Profiles in Supply Chain Enablement: Major manufacturer retools its purchasing processes with an on-demand spend management solution
Company: Top-tier Tooling Solutions Supplier (Greensboro, NC)
Company Size: Large
Company Sector: Manufacturing
Area(s) of Enablement: Sourcing, Procurement, Decision Support
Enabler: Ketera Technologies Inc. (Santa Clara, CA)
Case Study: This manufacturer is the market leader in North America in metal cutting tools and second in Europe and worldwide, with annual sales that exceed $1.8 billion and annual spend of more than $200 million. With four business units and more than 25 manufacturing plants, its executives realized that significant savings could be achieved by centralizing contracts with suppliers, reducing maverick spend and streamlining the source to pay process across the organization.
The Challenge
In days past, the manufacturer had four global business units that sourced non-material goods and services directly from local suppliers through numerous offices. The company's fragmented supply base and a lack of standards systems resulted in 20-25 percent maverick spend and a wide variability in the prices paid by the different business units. Moreover, the procure-to-pay cycle at the company was paper-intensive and costly.
As a baseline, the manufacturer completed an analysis of historical spend and then went looking for solutions to enable it to achieve compliance across the company with a rationalized supplier base and company-wide contracts. The manufacturer set the following as objectives:
- Eliminate maverick spend and capture corporate discounts
- Quick cash payback and high return on investment (ROI)
- Guarantee savings by minimizing ongoing system costs
- Automate procure-to-pay cycle and standardize corporate procurement process
The Solution
The company spent nearly two years looking at different solution models and vendors in the spend management space before selecting Ketera Spend Management. According to Ketera, the company chose the provider's Web-based solution because it offered over six times lower total cost of ownership (TCO) than software-based systems, promised a rapid time to value within one year, and provided a user-friendly interface that enabled rapid deployment and user acceptance.
The company went live with Ketera within 45 days, enabling 360-plus users and 10 suppliers. The human resources for the project were minimal, with just one full-time-equivalent (FTE) necessary during the rollout.
Six-month Payback
After going live with Ketera Spend Management in 2002, the company saw a 150 percent ROI generated after one year, achieving payback on the solution investment within six months. The company was on track to achieve 500 percent ROI within three years. In addition, maverick spend has been reduced by 90 percent at the company, and 10-15 percent cost savings were achieved as business units shifted spending to preferred suppliers. Compliance with strategic contracts improved from 30 percent to 70 percent.
Since the initial deployment, the company has expanded the user base of the system from 350 to 484 users. The company planned to roll out the system to its operations in Canada last year, and to Europe in 2006. Also, the company has been contemplating an increase in its current supplier base of 15 by adding more suppliers to the system.
The initial cost of the solution was $647,500 under a three-year contract for services based on on-demand model software pricing. Ongoing annual costs are $700,000, including hardware, personnel and other costs for maintenance. Consulting was provided within Ketera's contract for software, and no costs were incurred in training.
For more stories of successful supply chain implementations, read the "2005 Supply & Demand Chain Executive 100" article in the June/July 2005 issue of the magazine. Also watch the Today's Headlines section of SDCExec.com every Tuesday and Thursday for more in depth best practices drawn from this year's Supply & Demand Chain Executive 100.
