Getting to World Class Procurement

“Best Practices Sharing”

PasiaWorld 2016 Philippine Conference

10 November 2016

Senior Vice President – Supply ChainLBC

Agenda

Background

Our evolving role

Current state assessment

Best practicesFollow a program

Next Steps

Show the results

Procurement : Background

Governance People Process Enablers• Weak and traditional

policies in place• Treating procurement as

“catch basin” for supply chain issues

• Discounting procurement in strategic planning

• Few procurement centered initiatives to improve bottom line savings

• Low investment on skills development

• Stuck on “buyer only” mentality

• Lack of proper training in best practices to elevate procurement organization

• Maintaining a “silo” mentality with other business units

• Best practices are not made available or totally unused

• Dealing with too many third party intermediaries

• Lack of collaboration with other key business units

• No coordination of spend across geographic & business boundaries

• Idle and disaggregated data left unutilized for factual decision making

• Underutilized eCommerce in expanding the market place

• None-implementation of eProcurement in organization with large processing requirements

After working with numerous companies, we have seen an evident pattern within the procurement organization than can still be improved:

Business Imperative

Procurement is a vital part of an organization that enables conversion of resources to profit. Similar to other profit generating business units, Procurement can create value and improve the bottom line of the company.

Profit; $5.0

Overhead; $5.0

Labor; $10.0

Materials; $30.0

Labor; $10.0

Overhead; $5.0

Profit; $8.0

Materials; $27.0

Three Options to improve bottom line:

• Increase Revenue

• Cut cost – i.e.; Lay Off

• Manage Spend

Balancing Cost and Risk to Create Value!

10% Savings

60% Increase

Invoice

& Pay

Identify

Opportunity

Develop

Strategy

Source &

Negotiate

Implement

Contract

& Execute

Monitor &

Manage

Current State of Procurement : Tactical vsStrategic

HistoricSpend

Analysis

DemandAnalysis

Supply Market Analysis

StrategicSourcing

E-Sourcing

Establish KRA Evaluation

Criteria

NegotiationStrategy

Category Management

RFQ, RFP, RFI

Negotiation /Selection

Create / ManageContract

Best practiceAdoption

ManageOrder

ReceiveInvoices

ReconcileInvoices

ManageExceptions

Pay

TrackKRA

ManageCompliance &

Issues

Process Requisition

Cross-functional

Teams

Procurement Level of Expertise

Process Requisition

ManageOrder

Seamless with Finance/AP

Sample

From Highly Transactional to Strategic

Sample

Company

Ideal

Notes:

• Current activities are highly clerical and

transactional. Limited involvement on

strategic functions

• It is important to increase value in the

following areas:

• Supply Market Intelligence

• Supplier Prequalification

• Strategic Sourcing

• Contract Management

• Supplier Performance and

Scorecarding

Sample

Procurement : From Transactional to Strategic

• Most of procurement activity is on low value transactions.

• This low-value transactions account to approx 85% of all transactions but contributes only 13% of the total sourceable spend.

RangePO

Count% Amount %

<200K XXX 71% XXX,XXX.XX 5%>200k but <=500K XXX 14% XXX,XXX.XX 8%>500k but <=2M XX 9% XXX,XXX.XX 10%>2M but <=5M XX 3% XXX,XXX.XX 11%>5M but <=10M XX 2% XXX,XXX.XX 61%Grand Total XXXX 100% XXX,XXX.XX 100%

85%

15%

13%

87%

Procurement : High volume of buying transactions - SAMPLE

Some Best Practices

Best Practices

S&OP

Strategic Sourcing Tactical Operational

Spend AnalysisMaterials coding/standardization

Category ManagementSupplier Discover & Accreditation

Global Sourcing

eProcurementGroup Buying

Procurement Out-taskingProcurement Augmentation

Sales & Operation Planning

A systematic management decision-making, reporting and communication tool ensuring synchronization of overall strategic goals to the downstream supply chain implementation plan. Balancing overall resource capacity to meet total customer market demand.

Integrate Financial & Operating Plans

Bridge customer value to supply chain efficiency

Regulate master schedules & Sales plan

Provide long range vision to short term

processes

Factual decision making for key business activities

Links strategic plan to details schedules

Strategic Sourcing

Define The Scope

Strategically Segment

Purchases

Select Tailored

Approaches

Apply a rigorous process

Step 1 – Profile Category

OpportunitiesCOMMODITY

PROFILE

Each component of the analysis will contribute to creating a comprehensive commodity profile and opportunity identification.

B. Spend AnalysisHistorical and forecast spend by:• Market • Business unit• Supplier• Product/service• Month

C. Needs AssessmentCustomer requirementsSpecificationsFunctionalitySub-commodity groupingsFuture trendsBusiness impactTechnology

D. Total Cost AnalysisTotal cost elementsSupplier cost breakdownInternal cost driversCost modelProcessing costs

E. Relationship AnalysisCurrent customer status & volumeCurrent supplier status & volumePast performance levels & satisfaction levelsStakeholders who need to be involved

Strategic Sourcing : Profile Category

CRITICAL

Complex specifications requiring complex process

Few alternate products available Few qualified sources of supply New technology/processes involved in

provision of the product or service

Negotiated Close Relationship

STRATEGIC

Strategic to profitability and operations Few qualified supply sources Large expenditures Design to quality critical Complex specifications

Alliance/Long Term Relationships

ROUTINE

Many existing alternate products and services

Low value Small individual transactions Unspecified items for everyday use

eCatalogs/Procurement Card

LEVERAGE

High-expenditure area Many existing alternate products and

services Many qualified supply sources Goods and services are readily available

eBidding/Blanket Purchase Orders

Spend Value

Ris

k &

Op

po

rtu

nit

y

Strategic Sourcing Matrix Exact placement of the sourcing group is less important than its relative placement

15

Strategic Sourcing : Approach

Profile Category & Supply Market

Sourcing Strategy for Sourcing

Category

Supplier Portfolio Generation

Selection of plan for

implementation

Operational Integration with

Suppliers

Negotiation & Selection of

Suppliers

Continuous Benchmarking Supply Market

16

Strategic Sourcing : Approach

GlobalSourcing

Best PriceEvaluation

Volume

Concentration

Product

Specification

Improvement

JointProcess

Improvement

RelationshipRestructuring

StrategicSourcing

Expand supply baseDevelop new suppliersProfit from global supply/demand imbalances

Compare “total” costsModel “should-costs”Renegotiate pricesUnbundle pricing

Combine volume from different commodity categoriesConsolidate number of suppliers Pool volume across unitsRedistribute volume among suppliers

Reengineer joint processesShare productivity gain

Integrate logisticsSupport supplier

operations improvement

Establish/develop key suppliersEmploy strategic alliances/partnering

Implement Supplier Management Program Develop integrated supply chain

Conduct product value analysis & engineering’s substitute materials

Pursue system buying alternatives Optimize life cycle costs

TCO encompasses all direct and indirect costs that are incurred over the life of the material or service

The life-cycle stages are:

• Requirements Definition

• Source Identification

• Acquisition

• Storage

• Installation

• Operation/Maintenance

• Retirement

Total Cost of Ownership (TCO)

37%

28%

16%

12%

7%

Valve Example

Procurement(Price)

Maintenance

Inventory Holding

Overhead

Freight

eProcurement drivers

19

Ease of Use

E-Commerce

eCatalogs

Process Guidance

Supplier Integration

ENABLER

Swifter Buy-in period

Accelerated turnaround

Empowered end-users

Infrequent incompliance

Improved response and services

EFFECTCURRENT STATE

Tedious Process

Manual Sourcing

Disaggregated Data

Process Workarounds

Weak supplier relations

eProcurement on the Rise

Group Buying

Similar business

requirements from difference

organizations pooled

Independent Host

aggregates small buying

into big volume

Independent user deploys eSourcing,

Leverage Contracts and Strategic

Alliances to provide best prices

HOW?

Managing indirect spend can be tedious and consume resources. Consolidation of these items can reduce resource consumption and achieve a strategic advantage with supplier.

Group Buying

Advantages of this approach are both enjoyed by the buyer and supplier.

Cost reduction due to aggregation –

effective sourcing

Leverage common procurement

infrastructure

Use of independent 3rd party PSP host

Share, build, and apply procurement best

practices

Focus on availability, quality, and service

Lower operating cost of sales and client

collaboration

Higher volumes

Proactive members in improving cost and

increasing innovation

What is in it for Buyers? What is in it for Suppliers?

Procurement AugmentationOut-task non-core transactional activities to focus on strategic initiatives

Direct

(core)

Economic Drivers: Make Money vs. Save Money

Scale of

Purchasing

Access to

Suppliers

Access to more

Economical

Labor Sources

Benefits

A fast and effective cost-saving initiative in which easily defined and measurable activities or processes are contracted out whilst the main function is kept in-house. It helps cut costs without loss of control or high set-up costs.

Computer Hardware

Office Supplies Corporate Giveaways

Software

Office Equipment

Facilities

Procurement Out-Tasking

Procurement Out-tasking and Augmentation

Augmentation

Out-TaskingComplete transfer of activities relating to sourcing and supplier management to a third party serviceprovider

The handover including risk transfer of a non-core (or even core) set of businessprocesses or a complete businessfunction to a third party service provider.

Transfer of certain tasks within a particular business process whilemaintaining control over the strategy and implementation. It helps cut costs without loss of control or high set-up costs.

Sourcing of point solutions which may be manual and relatively low-skilled processes or use specialized resource.

Companies tries Out-tasking before going to full Augmentation..

Small manageable projects Potential large savings More tactical and transitional

Large scale undertaking – program level

More modest, but easily defined andmeasurable savings

Strategic and Semi--permanent

Procurement Augmentation

Outsourced procurement allows enterprises to focus on their core competence as procurement service providers achieve overall improvement in key performance indices and leverage technology more effectively.

Receive requisitions from business units

Prepare Purchase Orders to suppliers

Execute and Issue Purchase Orders

Expedite and Follow up with suppliers

Coordinate and Manage documentation flow

File and Archive physical documents

PO Processing Expediting Procure-to-Pay Logistics

Performance Level and Transaction Processing Metric

DiscoverySolution

EnablementScreening &

AccreditationSelf Service

Platform

Dare to Lead!

•People is key

•Demonstrate competence

•Have a plan

•Deploy the plan

•Evolve

THANK YOU!