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P2P Maturity

P2P Maturity. Principles and Frameworks Dr. Kevin McCormack July, 2007. Business Process Maturity: A business process is a set of logically related tasks performed to achieve a defined business outcome that have customers and that cross organizational

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P2P Maturity

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  1. P2P Maturity Principles and Frameworks Dr. Kevin McCormack July, 2007

  2. Business Process Maturity: A business process is a set of logically related tasks performed to achieve a defined business outcome that have customers and that cross organizational (and often company) boundaries. The concept of business process maturity proposes that a process has a lifecycle that is assessed by the extent to which the process is explicitly defined, managed, measured, and controlled. This is the “highway” for the practices. Practice Maturity: A practice is generally defined as a procedure or a set of specific steps for accomplishing a desired outcome. Practice maturity reflects the extent to which the practice is explicitly defined, managed, measured, and controlled. It also reflects the level of sophistication (depth and breadth) in the deployment of the practice. Practices are the vehicles you use and how you drive the highway. Enablers: An enabler is defined as an infrastructure element, either technology or organization, that enables process or practice performance. Enabler maturity reflects the increasing capability offered by the enabler and the breadth of its offering (inter functional, cross functional, cross company).

  3. Competition is based upon multi-firm networks. Collaboration between legal entities is routine to the point where advanced process practices that allow transfer of responsibility without legal ownership are in place. Trust and mutual dependency are the glue holding the extended network together. A horizontal, customer-focused, collaborative culture is firmly in place. Optimized The company, its vendors and suppliers, take cooperation to the process level. Organizational structures and jobs are based on process, and traditional functions, as they relate to the supply chain, begin to disappear altogether. Process measures and management systems are deeply imbedded in the organization. Advanced process management practices take shape. Leveraged The breakthrough level. Managers employ process management with strategic intent. Broad process jobs and structures are put in place outside of traditional functions. Cooperation between intra-company functions, vendors and customers takes the form of teams that share common process measures and goals. Managed Basic processes are defined and documented. Changes to these processes must now go through a formal procedure. Jobs and organizational structures include a process aspect, but remain basically traditional. Representatives from functions meet regularly to coordinate with each other concerning process activities, but only as representatives of their traditional functions. Process Maturity Defined Processes are unstructured and ill-defined. Process measures are not in place and the jobs and organizational structures are based upon the traditional functions, not horizontal processes. Individual heroics and “working around the system” are what makes things happen. Ad Hoc The Supply Chain Maturity Model: Best Processes, Practices, & Enablers

  4. SCM Maturity Relationships Inter- company High High SCM Maturity Accuracy / Control Stability Predictability / Certainty Efficiency Effectiveness Capability Business Performance Esprit d’ Corps SCM Focus SCM Maturity Inter-functional Internal - within functions Low Low

  5. SCM Maturity Relationships Optimized – Capability and Performance continuously improves in Level 5 Organizations (90/10). Level 5 Reliable / Capable - Based on quantitative understanding of process and product, performance is “tight” and targets shift in Level 4 organizations. (80/20) Level 4 Richness Consistency Maturity Capability Repeatable - with well-defined and measured processes, performance improves in Level 3 organizations (60/40) Level 3 Basic Reliability - plans based on past performance are more realistic in Level 2 Organizations. (50/50) Level 2 Unreliable - schedule and cost targets are typically missed by Level 1 organizations. (10/90) Level 1

  6. Procure to Pay Generic High Level Process Map Projects Maint Operations Start End Forecast Plan & Coordinate Need Clarification/ Specification Receive Material & Documents Sourcing Decision Contract / PO Generation Settle and Pay Supplier Need Fulfillment Enablers: Finance, Legal, HR, IT

  7. Procure to Pay (P2P) Process Description: Maturity Level 1 (General) • Level 1: Ad Hoc. The supply chain its practices are unstructured and ill defined. Process measures are not in place. Jobs and organizational structures are not based upon horizontal supply chain processes. Process performance is unpredictable. Targets, if defined, are often missed. SCM costs are high. Customer satisfaction is low. Functional cooperation is also low. • Processes are undefined, undocumented and not understood. • Process owners are not identified. • Basic process measures are unidentified. • Process teams do not exist. Individuals reside totally within functions. • All investments are allocated by functions or business units.

  8. Procure to Pay (P2P) Process Description: Maturity Level 1 (Detail) • P2P is a very manual, unpredictable, time consuming process that is largely • undefined. • No forecasting or planning takes place. • Specifications are done each time in response to a request. Suppliers are not involved in development of specifications. • Sourcing decisions are done in response to requests with each requestor or procurement manager selecting their own preferred supplier. • Suppliers are not selected through any formal process. • Ordering and Receiving are not connected resulting in extensive manual matching and resolution before payment. • Information systems are manual and decentralized. Information resides on spreadsheets in individual computers.

  9. Procure to Pay (P2P) Process: Maturity Level 1 Ad Hoc Corporate Committee 0010.7 b Receive Material & Services & (Documents) 0010.1 Need Clarification/ Specification 0010.3 a Contract / PO Generation 0010.2 Sourcing Decision Internal Customers End Request Yes 0010.3 a Contract / PO Generation 0010.7 a Check & Documents 0010.1 Need Clarification/ Specification 0010.2 Sourcing Decision 0010.9 a Settle and Pay No 0010.4 Exception? 0010.8 Exception? Procure- ment No Yes 0010.5 Contract / PO Exceptions Shared Services 0010.3 b Contract / PO Generation 0010.9 b Settle and Pay 0010.6 Execution Suppliers IT Systems Settle and Pay (AP) PO System Document Repository

  10. Procure to Pay (P2P) Process Description: Maturity Level 2 (General) • Level 2: Defined.Basic SCM processes are defined and documented. Jobs • and organizational basically remain traditional. Process performance is more • predictable. Targets are defined but still missed more often than not. Overcoming • the functional silos takes considerable effort due to boundary concerns • and competing goals. SCM costs remain high. Customer satisfaction has improved, • but is still low. To move to the next level the following must be in place: • Processes are defined, documented and understood. • Process owners are clearly identified. • Basic process measures are identified and in use. • Process teams are defined but still secondary to functions. • Some investments are allocated by process not functions or business units.

  11. Procure to Pay (P2P) Process Description: Maturity Level 2 (Detail) P2P is defined with some automation but still unpredictable with >50% of the purchases in a time consuming process that is largely uncontrolled. Basic forecasting and planning takes place but by the P2P people without customer or supplier input. 40% accuracy is typical. Specifications are mostly done each time in response to a request but some key suppliers have annual agreements with releases being generated by procurement. Only these key suppliers are involved in development of specifications. Others are asked for input on occasion. Sourcing decisions are mostly done in response to requests with some approved supplier lists and annual agreements guiding each requestor or procurement manager. Buying outside of these agreements (maverick spend) is frequent. Ordering and Receiving are connected with some key materials and suppliers but most (>50%) orders result in extensive manual matching and resolution before payment. Information systems are implemented in some areas and for some purchases but >50% are still manual in some stage (selection, order, receipt, matching payment).

  12. Procure to Pay (P2P) Process: Maturity Level 2 - Defined 0010.1 c Forecast Plan & Coordinate 0010.3 b Sourcing Decision Corporate Committee 0010.2 b Need Clarification/ Specification 0010.6 b Receive Material & Services Internal Customers End Yes 0010.1 a Forecast Plan & Coordinate 0010.6 a Check & Documents 0010.2 a Need Clarification/ Specification 0010.3 a Sourcing Decision 0010.8 a Settle and Pay 0010.4 a Contract / PO Generation 0010.7 Exception? Procure- ment No 0010.2 c Need Clarification/ Specification Shared Services 0010.2 d Need Clarification/ Specification 0010.4 b Contract /PO Generation 0010.8 b Settle and Pay 0010.5 Execution Suppliers IT Systems Forecast Plan & Coordinate Contract Repository Settle and Pay (AP) PO System Storage

  13. Procure to Pay (P2P) Process Description: Maturity Level 3 (General) • Level 3: Linked (Managed)This represents the breakthrough level. Managers employ • SCM with strategic intent and results. Broad SCM jobs and structures are put in place outside • and on top of traditional functions. Cooperation between intra-company functions, vendors and • customers takes the form of teams that share common SCM measures and goals that reach • horizontally across the supply chain. Process performance becomes more predictable and • targets are often achieved. Continuous improvement efforts take shape focused on root • cause elimination and performance improvements. SCM costs begin decreasing and feelings • of esprit de corps take the place of frustration. Customers are included in process improvement • efforts and customer satisfaction begins to show marked improvement. To move to the next level • the following must be in place: • Process measure are clearly related to job responsibilities. • Process performance goals are defined and progress is tracked. • Process performance is predictable (variability reduced). • Process measures are clearly linked to strategy • The performance management process is documented (written description, flow chart) and • understood by the organization. • A formal process performance review process takes place on a regular basis. • The owner of the performance management process is clearly identified. • Process teams are clearly identified and are equal to functional groups. • Suppliers’ performance is measured (with feedback and improvement actions). • Suppliers are informal members of process teams and asked for input. • IT systems support the gathering and reporting of process performance.

  14. Procure to Pay (P2P) Process Description: Maturity Level 3 (Detail) P2P is defined, measured and mostly under control. Most (>80%) process steps are automated and predictable but the system is mechanistic and sometimes unable to respond to changes and unique requirements. Effective forecasting and planning takes place for 80% of the materials and services with customer or supplier participation. 90% accuracy at the family level is typical. Standard Specifications (contracts, SLAs too) are in place for 80% of the materials and services. Strategic (consolidated) suppliers handle most (80%) of the purchases. Most suppliers are involved in the development of specifications. Sourcing decisions are strategic and done in advance of requests. Approved supplier lists and annual agreements guide requestors or procurement managers. Buying outside of these agreements (maverick spend) is infrequent. Supplier performance is measured and used to revise agreements. Ordering and Receiving are connected (and automated) with most materials and suppliers but some (>20%) orders result in extensive manual matching and resolution before payment. The system has difficulty responding to unique requests or changes in the middle of the cycle. Information systems are implemented in all areas and intended for all purchases (automated, mechanistic) but <20% are still a problem in some stage (selection, order, receipt, matching payment) due to changes and unique requirements.

  15. Procure to Pay (P2P) Process: Maturity Level 3 - Managed Measure & Manage Process 0010.1 c Forecast Plan & Coordinate 0010.3 b Sourcing Decision Corporate Committee Reactive Exception Management 0010.2 b Need Clarification/ Specification 0010.1 b Forecast Plan & Coordinate 0010.6 b Receive Material & Services Internal Customers Yes 0010.6 a Check & Documents 0010.1 a Forecast Plan & Coordinate 0010.3 a Sourcing Decision 0010.8 a Settle and Pay 0010.2 a Need Clarification/ Specification 0010.4 a Contract / PO Generation 0010.7 Exception? Procure- ment No 0010.2 d Need Clarification/ Specification Shared Services 0010.1 d Forecast Plan & Coordinate 0010.4 b Contract / PO Generation 0010.2 c Need Clarification/ Specification 0010.5 Execution 0010.8 b Settle and Pay (End) Suppliers IT Systems Forecast Plan & Coordinate Supplier Perform- ance Contract Repository Spec mgmt PO System Settle and Pay (AP) Supplier Performance Management

  16. Procure to Pay (P2P) Process Description: Maturity Level 4 (General) • Level 4: Integrated (Leveraged). The company, its vendors and suppliers, take cooperation to • the process level. Organizational structures and jobs are based on SCM procedures, and traditional • functions, as they relate to the supply chain, begin to disappear altogether. SCM measures and • management systems are deeply imbedded in the organization. Advanced SCM practices, such • as collaborative forecasting and planning with customers and suppliers, take shape. Process • performance becomes very predictable and targets are reliably achieved. Process improvement • goals are set by the teams and achieved with confidence. SCM costs are dramatically reduced • and customer satisfaction and esprit de corps become a competitive advantage. To move to the • next level the following must be in place: • Supplier performance measures and goals are clearly identified and integrated into the • performance measurement system. • A cross functional and cross company performance management team is identified and operating. • Responsibility for process measures and goals are team based (including suppliers) • People in different functions and companies cooperate to improve process performance. • Customer driven performance measures are identified and dominate the performance • management system. • Suppliers routinely collaborate with the process teams to improve performance. • Customers are asked to be involved with improving process performance. • Suppliers regularly self report performance. • Process goals are routinely met or exceeded. • IT systems connect with suppliers and customers systems for data gathering and reporting.

  17. Procure to Pay (P2P) Process Description: Maturity Level 4 (Detail) P2P responsibility and authoring is shifted from procurement to customers and suppliers. Most purchase are totally automated and monitored through spot checks and measurement systems. Multiple channels can respond to unique request and changes. Automated forecasting and planning takes place for all materials and services with customer or suppliers owning the process. 99% accuracy at the family level is typical. Standard Specifications (contracts, SLAs too) are in place for all materials and services. Strategic (consolidated) suppliers handle >90% of the purchases. Suppliers lead the development of specifications and continuous improvements. Sourcing decisions strategic and done in advance of requests. Approved supplier lists and annual agreements guide requestors or procurement managers. Buying outside of these agreements (maverick spend) is infrequent. Supplier performance is measured by suppliers themselves and used to continuously improve agreements. Suppliers often make the detailed decisions on unique items and changes and inform procurement. Ordering and Receiving are integrated and automated with all materials and suppliers. Multiple paths are available depending upon dynamics and risk. Responsibility and authority is shifted to customers and suppliers. Unique items and changes move through as quickly as standard purchases. Information systems are implemented in all areas and used for all purchases (automated, mechanistic) as well as for changes and unique requirements. IT systems have multiple paths matched to the dynamics of the request.

  18. Procure to Pay (P2P) Process: Maturity Level 4 - Leveraged Measure & Manage Process 0010.1 d Forecast Plan & Coordinate Corporate Committee Yes Proactive Exception Management: Exceptions <5% 0010.1 a Forecast Plan & Coordinate 0010.3 b Contract / PO Generation 0010.4 a Contract Execution 0010.2 a Exception? Internal Customers No 0010.1 b Forecast Plan & Coordinate 0010.5 Audits and Review 0010.2 b Exception Management Procure- ment 0010.1 c Forecast Plan & Coordinate Early CI Shared Services 0010.1 a Forecast Plan & Coordinate 0010.3 a Contract / PO Generation 0010.4 b Contract Execution Suppliers IT Systems Supplier Perform- ance Forecast Plan & Coordinate Settle and Pay (AP) PO /Recpt System Contract Mgmnt

  19. Procure to Pay (P2P) Process Description: Maturity Level 5 (General) • Level 5: Extended (optimized). Competition is based upon multi-firm supply chains. • Collaboration between legal entities is routine to the point where advanced SCM • practices that allow transfer of responsibility without legal ownership are in place. • Multi-firm SCM teams with common processes, goals and broad authority take shape. • Trust, mutual dependency and esprit de corps are the glue holding the extended supply • chain together. A horizontal, customer-focused, collaborative culture is firmly in place. • Process performance and reliability of the extended system are measured and joint • investments in improving the system are shared, as are the returns. • Suppliers are active and formal members of the process teams. • Suppliers share responsibility for performance improvement. • Suppliers share in the rewards of performance improvements. • Customers share responsibility for performance improvement. • Customers share in the rewards of performance improvements. • Suppliers and customer IT systems are deeply connected (two way interaction) with • your IT systems. • Suppliers, customers and the process team members feel like they are “all in this • together” in regards to process performance and improvement. • Process management and optimization across the network is a major focus.

  20. Procure to Pay (P2P) Process Description: Maturity Level 5 (Detail) A multi-company procurement management team is formed to manage the process. 99% of purchases are totally automated and monitored through spot checks and measurement systems. Multiple channels automatically respond to unique request and changes. Automated forecasting and planning takes place for all materials and services with the team owning the process. 99% accuracy at the family level is typical. Standard Specifications (contracts, SLAs too) are in place for all materials and services. Strategic (consolidated) suppliers, represented by the team, handle >99% of the purchases. The team leads the development of specifications and continuous improvements. Sourcing strategy is a continuous process. Approved supplier lists and on-going, multiyear agreements guide the process. Buying outside of agreements (maverick spend) is non-existent. Supplier performance is measured by suppliers themselves, monitored by the team and used to continuously improve the process and agreements. Suppliers make the detailed decisions on unique items and changes and inform the team. Ordering and Receiving are integrated and automated with all materials and suppliers. Multiple paths are available depending upon dynamics and risk. Responsibility and authority is shifted mainly to suppliers. Unique items and changes move through as quickly as standard purchases. Information systems are connected between companies and used for all purchases (automated, mechanistic) as well as for changes and unique requirements. IT systems have multiple paths matched to the dynamics of the request.

  21. Procure to Pay (P2P) Process: Maturity Level 5 - Optimized 0010.1 b Forecast Plan & Coordinate Corporate Committee Proactive Exception Management: Exceptions <1% Yes 0010.1 a Forecast Plan & Coordinate 0010.4 Execute Plan 0010.2 b Exception Management 0010.5 Audits and Review Procurement Team: Procurement Team Manager, Internal Customers, Suppliers, Shared Services 0010.2 a Exception? No Continuous Improvement Management IT Systems Forecast Plan & Coordinate Supplier Perform- ance Settle and Pay (AP) Contract Mgmnt P2P Process Management System

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