Professional Documents
Culture Documents
establish foundation for e-procurement initiatives ensure your organizations competitive position!
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Strategic Sourcing
Methodology
n n n n n n
Obtain Resources
ID overall needs ID specialized needs Clarify lead times Review item specs Pursue opportunities for standardization Evaluate process alternatives (streamline)
n
Develop Strategy
No Yes
n n
n n
Select commodity group(s) Articulate objectives Align business strategies and operational goals Identify critical success factors Develop teams preliminary plan
n n
Obtain senior management commitment Define internal/ external people requirements Select project team members Finalize training material Train team
n n n n n
Clean-up descriptions Clean-up u/m & quantity Sort into subcommodities Clean-up prices Establish baseline prices
n n n n n n
n n
Evaluate market trends n ID new suppliers Conduct market survey Review impact of consolidation Review impact of LTAs ID possible value added services
Identify supplier/ Commodity groupings Develop total cost model Determine pricing groupings Affirm historical baseline/spend Validate geographic coverage
Verify strategy with users/sites Validate anticipated outcome with original objective Determine risks and appropriate actions to mitigate
Strategic Sourcing
Methodology
Contract Process
Negotiate
Negotiation Process
Content Formulation
Implementation
Administration
n n n
Strong existing supplier relationship? Limited number of suppliers? Many suppliers? Commodity or supplier specific requirements? n Internal cost considerations n (switch costs?)
n n
RFX Process
n n
RFXs
Obtain Proposals
Proposal Analysis
Form item subgroups for RFX Develop RFX template ID commodity specific terms Incorporate proposal spreadsheet format for each commodity
Follow-up RFXs with phone calls Respond to supplier questions Follow proposal control process Supplier conference?
Load proposals into analysis spreadsheet Calculate cost & savings for various alternatives Select lowest total cost option
Identify critical issues Develop prime objective Determine risks and appropriate actions to mitigate Develop and execute negotiation strategy
Identify vital internal requirements Define performance parameters and guarantees Develop pricing model and schedule Document specifications/ requirements
Meet with the sites and communicate business imperative Develop implementation process and obtain site buy-in Develop internal compliance management process, including reporting Develop supplier performance resolution process
n n n
Establish single point of contact Refine performance review requirements Follow process to identify and resolve performance problems Track milestone progress defined in contract Senior management awareness of critical performance failures Manage contracts
Strategic sourcing Supplier Relationship Management Proactive Procurement-Led Initiatives Focused on Bottom-Line Value (TCO) Well-Rounded Business Management Skills Core Strategic Function
Beyond buyer productivity and process efficiency to enterprise value creation Beyond supplier metrics to endcustomer value creation Beyond purchase price to total cost of ownership
Broader business background and general management aspirations Financial and analytical capabilities Project, people and relationship management skills
Enterprise-wide visibility and involvement Coordination of policy and contracts to reap volume benefits Maintenance of local flexibility
Automation of transactions for efficiency Analysis of data for opportunity identification and compliance monitoring e-Auctions and exchanges with real payback
Co-dependence from consolidated spend Mutual benefits from shared cost reduction opportunities Innovation and revenue enhanced by supplier collaboration
Marginalized Function
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Sources: Evaluation of the Procurement Function/Role (Procurement Strategy Council, 2002)
Procurement process redesign Executive management support cross-functional commitment Grass roots participation (its about people!) BALANCE between tactical and strategic
10
Continuously learning and growing Challenges paradigms; changes & progresses the organization Obtains support by persuasion - not by mandate Integrates personnel with technology Views the supply chain holistically, as a continuum Creates a clear vision/plan to guide the organization
Source: Forbes
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Key
Stage 3 Integrated Suppliers
Supplier's spend included in corporate sourcing model; Supply markets assessed globally Creative at developing sourcing strategies; impact customer cost; develop and integrate suppliers; deep material/service requirements knowledge; requirements consolidation and supplier qualification. Electronic Commerce enabled; Scaleable; portable; crossplatform Supplier processes are improved and interfaced; sourcing process includes supplier buys; suppliers assist in consolidation; suppliers involved in product development. Negotiates contract prices for most commodity groupings. Controls in place to measure and enforce compliance to contract buying.
People
Cross-functionally trained, basics of sourcing strategy; supplier evaluation; knowledge of materials/services to investigate supply markets
Technology
Electronic marketplace enabled; Virtual links between customers, company and supplier(s) Rapid supplier process integration; suppliers design and develop customized product manufacturing; suppliers assist in data-warehouse; web-driven sourcing strategy Long term supplier partnerships committed to continuously drive down total cost. System enabled ordering and high supplier service levels eliminates the need and opportunity for "maverick" buying.
Process
Product sourcing; Planning, Requisitioning, Receiving and payment are fragmented; Emphasis is on transactional processes Negotiates prices, P.O. to P.O.
Processes are integrated transactional procurement is no longer a focus; Sourcing & consolidation are dominant; growing interest in supplier development. Negotiates contract prices for some commodity groupings. No controls in place to monitor "maverick" buying.
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ATI/KPMG
Key
Stage 3 Integrated Suppliers
Procurement becomes an integral part of the supply chain team. Centralized co-ordination of leveraged, competency related materials/services. Consortium based purchase of noncompetency related materials and services Processes extend into supply base; suppliers measured and accountable for process outcomes. Supplier performance measurements are readily available to buyer and are shared with suppliers on a periodic basis. Material & supplier spend data analyzed periodically.
Measurements
Mostly functional; Purchasing measures mostly related to purchasing price from fragmented supplier base. No formal supplier performance measurement process
Measures more process based; mostly internal focus. Supplier performance metrics established but are difficult to obtain. Spend data available but fragmented.
Supply base is an integral stakeholder; measured so that success directly impacts supplier profitability. Real-time supplier performance measurements are available to buyer and supplier via internet. Real-time, comprehensive material & supplier spend data analyzed on a regular basis.
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ATI/KPMG
I am so busy keeping up with the sheer volume of P.R./P.O./Receipts that I cant focus on a strategic plan. FIRST - get the transactional volume under control - how can we get rid of transactions?
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P R O
Decentralized Procurement
Div A
Div B
Div C
Centralized Procurement
HQ
Procurement
HQ
Div A
Div B
Div C
Div A
Div B
Div C
Procurement
Procurement
Procurement
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reward/incentive
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Measurement must be at lowest possible level for credibility (not by Corporate Strategic 18 Sourcing)
May need to revise compensation (incentive) system to recognize support for Strategic Sourcing and Corporate efforts Whats in it for me? (WIIFM)
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International Logistics
20
Strategic Sourcing
Methodology
n n n n n n
Obtain Resources
ID overall needs ID specialized needs Clarify lead times Review item specs Pursue opportunities for standardization Evaluate process alternatives (streamline)
n
Develop Strategy
No Yes
n n
n n
Select commodity group(s) Articulate objectives Align business strategies and operational goals Identify critical success factors Develop teams preliminary plan
n n
Obtain senior management commitment Define internal/ external people requirements Select project team members Finalize training document Train team
n n n n n
Clean-up descriptions Clean-up u/m & quantity Sort into subcommodities Clean-up prices Establish baseline prices
n n n n n n
n n
Evaluate market trends n ID new suppliers Conduct market survey Review impact of consolidation Review impact of LTAs ID possible value added services
Identify supplier/ Commodity groupings Develop total cost model Determine pricing groupings Affirm historical baseline/spend Validate geographic coverage
Verify strategy with users/sites Validate anticipated outcome with original objective Determine risks and appropriate actions to mitigate
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Strategic Sourcing
Methodology
Contract Process
Negotiate
Negotiation Process
Content Formulation
Implementation
Administration
n n n
Strong existing supplier relationship? Limited number of suppliers? Many suppliers? Commodity or supplier specific requirements? n Internal cost considerations n (switch costs?)
n n
RFX Process
n n
RFXs
Obtain Proposals
Proposal Analysis
Form item subgroups for RFX Develop RFX template ID commodity specific terms Incorporate proposal spreadsheet format for each commodity
Follow-up RFXs with phone calls Respond to supplier questions Follow proposal control process Supplier conference?
Load proposals into analysis spreadsheet Calculate cost & savings for various alternatives Select lowest total cost option
Identify critical issues Develop prime objective Determine risks and appropriate actions to mitigate Develop and execute negotiation strategy
Identify vital internal requirements Define performance parameters and guarantees Develop pricing model and schedule Document specifications/ requirements
Meet with the sites and communicate business imperative Develop implementation process and obtain site buy-in Develop internal compliance management process, including reporting Develop supplier performance resolution process
n n n
Establish single point of contact Refine performance review requirements Follow process to identify and resolve performance problems Track milestone progress defined in contract Senior management awareness of critical performance failures Manage contracts
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Strategic Approaches
Strategic Approaches
Characteristics
LOW HIGH
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Leverage Spend
Characteristics Many alternatives Many sources High value Large market capacity Strategic Approaches Maximize commercial advantage Competition
$
Risk Mitigation
Characteristics One or restricted sources Few options Strategic Approaches Ensure supply continuity Long-Term contracts
Buyers Market
Characteristics Many options Many sources Low value Little brand preference Strategic Approaches Simplify acquisition process Blanket Agreements
LOW
Number of Suppliers
HIGH
28
Strategic Sourcing
HIGH
$
Risk Mitigation
Characteristics One or restricted sources Few options Strategic Approaches Ensure supply continuity Long-Term contracts
LOW
Number of Suppliers
HIGH
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30
Strategic Sourcing
Strategic Spend
HIGH
Characteristics Vital to operations Vital in market Few sources High value High volume Strategic Approaches Strive for high valueadded relationships Partnerships
LOW
Number of Suppliers
HIGH
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Typically 20% of the spend. Vital to the operations Significant to the market Manage with multi-year contracts Could require larger inventories, perhaps having the supplier carry Items should move to the category of many suppliers, by redesigning/re-specifying the materials Backup plan may be required to assure continued supply if items are key components
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$
Buyers Market
Characteristics Many options Many sources Low value Little brand preference Strategic Approaches Simplify acquisition process Blanket Agreements
LOW
Number of Suppliers
HIGH
33
Typically constitute only 5% of the dollars expended by a company Little brand preference Expend minimal efforts; payback will be low May not require long-term contracts Distributors utilized for lead-time and inventory considerations Consolidate with suppliers of larger purchases for price leverage, e.g.: integrated supplier
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Strategic Sourcing
Leverage Spend
HIGH
Characteristics Many alternatives Many sources High value Large market capacity Strategic Approaches Maximize commercial advantage Competition
LOW
Number of Suppliers
HIGH
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Typically ~ 70% of a company's expenditures Many alternatives Large market capacity Primary area to focus; payback is large Partnerships and quality supplier programs beneficial Utilize target costs of the item(s); understand supplier cost drivers help drive supplier costs down Small percentage cost improvements can lead to large dollar savings
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Strategic Sourcing
HIGH
Characteristics Commodity Purchase Characteristics High Impact Purchase
Strategic Approaches Leverage purchasing power AND understand supplier cost drivers Involve supplier in product design
Characteristics Odd & Ends Strategic Approaches Ensure obtaining best price
Characteristics Speciality Item Strategic Approaches Reduce administrative/procurement costs Gain access to technology and cost info
LOW
HIGH
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e-tools
- electronic enablers of P.R., P.O. RFx, reverse auction, catalog search, internet ordering, receipt, payment, contract preparation etc.
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e-Sourcing (Enablement)
e-Ordering (Transactions)
Purchase analysis Spend visibility Spend management Contracting Compliance tracking Performance Scorecards Project Mgt.
Shipping and receiving Demand planning Capacity Planning Visibility and monitoring Exception management
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Repeat?
41
$
Savings Capture
Strategic Sourcing without e-SCM
Strategic Sourcing
Contract Compliance
Time
42
$
Savings Capture
Strategic Sourcing
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http://www.dnb.com
Dunn & Bradstreet Information Servicesshort reports on over 10 million U.S. organizations
http://www.sec.gov/edgarhp.htm
EDGAR Database of Corporate Informationthe SEC maintains the EDGAR database which provides security commission reports (i.e. 10K) on publicly traded organizations
http://www.thomasregional.com
The Thomas Regional Directory Companylistings of over 400,000 industrial & commercial suppliers, organized by products and services or by company name
http://www.inc.com
Inc. 500info on thousands of privately held organizations; includes revenue info, profit and loss percentages, number of employees, etc.
http://finance.yahoo.com/m3?u
Currency Exchange Ratesinfo on daily and historical exchange rates
http://www.stat-usa.gov
U.S. Department of Commercedaily economic news, statistical releases, data bases, and selected publications
http://www.doc.gov
U.S. Department of Commerceinfo on demographics and industry market data that is collected by the govt
http://www.apqc.org
American Productivity and Quality Centermgmt info including benchmarking, best practices, reengineering, and total quality mgmt http://stats.bls.gov/blshome.htm Bureau of Labor StatisticsThe principal fact-finding agency for the Federal Government in the broad field of labor economics and statistics
http://www.usitc.gov
U.S. International Trade Commissionnews releases, reports and publications, and trade resources
http://www.wto.org
World Trade Organizationpress releases, trade policy reviews, info on international trade, and publications
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American Chemical Society American Iron & Steel Institute American National Standards Institute APICS (Amer Prodn & Inv Control Society)
(703)237-8344 (414) 272-8575 http://www.apics.org http://www.asqc.org
Electronics Industry Association Electronic Commerce Assoc. ISM (Institute for Supply Management)
http://www.ism.ws http://www.packinfo-
American Society for Quality Control American Society of Transportation and Logistics
(717) 748-8515 http://www.astl.org
International Warehouse Logistics Assoc. National Contract Management Assoc. Outsourcing Institute
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Purchasing Magazine
Cahners Publishing PO Box 7610 Highlands Ranch, CO 80163-7610 (303) 470-4445 http://www.purchasing.com
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