservatively
estimated at 3% across the board. A compliance rate of 98% has played a major role in achieving
this savings. The company realized an additional savings ranging from 7% to 20% through
increased spending leverage and sourcing activity. The system also allows for easier spend
aggregation and a more efficient sourcing process. Internally, says Trosclair, We have been able
to utilize our chemical catalogs to create the item master while implementing our enterprise
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inventory system, which has reduced the cost of inventory implementation and improved the
quality of the project.
Trosclair says suppliers have also reaped savings because they have one interface to integration
with the full family of ServiceMaster companies. The company has reduced the requisition-to
payment cycle substantially because of the philosophical change from approving payments after
the fact to approving to purchase, allowing for streamlined payments of validated invoices.
ServiceMaster has not targeted savings from reduced administration costs. Our goal is to create
a world-class environment for collaboration with our field operations, suppliers, and corporate
administration. We are looking to redeploy people in more effective roles, says Trosclair.
ServiceMaster now has one purchasing platform with the ability to collect data, track orders,
receipts, and compliance, as well as create supplier scorecards. Trosclair singled out scalability
as a significant benefit, referring to activities such as training and its scalability across the
hundreds of branches while providing enterprise knowledge for materials management and
decentralized buying practices. Externally, Keteras supplier enablement services formed a
partnership with Service- Masters internal resources for a quick ramp up. Each business unit
took approximately 90 days for set-up and testing; training time-lines varied at each business unit
level.

Lessons Learned
Trosclairs first piece of advice: It is important that the team that is helping you put it together
to roll it out your own team and the team that is provided to you on the ground should gel
appropriately and have a good cross functional mix going forward.
He also believes it is essential that people stay motivated. The enterprise may have been
successful, but it is important to see that the branches and field operators who have direct contact
with customers get what they need and are satisfied.



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CHAPTER 8
Comparative Study
Company Solution Provider Issues Faced before e-
procurement
Novo Nordisk SAP, IBX Failure to pay invoices on time
(30% to 35% of invoices were
not being paid on time), and
process inefficiencies.
GlaxoSmithKline SciQuest Spend Director Paper catalog and phone
communication to order the
supplies
Toys R Us Oracle Solutions Heavy use of inefficient, paper-
based processes,
manual matching and
codification of invoices and
manual re-keying and mailing of
paper checks to suppliers.
ServiceMaster Ketera Technologies Lack of visibility into item-level
spend & lack of tools to assess
supplier performance
Hewlett-Packard Ariba Lack focused on addressing
non-compliant spend, local
sourcing and strategic procure-
ment activity, and global
sourcing and procurement
activity.
Wal-Mart Lack of focus on developing cost
structures that allowed it to offer
low everyday pricing
The basic problems faced by the companies were cost escalations due to manual paper based
processes while dealing with suppliers. Through effective deployment of e-procurement
technology, enterprises can:
Reduce transaction costs
Improve process efficiency
Reduce or eliminate maverick buying
Increase contract compliance
Reduce cycle times
Save inventory costs
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Results
Company Results
Novo Nordisk $20 million of savings in 2003
GlaxoSmithKline $500,000 a year
Toys R Us Savings attributed to e-procurement 30% in 2003
ServiceMaster Savings ranging from 7% to 20%
HP $1.8 billion total negotiated savings and spend reduction
Wal-Mart Cost Of Goods is 5%- 10% less than the competitors.















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References
http://www.uclouvain.be/en-gsksourcingchair.html
http://www.procurement-online.com/news/25076
http://annualreport2009.novonordisk.com/social/responsible-sourcing.aspx
http://www.fleetfinancials.com/article/story/2008/03/servicemaster-fleet-management-
team-delivers-service-and-savings/page/1.aspx?prestitial=1
http://www.hp.com/hpinfo/globalcitizenship/07gcreport/supplychain/hpapproach/sourc
ing.html
http://www.scdigest.com/ontarget/12-09-24-1.php?cid=6234
http://www.industryweek.com/procurement/it-time-move-beyond-strategic-sourcing