Procurement for executive leaders
Procurement Advisory Services Pty Ltd
2014 Annual Conference …A driver for change
v5
1994 Director of Procurement Australia and New Zealand for BOC
1997 CPO Chief Procurement Officer [Global] The BOC Group, based in London
Next 5 years in FMCG...George Weston Foods as Director of Procurement
Spent $5,000 per minute non stop for 20 Years
2011 formed Procurement Advisory Services
2012 Commissioned to NSW Government as advisor
Fellow of CIPS …the Chartered Institute of Purchasing and Supply
Sits on the global CIPS Congress …members choice
2013 Interim Managing Director of CIPS Australasia
2014 Global President CIPS
Guest Speaker – Craig Lardner FCIPS
Procurement Advisory Services Pty Ltd
What is CIPS
Definition of Procurement
What was it then …what is it now
10 new pieces of information for the executive leader
A best practice procurement operating model
A basic spend segmentation technique…thank you Mr Kraljic
Finding ‘Quick Win $’ …it’s all in the ‘bubbles’
Suppliers segment you…any idea what box they have put you in?
Your Leaky bucket (what does eat up all your ‘savings’?)
Conclusion…It’s not just about price
Agenda
Procurement Advisory Services
The Chartered Institute of Procurement & Supply
CIPS is the global peak body for the procurement profession
Established 81 years ago…gained ‘Chartered’ status 24 years ago, Privy Council London
Over 100,000 members in 150 countries
Worlds largest
Built upon degree level standard – full membership: MCIPS as post‐nominals
CIPS Australia started in January 2005 5,000 members locally Wide range of training & education programmes, events and member benefits. White papers, research and benchmarking Networking and sharing of best practice
Procurement is the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs, or may need, to fulfil its strategic objectives.
Supply chain management is the continuous planning, developing, controlling, informing and monitoring of actions within and between supply chain links so that an integrated supply chain process results which meets overall strategic goals
The 5 rights.....The right things The right place The right time The right spec The right total cost
What is ‘Procurement’?
Procurement Advisory Services
pro·cure [proh-kyoor, pruh-] verb (used with object), pro·cured, pro·cur·ing.
1. to obtain or get by care, effort, or the use of special means: to procure evidence.2. to bring about, especially by unscrupulous and indirect means: to procure secret documents.3. to obtain (a person) for the purpose of prostitution.4. to act as a procurer or pimp.
The Procurement Professionals’ 8 Commercial Priorities
Back then ...
1. Price reduction
2. Price reduction
3. Price reduction
4. Price reduction
5. Price reduction
6. Price reduction
7. Price reduction
8. Pay supplier…late
Today and now ...
1. Security of supply
2. Lower total costs …and life time cost
3. Risk reduction…and management of residual risk
4. Increased efficiency …getting more from less
5. Faster speed to market …cycle time
6. Improved quality …and competitive advantage
7. Greater added value …$ and non‐$
8. Supplier sourced innovation …and new products
Procurement Advisory Services
Procurement Advisory Services
10 Background facts:
• 60% of your revenue income $ value, will be your supplier spend $ value.
• 1% off your supplier costs brings the same net profit lift (surplus) as a 20% increase in your revenue
• Maverick spend is adding more than 3% of extra cost, to your cost base
• You have too many suppliers…and >50% of all your spend this year will not be under your contracts
• More customers get managed by their supplier than the other way around
• Your Top 10 suppliers will be over 50% of your spend…maybe your Top 5 …most actually don’t know.
• Buying ….Purchasing….Procurement …are all very different
• After setting the ‘specs’ for what you want to buy, over 70% of the value opportunity is gone
• For your total year expenditure, 80% of the decisions are based just on Price…15% on Cost…5% on Value …a lost opportunity for you to get the most total value from your supplier base
• There is untapped value and innovation sitting with your suppliers‐Apple did not invent the iPod…a bank did not invent the ATM…one of their suppliers did
10 new pieces of information for Council leaders
Strategic Procurement ‘Best practice’ Operating Model
A leading practice model addressing all core end-to-end Procurement related activities
STRATEGY
Procurement StrategyProcurement Strategy Sourcing StrategySourcing Strategy Procurement Capability Planning
Procurement Capability Planning
AoP , 3yr Plan andTarget Setting
AoP , 3yr Plan andTarget Setting
Strategic Supplier Management
Strategic Supplier Management
GOVERNANCE
Compliance StrategyCompliance Strategy Balanced ScorecardBalanced Scorecard Risk ManagementRisk Management Process, Policies & Standards setting
Process, Policies & Standards setting
Roles & Responsibilities
Roles & Responsibilities
INTERNAL CUSTOMER MANAGEMENTInternal Customer
EngagementInternal Customer
Engagement
Project Procurement Management
Project Procurement Management
Long Term Demand Planning
Long Term Demand Planning
CATEGORY MANAGEMENT
Supply Market Analysis
Supply Market Analysis
Category StrategyCategory StrategySpend AnalysisSpend Analysis Demand ManagementDemand Management
Supplier Relationship Management
Supplier Relationship Management
Supply Market Development
Supply Market Development
COMPLIANCE MGMTInternal customer
support and administration
Internal customer support and
administration
Compliance monitoringCompliance monitoring
SOURCING MGMTNeeds analysisNeeds analysis
RFX CreationRFX Creation
Supplier SelectionSupplier Selection
Contract NegotiationContract Negotiation
RFX analysis andRecommendationRFX analysis andRecommendation
Contract PreparationContract Preparation
Contract ExecutionContract Execution
CONTRACTS MGMTSupplier contract
complianceSupplier contract
compliance
Company contract compliance
Company contract compliance
SUPPLIER MGMT
Contract cycle /monitoring
Contract cycle /monitoring
Supplier on-boardingSupplier on-boarding
Supplier developmentSupplier development
TRANSACTIONAL SUPPORT & REPORTING
Order placement
Order placement ReceivingReceiving Supplier
PaymentSupplier Payment
Benefits Tracking & Realisation
Benefits Tracking & Realisation
Contract adminContract admin
Operational Reporting
Operational Reporting
T’s & C’s Contract Review
T’s & C’s Contract Review
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SPM Supplier performance management
and SLA
SPM Supplier performance management
and SLA
Procurement Advisory Services
Supplier segmentationSupplier segmentation
Internal customer satisfaction
Internal customer satisfaction
Right P Communications Plan and execution …using a structured professional approach to target audience and message needed
Professional Procurement : Strategic Sourcing Analysis
List ‘spend by supplier’ in $ descending order , split by category of spend = (spend profiling)
Focus on top segment …80% spend with top 20% suppliers = (Perato analysis)
Map a 2 x 2 model(s)…Criticality of spend and complexity of source = (supplier segmentation)
Obtain market data of potential new sources/suppliers = (supply market analysis)
Multiply possible savings by volume to assess the $ size of the opportunity, Collaborate with others = (Leveraging Quick wins)
A simple procurement scoping study to quantify possible opportunity for savings
Basic spend segmentation …The Kraljic Matrix
Vital supply lines
to be secured
Strategicrelationships
to be developed
Indirect purchases
to becommoditised
Indirectsupply lines
to beleveraged
Mapping expenditure against risk
Low spend:High risk
High spend:High risk
High spend:Low risk
Low spend:Low risk
High SpendCommoditiesI.T. Hardware, fuel, utilities,
travel, temp labour
Raw MaterialsBeef for McDonald's, IT Services to a bank,
Iron ore for steel processorElectricity for an Aluminium smelter
Diesel for long haul truckerWaste services for the Council
ConsumablesStationery
office supplies, Cleaning,
FM services
VulnerabilitiesSpecialist
components, Water,
C.A.T. tyres, Legal advice
Bottleneck Strategic
Routine Leverage
Ris
k hi
gh
$ Spend high
1
4
2
3
Cons –Grinders &Liners
Cons – General
Temp labour mgment
Cons –Drilling
Facilities mgment
Cons- Maintce
Fuels & Lubes
Equipmenthire
Explosives Travel &Entertainment
IT Hardware
Contractors –Professional
Contractors- Admin
Ground Support
Consumables- Packaging
Relative Ease Of Implementing Sourcing Strategies
More Difficult Easier
Econ
omic
Ben
efit
Hig
hLo
w
Safety
Rated on dollar benefit
Rated on• Contract restrictions• Supply market difficulty• Critical to operations• Sensitivity to change
Contractors –Maintenance
Chemicals
Consulting
Bearings
Size of bubble represents spend p.a.
Contractors -Mining
Freight &Logistics
Cons –Indust& Elect
Identify Opportunities ( Quick wins)
IT software
The suppliers view (of you)
High
Low
HighLow
Supplier view of your appetite to step-up
Potential for notable Incremental gain to the Supplier
EXPLORE INNOVATE
DISTRACTION STEALTH
Segmentation done by suppliers to find “Customers of Choice”
….and are you segmenting your suppliers in return accordingly?
Procurement Advisory Services
Key strategic account.Allocate appropriate resources to nurture and protect.Give lotsGoal of growth
Exploit account.Maximise profitability. Invest NIL. Squeeze lotsGive nothingCircumvent the ‘buyer’Lose with minimum painLowest cost to serve
account.Serve with minimal resourcesAutomateGet volume or charge more.Invest, but not with warm bodies
Future wealth account.Build trustDiscover what we don’t knowMake us ‘needed’Establish our USPGet intell on incumbents
This also explains why they behave, the way they behave, towards you
Benefits of productivity & cost management initiatives
The deal cannot be complied with (unworkable)
Non-compliance : Savings are dependant on buying under the deal
2%
Other costs are increasing
illegitimate consumption increase (poor usage/waste)
Unforeseen cost increasing event inside our control (should have been foreseen)
Saving illegitimately passed on to customer
Saving legitimately passed on to customer (e.g. to protect
market share)
Unforeseen cost increasing event outside
our control
Legitimate consumption increase
Bad deals that cost us to fix or get out of
9%
The deal cannot be complied with
(not competitive)
The Leaky bucket - Why all “benefits” don’t end up as “savings”
Procurement Advisory Services
Over 80% addressable spend under procurement management with ‘run cost’ of department at <1% spend
A CPO at an executive reporting level with an agreed written procurement strategy in place
Procurement delivery aligned with the corporate (Council) strategy & goals
Working closely with a streamlined / rationalised supplier base
A well trained procurement team performing to international accepted professional standards
A risk management process in place – and specifically with all strategic suppliers …and on your key raw material inputs
A balanced scorecard measuring outcomes, supply performance, benefits/savings & risk
Saving only 1% on a $500m spend, with a team of 10 delivers 500% RoI
Seven characteristics of global best practice today
It’s not just about price ...
The modern day Procurement professionals do more than cut costs and count benefits
They deliver sustainable commercial solutions across the business
The best procurement teams align their goals specifically to the Executive strategy and policy agenda
They work on what the business ‘needs’ …not what procurement likes to work on
And these outcomes...
Better Security of Supply
Lower risk profile
Greater efficiency
Improved quality
Increased speed
More sustainable options
Lower carbon costs
Use of locked funds
Capture innovations
Stronger governance
Improved cash flow
Clearer financial control
Conclusion
Q&A
CraigLardnerFCIPSProcurementAdvisoryServicesPtyLtd
[email protected]+61(0)295233704+61(0)406429668
Born Sydney AustraliaPrivate sector for 35 years…Worked internationally [London based] for 10 yearsQualifications in Accounting…Mt Eliza management school…Columbia University program Strategic management
The BOC Group …foundation years in Commercial, inventory, Sales and Marketing.Executive roles in Customer Service, Industrial retailing and Procurement1994 Director of Procurement Australia and New Zealand….then to London as Chief Procurement Officer [Global]
Travelled in the CPO role extensively for 10 years focusing on supply and procurement techniques across the world in both private and public sector enterprises on all continents.Building capability, best practice and ethical sourcing.
GWF…5 years in FMCG...George Weston Foods as Director of Procurement 2009 winner ‘Australia’s best’ Procurement2011 CIPS Annual award winner in 2 categories:‐Best People development program ,and‐Most Improved Procurement Operation
Business coach and mentor to young professionalsFacilitator on Risk managementCoach of the year GWF 2010
2011 formed Procurement Advisory Services…an independent procurement consulting enterprise for both private and public sector.
2012 Commissioned to NSW Government as advisor and subject matter expert on professional procurement for their whole of Government reform agenda.
Guest lecturer at Universities (Australia and Europe) on the practitioners approach to modern procurement.
Guest speaker at Industry seminars as subject matter expert on procurement practices, tools, processes, policies and capabilities.
Specialist as a change agent and procurement business transformation.
Fellow of CIPS …the Chartered Institute of Purchasing and SupplyVoted as congress member for Australasia on CIPS Global congress in London…3 year termAppointed Global CIPS president for 2014. First Australian to be elected as president in 80 year history of the Institute.
Regarded as one of the most impactful and experienced procurement professionals in Australia
Craig Lardner FCIPS (Background)
Procurement Advisory Services