Procurement Excellence in the Retail Industry

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Information about Procurement Excellence in the Retail Industry
Business & Mgmt

Published on March 10, 2014

Author: Ariba



Retail companies in fashion, grocery and hard goods are innovating on how they procure and collaborate with their suppliers. Direct, Indirect and Services spend can be optimized across key procurement spend categories which in turn can drive sustainable savings from sourcing and contract compliance strategies, procure to pay optimization and automating supplier collaboration along the PO and Invoice cycle.

Attend this session to hear how Retail companies have achieved procure-to-pay excellence. Learn more about Ariba LIVE at

#AribaLIVE Retail Industry Track – Ariba LIVE 2014 Tuesday, March 18 YALETOWN 2 © 2014 Ariba – an SAP company. All rights reserved.

Retail Industry Track Tuesday, March 18, Ariba LIVE 2014 © 2014 Ariba – an SAP company. All rights reserved.2 3:00 PM – 3:15 PM Welcome – Ariba LIVE Retail Track Overview Chris Ball, SVP Retail, SAP 3:15 PM – 4:15 PM Panel Discussion - Procurement Excellence in Retail Industry Moderated by Todd Hallett, Manager, Solution Consulting – Strategic Industries, SAP Cloud David Strauss, VP Procurement, 7-Eleven Frank Corris, Global Director, Non-Merchandise Procurement, American Eagle Outfitters Carl Hernas, Senior Director, Procurement, Coach Nancy Rustia, Manager, Strategic Sourcing, Delhaize 4:15 PM – 4:45 PM Networking Break 4:45 PM – 5:00 PM Innovation Showcase - Retail 5:00 PM – 6:00 PM Retail Industry Roundtable 6:00 PM – 7:15PM Retail Networking Reception

#AribaLIVE Procurement Excellence in Retail Industry A Customer Panel Discussion David Strauss, VP Procurement, 7-Eleven Frank Corris, Global Director, Non-Merchandise Procurement, American Eagle Outfitters Carl Hernas, Senior Director, Procurement, Coach Nancy Rustia, Manager, Strategic Sourcing, Delhaize © 2014 Ariba – an SAP company. All rights reserved. @ariba

Introducing Customer Panelists © 2014 Ariba – an SAP company. All rights reserved.4 David Strauss VP Procurement Frank Corris Global Director Non- Merchandise Procurement Carl Hernas Senior Director Procurement Nancy Rustia Manager Strategic Sourcing

#AribaLIVE 7-Eleven, Inc. David Strauss, VP Procurement, 7-Eleven, Inc. © 2014 Ariba – an SAP company. All rights reserved. @ariba

About 7-Eleven, Inc. Based in Dallas, Texas, 7-Eleven, Inc. is the world's largest operator, franchisor and licensor of small-format neighborhood food stores. At the close of 2013, 7-Eleven® operated, franchised and licensed more than 10,300 stores in North America (including Mexico), and close to 52,200 7-Eleven stores worldwide. 7-Eleven is also one of the nation's largest independent gasoline retailers. 7-Eleven was founded in 1927 in Dallas, Texas. The company pioneered the convenience store concept during its first years of operation as an ice company when its retail outlets began selling milk, bread and eggs as a convenience to customers. The name 7-Eleven originated in 1946 when the stores were open from 7 a.m. to 11 p.m. Today, offering customers 24-hour convenience, seven days a week is the cornerstone of 7-Eleven’s business. © 2014 Ariba – an SAP company. All rights reserved.6

Procurement Department • Procurement is the support group for Direct and Indirect spend amounting to billions annually • The department is centralized, reporting to the CFO, and organized around specific categories © 2014 Ariba – an SAP company. All rights reserved.7 CFO Procurement Department Proc. Support for Asset Mgmt. Proc. Support for Merchandising Proc. Support for Construction Proc. Support for Legal Proc. Support for Facilities Proc. Support for IT

Procurement Strategy for 2014 and Beyond Through a collaborative effort with our executive team, corporate procurement strategy goals and significant year-over-year savings objectives are established that support and further the key initiatives for 7-Eleven’s retail food and beverage business. © 2014 Ariba – an SAP company. All rights reserved.8 • Support corporate strategic initiatives • Continue to improve quality while decreasing costs • Constantly improve service and cost of goods to be more competitive, offer more variety, and increase top and bottom line savings • Increase Global Leveraging Initiatives Continue to leverage our talent, resources and volumes to gain efficiencies globally. We have several projects scheduled for 2014 that will include our operations in Canada, Mexico, and the Pacific Rim (Hong Kong, Malaysia, Singapore, Philippines, China, Taiwan). Examples of Procurement Objectives

Sourcing with Ariba at 7-Eleven © 2014 Ariba – an SAP company. All rights reserved.9 The Retail Industry requires a procurement department to test the market, change vendors and validate pricing at a fast pace. Our use of the Ariba Sourcing, Online Auction and Contract Management platforms greatly enhances our ability to conduct constant, rapid sourcing events. Opportunity Identification & Analysis Strategy Development Souring Exercise Negotiation Implement & Monitor Procurement Actions Analyze categories and prioritize opportunities based on savings potential vs. ease of implementation and cultural impact to determine plan for strategic sourcing program Combine knowledge of cost-drivers, such as inventory, quality, delivery, internal business requirements and the external marketplace, to develop a category strategy Conduct competitive exercise Summarize contractual savings Create negotiation documents to prepare the negotiation team with the facts necessary to reach the desired outcomes Utilize the Ariba platform to locate suppliers and quickly test-market pricing Utilize the Ariba Online Auction and Sourcing platform to rapidly drive down pricing among vetted suppliers Utilize the Ariba Contract Management platform to drive contract compliance and contract management

© 2014 Ariba – an SAP company. All rights reserved.10 Ariba Auction Successes Procurement Category Event / Commodity Name Savings Development Worktop Fridge / Freezers 10% Development Electricity 12% Development Utility Bill-Payment Service 47% Development Refrigeration 31% IT Pin Pad Auction 39%  First Ariba online auction performed on December 1, 2011  Proven record of additional savings when events go to a live-auction scenario  Increased interest and involvement in auction process from 7-Eleven department stakeholders and global licensees

© 2014 Ariba – an SAP company. All rights reserved.11 Keys for Procurement Excellence in Retail Next Steps for 7-Eleven  Always have the guest in mind. Ask yourself “How will this impact the guest experience?”  Keep it simple. Stores do not have time to respond to complicated implementations and processes  Keep initiatives narrow and focused  Understand the limitations of vendor partnerships  Implement Ariba’s Contract Management Platform  Increase Frequency of Reverse Auction Activity  Decrease Logistics costs associated with decreased Cost of Goods  Continue to source commodities (such as baked goods components)  Continue to expand Procurement’s influence in traditionally untouched areas of the organization such as Private Brands Next Steps & Lessons Learned

#AribaLIVE Procurement Transformation Plan March 2014 12

13  American Eagle Outfitters, Inc. (NYSE: AEO) is a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under its American Eagle Outfitters® and Aerie® brands.  The company operates more than 1,000 stores in the United States, Canada, Mexico, China, and Hong Kong, and ships to 81 countries worldwide through its websites.  American Eagle Outfitters and Aerie merchandise also is available at 62 licensed international franchise stores in 12 countries. For more information, please visit American Eagle Outfitters

14 Primary Goals & Deliverables  Centralize and standardize procurement operations globally  Implement a strong but flexible technological backbone  Staff with professional procurement talent  Promote speed and efficiency with no-touch catalog purchasing of goods  Develop a transactional “Buying Center” to rapidly process low level bidding with standard T&Cs and approval limits up to $100,000  Develop a Strategic Sourcing “Center of Excellence” to develop and qualify new suppliers in international markets where negotiations are complex and high touch is required The Mission of the Non-Merchandise Procurement (NMP) team is to develop guardrails required to build a global procurement network to support American Eagle Outfitters’ corporate strategy and fortify global growth. Procurement Strategy

Current State  Decentralized Organization  Customized Technologies  Disparate Systems  Non-scalable Manual Process  Untrained Personnel  Unpredictable Outcomes  Domestically Focused  Reactive  Slow  Unmanaged Suppliers Future State  Centralized Shared Services Organization  Standardized Policies and Business Processes  Trained Procurement Staff  Globally Focused  Efficient and Scalable  Proactive  Strategic  Fast  Managed Suppliers  Nearly 90 FTEs have been identified as performing purchasing functions outside of NMP  There is no enterprise Procure-to-Pay (P2P) technology at AEO. Technologies that do exist are piecemeal approaches which are not integrated to work together, making global integration impossible  Therefore, visibility and categorization of the spend is severely limited  Standardize the technology platforms, policies and procedures to create a process which is consistent and scalable  Centralize strategic sourcing and contracting activities to NMP  Requisitioning stays within the business units  Develop long-term business strategies by category  Gain the ability to Source and Transact globally Non-Merchandise Procurement Roadmap

Procurement Overview

All figures are estimates and in $ millions $1.3B in non-merchandise spend annually $557M is considered “addressable” spend $0 $100 $200 $300 $400 $500 $600 Addressable Spend Corporate Services Store Operations Construction & Facilities IT/IS Marketing Addressable spend varies year to year and is dependent on individual contract length and expirations dates Non-Merchandise Procurement Spend Categories

18 Benefits


Achieving Procurement Excellence at Coach with Ariba Carl Hernas Senior Director, Procurement AribaLIVE 2014

About Coach Global leader in premium handbags and accessories Over 1,000 direct owned and operated stores Over 15,000 employees in over 20 countries 21 © 2014 Ariba – an SAP company. All rights reserved.

How Procurement works at Coach  Procurement Organizational setup at coach  center-led reporting to finance  Sourcing and Procurement Operations Teams focused on Indirect  >7,000 suppliers in 20 countries Undergoing significant changes to improve  Improved compliance to policies  Ability to pay suppliers on-time  Contracts/agreements are honored  Source to Settle process improvements Procurement Challenges & Operations at Coach

 Sourcing has yielded savings in excess of $40MM on an annual basis  Wave 1 has launched and completed with significant improvements – Improved compliance – Pre-purchase approval – Significant usage/acceptance of the Ariba Network – Great engagement from users  Wave 2 and 3 in process now  International Business Units next fiscal year Success Highlights at Coach with Ariba

Ariba Procurement Solutions @ Coach Ariba Sourcing Deployed in 2009 as an On Demand cloud solution Strategic sourcing and project management Leveraged globally for centralized spend categories Heavy use in North America, China, Japan ~100 users Ariba Procure to Pay Operational procurement system for end user requisitioning, catalogs, contract compliance, approvals and purchase orders Global deployment currently in progress as an On Demand cloud solution FY14 North America, leveraging Ariba Consulting Services FY15 China, Asia, Japan, Europe

Key Accomplishments/Lessons Learned Don’t underestimate change management Leverage any relevant HR, Training or Change teams Capture their experience in deploying other large systems Be as clear as possible with users regarding the rationale Utilize a phased approach Decide what dimensions of deployment are important to you, spend category, region, process type, etc. Deploy in chunks that are strategic for success, not necessarily immediate impact

• Look at the big picture: policy, technology and process • Continually revalidate your base procurement data • Make it easy for staff to do the right thing with standard processes • Identify and use all available communication and governance channels • Get buy-in from the top and get your execs to deliver communications • Implement in phases; apply learnings to each go-live • Include SMEs and Ariba in your project; work as one team • Hire a change manager to help reduce resistance and inertia • Engage suppliers early, often and consistently • Don’t underestimate how much effort is involved Quick Thoughts on Developing Your Program

#AribaLIVE Delhaize Nancy Rustia, Manager, Strategic Sourcing, Delhaize © 2014 Ariba – an SAP company. All rights reserved. @ariba

5/31/2012 March 10, 2014 Strategic Sourcing Ariba LIVE Presentation

5/31/2012 Who is Delhaize America? Delhaize America, one of the nation’s largest supermarket operators, has more than 1,500 stores along the East Coast. Delhaize America companies include Bottom Dollar Food, Food Lion, Harvey's, Hannaford Supermarkets, Reid’s and Sweetbay. Each banner has a distinct identity and well-established brand image within its respective markets across 18 states, offering market-specific products and services to meet the unique needs of its customers. Delhaize America employs more than 100,000 full-time and part-time associates. The company is part of Delhaize Group (NYSE: DEG), an international grocery retailer based in Brussels, Belgium. 29

5/31/2012 Direct and Indirect: Strategic Sourcing leads the price negotiation for both Direct Non-Branded (for resale) and Indirect (not for resale) Categories of spend for Delhaize America. Annually we support the following volumes of sourceable spend; • Indirect> $2b • Direct> $3.1b Cost of Goods We execute 400 RFx events annually; approximately 30% of these events are in new categories or previously unsourced. Our “run rate” of average savings delivered annually is: • Indirect = 9% • Direct = 3% 30

5/31/2012 Value proposition: Strategic Sourcing reports through Supply Chain at Delhaize America. The Team was created with Indirect in 2005, and grew to include Direct in 2009. Our core value proposition is to provide a systemic, transparent and repeatable process to our internal Business partners that consistently delivers value. The foundation of our process is “Six Step” sourcing methodology. We offer fact based analytics to our Stakeholders who make all award decisions. We ensure that Suppliers invited to our events are treated fairly and provided as much information as possible regarding our award intentions and business strategies. 31

10/03/2014 632 Strategic Sourcing Process Six Step Sourcing Process / COGS, Expense & Capital • Review Statement of Work, Specificatio n for product/service • Review current Supplier(s) performance • Review current contract • Determine award strategy / goals for event • Develop scoring metrics for event; price and non- price factors • Set timelines and next steps E V E N T P R O F I L E M A R K E T A N A L Y S I S E V E N T S T R A T E G Y E N G A G E M A R K E T A W A R D / C O N T R A C T • Identify additional / new Suppliers in Category • Research market conditions, and industry trends • Evaluate SOW / specification to marketplace norms • Create RFx Questionnaire to assess suppliers ability to provide non-price factors determined at Kick off • Start QA/Test process • Finalize Suppliers to participate in event • Sourcing coordinates potential site visits, reference checks, capacity confirmation • Sourcing executes price collection; selected Suppliers invited to participate in event ; using eSourcing tool, model, or negotiation M A R K E T N E G O T I A T I O N • Sourcing provides event reporting, includi ng Supplier results and award scenarios for Stakeholder review /decision • Stakeholder Team determines next steps; ( additional negotiations, adv anced auction) • Contract terms are considered and included as part of final negotiations • Stakeholder review of market, Supplier discovery, and QA/Test results • Consider change of SOW / specification, (if warranted) • Review award strategy ; confirm or update • Sourcing recommends price collection method based on Business Owner event goals and market findings • Stakeholders finalize award decision • Sourcing issues award / denial letters to all event participants; letters approved by Business Owners • Sourcing initiates DA contract process and manages red-line process through contract execution / upload • Event Summary is finalized and submitted; Indirect - (FP&A, Direct – Category)Direct Sourcing • Center Store • Produce/Meat/Seafood • Deli/Bakery/HMS • Pharmacy Indirect Sourcing • DC Supplies and Equipment, • Corporate Services • Store Supplies, Equipment, Retail Services

5/31/2012 Delhaize and Ariba: Delhaize Group has used several sourcing tools in our sourcing evolution prior to Ariba; WWRE, Procuri and AGX. We began our relationship with Ariba in 2010 and purchased the Sourcing and Contract Management modules. We continually evaluate additional modules and their potential value to Delhaize. We are currently considering opportunities in our Contract Management processes and are considering an additional Ariba module to assist as we deploy a new organizational contract management vision. 33

5/31/2012 Strategic Sourcing Success Stories: Telecommunications; • Partnered with a new Business Team to execute an RFx event in one of the largest areas of spend for this Team • Long term (20+ year Incumbent), significant disruption and risk if we moved to new Supplier for these services • Utilized Total Cost of Ownership (TCO) early in process where Business Team quantified non-price factors and their associated values as well as hurdle amount to make transition • Event achieved a 58% savings over previous costs, delivered over $6m in first year savings and we negotiated with new Supplier to cover all our transition costs 34

5/31/2012 Strategic Sourcing Success Stories: Our Brands Snack Nuts Sourcing Project: • Conducted extensive supplier discovery. Worked closely with all of the suppliers and coach new ones to increase participation and competition • Partnered with our economic insight team and leveraged their input to identify potential opportunities and future projections based on the crop • Worked with our R&D team to establish clear product specifications for the suppliers to match during the sourcing project • Utilized Total Cost of Ownership (TCO) early in process where Business Team quantified non-price factors and their associated values as well as hurdle amount to make transition • Event achieved a 26% cost of goods savings($3.5M) versus historical costs 35

5/31/2012 Categories with Best Traction: Initially, the Indirect Team focused on commodity categories to drive results; e.g. front end bags, deli oil, product packaging, small wares, and office supplies. As we ran these categories multiple times, we have sought not only new approaches to the repeating categories but also looked for new areas of addressable spend. We applied our same processes and methodology providing a quantifiable result to our Business Owners in Services. Our most recent successes have been in more highly complex services categories; e.g. Corporate and Store Bank Fees, Insurance Brokers, Waste Services. 36

5/31/2012 Strategic Sourcing Challenges: Sustainability of Sourcing: • How do we grow our influence, consistently deliver great results and continue our momentum year over year? • Drive the evolution from transactional sourcing to strategic relationships Suppliers: • As commodity markets and Supplier bases shift, how do we drive successful events and strategies in categories with highly volatile commodities and limited Suppliers? We currently tie pricing to commodity and index and adjust at mutually agreed intervals. Crop based event are typically annual awards due to the volatility of the markets. 37

Questions for Our Panelists © 2014 Ariba – an SAP company. All rights reserved.38

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