MOTOROLA

REINVENTING THE SUPPLIER NEGOTIATION PROCESS AT MOTOROLA (PART 7B)

Submitted by: Group 7 1. Meghana Katiki (PGP28230) 2. Priyanka Gupta (ABM09035) 3. Ashok Patsamatla (PGP28275) 4. Mansi Dhamija (PGP28261) 5. Vipul Banthia (PGP28251) 6. Arun Ginjala (PGP28246)

PRESENTATION OUTLINE
1. Motorola Background
2. Problem Statement 3. Strategic sourcing complexities 4. Transforming supplier negotiation using MINT 5. Internet negotiation process using mint 6. Shift in the negotiation paradigm after mint 7. Capabilities provided by MINT 8. Optimization in strategic sourcing 9. Savings due to MINTs adoption 10. E-sourcing benefits 11. E-sourcing Decision Criteria 12. E-sourcing: Ingredients for success 13. Negotiation Cost Savings

MOTOROLA BACKGROUND
1928 - Founded as Galvin Manufacturing Corporation to produce battery eliminator 1980 Became worldwide supplier of cellular telephones

1947 - Company name changed to Motorola

2001 Perfect Storm

1930 Commercialized car radios under the brand name Motorola

1959 Became market leader in military, space and commercial communications

1996 Merger with General Instrument Corporation to become market leader in cable modems and set top terminals

PROBLEM STATEMENT - PERFECT STORM

In the wake of telecommunication downturn in 2001Motorola faced multiple challenges Purchases, direct and indirect made up over 50% of Motorolas costs
Sharp drop in demand Fall in revenues Extreme overcapacity Lack of key features Aging products Too expensive Inefficient supplier negotiation process Limited Resources

Market Collapse
Non Competitive Product

Internal Complication
effectively

Key challenge - Cut cost and increase margins by leveraging purchasing power more efficiently and

STRATEGIC SOURCING COMPLEXITIES

Motorola
250 commodity mangers 51 direct material commodities 26 indirect commodities 300,000 active parts Many manufacturing locations Complex cost quality tradeoffs

Suppliers
44000 Suppliers Complex pricing structures Different cultures and languages

TRANSFORMING SUPPLIER NEGOTIATION USING MINT

Motorola selected Emptoriss ePASS (renamed MINT Motorola Internet Negotiation

Tool) to provide end to end Internet-enabled negotiation capability

Integrated work flow Multiple online negotiation format Ability to manage Expressive bidding Online feedback to suppliers Integration between buyers and suppliers, Work load reduction during multistage process e-RFQ>>e-auction>>Award analysis Reverse e-auction, Online competitive bidding, Multistage negotiation, One-on-one negotiation Multiple line items, Hundreds of suppliers, Complex pricing formulas Supplier submit bids to give buyer lucrative options How competitive their offers are and how they can win more business

Optimization based bid analysis

Business constraint modelling Support for evaluating suppliers User friendliness and integration with existing internal systems

To help identify the lowest total cost of ownership

To enable trade off analysis of different purchasing strategies Using complex formulas for analyzing TCO and optimization based bid analysis Giving bid flexibility to suppliers, smooth data importing and exporting and improved reporting

INTERNET NEGOTIATION PROCESS USING MINT

Using MINTs flexible data model, the commodity team builds a model of TCOMINTs to which the suppliers Leveraging embedded respond with initial bids. optimization-based bid analysis, The commodity team MINT enables the commodity team to select the best negotiation Step 2 approach - electronic Develop sourcing reverse auction, electronic strategy sealed bid request for quote (eRFQ), or both. MINTs embedded workflow Step 3 and communication enables Collaborate with suppliers the commodity team to Suppliers use online bidding collaborate with suppliers, functionality to offer innovative iteratively exploring options for options for the commodity team how the supplier can meet Step 4 to evaluate. Using MINTs Supplier Motorolas needs at the lowest solution, suppliers can submit negotiation TCO any number of bids that can include rebates, volume discounts, bundling, and substitutions

Step 1 Communicate requirements

the commodity team evaluates selects the scenario that different sourcing strategies best meets their needs to Step 6 - Award see the on effect the TCO based theon total cost ofand the business supplier award distribution. ownership and chosen The team can run and compare an purchasing policies unlimited number of what if Step 5 Analyze scenarios against all bids in the scenarios system and the system (optimization bid analysis) recommends line-by-line what supplier to buy from and provides the reasoning analysis

SHIFT IN THE NEGOTIATION PARADIGM AFTER MINT

Old negotiation model

Manual part-by-part Price-based only Face-to-face, one-to-one Imperfect information Gut feel

New negotiation model

Automated and aggregated Based on TCO Internet-based, many-tomany Transparent Quantifiable trade-offsDrive

CAPABILITIES PROVIDED BY MINT

MINT reinforces the importance of Motorolas relationships with its suppliers

MINT identies more opportunities for savings than traditional negotiation methods by motivating suppliers to compete in areas beyond just unit price

MINT offers many formats for negotiation, like MINTs online reverse-auction capability and multistage negotiations enabling Motorola to negotiate with its suppliers online for up to 100 percent of its spending

MINTs seamless data ow and support for the entire Internet negotiation process improves negotiations for both Motorola and its suppliers, reducing the time they devote annually to strategies and negotiations

MINTs Web-based user interface and integrated work ow enable all Motorola buyers to model complex purchasing strategies (such as sophisticated optimization problems) without a detailed understanding of how to use an optimization model to structure these problems

OPTIMIZATION IN STRATEGIC SOURCING

When selecting suppliers, the goal is to identify the best mix of suppliers to meet Motorolas needs at the lowest TCO subject to a set of purchasing policies. Purchasing Policies
Budget Limits Award Splits Switching costs Contractual obligations Preferred suppliers

Flexible Requirements
Item Specification Quantity Due Date Proprietary attributes Total cost formula

Role of optimization based bid analysis Minimize TCO

Supplier Ratings
Supplier, category and item level Qualification and Quality On-time delivery Item attributes

Supplier Bids
Bundling, Multiple price breaks and rebates Substitutions Quality and quantity ranges Multiple delivery location and items

OPTIMIZATION IN STRATEGIC SOURCING - BENEFITS

Lower total costs by evaluation of multiple supplier driven creative discounting options simultaneously

Reduction in time taken to analyze awards by eliminating conventional spread sheet analysis
Improved supplier performance by enabling commodity team to Increased employee buy-in by using what-if scenario analysis

MINTS ADOPTION AT MOTOROLA

Percentage of eligible spend on eSourcing
e-Auction e-RFQ

Quick adoption of the MINT program

2002 2003 1200

60 50

725

598 43
30 10 2002 15 2003 311

600

271 20
30

2004 (proj) 2005 (proj)

Number of Number of events - e-RFQ internal users and e-auctions

Number of suppliers

SAVINGS DUE TO MINTS ADOPTION

Savings of over 600 Million $
500 14000 12000 10000 250

Across 50% of total spend ($ millions)

Savings in $ Milllions

8000 6000 4000

e-RFQ e-Auctions

2000
0 2002 2003 0 2002 2003

E-SOURCING BENEFITS
Benefits to Suppliers Benefits to Buyers

Introduction to new business opportunities Low cost sales channel Fair competition through a level playing field Ease of quoting Quick buyer decision Unparalleled Market Intelligence

High cost savings greater than the results of aggressive manual negotiation Compressed negotiation cycle time Reduced travel time and expenses Better market pricing knowledge Can create time-based competition

E-SOURCING DECISION CRITERIA

Unique

Product Attractiveness

product

Strategic
RFQ Environment Auction Environment

Commodit y product

Generic
Many
suppliers

Sole source

Market Attractiveness

E-SOURCING: INGREDIENTS FOR SUCCESS

Switching threat from buyer Competition in the marketplace Buyer size relative to supply capacity
Buyer is willing to switch suppliers or change business share Suppliers believe that the Buyer will switch

Industry standard product

Excess capacity in the market

Many suppliers are qualified

Buyers business is important to the supplier

NEGOTIATION COST SAVINGS

Strategy and Planning
E-RFQ E-Auction
Lower proportion of cost savings (for example 25%)

Higher proportion of Total Cost Savings (for example 75%)

E- sourcing forces more careful planning and analysis earlier in the negotiations process

Early supplier engagement on pricing and cost structure

Ensures each supplier understands requirements

THANK YOU