Benchmarking Your Strategic Sourcing Department Towards Best-in-Class Performance 5/10/18 Kevin Konold & Corey Gustafson

2 February 2018

2

Agenda

1. Introductions

2. Deluxe Overview

3. Importance of Benchmarking

4. Benchmarking at Other Companies

5. Methodology

6. 2017 Benchmarking Categories

7. 2017 ISM Benchmarking Survey

8. Sourcing Top Priorities

9. Other Research Sources

10. 2018 ISM Benchmarking Survey

11. Questions

3 February 2018

3

Introductions

Kevin Konold • Kevin has been a strategic sourcing and procurement leader for over 25 years. He

has worked for Wells Fargo, Andersen Windows and Pentair. He has successfully implemented purchasing best practices in numerous organizations. Kevin is Director of Strategic Sourcing at Deluxe Corporation. Kevin has a BA in Finance from University of Wisconsin – Eau Claire and is a C.P.M.

Corey Gustafson

• Corey has been working in the Enterprise Strategic Sourcing area at Deluxe Corporation for 5 years and is currently a Senior Buyer managing several direct material categories. He has also been on the ISM – Twin Cities Board of Directors, Professional Development and Membership Committees for over 2 ½ years. In 2017, Corey was selected as one of the 30 under 30 Rising Supply Chain Stars by THOMASNET.com and ISM which showcases the talent and achievements of 30 emerging supply chain management professionals. Corey has a BS in Graphic Communications Management from the University of Wisconsin - Stout and is an active CPSM.

4 February 2018

4

39%

27%

34%

Deluxe Overview

Financial Services (FS) Small Business Services (SBS) Direct Checks (DC)

Leading provider of products & services to financial institutions

• Over 4,400 customers • Adjusted operating margin 18.3%

America’s leading direct-to-consumer check supplier

• ~5.1 million customers • Adjusted operating margin 33.5%

(30% of revenue)

43%

2%

55%

Marketing Solutions & Other Services

Forms, Accessories, & Other Products Checks

44%

18%

38% Revenue: $1.97B (~6.3% growth) Operating Income: $331M Adjusted Operating Income: $398M Diluted EPS: $4.72 Adjusted diluted EPS: $5.27 Operating Cash Flow: $338M

2017

(63% of revenue)

Leading provider of personalized products & services to small businesses

• ~4.4M customers • Adjusted operating margin 19.6%

$1.97B revenue company transforming to marketing solutions & other services provider that helps Small Businesses & Financial Institutions grow

(7% of revenue)

Marketing on demand solutions

Web design & hosting

Email marketing, SEM/SEO

Logo, payroll services, social

Fraud & security, eChecks

84%

5% 11%

B U

S I

N E

S S

S

E G

M E

N T

S

5 February 2018

5

MOS Mix Shift Evolution Timeline

Total Company MOS Revenue $427M $532M $617M $756M $910M to

$940M Continued Growth

MOS % of Segment

Small Business Services

28%

• Continued to grow marketing & web services

30%

• Continued to grow channels

• Added eChecks • Added c-panel

technology

32%

• Continued to expand cPanel/web hosting

• Rolled-out Payce Payroll in U.S.

• Expanded W2P capabilities & Inkhead acquisition

• Rolled-out Deluxe Marketing Suite (DMS)

34%

• Continued focus on Payments / Marketing Solutions & Web Services

• Optimize web services

• As MOS becomes largest revenue category in both segments & continues to grow, believe overall company growth should accelerate

• Checks become less impactful to total company results

MOS % of Segment

Financial Services

24%

• Expanded Deluxe Marketing Services (DMS)

• Added rewards & loyalty & treasury management solutions

37%

• Expanded treasury management solutions

• Added marketing data analytics

43%

• Expanded Treasury Management Solutions through Data Support Systems (DSS) acquisition

• Expanded Data- Driven Marketing Solutions through FMCG acquisition

55%

• Integrate acquisitions & grow Treasury Management Solutions & Data- Driven Marketing Solutions

• Drive more organic growth and make larger investments principally in Data-Driven Marketing and Treasury Management Solutions

2014

26%

2015

30%

2016

33%

2018

~45%

MOS percentage of Total Company Revenue

2017 38%

2020 ~60%*

* 2020 Goal

6 February 2018

6

Importance of Benchmarking

• Why we started benchmarking at Deluxe

• Review best practices at companies in different industries

• Continuous improvement

• Improve processes

• Increasing involvement with mergers and acquisitions

• Gain support from Executive Leadership Team at Deluxe

7 February 2018

7

Benchmarking Process at Other Companies

• Who currently has an established benchmarking process used at their company?

• Who is responsible for benchmarking? Is there an established team?

• How often do you benchmark?

• What resources do you use for benchmarking?

• Key findings?

8 February 2018

8

Through The Years – Methodology

Data from company interviews

ISM Survey

Hackett Group/CAPS

Research

Analyze & Benchmark

Data from company interviews

Hackett Group/CAPS

Research

Analyze & Benchmark

Benchmark Committee was

formed

Data from company interviews

Analyze & Benchmark

9 February 2018

9

2017 Benchmarking Target Categories

10 February 2018

10

2017 ISM Benchmarking Survey

Manufacturing, 65%

Pharma/Biotech/Medical,

18%

Professional Services,

12%

Education, 3%

Retail, 3%

65% of respondents are in manufacturing as Deluxe

3%

12%

3% 3%

21%

6%

41%

9%

3%

41% of respondents are comparable size as Deluxe

11 February 2018

11

2017 ISM Benchmarking Survey

15%

9%

41%

26%

6%

3%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Not Measured

0-1.49%

1.5-3.0%

3.1-5.0%

7.1-9.0%

9.1-12.0%

What is your annual cost savings as a percent of spend for the direct category?

12 February 2018

12

2017 ISM Benchmarking Survey

29%

12%

32%

18%

3%

6%

0% 5% 10% 15% 20% 25% 30% 35%

Not Measured

0-1.49%

1.5-3.0%

3.1-5.0%

5.1-7.0%

7.1-9.0%

What is your annual cost savings as a percent of spend for the indirect category?

13 February 2018

13

2017 ISM Benchmarking Survey

44%

32%

12%

12%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Not Measured

1-2.4%

2.5-4.9%

5-9.9%

What are your annual cost avoidances as a percent of spend for the direct category?

14 February 2018

14

2017 ISM Benchmarking Survey

50%

21%

18%

12%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Not Measured

1-2.4%

2.5-4.9%

5-9.9%

What are your annual cost avoidances as a percent of spend for the indirect category?

15 February 2018

15

2017 ISM Benchmarking Survey

56%

44%

Do you have a spend analytics tool?

Yes No

16 February 2018

76%

24%

Do you have a Sourcing Center of Excellence?

No Yes

2017 ISM Benchmarking Survey

17 February 2018

17

2017 ISM Benchmarking Survey

0%

0%

0%

3%

6%

17%

18%

24%

38%

94%

Increasing Diversity Spend

Insourcing

Regulatory Compliance

Outsourcing

Sustainability

Spend Analytics

Innovation/Automation

Cost Avoidance

Risk Mitigation

Cost Savings

Similar as Deluxe, 94% of respondents rated cost savings as one of their top priorities Respondents selected top 2 priorities

Sourcing Top Priorities

18 February 2018

18

2017 ISM Benchmarking Survey

Supplier Risk Analysis

19 February 2018

19

Sourcing Top Priorities

20 February 2018

20

Other Research Sources

• CAPS Research (review 2017 cross-industry report)

• Hackett Group

• Gartner

• GEP

21 February 2018

21

2018 ISM Benchmarking Survey

• Survey will be released tomorrow, 5/18. • Peg will send out email with link to survey on ISM-Twin Cities website.

• Please complete survey and encourage connections are other ISM member

companies to participate.

• Review 2018 survey questions.

• Contact Corey Gustafson for individual benchmarking opportunities.

22 February 2018

22

Questions