Procurement Model J. Patrican

Patrican & Associates1

Copyright © 2006

All Rights Reserved.

Patrican & AssociatesPatrican & Associates

Global Procurement Model

: :


Global Procurement

Transform from a function whose role was

primarily administrative to one that

delivers a competitive edge and

significant value to the company


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


31%

24%11%

13%

21%

MRO Products

MRO Services

T & E

OfficeSupplies

ComputerProducts

U.S. Average Percentage forNon-Production Expenditures


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


Path toward World Class Procurement

Visibility continued Consolidate company wide spend

Review existing contracts

Develop market perspective

Determine supplier relationships

Identify sourcing opportunities


40% 60%

ProductCost

InformationIntensiveProcessCosts

Purchase Process Costs

MRO Total Cost Picture


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



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



Sustainability (Keep the money coming) Restructure organization

Improve skill sets

Implement technology enablers

Provide compliance mechanisms

Streamline process

Align culture


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


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


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


Components of World Class Procurement

Combines strategic sourcing and supply management

Enable technologies and procurement infrastructure

Efficient operations and process

Modified employee behavior


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


Responses to Cost Increases

Continue spend analysis to develop sourcing/supply strategies

Switch to new suppliers – Lowest delivered cost


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


James R. Patrican, III

1-607-227-3563, [email protected]

Patrican & Associates Enterprise Process Management Consultants52 Reach Run RoadIthaca, NY 14850

Contact Information


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.


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.

Documents

Procurement Model J. Patrican