Corporate Strategic Sourcing-Todd [Autosaved]

An approach to Building Corporate Strategic Sourcing Capability

Todd Kyriss

Strategic Sourcing as an Enabler to Growth

Utilize Strategic Sourcing Process and Infrastructure as an Enabler for Top Line

Growth by Generating New Demand Creation $’s for your company.

What could $30, $60 or $90 Million in Demand Creation $’s mean to Top Line Growth?

Direct Sourcing Today

• Decentralized Sourcing Process – Managed by BU’s• Managed mainly by the business units with no common

process or strategy• Corporate SME’s in place for transportation, metals, resin and

packaging– Little involvement across BU’s outside of Resin

• No global integrated management reporting structure linked to P&L

• Limited focus on process and cost mgt efficiencies through implementation e-sourcing tools – portal, EDI, etc

No common practices or disciplines across the business units

Indirect Sourcing Model

Focused on the centralization of processing PO’s

Draft – TO BE Process

Expanded Focus on the centralization of processing PO’s and Management of P-Card and Catalogue Orders

Five Aspects of Capability Development

• Approach

• Strategy

• Process

• Organization / People

• Systems / Technology

© Dan Enneking 2003

Best Practice Procurement Capabilities

Approach• Procurement is managed as a virtual line of business complete with an integrated Management Reporting System• Spend is managed by category, cost reduction tracking methodology is deployed and linked to business unit P&L /demand creation spend and top line growth

Procurement Managed as a Line of Business

Traditional Line of Business

Procurement as a Line of Business

Key Financial Measures P&L

Revenue

Profit

Dashboard

Spend

Cost Reductions

Key Record of Reference General Ledger Accounts Payable

Leading Indicators Customer Base

Sales Activity Funnel

Supplier Base #

RFI/RFP Funnel

Productivity Funnel

Procurement Summary Dashboard

Category Spend

Total 2013 Spend ($M)

$48.0

Year to Date Spend (Actual $M)

YTD 2013 (Q3) YTD 2012 (Q3)

$25.0 $36.0

Spend Change ($M)

YTD 2013 (Q3) % change

($11.0) (31%)

Key Drivers

Year to Date Spend (Actual $M) % Change

Exchange Rate $NA NA%

Natural Demand ($9.0) (25%)

Cost Reduction ($2.0) (6%)

Total ($11.0) (31%)

Cost Reduction Levers(Actual $M) Year to Date Change

YTD 2013 (Q3) YTD 2012 (Q3)

Rate ($1.7) $XX

Demand Mgmt. ($0.1) $XX

Compliance Mgmt. ($0.2) $XX

Engineering & Specs $0.0 $XX

Total ($2.0) $XX

% (6%) (XX%)

Supply Base Optimization

Year to Date (Actual #) 2013 vs. 2012

YTD 2013 (Q3)

YTD 20012 (Q4)

+/(-)

Baseline # of Suppliers

200

Top 80% of Spend 50

Spend with Preferred Suppliers

Year to Date Spend (Actual $M and %)

YTD 2013 (Q3) YTD 2012 (Q3)

TBD TBD NA NA

Key Activities

Description

Status (Planned/ In Progress/

Completed)

Results

What is a Spend Category?

• Spend Category - Three characteristics– Significant dollar spend

– Common Supply Market» Similar materials/Services

» Product life cycles

» Industry economics

– Common supply line management levers» Rate

» Demand management

» Compliance

» Process efficiencies/Spec Changes

Cost Reduction Measurement

There are four primary cost reduction/productivity levers:

Lever Definition Formula

RateNet reductions in prices paid for items procured when compared to prices in place for the prior 12 months

[Old price - New price] * Volume

Demand ManagementProactive programs to reduce usage or change to lower cost alternatives

[Volume reduction] * Price.

Compliance

Driving demand to approved programs or preferred suppliers and eliminating the premium paid when "outside" of the program

Calculations vary depending on the commodity and type of cost reduction

Engineering and SpecificationProactive programs which change the manufacturing product specifications and designs

[Old bill of materials –New bill of materials] * Volume


Strategy

Approach• Procurement is managed as a virtual line of business complete with an integrated Management Reporting System• Spend is managed by category, cost reduction tracking methodology is deployed and linked to business unit P&L

• Sourcing strategies are defined through a combination of internal requirements and supply market characteristics• Strategy selected determines sourcing decision criteria and sourcing program development

Category Strategy Development

Leverage

Shop

Partner

Manage Risk

High

Value of Spend

Low HighComplexity of Sourcing

Category Program Characteristics

Leverage• Important customer relationships• Medium term agreements (1-2 yrs)• Potntial use of reverse auctions• Few suppliers - avg spend/supplier over $1M or

80% of a category• Supply base optimized, worldwide sourcing

concepts deployed, supplier performance mgt. in place, may deploy some supplier development activity

Shop• Arms-length relationships• Short-term agreements (max 1 yr.)• Extensive use of reverse auctions• Number of suppliers need to be held to a level that

spend is large enough to be auctioned• Supply base optimization strategies in place and

supplier performance expectations in place

Partner• Highly collaborative relationships• Long-term agreements• One partner supplier, maximum of three others• All supplier strategies are important and deployed• High impact supplier development activities in place

Manage Risk• Important customer relationship• Medium term contracts (1-2 yrs)• Few suppliers due to nature of supply market and

need to manage result• Supply base optimized, supplier performance mgt. in

place, worldwide sourcing and supplier development strategies deployed where appropriate


• Procurement Process is well documented and consistently deployed across all businesses for all spend categories

• Strong Purchase-to-Pay Sub Processes are in place that effectively establishes control over payments to suppliers

Strategy

Approach

Processes

• Procurement is managed as a virtual line of business complete with an integrated Management Reporting System• Spend is managed by category, cost reduction tracking methodology is deployed and linked to business unit P&L

• Sourcing strategies are defined through a combination of internal requirements and supply market characteristics• Sourcing Strategy selected determines sourcing decision criteria and sourcing program development

The Sourcing Process

Vendor Identified for negotiating Volume Discount

Completed RFP Evaluation Criteria Matrix

Supplier Selection

Supplier Selection

Contract Negotiated and Announced

Legal Contract

Implementation Plan

Supplier T&C Metrics Definition

SupplierNegotiation

Business Units begin to place orders

Purchase Order Process

Payment Process

Financial Reports

Supplier T&C Metrics Data

Purchaseto PaymentTransaction

ProcessDefinition

Supplier Report Card

Supplier Performance Evaluations

Supplier Corrective Action Requests

SupplierPerformanceEvaluation

CompletedSupplier Corrective Action Plans

Supplier Development Plans

SupplierManagement

&Development

CommodityStrategy

Development

CategoryStrategy

Reverse Auction Assessment

RFI

Completed RFI Evaluation Criteria Matrix

NeedsSpecification

Definition

Requirements Document Spend Profile

TCO

List of Current Contracts

Supply Market Scan

Traditional Approach:

New Approach:

Purchase -to-Pay Sub-Processes

• Category Spend Director controls all sourcing decisions

• Signature Authorization Policy establishes required approval signatures

• Master purchasing agreement contracts generally must be put in place for spend of $1M or more

• Only approved suppliers are paid

• Four Purchase-to-Pay Sub Processes are available:– Purchase order process

– Specific alternative processes put in place by the category director

– Travel & entertainment reimbursement process

– Purchasing card process

Establishes the Internal Control Environment for the Purchase-to-Pay Process




Strategy

Approach

Processes

Organization



• A center-led organization drives standard procurement and processes linked to the “natural owners” of the spend categories• Company-wide governance capability (Sourcing Council) directs sourcing initiatives, priorities, and driving results

Potential Governance Models

CentralizedHybridDecentralized

A centralized procurement team owns all

aspects of company-wide procurement

Central authority delivers standardized process and

policy best practices Business units control select

aspects of the procurement processes

Businesses operate

independently

Today Controlling and Costly

Corporate Procurement – “Doing it with the Business Units, not to them”

Global Indirect Spend: Overview

Office supplies, small vendors, …

Gas, electric, …

Insurance, P-Card, Treasury

Temp staffing, recruiting, …

Customs, property, S&U

Audit, Legal, Consulting

Leases, temp whse, …

SAP, Hdwe, Software, Services, …

Air, hotel, car, AMEX, …

PPE, …

R&D, A&P, POS, Research, …

Health, welfare & other benefits

Transportation (Oceanic, LT, LTL, …)

Includes

1,350

80

40

50

30

50

50

100

100

75

175

175

175

250

Est. 09

Spend(US$ MM)

78%1300100IT / Telecom

245001,600

< 5%12150100All Other

82%20050Energy / Utilities

80%30050Financial Services

88%20050Staffing & recruiting

77%70075Government

64%80075Professional Services

75%250100Real Estate / Whse

91%400100Travel

30%4700200MRO

37%1500200Mar-com

94%500200Personnel-related

77%1500300CTS & Logistics

Top 25 Vendors

Vendor

Count

2008

Spend(US$ MM)

Category

Office supplies, small vendors, …

Gas, electric, …

Insurance, P-Card, Treasury

Temp staffing, recruiting, …

Customs, property, S&U

Audit, Legal, Consulting

Leases, temp whse, …

SAP, Hdwe, Software, Services, …

Air, hotel, car, AMEX, …

PPE, …

R&D, A&P, POS, Research, …

Health, welfare & other benefits

Transportation (Oceanic, LT, LTL, …)

Includes

1,350

80

40

50

30

50

50

100

100

75

175

175

175

250

Est. 09

Spend(US$ MM)

78%1300100IT / Telecom

245001,600

< 5%12150100All Other

82%20050Energy / Utilities

80%30050Financial Services

88%20050Staffing & recruiting

77%70075Government

64%80075Professional Services

75%250100Real Estate / Whse

91%400100Travel

30%4700200MRO

37%1500200Mar-com

94%500200Personnel-related

77%1500300CTS & Logistics

Top 25 Vendors

Vendor

Count

2008

Spend(US$ MM)

Category

Actual = $1,362

All Indirect Spend Categories should be in scope and managed by Corporate Procurement Strategy

Illustrative Hybrid Model

Business Unit A Business Unit B Business Unit C Business Unit D

Demand & Compliance Mgr.







Metals

Resins

Transportation and Logistics

Specialized Services

Travel & Events

Energy and Utilities

Category Director

Category Director

Category Director

Category Director

Category Director

Category Director

Category Director














Category Director


Ownership of procurement function is centralized

Processes and policies are standardized across the company to leverage best practices, incumbent

systems

Category Directors located in organizations with strong SME or

greatest spend

Demand & Compliance Managers located in business units with

similar requirements or according to SAP compatibility

SAP/Bex/SPM enables aggregate spend reporting and analysis

Illustrative

Packaging

Category Director

Illustrative Org Chart

VP Corporate Procurement

Indirect Sourcing Direct Sourcing VP of GSA Sourcing IT Support FunctionFinance Support

Function

Development &Training

Support Function

Corporate role – direct line

SME’s – dotted line

Corporate role – direct line

SME’s – dotted line

VA/VE Support Function

Inclusion and DiversitySupport Function

Sub Support Functions from Legal, Sustainability, PMO, etc

Difficult to propose a definitive organizationalstructure without spend and needs analysis

Role of the Sourcing Council

Provides Executive sponsorship to Procurement’s strategic initiatives

Sets overall direction, establishes priorities, and assists in conflict resolution

Visibly supports the deployment of the Procurement process, the Purchase-to-Pay sub-processes, and the resulting governance changes

Assigns ownership of key supplier relationships when it is not clear who should own them

Provides feedback on and approves category spend cost reduction targets

The Sourcing Council is Senior Line Management’s opportunity to provide direction to the Procurement organization’s efforts on a category-by-category basis.

The goal is to navigate these strategic changes with key stakeholders, not to impose unilateral changes upon them.

Quarterly Sourcing Council Meeting Objective

The objective of the Sourcing Council (SC) is to:1. Report on progress made against Procurement’s

Initiatives

2. Provide a category-by-category overview including key performance indicators (spend, # of suppliers, savings) and project status

3. Inform and solicit feedback from Executive business stakeholders to ensure Procurement’s alignment with operational and strategic goals




Strategy

Approach

Processes

Organization

Systems



• A center-led organization drives standard procurement and processes linked to the “natural owners” of the spend categories• Company-wide governance capability (Sourcing Council) directs sourcing initiatives, priorities, and driving results

• Technology is leveraged to access spend data, increase sourcing productivity, track cost reductions, and drive results

E-Procurement Dashboard – Spend Category

Supplier Count

# of Suppliers

# on electronic POs

%

# on electronic invoicing

%

# on electronic payment

%

Transaction Count

# of POs

# of electronic POs

%

# of Invoices

# of electronic invoices

%

E-Procurement Dashboard

Self Service Procurement

# of employees -

# with access to Connect/ Know How -

%

Average # of monthly hits -

P-Card Activity

# of users -

YTD Spend

Three Areas of Capability Development Tools

• Organization/Governance Model (5)

• Talent Management Methodology/Tools(5)

• Process Training Modules(4)

The Business Case

© Dan Enneking 2003

We manage S&OP with Corporate Compliance…..Why not Procurement?

The approach of managing Procurement as a Line of Business… will enable us as a business to build a strategic sourcing capability…. that delivers an annual cost reduction of 3-10% of our total Accounts Payable spend…..to become an enabler for Demand Creation to drive Top Line Growth.

Next Steps

• Present in Breakout Session to Key Sourcing Leaders at Supply Chain Forum in October– Objective: (answer the following questions)

• Does hybrid sourcing model have merit and provide value to Newell and the BU’s?

• What are the Pro’s and Con’s of this model for your company?

• Is there a better model?

• Can this model be rolled out into a group to test its validity or presented as a corp model to Group Presidents and Executive team?

• What work needs to be done to develop infrastructure model and expense for agreed upon rollout model?

– Who can do it?

• What are the next steps?

Appendix

Organizational/ Governance Model Tools

• Organization Model and Position Descriptions• Procurement Capability Assessment Tool• Quarterly Management Review Process

Framework• Procurement Policies and Governance Rules• Monthly Procurement Process Improvement

Council Framework

Talent Management Methodology/Tools

• Organizational Skills Assessment Tool

• Targeted Selection Interview Guides

• Peer Ranking Process

• Incentive Compensation Framework

• Annual Performance Management Framework

Training Modules/Tools

• Procurement Process Training

• Supplier Performance Management

• Cost Reduction Tracking Methodology

• Advanced Supply Market Scanning and Total Cost of Ownership Concepts

Documents

Corporate Strategic Sourcing-Todd [Autosaved]