Procure to Pay Transformation Case Study

Optus Procure to Pay Transformation
The Journey
26 June 2013
Karen Carmichael
Director,
Procurement
SingTel Optus
Karen.Carmichael@optus.com.au
Raj Dhawan
Senior Manager,
Operations Management Consulting
Accenture
Rajat.Dhawan@accenture.com
1

Optus Procurement Transformation
AGENDA
Procurement @ Optus
Fix the Basics
Procure to Pay
Drive Value
Enhance capability
Change Management
2

Our Procurement
From Stickers To Satellites
10,000 Staff requesting over...
...$3.5bn in goods and services each year...
...with more than 3000 Suppliers.
All to ensure we deliver daily service and products to more than 10 million
consumers services along with Wholesale and Business customers.
Our procurement team delivers one of the industries lowest cost to spend model,
supporting sourcing across a diverse range of goods and services.
We are almost at our goal, it hasn’t always been easy but we have come along way in
our transformation journey.
3

Innovative
Sourcing
Solutions
Why Transform?
To lead our business in the development and execution of innovative sourcing and
purchasing strategies in an advancing digital world.
A reactive transactional procurement capability that was seen as complex and
confusing along with inconsistent and disaggregated supplier management. We were
seen as a roadblock
Our Situation 2010
Our Goal
• Fix the basics: standardise our processes
• Procure to Pay: improve effectiveness and efficiency
•Drive value: enable cost benefit to the business
• Enhance capability: continuous improvement, upskilling, buy talent
Our Approach
4

AGENDA
Procurement @ Optus
Fix the Basics
Procure to Pay
Drive Value
Enhance capability
Change Management
5

Fix the Basics
Deliver sustainable
cost management
strategies
Be streamlined
and efficient
Have effective governance
and compliance
Ensure superior
performance
Enable business strategy
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
0
20
40
60
80
100
Nov Dec Jan Feb Mar Apr May June
T
en
d
e
rsinP
ro
g
re
s
s
Direct Indirect Value ($mil)
# $mil
New Process
New Engagement & Governance
New Tracking and Analytics
New Supplier Governance
Deliver Quick Win Value
The Goal The Change
6

CLOSER
Fix the Basics
Results are being seen in compliance to Top Gun
process and process timelines
Intensive coaching model and
weekly measurement to embed
Top Gun process
Key metrics and processes are in
place, allowing us to pro-actively
manage our business
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
0
20
40
60
80
100
Nov Dec Jan Feb Mar Apr May June
TendersinProgress
Direct Indirect Value ($mil)
# $mil
Embedding new Tender process and delivering Efficiency. Delivering Procurement Efficiency
40%
reduction in
time to
market
A new ‘Top Gun’ process was introduced across procurement to deliver an efficient and effective
sourcing strategy. Phase II intends to focus on the automation of this embedded process.
Accountability Collaboration Champion Empowerment Development
A rigorous governance and tracking of the process allows us to ensure it is operating effectively.
Individual tracker for every
Top Gun tender measures
timeline and marks the
completion of every step.
Visual Tender Wall with
Fortnightly ‘Round Wall’
meetings ensure challenge
areas are discussed as a
team.
Roll Up view allows us
to Champion the most
critical cases.
Tender on a page allows for Post
Implementation reviews to continue
development
Tender boards promote
healthy competition and
empower to succeed.
New process
7

CLOSER
Fix the Basics
We also ensured active tracking was in place to allow for the appropriate and timely management
of the process.
Process efficiency
Area From To
Aged Tenders No emphasis on the age of tenders, no age targets,
no visibility to age
We report weekly on aged tender progress, with
a target of a 50% reduction in tenders over 1 yr
age. Monthly reporting to MDs
Expired Agreement No visibility to contract expiry, managed on
reactive basis as the business realised contracts had
expired
Interim manual reporting established, all expiring
contracts evaluated and renewal work kicks off
where required
PO Compliance No visibility to the portion of POs below $100k that
complied with Procurement policy
Regular audit has kicked off to drive the right
behaviour and educate
Tender Communication Each Cat Mgr running a disparate process, with
different communications, folder format etc.
Difficult to arrange cover during absences
Standardised, documented process being rolled
out based on consistent dropbox format and
comm’s templates
WOC’s Average 25 WOCs over 2 weeks, no visibility or
management of aged WOCs
Average 3 WOCs over 2 weeks, KPIs in place, aged
WOCs actively managed
Active Management of Aged
Tenders and Expired agreements
88% Reduction in WOC’s >2 Weeks
of Age.
8

Fix the Basics
A new governance framework was embedded to make our buying decisions easier whilst
providing clarity to the Business.
Governance
Supplier Segmentation
Supplier relationship Model
Understand their
importance
External Supplier
Governance
Internal Governance
External Governance
9

CLOSER
Fix the Basics
New Performance Dashboards and Saving Trackers are in place to ensure we are on track to
realise our benefits to Optus.
Performance Mgmt
$333K savings based on average of
BAFO responses less final price
Addressing all these have demonstrated the ability to
save $$.
As seen in the Mobile E2E Planning Tender
10

CLOSER
Fix the Basics
We have aligned our spend and suppliers into the relevant categories and now have a new
taxonomy to perform spend diagnostics
Spend Analytics
Allows for Strategic positioning
for cost and delivery efficiency.
Understanding our spend and the new
taxonomy it aligns to.
11

Fix the Basics
A monthly Supplier dashboard provides us with detailed information to ensure we are maximising
the vendor relationship.
Vendor Mgmt
Ensuring our suppliers are
delivering to our expectations in a
consistent and standardised
evaluation framework.
Detailed scorecards for our Strategic
Suppliers performance across
common criteria:
- Quality / Safety & Sustainability
-.Delivery
- Cost Mgmt & Pricing
- Service Responsiveness
- Capabilities & Innovation
12

Fix the Basics
The key to communicating change and process to the business is our new and interactive Portal
Engagement
In addition to improvements in usability,
the site introduces;
• sourcing procedures for each spend
bracket (how to buy)
• Refreshed Procurement policies
• Download packs for key processes
• Comprehensive
help functions.
Just a quick note of positive feedback on your Portal – it
is outstanding!
From a project delivery perspective, the site offers
everything we need to know and more – great work!
And our Customers Love It
13

AGENDA
Procurement @ Optus
Fix the Basics
Procure to Pay
Drive Value
Enhance capability
Change Management
14

Procure to Pay – Context
• No clear framework to buy
• Manual, sub-optimal processes;
inefficient workflows and duplicate
approvals
• Lack of clear policies
• Poor user experience – for both
business as well as procurement
• Crude way of linking contracts with
purchase orders.
• No supplier integration.
• No catalogues.
• Underutilisation of current system
• Poor usability.
• No spend categorisation
• Lack of compliance reports
• Overheads with time spent on admin
activities
• Annualised benefits of $9.5M
• Compliance increase by 11%
• Better relationship with
vendors
• Quick and accurate reporting
• No longer seen as a roadblock
• Improved usability
• Specialised/assisted buying
Process &
Technology
Operating
Model
Reporting &
Compliance
Benefits

Procure to Pay – High Level Buying Model
PO
Buying Channels
Catalog/Material Master
i.e. Contract exists
P-Card
Procurement
Portal
Single
Point
of
Entry
PO
Business
Requestors
Invoice
Payment
>$200k²
<$200k
and
>$3k
Determine
Approach and
Execute Strategy
Category Manager
Supplier
Engagement
(Sourcing/Variation)
Suppliers Contract Manager
Develop/Update
Contract
Spot Buy Team
Define Approach
and Execute
Request
Market
Engagement
(Quote/Auction)
POP
Yes
No
On MM
/Catalogue
?
Identified
Need
Receipt
Free-Text
Request
On Catalogue OR
above $5K
<5k and not on
Catalogue/MM
Functional
Help Desk
Sourcing
Buying
Reactive Buying/Sourcing
A new buying framework was defined that introduced compliance, made buying easier and provided
category specific flexibility

We introduced a process that would make purchasing easier for goods and
services that were on contract.
Start at our Portal Search & Select the Product &
Populate request Form
Step 1 Step 2 Step 3
POP places order in SAP
We now show our contracted products through a search and select engine. Easy for the user and
enables powerful spend reporting.
Based on the analysis of 46,000 PO’s from Jan 2011 to Dec 2011 we expected ~60% to flow through this
process. Remaining volumes will be through one of the 3 Alternate PR processes.
Requestor POP’s
Procure to Pay – Simplifying Buying
17

Procure to Pay – Assisted Buying
When there is no contract or contracted material we have sourcing
teams that support a Purchase Request..
No Contract
Requisition
Raise a PR
The SOURCE4U Team
will approve and trigger
PO
The SOURCE4U Team
will work with you to
source the best vendor
and product and
approve for you to raise
a PO
Category Managers will
work with you to
determine the best
sourcing approach.
Team of 18
18

Procure to Pay – Spend Taxonomy
UNSPSC list
4 Levels:
Segment
Family
Class
Commodity
39,000 general
categories
Preliminary analysis
Optus categories’
customisation
• GL accounts impacted
(PO Historical data)
• Optus categories
(Optus doc. &
Discussions)
Customised
UNSPSC list
Mix of UNSPSC
levels 1, 2 & 3
List of unique
categories
Customised mix
of UNSPSC levels
1, 2, 3 & 4
900 telco specific
categories
~300 Optus customised
categories
• Telco specific
materials
• Optimal level of
spend accuracy
Procurement
validation & update of
categories
Allowing Optus to get better visibility of spend and enabling the identification of sourcing opportunities

Challenge
Lack of sophisticated reporting system
Only 6% of available SAP procurement
reports utilised
SAP BW not used for procurement / spend
reporting
Reporting largely a manual and time-
consuming task
Limited contract reporting available and no
alerts for contract renewal
Purchases not linked to contracts – not
possible to track contract spend
No material master and therefore no product
categorisation
No meaningful information on what has been
bought
Lack of a hierarchical sub-category structure
We need a
powerful reporting
capability
Contract
Lifecycle
Management
Spend
Taxonomy
and improved
buying
High quality
analytics
Enhance
SAP
Introduce
CLM
Enhance
BW
=
Governance & operational challenges Technology
Procure to Pay – Need for better governance
20
Capability

Procure to Pay – Closing the Loop
1
,
Publish
contract to CMS
,
Trigger for
contract
creation
Initiate Authoring
C1
Collaboration
C5
Finalise Contract
C6
a) set up vendor
C3
Interface
MasterData
Material
Catalogue
b) create materials
Material
Group
c) mapto taxonomy
Outline Agreement Created
C7
Need for
Product/
Services
Create Requisition Receipt Reconcile Invoice
R6
SAP CLM
• Choose and edittemplate
• Add contract header level data
• Identify vendor
C4
Acknowledgement
from CMS
C9
• Contract expiry
• Strat sourcing/
tendering
• Negotiate Contract
• Finalise withBusiness
• Completed legal contract
• Scan signed copy and attach
• Materials setup
Set-up Master Data
C2 C8
• Contract header
• Line items
• Price and pricing conditions
R1
SAP CMS
• Requestor
• PoP
• Raise free-textrequest if not
on contract
Generate PO
R2 R3
• Link PO to Contractor
PR
• Generate andsend PO
to vendor
R5
R2
• Goods/services • Three-way match
• Make payment
SAP BW
REPORTING
CLMReports
REPORTING
CMS Reports
REPORTING
BW Reports
New capability
Existing – Change Anticipated
Existing – No ChangeAnticipated
Vendor
Master
Requisition to Pay
SAP CMS Master Data
C
R
Contract Creation Steps
Requisition toPay
Reporting
RP
RP
RP RP
• Financial line of
business
Seek Approval
R4
21
The business architecture helped close the loop between sourcing and buying helping with category
management, contract management and vendor management.

Procure to Pay – Implementation Timeline
Start
Mon 26/09/11
October November December January March April May June
Plan
Mon 26/09/11 -
Thu 20/10/11
Design
Mon 17/10/11 - Fri 23/12/11
Build
Mon 21/11/11 – Fri 27/01/12
Test
Mon 23/01/11 - Mon 23/04/12
Deploy
Mon 30/01/12 - Fri 23/04/12
Warranty Support
Mon 23/04/12 - Mon 16/07/12
SIT 1
Completion
Fri 17/02/12
Go-Live
Data
Migration
Approach
Contract
Master List
Project Charter RTM
Testing Strategy
Functional Designs
Technical
Designs
Sign off Trial
Migration Plan
Test Plan
Test Scripts
Detailed Business
Processes
Tue 21/02/12
SIT 2
Completion
Fri 2/03/12 UAT
Completion
Thu 23/03/12
Handover
Documentation
Thu 19/04/12
Taxonomy IA & Solution
(Custom)
Taxonomy IA & Solution
(Standard)
Taxonomy
SIT
Completion
Thu 9/02/12
22
The implementation followed a typical systems lifecycle, however it was business led rather than
technology led. The focus was on business benefits (compliance, savings, user experience,
simplification) rather than technology.

23
A post deployment support structure has been established as follows, the details of which are currently
under discussion:
CMS Team
Procure to Pay – Support Structure

Procurement @ Optus
Fix the Basics
Procure to Pay
Drive Value
Enhance capability
Change Management
AGENDA
24

Procure to Pay – Summary of Business Benefits
25
• Competitive sourcing process of obtaining 3 quotes for all purchases
between $5K -$200K
• Purchase requisitions <$200K managed by central team
• Centralised Management Information reporting
• Increased governance, compliance and fraud prevention
• The result has been a 2% increase in contract compliance, when compared to
FY11
• The result has been a 11% increase in contract compliance, when
compared to FY11
• Central repository for supplier contracts established
• Strong governance of an agreed purchasing process
• Ability to enforce linking of purchases to the contract terms and value
• Ability to buy off a list of standard goods and services; enables centralised and
specialised buying
• Ability to link purchases to contracts at the time of purchasing thereby providing
improved visibility of purchasing activity on and off contract across Optus
Estimated @
$3.2M per annum
Estimated @
$5.5M per annum
Fixed Core
Engineering
(FCE) &
Customer
Provisioning
(CP)
• Independent sourcing process in place
• Pre-approved panel of suppliers are leveraged for every RFQ
• Source4U team validate all quotes received and process the PRs
Estimated @
$5.4M per annum
Savings
Category
Key Highlights Estimated
Annual Benefits

Drive Value
Optimus has allowed for the introduction of process control and
powerful reporting.
Reporting
Understanding our Spend
All the work behind the scenes that has gone into
converting our process into a standardise system based
process .
This allows for new and exciting reporting and analytics.
Ensuring we can help the wider business meet it’s
strategic goals.
A standardised Taxonomy for
materials, whether contracted or
not, will allow a greater level of
reporting by Material Spend.
Linking that spend and materials
with Contracts provide and even
greater level of spend analytics.
26

27
Total tenders has fallen from 86 in Feb 2011
to ~30 in June 2012. The aging profile has
also improved dramatically.
‘Tenders in progress’ has fallen due to an
improvement in median time
from 187 to 95 calendar days…
…and because we’re cancelling or pipelining
tenders earlier.
65%
reduction
49%
reduction
Old
process
New
target
Actual
Performance
against target
Performance
against old
process
Simple 203 88 80 -9% -60%
Medium 210 151 119 -21% -43%
Complex 545 217 150 -31% -72%
Tenders
Cancelled 44
Pipeline 4
Drive Value

Drive Value
FY13 Incremental
OPEX Target
FY13 Incremental
CAPEX Target
FY13 Incremental
Target
FY13 Existing OPEX
Stretch Expectations
Final FY13 Cost
Benefit Target
$0m
$100m
We now take accountability for shared KPIs to drive down $100m
costs in our business for FY13
28

Procurement @ Optus
Fix the Basics
Procure to Pay
Drive Value
Enhance capability
AGENDA
29

Enhance Capability
We introduced 3 new support teams for our system and process
change.
New Teams
Contract
Management
Category
Management
Operations &
Performance
Supports the Business
With ‘Off-Contract’
Purchases under
$200k
Supports POP’s with a
Unique ‘how to’ help
desk for our new
process.
Ensures our Material
and Vendor Data is
clean and up to date,
Current Structures remained as is and is the stage 3 of
transformation
30

Enhance Capability
Our new teams are critical to ensuring a smooth sourcing process.
Reporting
Performing:
• Creation, updating and blocking of materials, vendors
• Contract pricing
• Linking materials to existing categorisation by liaising with category
managers
Performing:
• First point of contact for POPs around new procurement
processes related queries
• Link to alternate support based on the query type and
complexity (link to Procurement category/contract managers,
IT, SAP, etc)
Performing:
• Competitive sourcing of non contracted spend
($5K to $200K)
• Optimal pricing as per business specifications
and/or requirements
• Validation of <$5k PR purchases
31

Enhance Capability
We have begun the final journey in transformation, we are
restructuring and retooling our workforce.
PEOPLE
Procurement Organisation Alignment
Full Strategic Sourcing
18/6
25/06
02/07
09/07
16/07
23/07
30/07
06/08
13/08
20/08
27/08
03/09
10/09
17/09
24/09
01/10
08/10
15/10
22/10
29/10
05/11
12/11
19/11
26/11
03/12
10/12
17/12
24/12
31/12
07/01
14/01
21/01
28/01
04/02
Category Planning
Restructure our Team
Enhance our resource capability
Educate and Enhance our resources.
Contract Calibration
Enhance Contract Capability
Aligned with Strategic Sourcing & Supplier Mgmt solution
Jun Jul Aug Sep Oct Nov Dec Jan
32

Procurement @ Optus
Fix the Basics
Procure to Pay
Drive Value
Change Management
AGENDA
33

Change Management
Firstly we created a brand and then got busy….
We have introduced a lot of change to our business in a
very short period of time.
What was key to our success?
34

Change Management
We had a multi layer of change management. Wider Audience,
Detailed Engagement and Training.
Change Mgmt
Wider Communication Engagement Training
We continued to educate our Change Network
and expanded to more targeted areas.
-Corporate Services Quarterly road show
presentation.
- VIRGIN SLT Update
- Networks SLT update
- VIRGIN POP Info Session
- Fixed Core GM Update
- MDSS Targeted Communication and Process
- UECOMM Walk through
We performed regular communications drops and
highlighted our Category Mgmt in our Videos.
Talking about OPTIMUS.
We developed a unique Training Portal and face
to face training
35

Base your requirements on a standard
build and communicate high level
change
Understand any unique needs of the business
areas that you may need to be flexible with and
communicate in a more targeted fashion
Ensure those who use the
process the most understand
the overall change and any
unique processes for their area.
Change Management
We drilled down on all previous spend to understand the highest
traffic areas and ensured tailored communications were developed
Change Mgmt
Over 45,000
PO’s
Spending
over $3.5
bn
Networks
Consumer
OB
SMB
Corporate
T&P
OWS
Mobile Core
Fixed Core
Service Assurance
MDSS
XXX
XXX
Standard Process Unique Process Engage the Users
Requestors
POP’s
Business Unit Division Department Our People
Using Networks as an example we understood Networks to be a
large user of our process and that Mobile Core Engineering was
one of the largest divisions within this spend. Inside Mobile Core
Engineering a Department called MDSS was the largest contributor.
We spent a lot of time with Mobile Core Mgmt and their Top
Requestors / POP’s ensuring they were comfortable and that any
unique needs were addressed.
36

Change Management
We developed Information booklets as well as ebooks for our users.
Change Mgmt
37

Our new dawn has come and we are ready for the future
New Brand
New ways to communicate
Continue to Improve
Drive Cost Efficiency
Enhance our Taxonomy
Interact Globally
Focus on Vendor Relationships

Procure to Pay Transformation Case Study

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