Transforming Procurement into a Value Added Center Of Profit · 2019. 9. 27. · Omid Ghamami, MBA,...

Omid Ghamami, MBA, CPSCM™

President, Purchasing Advantagewww.PurchasingAdvantage.com

CEO & Chairman, Center for

Purchasing & Supply Chain

Management (PSCM) Excellencewww.CenterForPSCMExcellence.org

“THE Godfather

of Negotiation

Planning”

~ Intel Corp

The CPO AgendaTransforming Procurement

into a Value Added Center Of

Profit

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Omid Ghamami, MBA, CPSCM™❖ MBA, University Of California System

❖ President, Purchasing Advantage; CEO Center for PSCM Excellence

❖ Globally Recognized Author, Speaker, Trainer, Consultant

❖ 18 Years At Intel: Ran Global Corporate Purchasing Operations with $16B USD scope –“THE Godfather of Negotiation Planning”

❖ Thousands Of Hours Consulting/Speaking/Training In 26 Countries

❖ 2 Best Selling Procurement Books; Multitude of Industry Articles

❖ 50+ Hours TV Appearances As Procurement/Negotiations Expert

❖ Twice Hired to Train the 50 CPOs of U.S. ($3.2 Trillion USD)

❖ Regularly Speak to Harvard University Supply Chain Management Master’s Program

❖ Founder & Adj. Professor Of Purchasing, Los Rios Comm. College

❖ Interviews Published by SAPAriba & Fortune Magazine

❖ Named one of the “Top 5 Procurement Influencers in the World” by CPO Strategy Magazine in 2019 2

Artificial IntelligenceRobotics

Procure to Pay

Block Chain

Supply ChainEnterprise Spends

Centralization

Sustainability

Automation

Globalization Business Continuity

Social

Responsibility

Supplier Has

Your $$

CPSCM™ Procurement Transformation Model

Supplier Has

Your $$

4

Transforming the Organization:

Negotiating for Performance

Results

5

“The procurement of goods and

services instead of performance

results is the #1 problem facing our

profession today”

- Omid G.

Supplier Relationship Management

(SRM)7

Smart City Lighting Fiasco

- 1,100+ light polls changed from sodium to LED in 64 sqr km city

- End user specified 125 watt light bulbs

- Result: 1 lane roads too bright, 2 lane roads have dark spots

- What went wrong?

Using Supplier Innovation for City Camera

Procurement Project

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Failure to Focus On This In Advance of Negotiations Will Result in Endless Heartache

After They Are Done.

1010

End Result

How it will be used

What they want to

buy

4 Legs of the Stool for Buying

Performance Results

Procurement

Mission Pay For

Performance

Pre-Defined

Remedies

ROSM - Results

Oriented

Success Metrics

Warning! The Standard Contract Will NOT Give You

Adequate Coverage in These Areas 11

Benefits of Making the Shift to

SPM

• End users and procurement have common goal

• Organizational productivity swings up

• SPM becomes preventative

• Performance metrics can be used to drive Design for

TCO

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The cpo agenda: transforming the Organization

Driving Design for TCO

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Pushing suppliers

for a lower price

year after year is

not a sustainable

purchasing

strategy

CostsProfit

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Source: McKinsey Consulting

Cost Reduction

Opportunities

Average Amount Of Purchases By Industry as a Percentage Of Revenue

CPOs: Where Are You Finding Your Cost Savings?

The SOW/Spec

Handoff Results in

an Average LOSS

of 18% Cost

Savings!

16

4 Pronged Approach

Reuse Simplification

Standardization Supplier Innovation

17

Why Did Costco Change Milk Jug Sizes?

18

Oxygen Tubes for Turbine Systems

.9995 vs .995 Pure

19

Beautiful Master Packaging for Retail Product Shipments

What the Master Packaging Designer Imagines will happen

What Actually Happens 20

21

Airport Terminal Case Study, cont

22

Airport Terminal Case Study, cont.

23Source: http://www.turnerconstruction.com

How Did the Mercedes CLS Get Introduced at

$30K Below the S Class With The Same Core

Features?

S Class CLS Class

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"I'm not sure anyone should have made this car.

We probably should have just [modified the Model S]. There are so many more features and difficult to build parts on [the Model X] than it is necessary for us to sell the cars.“

- Elon Musk

USS Virginia – Dept of

Defense

• Historically, nuclear submarines had custom designs

• Result: proliferation of functionally similar or nearly identical parts

and specifications, but all custom.

• A $27 million investment in parts standardization lead to:

– $789 million in cost avoidance

– 60% reduction in number of procured parts

– The USS Virginia lead ship was launched ahead of schedule

– Marked improvement in crew readiness and parts costs26

BOOM – The Supersonic Airplane That is Economical

• The Concorde was fast, but expensive ($20K R/T), used a lot of fuel,

had a big boom, & was expensive to maintain

• Boom uses many existing technologies/parts (such as F15 landing

gear)

• This Standardization & Reuse allows it to be priced the same as

existing business class tickets!

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Unproven Solution

Shifts Risk of

Performance from

Supplier to You

Increases Costs & Time to Market

Rarely solves

problem better than

existing solution

Innovation in End User Demand….

……is

Rarely

Beneficial

The Grand Illusion

Benefits of Making the Design

for TCO Shift

• Cost savings strategies stop exclusive focus on supplier

profit compression

• Costs savings are achieved *before* negotiations

• Suppliers can play vital role in achieving Design For TCO

• Costs are surgically removed from the supply chain

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The Executives in this Conference Need to Make a Difference

Overhead Service Providers Value Added Revenue and Profit Generators

Procurement

Human Resources

Finance/Accounting

Payroll

Legal

Thank You Very Much!

•Procurement Transformation

•Procurement Consulting

•Negotiation Advisory

•In House Training

•CPSCM™ Certification

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www.CenterforPSCMExcellence.org

www.PurchasingAdvantage.com

Omid@PurchasingAdvantage.com

1-888-TCO-4889