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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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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 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