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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

SOURCING AND PROCUREMENT PRACTICE OVERVIEW

ARCHSTONE CONSULTING

Archstone Consulting, a Hackett Group company

May 2011

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

The Hackett Group – Who are we?

The global leader in enterprise G&A best practice insight and organizational effectiveness– We understand how the best do it, where they

do it and the benefit of doing it

Implementation advice comes from over 4,000 benchmark studies

We address both efficiency and effectiveness including strategic business enablement

Our efforts have delivered over – $90 billion in sustainable cost savings– $25 billion of improved cash flow benefits

Delivery of actionable solutions through– Benchmarking– Business Consulting– Functional and Process Advisory programs– Technology implementation services

Our client list includes over 2,700 companies

97% of the Dow Jones Industrials

73% of the Fortune 100

88% of the Dow Jones Global Titans

73% of the DAX 30

45% of the FTSE 100

35% of the CAC 40

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Global team of 50+ Procurement professionals Serving a portfolio of the world’s leading companies Procurement services focused on driving accelerated value:

– Procurement transformation & organization design– Spend & opportunity analysis– Strategic sourcing & outsourcing advisory– Category management support– End-to-end Procure-to-Pay (P2P) Process improvement

Widely recognized for our Procurement expertise:– On the Board of the Sourcing Interests Group (SIG)– Selected to Brown-Wilson Group’s The Black Book of

Outsourcing’s Top Ten “Boutique Outsourcing Advisory” list – One of the “World’s Best Outsourcing Advisors” as rated by

IAOP™

Extensive experience in developing innovative solutions to the complex issues facing the CPO

Over $15B sourced with $2B+ of savings (~13%)

Archstone Consulting, a Hackett Group company, is a Recognized Leader in Sourcing and Procurement

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Hackett Value Grid™ − the foundation for how Hackett defines world-class performance

Hackett Procurement Value Grid™

EFFECTIVENESS

Economic return Role of procurement Process quality Supplier leverage & performance Information & analysis Business IntegrationExamples: Total spend cost reduction and

avoidance as a % of spend % of suppliers comprising top 80% of

spend % of transactions requiring post-

issuance (i.e., rework) activity % of total spend under procurement

management influence Internal customer satisfaction rating

EFFICIENCY

Process costs Staffing levels Productivity Cycle times Technology leverage Cost per transactionExamples: Cost as a % of spend

– By Geography, Business Unit FTEs per $1B of spend # of POs processed per FTE PO processing cycle time Staff time allocation by process Ratio of labor to technology cost

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Defining Procurement“Process” view versus “organizational”

Operations & Compliance

Supply Data Management– Supplier master

management– Item master/content

management – Catalog management– Contract master

management

Requisition and PO Processing– Requisition processing– Purchase order

processing– Requisition and purchase

order support

Supplier Scheduling– Supply requirements

review– Supplier scheduling– Order release– Inbound tactical supply

management– Delivery coordination

Receipt Processing– Materials and goods– Services

Compliance Management– Internal Compliance

Management– External Compliance

Sourcing & Supplier Management

Customer Management– External Customer

Management– Internal Customer

Management– Product Development and

Design Support

Sourcing Execution– Requirements definition

and supplier bidding– Negotiation and supplier

contract creation

Supplier Management and Development

– Supplier Management– Supplier Partnering

Planning & Strategy

Function Strategy and Performance Management

– Strategic and operational planning

Sourcing and Supply Base Strategy– Sourcing and Supply Base

data gathering– Sourcing and SupplyManagement &

Administration Function Management

– Function oversight– Personnel management– Policy and procedures

oversight

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Enterprise Strategy

Short and long-term enterprise

strategies

Drivers

Designing and Executing an Optimized Service Delivery Model The key to World-Class performance

A Procurement Service Delivery Strategy defines the plan and delivery model for determining the who, where, what, why and how for the execution of all Procurement processes in support of the enterprise’s goals and objectives

G&A Performance

EFFE

CTI

VEN

ESS

EFFICIENCY

HIGH

HIGHLOW1Q 1D

World ClassEFFICIENCY

World Class EFFECTIVENESS

1D1Q

WORLD CLASS

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

A Multi-Faceted Procurement Process Design Model

Procurement Operations

Strategic Sourcing

Supply Chain Management

Supplier Relationship Management

Strategic Category Management

Procurement Strategy

Category Strategy

Category Stratification

CategoryGovernance

Demand & Compliance Management

CategoryPerformance Management

Supplier Stratification SRMGovernance

SRM Performance Mgmt

Supplier Development

ProfileCategory

DevelopSourcing Strategy

IdentifySuppliers

Evaluate Suppliers Negotiate Transition Monitor &

Manage

Requisition Management PO Management Receiving Payment

Design Planning Inventory Management Delivery

Strategy Alignment Governance Performance MgmtSy

stem

s D

ata O

rgan

izatio

n Portfolio Analysis

Operations Management

Risk ManagementRisk Model Definition Visibility / Monitoring Ongoing Risk Management

and Mitigation

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

The “Tenets” of our Sourcing and Procurement Practice: Transformational view – Strategy and role in the

business– Organization and

capability development– Understanding of

procurement technologies– Outsourcing leadership

from strategy to execution Deep category

knowledge and expertise Focus on delivering

immediate and lasting value

Willingness to tie our fees to our performance

ProcurementStrategy

Procurement and Supply Functional Strategy Definition/Alignment with Overall Business Strategy including defining the role of

• Cost, Marketing and/or Innovation Focus • Central Procurement Department• Role of Functional Centers• Consortium, Exchanges

Organization Design

Organization Design and Implementation including• Roles and Responsibilities Definition• Capability Assessment, Development,

Training and Education• Department Operations (Office of the CPO)• Change Management• Performance Metric Design

StrategicSourcing

Spend Analysis and Opportunity Diagnostic

Process Development and Training

Strategic Sourcing

Low Cost Country Sourcing (LCCS)

Category Management

Category/Sourcing Group Definition

Sourcing Group Strategy Development

Category Action Plan Development

Supplier Relationship Management

Ongoing Execution Management

Technology-enablement

eProcurement, eSourcing, Contract Management Systems Strategy

Procurement, Contract Management, Sourcing and Transactional Process Design

Systems Selection and Implementation Support

Outsourcing Opportunity Assessments

Various functional and business areas

Outsourcing Contract Negotiations

SLA Development

Department Operations

Designing Processes and Supporting Systems to Manage Procurement and Sourcing Department Operations

Our Sourcing and Procurement Practice is Based on a View that Procurement is a Strategic Enabler for our Clients

Outsourcing Strategy

and Execution

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

We Maintain a Library of Category-specific Best Practices, Benchmarks, and Templates for use in Client Projects

Advertising

Call Center Services

Facilities Repair & Maintenance

Hardware (e.g., bolts, screws, etc.)

IT Hardware

IT Software

Janitorial Services

Landscaping Services

Leased Fleet

Legal

Machined Parts

Management Consulting

MRO Supplies

Marketing

© Copyright 2005 Archstone Consulting LLC

Confidential19

Evaluation MetricsEvaluation Metrics

Temporary Labor

Representative Clients and ResultsRepresentative Clients and Results

Benchmark Savings RangeBenchmark Savings Range 8-12%

Fragmented set of temporary labor suppliers serving multiple locations with little overlap

Inconsistent requirements for each job function Wage and mark-up variations across job function

and location (outside of standard, market driven factors)

Customer handling the majority of administrative functions associated with temporary labor – e.g., screening, payroll, conflict resolution

Typical SituationTypical Situation

Key Levers and Best PracticesKey Levers and Best Practices Standardization of job descriptions, candidate

requirements and pay ranges across job function and location

Vendor consolidation to a set of firms that can handle an organization’s nationwide needs

Administrative functions to be handled by temporary vendor, potentially with onsite personnel

Strategically sourced for a $900M financial services firm ~10% savings from competitive bidding and vendor

consolidation Additional vendor services provided through the onsite

management of temporary personnel Optimized pay scale by job class – increasing in some

areas and decreasing in others Established a detailed scorecard for monthly/quarterly/

annual reporting Integrated vendor’s and client’s systems to facilitate the

A/P process Base pay mark-up Fill rate and time to fill Turnover/retention Temp to hire conversion, if desired

Supply Market Insight and Current TrendsSupply Market Insight and Current Trends

Consolidating industry with the historically local focused firmsbeing acquired by larger, nationwide providers

Recent economic downturn has significantly impacted a number of large temporary labor firms such that few have generated a profit for the past two years

Even with a nationwide presence, large firms are still subject to (and must be knowledgeable about) the local dynamics in each market that they serve

Selected Category Sourcing Profile

Category Sourcing Profiles Office Equipment &

Supplies

Print Services

Professional Services

Promotional Items

Raw Materials (Steel, Aluminum, etc.)

Recruitment

Security Services

Small Package Delivery

Telecommunications

Temporary Labor

Transportation & Logistics (3PL, TL/LTL, Air, Ocean)

Travel

Utilities

Waste Removal

Sample Category Expertise:

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Our Consultants have Deep Experience in Delivering Results Across a Broad Variety of Direct and Indirect Spend Categories

Direct Materials

IT Hardware, Software and Services

OutsideServices

Overhead andSupport

Marketing and Advertising

CapitalExpenditures

Manufacturing Categories

Facilities

• Utilities• Janitorial• Building maintenance

and repairs• Landscaping• Security services and

personnel

• Temporary labor• Consulting services• Research services

(CROs)• HR services• Fulfillment services• Testing services• Customer service

• Travel– Agency– Air– Rental cars– Hotels

• Office supplies• Transportation• Fuel (bulk diesel, OTR

retail, fleet fueling)

• Telecom – voice• Telecom – data• Telecom – wireless• Telecom – equipment• Servers, PCs• Routers, Switches • Software and licenses• Contract programming• Outsourcing contracts

• Media planning and buying

• Advertising agency• Direct mail• Commercial printing• Free standing inserts• Trade Shows• Promotions

• Office equipment• Office furniture• Private Fleet• Facilities and

Equipment• Engineering and

Construction Services

• Packaging (paper, corrugate, plastic)

• Plastic (resin, molding, etc)

• Flavors, fragrances and other additives

• Fuel• Glass• Injection and Blow

Molded Components

• Waste removal• Lighting, Ballasts,

Re-lamping• Carpet

• Chemicals (specialty and commodity)

• Wood• Electronics• Steel• Fabricated metal

components• Private label

consumer products• API’s

• Contract manufacturing

• Construction services

• Transportation• Third-party

Logistics• Audit and

Payment

• 3rd Party Logistics• Freight

– Ground (LTL, TL, Small Parcel)

– Air– Ocean

• MRO Supplies• MRO Services• CMO

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A Holistic Approach – Overall Transformation Methodology

(3) Design Future State

(1) Audit CurrentState

Tech

nolo

gyO

rgan

izatio

n

4.1 Execute Procurement

Implementation Roadmap

4.3 Implement New Technology Enablers

1.1 Strategy Review

1.2 Business Drivers

1.3 Governance Assessment

1.6 Existing Procurement TechnologyAssessment

2.2 Incorporate Procurement and

Industry Best Practices into processes and

Benchmark

1.8 Change Readiness Assessment

2.5 Define Procurement Organizational Vision

and High-level Structure

2.1 Refine Procurement Strategy

4.4 Conduct Organization Education and Training

2.4 Review Emerging Technology and Provide

High-level recommendations

2.6 DefineTechnology Strategy

/ Plan

3.1 Develop Procurement

Implementation Roadmap and Phasing

Stra

tegy

& P

roce

ss

3.2 Develop High-level Business Case with

Prioritization

1.7 As-Is Organizational Assessment

1.4 Current Process Assessment

Sour

cing

1.5 Spend Analysis2.3 Develop Category

Specific Spend Profiles and Prioritize Categories

4.5 Execute Communications Plan

3.5 Design and Build New Procurement

Organization

3.6 TechnologySelection

Evaluate Suppliers

AssessSuppliers

StrategyProfile

CategoryMonitor & Manage

TransitionNegotiate

4.2 Implement New Procurement Processes and Metrics

3.4 Strategic Procurement Process (SPP)R

ecom

men

datio

ns

3.3 Design new procurement processes

(2) Develop Recommendations (4) Implementation

Often accelerated in the transformation to derive early benefits to fund effort, build

credibility

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Hackett’s Sourcing and Procurement Services – Representative Clients

ProcurementStrategy

Organization Design

StrategicSourcing

Category &Supplier Mgmt

Technology-enablement

OutsourcingStrategy and

Execution

Department Operations

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Archstone Sourcing and Procurement Overview© 2011 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Right Capabilities

Right Capabilities

Sourcing and Procurement - Why Hackett?

Right ApproachRight Approach

Right Resources

Right Resources

• We offer a complete suite of services to meet your need to drive sustainable value through Strategic Sourcing and Procurement in a wide range of environments including Pre- and Post-merger, Transformational, Ongoing Operations, Category Management

• We bring significant intellectual capital (templates, benchmarks, best practices, methodologies, training materials, etc) to category sourcing and spend analysis

• We have senior, experienced staff that can enable results both through sourcing diagnostics, and category sourcing

• We have deep category expertise in many categories – including industry-specific categories

• We have considerable contracting experience and can assist with the development of beneficial contract language for the categories which we source

• We work closely with our clients; typically on-site; in a supportive, collaborative manner that is neither intrusive or disruptive but results focused

• We have defined operating practices which can be used to train staff, effectively manage project work load and more clearly communicate with internal customers as well as suppliers

• We are truly independent of any software provider or tool set