The Procurement World Isn’t Flat:

Discovering The Power of World-Class

Procurement at Erste Group

Robert SEMETHY, SPSM3

Darko SEPIC, SPSM3

2016-10-20

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Erste Group

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Erste Group Footprint

2016-10-20

• Erste Group:

• > 1.000 companies, with• 16 million customers, in• 2.800 branches, in • 12 countries, with• 50k employees• Keiretsu business setup

• EG Financials YE 2015

• Total Assets $ 231,0B• Operating result $ 3,3B• Mkt. cap $ 14,0B

• EG comparison to U.S.:

• PNC Financial Services (PA)� Similar size banking group

• Dollar Bank (PA)� EG is 40x bigger

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Erste Group Footprint

2016-10-20

Erste Group is Central-East European banking group, with HQ in Vienna, Austria, operating in 12 countries

Mozart

Kafka

Freud Arnold

Forman

Melania

Alexander Ivanisevic Kraljic Comaneci Vlad Warhol Tesla

AdrianaTeller

Soros Zsa Zsa

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EG Footprint

Erste Group countries cover the territory = 7x Pennsylvania, which would cover the space between Chicago, Charleston, Montreal & Boston

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Chicago

Montreal

Boston

Charleston

Pennsylvania = 46k sq. mi

Erste Group = 321,5 sq. mi

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Agenda

1 Erste Group Procurement

3 Development of Procurement

2 EGP Services

4 Management principles – Key takeaways

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Erste Group Procurement’s Mission

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Erste Group Procurement (EGP) provides best-in-class supply management for its customers without drama or fanfare.

Effective results delivery.

Erste Group Holding Board Decision

EGP Cooperation with clients based on:� Contract (SLAs)� Responsibility (NDAs)� Code of conduct (also CIPS Ethical Procurement & Supply)� Purchasing Policy & Handbook� Maverick Spend Policy� Valuable Customer Policy

*Source: EGP Purchasing Policy PO 1008-PUR-A

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• Erste Group Holding Board decision on the Erste Group Purchasing Policy (2011-05-10)*:

� The central and single competence for procurement activities within Erste Group lies in Erste Group Procurement (EGP).

� EGP has to be involved in any external spend of any Erste Group majority owned entity. Any exception has to be agreed between EGP and the respective Erste Group entity.

� All external spend should follow the principle of Total Cost of Ownership (TCO) and Quality, Cost and Delivery. In balance with socio-economic, ecological and customer relationship factors the assignment of a contract has to follow the highest added value for Erste Group principle.

� EGP owns, defines and aligns the purchasing processes with the local entities within Erste Group.

EGP Key Statistics

� Over EUR 1 billion third-party Indirect spend

� 150 categories (third level), 52 category strategies published

� Service 80 entities, 102 customer business reviews over 35 major customers

� 10 countries and more than 10 different languages

� 107 FTE with over 290 degrees, professional certifications, and endorsements

� Over 9 000 suppliers, 65 supplier business reviews across 50 suppliers, and 9 supplier strategies

� Just over 3 000 tenders 2015

� 2015: CR 6,07%, CA 1,29%, GPCA 4,63% (18 categories), ROI 7,34, CoA 0,88%

� EG Maverick Spend 5%

� Contract coverage over 80% with over 6 000 active contracts

� Listed in Chartered Institute of Procurement and Supply (CIPS) Ethical Register

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1 Erste Group Procurement

2 EGP Services

Agenda

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3 Development of Procurement

4 Management principles – Key takeaways

Category Management

Contract Management

SRM

RFx

EGP Focus

People Operations

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EGP Services

EGP – World Class Procurement

Sourcing

International/LocalPurchasing

Local/Tactical

Order

Management

BPOBusiness Process

Outsourcing

Avoid and reduce costs based on TCO

Purchasing based on categories on international or local level

CR/CARisk Mitigation

Category MgmtSRMContract Mgmt

Spend based fee

Ensure on time and in place availability of 3rd party services and goods efficient

Operational management of POs Spend from a locally defined lower limit (i.e. 5K) up to a limit of 30K

PO Coverage (Compliance)Internal execution of orders ≤ 5 daysPO/Boilerplate contracts

Ordering PlatformsTemplatesHotline

Spend based fee

Ensure convenient execution

Call-offs from existing contracts (unlimited) and purchases under the lower limit of Service B

Straight-forward execution

Done by business line

Purchasing Project

Contract Creation

Category MgmtVendor Mgmt

Contract Mgmt

Requisition &

Ordering

Documentation&

CR/CA Calculation

Receipting&

Evaluating

InvoiceProcessing

Purchasing Project

Contract Creation

Category MgmtVendor Mgmt

Contract Mgmt

Requisition &

Ordering

Documentation&

CR/CA Calculation

Receipting&

Evaluating

InvoiceProcessing

Purchasing Project

Contract Creation

Category MgmtVendor Mgmt

Contract Mgmt

Requisition &

Ordering

Documentation&

CR/CA Calculation

Receipting&

Evaluating

InvoiceProcessing

Provide cost-efficient services

Operations of support processes for the local banks

Separate feeper service

• ARIS PPM

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EGP Categories

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Path to World Class Procurement

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1 Erste Group Procurement

Development of Procurement

2 EGP Services

Agenda

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3

4 Management principles – Key takeaways

Start & Transformation of EGP

PARIS project (fully centralised procurement)

• New eRFx and eAuction

tool (Electool)• New Project Tool (CAP)

Groupwide roll-out of:• Procurement Policy

• Procurement Handbook

Foundation of

s Proserv

100% subsidiaries in• AT (HQ)• CZ • HU • SK

2009

`07-`08

On boarding

further

subsidiaries:

• HR • RO• RS Proc. Dept.

Start of NGPS

project

(New Group Procurement Solution)

`09-`10

On boarding of

• UA Proc. Dept. • ME Proc. Dept.

• Start implementation of Lean Enterprise Order

Management (LEO)

• New reporting tool

(QlikView)

Service optimisation:• SRM Management• Category Management

Increase the value of a

centralised

procurement company:• Transparency

• Service Quality in

Sourcing and

Procurement

• Cost Reduction and

Cost Avoidance

• Ethical Standards

• Fraud Prevention

Finalisation of new

structure and

documents:

• Business plan in place

• Alignment with Procurement Handbook

• New name: Erste Group Procurement

2010

2011 2012

`10-`11 20112007

2006

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Continuous Improvement of EGP

• Real-time Balanced

Scorecards

• Single source approval

in eSourcing tool

2013

• Procurement

related

certification

(SPSM1, SPSM2)• Groupwide roll-out

of Maverick

Spend Policy & Valuable

Customer policy

• Performance

management system

(PDS)• Know Your Supplier

initiative -Supplier Audit

Questionnaire

• System-based Supplier

performance scorecard (KYS)• Ethical procurement (CIPS)• Category related education

2014

2015 2016

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• ROSMA 2016• CEB 2016

2016

• RFI on Procurement Outsourcing

2015

• AT Kearney 2013

2013

• Bain & Company 2011• SAP 2011

2011

• The Hackett Group 2008

2008

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The way to the best practice performance

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Team performance

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1 Erste Group Procurement

2 EGP Services

Management principles – Key takeaways

Agenda

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3 Development of Procurement

4

What gets measured gets done:Goal setting & Right Performance

� Define Business strategy & transfer into tangible annual targets

� Align goals of Company & Employees, visualise & explain goals to the team

� Set clear, quantitative targets which are linked to data source, create data source where missing

� Inspect what you expect, linked to the BI system for continuous measurement

� Define To-Be procurement setup, adequate Job Profiles & then conduct targeted education of the team

� Continuously benchmark yourself

� Build knowledge y/y basis and never stop developing

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Housekeeping:Keeping the information source trustworthy

Mechanisms

� Clear responsibility & ownership in the system for each & every document/data source

� Regular management & staff meetings -housekeeping on agenda

� Immediate system-based alerts to staff & management

� Weekly push report - scorecards

� Data report Reviews on Quarterly business reviews with customers & suppliers

� Personal KPIs directly linked to continuous data quality

E-mail alerts

Weekly scorecards

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EGP Staff Professional Procurement CertificationsEGP has over 290 Degrees, Certifications, and Endorsements

73 Team Members Certified by Next Level Purchasing Association (NLPA):� 40 Senior Professional in Supply Management (SPSM)� 31 SPSM2� 2 SPSM3

3 Team Members Certified by Institute for Supply Management (ISM):

� 2 Certified Purchasing Manager (CPM)

� 1 SPSM3 also Certified Professional in Supply Management (CPSM) and Certified Professional in Supplier Diversity (CPSD)

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76 Team Members Certified by Chartered Institute of Procurement & Supply (CIPS):� 1 CPSM and SPSM3 also Member Chartered Institute of Procurement & Supply (MCIPS)

� 76 NLPA certified also certified CIPS Ethical Procurement and Supply

1 Team Member Certified by International Trade Centre (ITC):� 1 CPSD, CPSM, MCIPS SPSM3 also holds an International Diploma in Supply Chain Management [Dip. SCM (ITC)]

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Education Tripod

Leadership• CMI• MT

Functional• NLPA• CIPS

Content• IT (ITIL; IAITAM-CSAM;

CompTIA)• FM (IFMA)• Audit (CIA)• M&A (IMAA)• Data (TDWI)• Risk (IRM)• Project (PMP)

Professional

Education

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DOs

� Early involvement of Procurement.

� Fully defined scope/specification by business before commercial negotiation starts.

� Procurement in charge of all communication with suppliers unless otherwise agreed with business line.

� Negotiation strategy and method selected by Procurement.

� All supplier communication through eSourcing (tendering and auctioning) tool.

� Agreement on TCO and evaluation matrix before RFP starts.

DON’Ts

� Procurement cannot decide on content/technical requirements.

� No commercial negotiation without Procurement.

What are the critical success factors?

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THANK YOU!

Erste Group Procurement

Procurement Services GmbH

Am Belvedere 1

1100 Wien

Austria

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