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Patrican & Associates1
Copyright © 2006
All Rights Reserved.
Patrican & AssociatesPatrican & Associates
Global Procurement Model
: :
Patrican & Associates2
Global Procurement
Transform from a function whose role was
primarily administrative to one that
delivers a competitive edge and
significant value to the company
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Strategic Imperative
Create the competitive advantage Managing domestic and global suppliers is the most influential
strategic lever companies can use to reduce costs and compete more effectively on price
Leverage size and scale to obtain•lowest price•faster cycle time
Increase strategic sourcing management coverage to 95%
Influence / control spend
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31%
24%11%
13%
21%
MRO Products
MRO Services
T & E
OfficeSupplies
ComputerProducts
U.S. Average Percentage forNon-Production Expenditures
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Path towards World Class Procurement
Visibility (See the Money) Diagnostic of sourcing & purchasing function
•How much do we spend on goods & services•Where or with whom do we spend it•What are we buying from these suppliers and through what process•Who within the organization buys these goods and services•Why are we buying them•How does our performance compare to others across the industries
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Path toward World Class Procurement
Visibility continued Consolidate company wide spend
Review existing contracts
Develop market perspective
Determine supplier relationships
Identify sourcing opportunities
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40% 60%
ProductCost
InformationIntensiveProcessCosts
Purchase Process Costs
MRO Total Cost Picture
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Need Identification
11%
Approval & Review
23%
Vendor Selection &
Ordering27%
Material Receipt7%
Material Inventory &
Issuance21%
Payment11%
Primary areasof cost reductionin an iCommerce
environment
60%+opportunity
MRO Process Cost Picture
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Path towards World Class Procurement
Process (Get the money) Identify business requirements
P-Card (Procurement – to – Payment)
Determine potential suppliers
Evaluate market impact
Establish supplier management expectations
Develop supplier report card
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Path towards World Class Procurement
Sustainability (Keep the money coming) Restructure organization
Improve skill sets
Implement technology enablers
Provide compliance mechanisms
Streamline process
Align culture
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Payoffs of an Procurement Model
Reduced overhead costs
Improved task and process performance
Elimination of redundant activities
Strategic focus
Reduce use of suppliers
Drive majority of business through suppliers who deliver a major competitive advantage to us
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Strategic Measurements
Global purchase base Total throughoutenterprise
Procurement contribution Control or influenced by procurement
Global expense reduction % reduction throughstrategy execution
Cumulative cash Yearly dollar savingsimprovement
e-supplier base Suppliers using “portal”
Supplier base reduction % reduction throughsupply base segmentation
Base Year Goal Year
Success in achieving our goals and delivering value will be determined by how well we perform against the measurements
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Measurements
Operations Quality of purchased items
Key supplier problems that could affect supply
Supplier delivery performance
Internal customer satisfaction
Purchase inventory dollars
Purchase cost savings
Procurement Price negotiations resulting
in savings
Creating leverage through combining volume
Monitoring delivery performance
Supplier scorecard utilization
Budget versus actual expenditures
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Components of World Class Procurement
Combines strategic sourcing and supply management
Enable technologies and procurement infrastructure
Efficient operations and process
Modified employee behavior
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Expected Commodity Cost Increases in 12 months
50% to 78% Increase
Steel, Aluminum & other products
Energy
Petrochemicals & plastic resins
Packaging & paper
Office Supplies
Transportation
30% to 49% Increase
Electronic components
MRO
High end IT supplies
Printing
Furniture
Other indirect materials
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Responses to Cost Increases
Continue spend analysis to develop sourcing/supply strategies
Switch to new suppliers – Lowest delivered cost
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Lowest Total Delivered Cost
Supplier’s willingness and ability to collaborate to identify the true cost of transactions between their two companies and to assist the buying organization into driving those costs out of procurement program
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James R. Patrican, III
1-607-227-3563, jrp3@twcny.rr.com
Patrican & Associates Enterprise Process Management Consultants52 Reach Run RoadIthaca, NY 14850
Contact Information
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Patrican & Associates Services
ENTERPRISE BUSINESS REVIEW - The EBR will target tactical opportunities that enhance service levels and reduce costs. In fact, an aggressive EBR implementation could result in a 5 to 10 percent bottom line improvement.
SUPPLY CHAIN – Analysis of process, organization, and technology in order to have the maximum impact for improved performance. The supply chain represent 50 to 80 percent of a company’s total cost structure and has tremendous potential to achieve a 15 to 30 percent reduction in operating costs. The Supply Chain usually consists of the following strategic functions: Forecasting, Demand Planning, Scheduling, Inventory Management, Purchasing, Commodity Management, Sourcing, Logistics, Manufacturing and Warehousing.
PROCUREMENT TRANSFORMATION –Develop and implement a procurement organization that can function as a strategic lever within the enterprise to provide a continuous contribution to savings. We will establish the processes, practices infrastructure and organization to manage or influence the spend. We will make certain that immediate tactical savings are obtained and that continuous improvement will result in yearly savings.
OUTSOUCING – Preparation for outsourcing non-strategic functions by preparing the business case, developing the request for quote process, vendor evaluation, selection and negotiation.
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Patrican & Associates Services - Continued
TRAINING / IMPLEMENATION – Black belt trainers for Six Sigma and Lean Manufacturing are available for classroom training or to customize a program for your needs. We offer executive team building and facilitation and problem solving services.
EXECUTIVE / MANAGEMENT PERSONNEL – Provide supply chain executives to supplement your short-term needs.
SECURITY & INVESTIGATION - Services focus on compliance monitoring, investigations and crisis management.
PROCESS MANAGEMENT - Process Management will examine all the elements of the workflow including those that fall outside the area of your organizations responsibly. Define the required process interconnectivity, coordination, visibility and accountability.
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