Global eProcurement Solution Tames the Spending Tiger and Saves a Fortune at Ericsson
A new eProcurement solution is on track to save mobile communications leader Ericsson many millions of euros per year as well as giving management total control over key areas of expenditure.
Designed and implemented worldwide by Capgemini working in close partnership with Ericsson, the system is already proving its value across Europe and in the Americas, Asia Pacific and South Africa.
With ease of use and compliance engineered in, the solution is not only delivering
massive cost savings. It is also ensuring that vital goods and services required
by the company can be sourced, ordered, received and paid for promptly, efficiently
and cost-effectively.
The net result is a quantum leap in purchasing efficiency for Ericsson and a
development that is all set to deliver a significant positive impact on the company’s
bottom line results.
Client Profile
Headquartered in Sweden and operating in 140 countries with more than 60,000 employees, Ericsson is the largest supplier of mobile systems in the world.
Approximately 40 per cent of all mobile calls are made through Ericsson systems. Best known to the general public for its mobile handsets, Ericsson’s main lines of business are in the very different, albeit related, fields of mobile infrastructure, fixed line infrastructure and communications equipment for companies of all kinds, including the largest multinationals.
Network operators and service providers use Ericsson’s transmitters, antennas and other wireless and optical infrastructure to build and expand their networks.
Ericsson provides total solutions covering everything from systems and applications to services and core technology. With Sony Ericsson, the company is also a top supplier of complete mobile multi-media products.
Business Issues
The mobile explosion of the 1990s, coupled with Ericsson’s own leadership, innovation and marketing skills, gave the company a tremendous record of year after year expansion and success. The focus of the business was, inevitably, on riding this wave, and as a result many new products were developed and launched, much new business was won and sales quotas were constantly exceeded and records broken.
At the same time the manufacturing heart of the business was run with world-class efficiency, and that included tight control of the entire supply chain including direct purchases of raw materials. But ‘indirect’ goods and services – anything from buildings, cars and temporary staff to office equipment, stationery, hotels and taxis – was not subject to the same high level of discipline.
All eyes were on revenue, with little time or incentive left over to look at indirect costs. And the highly devolved, ‘democratic’ structure of the company, although great for promoting an independent and entrepreneurial spirit in the marketplace, was not conducive to firm central control over costs.
The end result was a very large number of suppliers in each country, a relatively free and easy attitude to spending money, and little real effort to negotiate keen prices or avoid duplicated expenditure. And finally, of course, a very large annual bill. None of which was a critical problem during the years of plenty. But Ericsson knew that the colder global economic climate of the new millennium, combined with the expected delay between the second and third generations of mobile technology, would cause two to three ‘years of lean’ during the period 2001-2004.
Ericsson management decided to take prompt, pre-emptive action ahead of the anticipated downturn, and therefore began to explore practical ways to reduce the cost base quickly and effectively, yet without detriment to ongoing business operations.
Solution
Capgemini won the contract to advise upon, and help implement, a programme that would effect a major global transformation in Ericsson’s overall cost base.
It was quickly realised that many activities and costs were being duplicated unnecessarily, and an early result of the brainstorming was the Shared Service Centre concept. This would involve the transfer of a wide range of administrative, routine and clerical activities from large numbers of offices in individual countries to new custom-designed centres able to handle the needs of an entire region. Service functions such as finance, IT and administration were moved to the regional centres in a rationalisation programme that delivered major cost savings while actually increasing the efficiency of those support activities.
Procurement was one of the key workstreams within this programme right from the start, and the Capgemini team tasked with addressing the challenge divided the programme into logical steps:
1. Analysis
A rapid ‘snapshot’ of the scale of indirect procurement showed that global spend was clearly excessive in relation to the company’s turnover and headcount. Further analysis confirmed that the number of suppliers (over 4,000 in many countries) was also very high and that there was no single, properly controlled procedure for indirect procurement.The analysis confirmed to Ericsson both the urgency of the need for dramatic improvement, and highlighted the scale of the potential savings that such an improvement could deliver.
2. Requirements
It was quickly apparent that some form of eProcurement solution would provide the essential ingredients of control and standardisation. But it was also clear that any solution would be effective only if it had the full support of all those involved in the procurement of indirect goods and services. And so the Capgemini team spent much productive time with Ericsson staff across many areas of the business and at many levels in order to understand and discuss how their needs could be met, and translating those needs into formal system requirements.3. Design
With the requirements listed and agreed, the vital step of package selection could now take place. The decision was taken to adopt SAP’s Enterprise Buyer Professional (SAP EBP) as the new corporate standard for eProcurement software. Not only did it have the power to meet the agreed requirements, it had the additional key benefit of being easy to integrate with existing Ericsson SAP systems including the company’s financial systems.The functionally rich SAP® EBP® package needed to be carefully mapped onto Ericsson’s business, and this was done in an iterative process, with each successive iteration being evaluated by Ericsson personnel for additional fine tuning. The final agreed process was known as the “core model” and became a reference manual for all implementations with variations from this very strictly controlled.
4. Implementation
Given the sheer scale of the issues, it was naturally vital to avoid risk during the implementation, and so a pilot approach was used, starting with specific areas of procurement in three countries (France, Holland and Spain).The results of the pilots yielded a clear demonstration of the efficiency of the new approach to procurement and the role it could play in saving very significant sums of money. The solution was ready for global rollout, with an aggressively paced programme that aimed to cover the whole 140-country world of Ericsson within an 18-month period.
Benefits
Within 12 months of the new system going live, Ericsson reports that all the expected key benefits are being realised as per plan. Ericsson is achieving significant cost savings from the new eProcurement system in three important ways:
Supplier rationalisation
A consequence of the rationalisation of the supplier base (with a reduction of the base from 4,000 down to 300 in some countries) was much greater bargaining power and therefore considerably better prices for virtually all indirect goods and services. The system also makes it quick and easy to compare prices from different potential suppliers.Improved transparency
The elimination of unnecessary, unauthorised or duplicated purchases because of improved transparency of the new system highlights such expenditures automatically.Cost reduction
Since much of the work previously carried out manually has now been automated by the new system, there is a dramatic reduction in the cost of administering the procurement process. Estimates indicate that the cost of processing an invoice, for example, has been cut by some 80 per cent.
The system has proved easy to use and popular with staff at all levels, who appreciate its simple, intuitive feel and the ‘shopping basket’ style user interface.
By linking to Ericsson’s Human Resources systems, the authorisation procedures built into the eProcurement system are automatically kept up to date and ensure that without proper authorisation, no purchase can take place. Similarly, links to the company’s asset register help to avoid unnecessary purchases.
The three-way match process built into the system, which involves authorising the payment of an invoice only when it matches both the purchase order and the goods received data, is providing a new level of control over the entire purchasing process.
By linking to the IBX (International Business Exchange), the system ensures that details of vendor offerings (catalogues and prices) are readily available throughout the company, with no effort on the part of the purchaser.
The drive towards achieving large scale sourcing benefits are now on track due to the central reporting visibility that comes from the Ericsson eProcurement Solution.
Approved by Ericsson EMEA