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Multichoice
MultiChoice Case Study (Summarised Version)CommerceZone has revolutionised the purchasing processes of the Naspers Group, and MultiChoice in particular, all through a winning formula that delivers BEE Procurement, strategic supplier sourcing and the application of a powerful yet intuitive e-Procurement Platform. CommerceZone has since gone on to become one of Africa’s foremost e-Marketplaces, delivering its services to a growing list of leading clients. The decision was taken to leverage the group’s combined purchasing power to reduce costs, with streamlined processes implemented across the group companies through the building of a vertically integrated portal which would aggregate spend for negotiation purposes. A new group company within the MWEB stable, CommerceZone, was tasked with developing this e-marketplace system.
Look after the penniesThe Naspers group was very good at managing its strategic spend, vigorously negotiating and monitoring contracts for items such as satellite bandwidth or printing machinery. However, an initial benchmarking exercise by CommerceZone showed that R3.1 billion worth of other goods and services could be sourced more strategically. It was conservatively estimated that savings of 6-9% could be achieved on Indirect Spend annually. Very little was also known about the preferred suppliers at that time – especially not much about their BEE status.
As a company that accounts for a sizable portion of Nasper’s overall group spend, MultiChoice Africa took the savings figures very seriously. “It was immediately obvious that by aligning our own spend with the group’s purchasing power, we would uncover immediate savings,” says Nico Meyer, CFO at MultiChoice. “However, the real value-proposition that we saw in CommerceZone was the opportunity to have these re-aligned processes embedded within an e-procurement solution, creating a set of business rules and procedures that would increase contract compliance, reduce off-contract spending and at the same time create a system to effectively manage and track compliance to our BEE Procurement Policy. Naturally, we leaped at the opportunity to be one of the pioneers of the project.”
Concept-to-Project-to-BusinessHaving completed the preliminary benchmarking exercise, Project Vortal was initiated by the Naspers Board. Step one was to conduct a thorough spend analysis exercise across the group companies. For MultiChoice, this meant a meticulous examination of the last year’s invoices, categorising the spend items into commodity groups such as general office supplies, IT hardware and peripherals and travel.
The results were revealing, and somewhat alarming. “A single example of the disparities in procurement practice would be something as mundane as printer toner cartridges,” comments Andreij Horn, CEO of CommerceZone. “While the company with the highest volume usage was paying R946 per unit, the one with the lowest volume usage was ironically paying the lowest price of R815.Simple arithmetic showed the savings that could be made if all group companies were to pay the lowest price negotiated. And that was merely on one item amongst thousands. This is where e-Procurement delivers tangible value on an ongoing basis – control over expenditure before the fact.”
Ultimately though, price is only one factor in the procurement equation. While the spend analysis produced a ‘baseline’ cost for each item, a number of other factors needed to be taken into account. A list of potential suppliers was drawn up based on factors such as financial sustainability and ability to deliver across the period of a contract, as well as their BEE status and proximity and geographic reach with respect to the group companies. It also took into account a set of specific business needs around each commodity group. For example, the warranty and back-up service offered on a business critical device such as a MultiChoice executive’s laptop might be weighted almost as highly as its cost, whereas the lead times would be considered a critical factor in the delivery of something like printing services for MultiChoice’s monthly subscriber magazines.
Based on these pre-determined factors, the CommerceZone team then planned specific negotiating strategies for each commodity group. “It was a painstaking exercise that took six months to complete across all commodity groups within each company, but once in place, it formed the bedrock for all future procurement. Our strategic sourcing department has since been repeating this process every year, and the initial limited number of commodity groups we sourced has grown to more than 40 over the past three years. Every time an e-Procurement customer of ours mandates us to source one or more of these indirect commodities for them, their volumes and requirements are added to the pool."
Business imperatives embedded into an intuitive procurement systemOnce the strategically sourced contracts were in place, the CommerceZone team began to apply technology to the processes. Where possible, supplier contracts were converted into electronic catalogues that detailed the relevant products and services that the supplier was authorised to provide, as well as their associated costs.
Purchasers at MultiChoice are now able to log into the online VortalBuy solution, simply by clicking on an icon on their desktops. Here, they can create requisitions, with the relevant approval parties being automatically notified via e-mail of a new item to be approved. Approvals are managed through the system, with hand-shaking all the way through to ensure that the paper trail from Purchase Order to delivery confirmation is complete, and that it synchs with the invoice from the supplier, which is automatically entered into the financials of MultiChoice for payment according to agreed terms.
CommerceZone hasn’t fundamentally altered traditional business processes, but rather utilised technology to streamline them, thereby gaining efficiencies.
Expanding into new marketsSince implementation, MultiChoice has rapidly adopted Vortal across the entire organisation, with 180 purchasers and approvers already making use of the platform each day. “The detailed reporting that we have been able to draw from each process shows that when measured against the baseline spend, we have realised savings of between 10 -15% dependant on spend patterns,” says Meyer. “Not surprisingly, the Vortal solution was quickly scaled to include other areas of our spend, and today it is only a few strategic contract items such as international programming rights that aren’t procured through electronic means. Otherwise, CommerceZone is the de facto gateway for all purchasing that we undertake.”
Once implementation was completed across the entire Naspers Group, CommerceZone chose to capitalise on its winning formula by taking its solutions to the external market. This has led to it acquiring clients such as British Airways/Comair, Capitec Bank, UTI/Sun Couriers and Spur Steak Ranches.
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