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6/1/2011
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With complex statistical models, it can take weeks to produce usable results. Prebuilt, specialized analytic apps promise forward-looking insight that people can act on now.

J&J's Spending Controls

Few people would consider procurement a strategic differentiator, but it's important when it comes to cost competitiveness and profitability. Sourcing and procurement was something Johnson & Johnson already did well, but for more than two years the healthcare products maker worked on a custom app in an attempt to get even better at it, says Riyaz Rawoof, a J&J enterprise architect.

The custom app was for J&J's consumer products division, responsible for brands such as Tylenol, Motrin, Neutrogena, Band-Aid, and Johnson & Johnson baby care products. The idea was to mine data in the company's SAP Business Warehouse and develop deeper insight into purchasing of commodities used in manufacturing across the division's four regions: Asia-Pacific; Europe, Middle East, and Africa; Latin America; and North America.

Developers and project managers ran into familiar challenges, including the need for consensus on standardized approaches, functionality, and data sources. Once the initial data sources and analysis features were developed, stakeholders asked for the usual changes and additions. As the project became more complicated, Rawoof and his management team began looking for alternative approaches.

The decision to let go of two years of custom work wasn't easy, but it reflects a prevailing attitude that one-off, noncritical custom development amounts to throwing good money after bad. "We wanted to move away from a custom solution and see if we could buy something off the shelf," Rawoof says.

In 2009, J&J opted for SAP's Spend Performance Management application. Having the prebuilt app as a starting point helped end internal debate. "If you can show people an out-of-the-box product that's based on industry best practices, they're more inclined to buy into that," Rawoof says.

The SAP app consolidates spend and purchase order data as well as contract details from SAP and non-SAP applications--more than a dozen different source systems, in J&J's case. The data is then categorized by commodity, and predefined dashboards provide insight by commodity, supplier, and region. Sourcing managers and purchasing officers can compare actual and planned spend, track progress toward savings goals, and receive alerts on maverick (unauthorized) and off-contract spending. They can also project spending and spot when the company is dealing with too many suppliers, reducing its buying leverage, or too few suppliers, increasing its sourcing risk.

The SAP app delivered most of the functionality J&J had been trying to develop itself and provided additional capabilities. For instance, it can be integrated with data from companies such as Dun & Bradstreet to spot corporate and other legal-entity ties. This approach lets sourcing managers uncover relationships among suppliers. In some cases J&J discovered it was dealing with multiple suppliers linked to the same parent company, providing an opportunity to negotiate better terms, Rawoof says.

SAP's prebuilt app has exceeded J&J's expectations, he says, and it also was faster to deploy and easier to maintain than the custom app the company had been developing. Whereas that two-year-plus project was never truly completed, the Spend Performance Management deployment was piloted and planned in six months and rolled out over a year, with each region taking three months. That's despite each region requiring multiple and varying ERP connections. (Note, too, that an individual region at $62 billion J&J dwarfs many companies.)

In all, the project required an investment of "just above six figures," but that's for a global deployment across multiple ERP systems, Rawoof says. J&J projected a "very conservative" 0.1% in savings tied specifically to the app, he notes. But considering that the consumer products division's raw-material spending is in the billions of dollars, Rawoof never doubted there would be a return on the investment. "If we can identify one opportunity, that's all we need," he says.

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