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Reengineering the Indirect Spend Compaq’s Business Case for Taking it to The Web

Reengineering the Indirect Spend Compaq’s Business Case for Taking it to The WebPaul BoxDirector, General Procurement

Compaq Computer Corporation

Paul BoxDirector, General Procurement

Compaq Computer Corporation

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Today’s agendaToday’s agenda

Compaq today Procurement overview and opportunity Solution selection Expected return Project rollout & status Q&A

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Compaq achieving profitable growthCompaq achieving profitable growth

Q4 2000 Financial Results

Revenue was $11.5 billion – up 10 percent year-over-year Gross margin increased 1.5% to 23.7% Operating expenses down more than a full point

to 17.1% of revenue Operating profit was $757 million, up 80% from same qtr

last year EPS nearly doubled to 30 cents

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Profitable growth being achieved byProfitable growth being achieved by

Developing innovative products Integrating them into compelling solutionsServing a global marketplace

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We were smart enough to recognize the Internet was not a “fad”...

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Procurement at Compaq Procurement at Compaq Total spend is forecast at ~$32B Indirect goods and services ~$6B (19% of total) 60,000+ Employees WW (our “internal customers”) N.A. General Procurement FT staff = 50 33,000+ Indirect Suppliers ~80% of Spend with < 2000 suppliers General Procurement issuing 75,000+ PO’s year

Benchmarking results - World class at “maverick” buying!

Suppliers generating 336,000 invoices a year for indirect!

40% of spend ($2.5B) “touched” by General Procurement

If there’s a way around the system, our internal customers have found it!

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CHR $1.8B31%

MarCom $1.2B

21%

Software $882M15% REOS $700M

12%

MRO $350M6%

Travel $300M5%

Telecom $250M4%

Uncategorized $232M 4%

P-card Spend $42M 1%

Other/Misc $30M 1%

2001 General Procurement Pareto by Commodity

$5.7 - $6.1 BillionTotal

All figures approximate based on best available data

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Estimated Spend by Region

EMEA

25%

APD

10%

AMER

65%

$5.7 - $6.1 BillionTotal

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Why Procurement automation was needed at Compaq: Why Procurement automation was needed at Compaq: Purchasing process paper bound Approvals cycle non automated - slow, bureaucratic No systemic process to point employees to preferred

suppliers Spending outside Procurement with non-contract

suppliers is a profit leak (6k NPR’s a month to 28k invoices a month!)

Lack of information warehouse to facilitate opportunity identification

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Our reengineering goalsOur reengineering goalsA self-service, distributed purchasing model to:

Automate via a procure-to-pay process - users go online to locate, request, approve, order & receive, seamlessly linked to A/P

Capture all WW indirect procurement spend utilizing a single tool - reduce fragmented view of our total spend

Report and Identify savings opportunities / analyze spend (to whom, when, and for what) - in UNSPSC defined Commodity Groupings Reduce supply base, item prices, and total cost of acquisition

Eliminate off contract spending, rogue solutions, paper processes

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Critical selection elements – software provider/package Critical selection elements – software provider/package Easy end user operation - “lure spenders into process”

Robust catalog search / requisition / approvals

Comprehensive info query and reporting

Ease of integration with ERP system(s), e-mail, HR system(s)

Allows attachments (Word, Excel, PP) through workflow

Support procurement card strategy

Support ad hoc purchases (non-catalog items)

Vision match / collaborative minded

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Inventoried 30+ Providers Selling “Solutions”

Interviewed 15

6 Considered ViableDeveloped / Received RFP

Roadmap & Financial Review

Review and Analysis - Evaluation Criteria

Path to solutionPath to solution

AribaAspect (SAP)Commerce OneElekom (Clarus)OracleSAP

RFP Recipients

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Resulting recommendationResulting recommendation

is the Solution

Met RFP requirements Solid financials & resources for long term success Vision match - strategic vision Committed to delivering optimized NT and Tru64

performance, tuned to Compaq hardware

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Search

Browse

Monitor

Review

Create

Punch-out

Industry benchmarks show that up to 20% of annual spend

can be saved through implementation of a well integrated System…

Infrastructure support - network computing architecture 3%

Process improvement - Self service procurement

Aggregation volume buying - consolidation of vendors & contracts

Contract leakage reduction - enforcement of available discounts

3%

7%

7%

Key Components:

Integration to ERP

Transaction system

Decision support

Automated workflow and sourcing processes

Benefit to the bottom line Benefit to the bottom line

Source: Savings based on Arizona State University Center for Advanced Purchasing Studies (Summary of Aerospace and Defense Industry Purchasing Benchmarks), 1997

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Implementation status & value over timeImplementation status & value over time

Implementation

Integration

Information

Fully Leveraged

S/W Installation

High

ROI

Low

Where we are today

April 2000 November 2000 June 2001Time to Benefits January 2001

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Implementation status & value over timeImplementation status & value over time

Implementation

Integration

Information

S/W Installation

High

ROI

Low

Key Milestones• Proof of concept April 17, 2000 (down rev product) • December 29th –– live with 100 users• New technology stack deployed (SSP5, 11i, 8i)• Rollout to ~4000 on January 31st

April 2000 November 2000 June 2001Time to Benefits January 2001

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GP Online goals / objectives GP Online goals / objectives

USGEO

Catalog / non-catalog (ad hoc) requisitions, workflow driven approvals, auto PO launch

Basic reportingP-Card / CC charging enabledHR, Supplier, COA IntegrationSupplier PO ack

Functionality

Roll out to ~4000 US employees5 catalog suppliersAutomate requisition process for all P-Card holders

GP Online Goals / Objective

1Q01

US

Q1 functionality plus:Integration to SAP or Oracle APEnhanced reportingSupplier website link-outEnhanced catalog mgmt.AMEX interoperabilitySingle sign-on loginSupplier transaction query Supplier PO ack, ASBN

Roll out to all US employees20 catalog suppliersRetire GP StoreCommence NA, EMEA implementation

2Q01

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GP Online goals / objectives cond. GP Online goals / objectives cond.

NA, EMEAGEO

1Q US functionality for Canada, EMEA

SAP Custom IntegrationEnhanced reporting across multiple systems

Functionality

Limited roll out to Canada, EMEAAll US indirect purchasing via GP Online

Retire IPA

GP Online Goals / Objective

3Q01

NA, EMEA

2Q US functionality for Canada EMEA

Expanded roll out Canada, EMEA

All EMEA, Canada purchasing via GP Online

4Q01

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Catalog content strategyCatalog content strategy

Order Order MgmtMgmt..Order Order MgmtMgmt.. ReceivingReceivingReceivingReceivingSourcing &Sourcing &

ApprovalApprovalSourcing &Sourcing &ApprovalApproval

Source and Procure

Pay on Receipt

Pay on Receipt InvoicingInvoicing Financial

Reporting

Financial Reporting

LocalLocalCatalogCatalogLocalLocal

CatalogCatalog

PayRequest

ECGateway

ECGateway

ProcurementCatalogServer

ElectronicDocuments

Orders &Orders &SchedulesSchedulesOrders &Orders &

SchedulesSchedulesReceipts & Receipts & PaymentsPayments

Receipts & Receipts & PaymentsPayments

PostedPostedRFQsRFQs

PostedPostedRFQsRFQs

Supplier Self-ServiceSupplier Self-Service

SuppliersSuppliers

Direct Supplierwith XML,

EDI, OBI, etc

Managed inside Compaq

REQUISITECatalog Content Management

Services

Compaq Unified Catalog

Catalog Files for AggregationCompaq pays Requisite for Service

CompaqCompaq

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Utilizing Oracle ExchangeUtilizing Oracle Exchange

Supplier Catalogs Compaq Specific

Catalogs

XML Catalog Feeds to Exchange • Compaq Contract Pricing• Volume Leverage Items

• Approved Configurations

GPOnline End

Users

Sourcing with Non-Contracted Suppliers Professional

Buyers

SuppliersSuppliers

End Users

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Compaq Alpha Tru64 Unix systemCompaq Alpha Tru64 Unix system

App Server

App Server ClusteredDB Server

Standby DB (SDS) Server

Reporting (ODS) Server

GPOnline user

SAP

PeopleSoft

SigAuth

AMEX

Interface (IPC)

Server

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What We Believe...What We Believe... The Oracle Internet Procurement suite - a standard by which

others will be judged– Management and Development focus is intense– Financial commitment / depth of resources significant– Vision and thought-leadership– Collaboration with Compaq on features and function

The Compaq Implementation is a Success !Compaq - Oracle working relationship excellentRoll-out acceleratingROI compelling