Businesses competing in today’s tough economy constantly look for ways to derive new sources of value to deliver the next wave of competitive advantage. Despite this need, organisations are reluctant to make the investment if the value proposition is not sufficiently compelling and proven. A company’s concerns can cover a range of technical, business, commercial, and organizational issues. Several questions arise when considering an additional investment. Will the technology deliver the promised value? What additional services are needed? How can we justify the cost of deployment? What organizational changes are required for a successful project?
Five principal elements
SAP offers a short-term, trial service that allows companies to “try before you buy.” The hosted sourcing platform provides mySAP Supplier Relationship Management (mySAP SRM) to allow customers to make a low-risk investment to prove the value of electronic sourcing and discover the new sources of value, before they invest in the solution. The offering consists of five principal elements: access to the hosted sourcing software for three months, which is provided via a web browser, customer setup, training for buyers and suppliers,event support, and optional sourcing services including pre- and post-event.
SAP Hosting hosts the sourcing software, so all a customer needs is a standard web browser – no software needs to be loaded or configured. SAP consultants manage the customer setup process. They create a dedicated customer environment from a preconfigured master template to facilitate a consistent and speedy setup process. SAP or its partners can deliver training and event support. Event support is particularly important because it ensures that the process runs smoothly and addresses any product, technical, or business questions that buyers or suppliers might have during the sourcing project.
For the sourcing project itself the buyer creates detailed specifications and informs potential suppliers of their requirements, a process which can be performed electronically using the SAP solution. The suppliers then respond to the requirements, which again can be electronic. Buyers receive the responses and evaluate the replies in a structured and efficient manner to produce a short list of qualified suppliers. If the supply market conditions are appropriate, the software can be configured to enable the process to proceed to a realtime e-negotiation, where for a specified time period the qualified vendors place increasingly more competitive bids in order to win the business. The ability to see if they are winning or not tends to inspire more competition between suppliers, ultimately resulting in lower cost or higher service levels to the client.
To accommodate different needs of specific organizations, clients can choose to leverage optional sourcing services. The services can cover many areas, such as opportunity analysis, category selection, supplier research and identification, supplier communication and management, post event analysis, or project management.
Reviewing the fleet management
Using Intersources, a sourcing specialist partner recommended by SAP, to provide full project support, Sea Containers has successfully conducted a number of sourcing projects using the hosted sourcing platform. Sea Containers is a market leader in three primary business areas: passenger transport, leisure, and marine container leasing; it is headquartered in London, England. Sea Containers reported revenues of over USD 1.6 billion in 2003 and employs over 15,000 staff globally.
Sea Containers first sourcing project was conducted for company car leasing. In this project, the company reviewed its fleet management provision across the UK, Finland, and Sweden, where a fleet of over 200 cars was managed under several different types of commercial agreements. As a first step, Sea Containers performed a detailed spend analysis and drafted a standardized service level agreement (SLA) that it wanted to introduce. The company used the hosted mySAP SRM solution to perform the sourcing process.
Sea Containers prepared and launched its first request for information (RFI) in early September 2004 to understand the geographical coverage and service capabilities of the suppliers in the market. Seventeen suppliers responded to the request. Based upon the initial list, Sea Containers sent selected suppliers an electronic request for quotation (eRFQ). The suppliers had to demonstrate compliance with an online SLA and provide detailed pricing information across financial and operational cost factors. Eleven suppliers responded and were analyzed for compliance with the SLA and competitiveness.
Reduced Price and Process Cost
At this stage of the process, significant benefits had already been achieved: better prices and reduced clerical effort to publish and receive responses to and from many tenders. Just as important, Sea Containers established a single tighter and broader SLA across different aspects of the service. The supplier list was further reduced through eRFQ evaluation and the remaining ten suppliers were invited to participate in a live auction.
During the auction process, the market conditions were set up according to auction rules: suppliers could see their own rankings and the best market price. Multiple events were run to understand the market dynamics in individual countries as well as the effects of combining the spend across different locations. Once again, this step delivered further savings through reduced prices.
Sea Containers will save 32 percent, projected value of over GBP 1.4 million in the upcoming four years. However, the real benefit was that the Group Procurement team at Sea Containers was able to prove to the business how the technology enabled the creation and exploitation of a market opportunity that delivered real and new sources of value to the business using a low-risk, trial service offering.
Average savings of 20 percent
Other companies from different industries have also used the trial service across different categories of spend to prove the value proposition. Their experiences have demonstrated both higher and lower savings than Sea Containers. On average, however, their savings are in line with industry benchmarks of approximate savings of 20 percent.
In parallel, Silja, a wholly owned subsidiary of Sea Containers, deployed mySAP SRM E-Procurement. It went live in April 2005 after a five-month project. The e-procurement solution provides Silja with a compliance framework to ensure that benefits such as those highlighted by the car leasing sourcing project are realized. By deploying an integrated sourcing and procurement application, that is mySAP SRM, customers are able to close the loop between sourcing and procurement. This in turn allows them deliver sustainable and realizable savings from having an integrated process.