Improving the Strategic MRO Process

B Improving the
Strategic MRO
Procurement
Process
Lionel Jellins: ExxonMobil
Dan Carpenter: Flint Hills Resources
Andre Rego: Grainger

1 © 2012 Ariba, Inc. All rights reserved.

Introductions

• ExxonMobil (XOM)
Lionel Jellins; Global IT Ventures and
Operations Manager
• Flint Hills Resources (FHR)
Dan Carpenter; Procurement
Excellence Director
• Grainger
Andre Rego; eCommerce Strategy
Product Manager


Antitrust Discussion

• Importance of the discussion with XOM, FHR and
competitors in the room
• Both companies recognize that there are alternative
trading platforms and recognize that buying and
selling organizations should choose the appropriate
trading platform


Session Overview

• Collaborative Procurement for strategic MRO
MRO: Maintenance, Repair, Operations

• Value of linking Supply Chain with the Demand Chain

• Technologies allowing more sophisticated collaboration


Improving the

B
Strategic MRO
Procurement
Process

Lionel R. Jellins; Global IT Ventures and
Operations Manager

© 2012 Ariba, Inc. All rights reserved.

A Safety Minute…
Static at the Gas
Pumps

Why?
• You know that you cannot smoke at the gas station. What is less well known is that static
electricity can cause sparks that may ignite gas vapors, resulting in a fire or explosion
What can you do?
• Never use cell phones while pumping gas
• Never get back into your vehicle while filling up; the contact of your clothes with the fabric of
the car seat may build up static electricity which could create a spark when you touch
the nozzle
• Be aware of sources of static electricity and sparks. Touching items such as: door handles,
steering wheel or car radio could cause static charges that might ignite gas vapors resulting in
a fire or explosion
Source: Adapted from URC/UTeC Safety Communications

ExxonMobil Corporation

• US-Based Oil and Gas Company
• Vertically integrated from Exploration and Drilling
to Refining, Marketing, and Chemicals
• Global Procurement Organization since 2000
• “Relentless focus on Value and Cost”


ExxonMobil Global Procurement

• 2,800 Employees (Purchase to Pay)
• 1/3 of employees located in Business Service Centers
(Prague, Buenos Aires, and Bangkok)
• Over 100K suppliers in 52 countries
• $50+ Billion Procurement managed Spend
• Over 200K Purchase Order annually via Network
• On-premise, SAP Connected (7 Instances)
• Key IT Partner >>> Ariba


ExxonMobil and Ariba Collaboration

• Upstream • Downstream
Category Management T&E and Pcard
100K+ Active Projects Over 75K Users
Agreement Management ASN Connectivity
~20K Active Agreements 1400 Suppliers since 2007
Analysis SAP Fax Connectivity
Reports – Audit Requests Over 200K PO’s annually
eRFX Requisitioning
4K+ Events 17 Punch-out Catalogs
2K+ Reverse Auctions Category Procurement
eForms


ExxonMobil Future Vision

• Touch-less
>>> Expanding PO Collaboration via AN
• Supplier Connected
>>> Expanding use of Ariba eCatalogs and Punch-outs
>>> eCatalog Connectivity via OCI
• Intuitive User Interfaces
>>> Assessing Contracts Workbench


Improving the

B Strategic MRO
Procurement Process

Dan Carpenter – Procurement Excellence Director

Flint Hills Resources (FHR)

FHR is a direct, wholly owned subsidiary, of Koch Resources LLC, which is
wholly owned by Koch Industries, Inc, a privately held company involved in
most aspects of the oil and gas industry. The operations of FHR and its
subsidiaries include the following:
• Three crude oil refineries (approximately 816,525 bpd of crude oil refining capacity);
• Six chemical production facilities;
• Four ethanol production facilities and two biodiesel facilities;
• A 50% interest in Excel Paralubes, a general partnership engaged primarily in the
manufacture of lubricant base oils;
• Proprietary pipelines and pipeline investments (located principally throughout the Mid-
continent and Gulf Coast regions of the United States);
• FHR is the United States’ 9th, and the World’s 24th, largest refiner. In addition,
FHR is the United States’ 5th largest producer of ethanol. FHR is also a leading
producer and marketer of petrochemicals, producing about nine billion pounds of
building-block chemicals.


Why did FHR implement Ariba?

• Incumbent electronic commerce solution was being retired
by software supplier. Tool was off-market with limited
value-added capabilities.

• FHR wanted to move past basic electronic commerce into a
value-added method of transacting with suppliers. FHR felt we
could create a competitive advantage in our PP process by
optimizing our processes and leveraging new tools.

• FHR has been on the Ariba Network since April 2011.


Collaboration
• FHR felt it was key to create a process that was mutually beneficial
to both parties.

• As part of the initiative, FHR was moving to full order automation
from requisition approval to invoice payment
We internally redefined “automated” to include providing accurate
and complete information to the supplier to allow them to capture
the benefits of automation.

• Looked across the entire process to understand the impact our
confirmation and invoicing business rules would have on our
suppliers (make sure we were not placing an “unfair” burden
on our suppliers).


Collaboration: Case Study

• Used strong relationship with Grainger to gain efficiencies.
Example: Allow Grainger to confirm back price they believe to be correct and handle
variances through our business rules and an exception management process.
– Alternative was to reject all variances and place the full burden of
resolution on the supplier, even though our data told us that Grainger had
a very high accuracy rate and that the majority of exceptions were created
by data issues on FHR’s side.

• Used a back-end audit process to monitor the exceptions to
ensure adherence to contractual pricing. Very small overhead in
the process.
– This method only works if you have a strong relationship with your supplier and are
confident that an after-the-fact resolution can be handled effectively and efficiently.


Collaboration: Case Study

• Used data coming back through the network to work with Grainger on
invoicing process opportunities.
Able to communicate with Grainger that we had a number of partially invoiced
purchase orders and work on ways to avoid going forward (improved cash flow
to Grainger and less RBNI for FHR).

• Used data coming back through the network to understand what we
were buying from Grainger and leverage this into better aggregation
and standardization.

• Worked directly with Grainger during the enablement process to
identity opportunities in their system to facilitate compliance with
FHR business requirements.


Challenges/Opportunities
• Supplier enablement
♦ Must understand key contacts within your supplier’s organization and ensure
that they are aware of the enablement effort and have been trained.
♦ Ensure that suppliers are clear on your business requirements relative to
confirmations, ASNs and Invoicing.
♦ Think of each branch office as a unique supplier.

• Processes
♦ FHR used the Ariba implementation as an opportunity to review our
processes and make changes that enhanced our PP process.
♦ Enablements highlighted some internal process issues.


Metrics
• Currently transacting with 229 suppliers

• Process approximately 36,000 Purchase Orders annually
through the network

• Processing approximately 204,000 invoices annually
“touch-less” through the network
– 44% of “eligible” invoices run through Ariba in a
touch-less manner


Flint Hills Resources Vision/Future

• FHR will continue to enable suppliers to the extent it adds
value to both FHR and the supplier.

• FHR will continue to work with suppliers to create long-term
value for both parties.

• FHR is looking into the potential of the E-Sourcing tool
and Dynamic Discounting.


Improving the

B Strategic MRO
Procurement
Process

Andre Rego: eCommerce Strategy
Product Manager

20
© 2012 Ariba, Inc. All rights reserved.

Grainger Overview
North America's leading B2B broad line supplier of Maintenance,
Repair and Operating supplies.
(expanding presence in Asia and Latin America)

Trusted eProcurement Partner
- Ariba Ready Platinum Supplier with extensive knowledge
and experience in eProcurement solutions

One-stop-shop
- Over 1 million MRO products, 3,400 suppliers
- eCommerce and Inventory Management Solutions
- Extensive distribution network

FORTUNE Most Admired Companies in the World, #1 Diversified Wholesalers

Internet Retailer Top 500, #15 Overall and #1 in Category


Why Business Commerce?

• Customer preferences are changing... Industry experts estimate that
40% of MRO will be transacted online by 2014. It is no longer a choice.

• Leverage business commerce to develop long-term strategic partnerships.
Become customer’s first choice.

• Meet customer needs at all levels:
Find MRO products fast
Gain greater visibility to all MRO spend (planned and unplanned)
Manage and reduce purchasing costs through automation
Drive compliance to negotiated contract to achieve maximum savings


The Perfect Order

• Customers that invested on Ariba or other eProcurement solutions expect more
and more a retail-like experience
Fast to find products
Easy to place orders and to pay based on agreed terms
Efficiency gains through full automation (low transaction costs from req to check)

• Unlike retail websites that control most of the online experience, eProcurement
solutions require greater collaboration across internal departments and the entire
supply chain

• The good news: it is possible!


The Perfect Order

• Using all the tools currently available and collaborating with your key
Suppliers, you can give your users a retail-like experience:
It all starts with the right Platform:
– A world-class eProcurement solution that can support the entire req-to-check process
With a great shopping experience:
– Accurate and up-to-date product and supplier data available every time
Seamless and accurate ordering:
–Electronic Purchase Order transmitted to Supplier (connected directly to ERP system)
– Electronic Purchase Order Acknowledgment transmitted back to requester
– Electronic Shipping Notification transmitted back to requester
Seamless and accurate invoicing:
– Electronic Invoice transmitted to customer’s ERP system
Easy payment:
– Electronic payment completes the cycle


The Perfect Order - Value

• For BUYERS:
Retail-like experience
Timely delivery of products
Reduced procurement costs
Reduced inventory due to increased trust in delivery times
Reduced invoice rejections and increased auto invoice to PO matching

• For SUPPLIERS:
Reduced PO receipt and fulfillment costs
Accurate PO decreases costs of returns and credit processing
Reduction/elimination of invoice rejections that cause payment delays


The Perfect Order – Opportunity

• The Aberdeen Group found that the average requisition to order cost before
eProcurement was $63.20, and dropped to $32.28 after eProcurement
(51% cost reduction).
Source: The eProcurement Benchmark Report: eProcurement 2.0, Aberdeen Group, August 2006

• Aberdeen Group’s study shows that, on average, companies utilizing automated
matching of Invoices to POs experienced processing costs 36% lower than those
not currently leveraging this technology.
Source: Invoicing and Workflow, Integrating Process Automation to Enhance Operational Performance, Aberdeen
Group, May 2011


Best Practices
• Build strategic partnerships with your suppliers and jointly define the right
eProcurement strategy with clear objectives.

• Engage the right people throughout the process and understand their specific needs.

• Start with a vision for “The Perfect eProcurement Order” and build the steps
necessary to achieve that. Your users and suppliers will thank you!

• Avoid jumping to electronic invoices without a proper shopping mechanism and
electronic ordering process in place.

• It is never a one-time event. Develop ongoing change management and engage
your strategic suppliers to help you drive adoption.


Customer Loyalty

• By enabling strategic partnerships at the Corporate level and delivering a consistent
experience at a local level:

“Having hundreds of buyers at thousands of locations across the United States, Grainger’s eProcurement
solution gives us the personalized experience and control we need when purchasing MRO supplies for our
extensive network.”
- National Retail Store Chain

• By delivering an exceptional offer that meet customer needs at all levels and drive
value to our customers:

“Using Grainger Procurement Solutions to streamline our MRO ordering allowed us to significantly reduce
the amount of paper requisitions and time spent tracking down approvals. Our technicians have more time
to focus on plant up-time and we have better line of sight to what we are buying.”
- Pharmaceutical Manufacturer


Open Forum and Q&A


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Improving the Strategic MRO Process

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