SAP recently announced that NTT DATA Services, a global digital business and IT services company, had achieved $125 million in value based on a digital transformation of their procurement function. The savings have occurred over the past three years following the implementation of spend management solutions from SAP that included SAP Ariba solutions for procurement, SAP Fieldglass solutions for contingent workforce management, and SAP Concur solutions for travel and expense management.
The savings are interesting, but I wanted to know more. As a percentage of revenues, how big were these savings? And more importantly, how did NTT DATA do it?
NTT DATA Services, created in large part from the acquisition of the former Dell Services, is headquartered in Plano, Texas. The company employs nearly 50,000 people and serves customers in over 50 countries. This division of NTT DATA provides consulting, applications, data intelligence and analytics, hybrid infrastructure, workplace, cybersecurity and business process services.
NTT DATA does not break out NTT DATA Services revenues in their annual report, but a rough estimate of their revenues, based on the number of employees, would be about $4 billion. So, this procurement initiative, run by a procurement organization with 21 team members, could be contributing about a half percent of margin improvement per year. That is a solid contribution driven by a very small number of people.
I spoke to Jeff Tramel, the Vice President of Global Procurement, at NTT DATA Services about their journey. Mr. Tramel was assigned in 2016 to create a global procurement organization. He was employee number one in this organization. By March of 2017, the organization began implementing SAP Ariba solutions. NTT DATA has been steadily moving more and more of their suppliers’ contracts onto the Ariba Network. Some suppliers have four or five-year contracts, so this work is ongoing.
The big spend categories that are the focus for negotiations are contingent/professional labor and IT Hardware/Software & Cloud/Data Center services. In contingent labor, the company is working with hundreds of companies. NTT DATA is looking to work with fewer, more strategic partners. But while supplier consolidation is part of the game plan, NTT DATA always wants multiple suppliers in their system. Competition is key to sourcing savings. Nevertheless, the end goal of this journey is that 80% of the spend will go to the top 20% of their suppliers.
The procurement function is self-funded. That means the procurement savings pay for the sourcing staff, the procurement technology, and the overhead. Savings are captured and recognized based on agreement rebates. Think of an agreement rebate as being like a loyalty card offered by a grocery chain. The more a consumer buys, the more that consumer get in rebates. Similarly, the more business NTT DATA gives to a supplier, the more they get back in rebates from that supplier. These rebates can be explicitly counted as savings – there are no inferences or assumptions that need to be made to count these savings.
The SAP Ariba solution gathers historical data that aids in the negotiations. Buyers can look at supplier agreements and determine which suppliers tend to offer deals during different parts of the year –right before a quarter ends, for example. “Knowing this,” Mr. Tramel explained, “allows us to save millions of dollars.”
Finally, payment functionality in the SAP Ariba solutions ensures suppliers only get paid for services or products they delivered, under the payment terms agreed to, and on the negotiated price. This functionality prevents cost leakage and over payments. In short, the SAP solutions have helped NTT DATA to automate their end-to-end procurement operations while putting in place robust controls. But Mr. Tramel was also complementary about the SAP Ariba services team. SAP did an assessment of the different areas where NTT DATA was using the tool. “We found gaps,” Mr. Tramel said. “We’ve been working to shore up those gaps. Digitization and optimization requires continuous improvement, perseverance, and creativity.”