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Merger and Acquisition: Procurement Integration at Thomas Cook PLC
Introduction to Thomas
Thomas Cook Group plc Page 2
to Thomas Cook
Thomas Cook published its first winter sports brochure in 1908.
It did not feature skiing!
Six travel facts you didn’t know about Thomas Cook
Thomas Cook personally conducted the first round-the-world
tour in 1872/73. The tour took 222 days and cost £3001
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3
1
4
In the late 19th century the Nile was known as "Cook's Canal"
Thomas Cook Group plc
It did not feature skiing!
Thomas Cook's monthly European Rail Timetable, still
published today, was first issued in 1873
Thomas Cook started a register of people interested in
travelling to the moon in 1950
For half a century (1889-1939), Thomas Cook owned a
funicular railway at the top of Mount Vesuvius
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5
6
5
2
63
Thomas Cook is the 2nd largest travel Group worldwide
3 21Source markets
4 22 millionCustomers
1 £ 9.3 billionRevenue
2 £ 415 million (4.5%)EBIT (margin)
Thomas Cook Group plc
5 3,200Retail outlets
6 94Aircraft
7 Destinations 2,000
8 Employees 31,000
We are present in 21 source markets
Canada
US
UK
Ireland
France
Belgium
Netherlands
Germany
Austria
Switzerland
Sweden
Norway
Finland
Denmark
Poland
Hungary
Czech Rep.
Slovakia
Thomas Cook Group plc
Note: 1Sweden Norway, Finland, Denmark
IndiaEgypt
Lebanon
We have a leading portfolio of travel brands
Global umbrella brand
Major local brands
Thomas Cook Group plc
Other local brands
We’ve developed a strategy for long term growth
Strategic objectives
Strengthening our business and investing for growth
Growth drivers
Vision
Thomas Cook Group plc
Financial rigourBrandsCustomer insightTechnology
Results orientated
Obsessed with customer service
United as one team Driving robust decisions
Pioneering our future
Values
Product
Enablers
Become a leading
independent travel provider
Become the leading
travel-related financial services provider
Capture growth and
value through M&A and
partnerships
Maximisevalue of
mainstream
P R O U D
Note: Version shown is strategy as of FY09, this has not materially changed since 2007
Main acquisitions completed June 2007 – Sep 2010
Acquisitions¹ Country Date
Mainstream
Travel:
Independent
Travel
Neckermann UrlaubsweltenOeger Tours
GermanyGermany
May 08Sep 10
Jet Tours France Aug 08
Hotels4U.com UK Feb 08
Elegant Resorts UK Apr 08
Thomas Cook Group plc
Travel
Emerging
markets
Elegant Resorts UK Apr 08
TriWest Canada Aug 08
Med Hotels UK Feb 09
Gold Medal UK Apr 09
Travel Plus Czech Aug 07
TC Egypt Egypt/ ME Apr 08
TC India India Mar - Jul 08
Note: ¹ Other acquisitions completed: Wasteels, Airtrack, neckermann.de, urlaub.de; 65% of Iberoservice acquired in 2008
however not included as an acquisition
Procurement Transformation
Thomas Cook Group plc Page 9
‘a global category management approach giving a flexible
operating model for a growing organisation’
Large cost base for Procurement to challenge
£8.9b
Aviation excl. fuel
Fuel
Commission/ OtherCommission & Other £0.6b
• Greater control of distribution and commission rate reductions
• Reduced agent costs in-destination
Aviation and fuel £3.3b
• Better buying of aviation services across the Group
• Best practice sharing between airlines e.g. on fuel efficiency
Thomas Cook Group plc
Cost of providing tourism services Operating expenses
FY 2009 Group Costs
Other Opex
Accommodation
Personnel
Accommodation costs £3.1b
• Better buying process and use of Group buying power
• Co-ordination of activities and best practice sharing
Operating expenses £1.8b
• Operating leverage; spread fixed costs over higher volumes
• Adopt a common approach to airline, personnel, IT etc.
Targets new group procurement function
• Implementing a global category management organisation and processes
• Realizing any bundling opportunity within the group
• Use chances of global sourcing
• Standardise within the group where ever appropriate
Thomas Cook Group plc
• Standardise within the group where ever appropriate
• Reduce no. of suppliers substantially and deliver more value w. strategic partnerships
• Implement a global supplier management to our strategic partners
Leveraging our position through a world class procurement approach
What will change?
•The move from a vertical BU Orientation to a Horizontal Group Orientation in relevant categories
•Coordinated approach to strategy, demand management, category management, sourcing, SRM, contract
management and business service and support
Vertical BU Orientation –
BUs each perform category
management process, have
independent strategies, varying
sourcing procedures and execution
Current Procurement Structure
No
formal
Group Tyres Commodity
Strategy & Direction
Tyres
Strategy & Direction
UK & I
Tyres
Spend & Market
Intelligence
Strategy & Direction
Tyres
Strategy & Direction
West
Tyres
Spend & Market
Intelligence
Strategy & Direction
Tyres
Strategy & Direction
Condor
Tyres Commodity
Spend & Market
Intelligence
Strategy & Direction
Tyres
Strategy & Direction
Scandana
via
Tyres Commodity
Spend & Market
Intelligence
Strategy & Direction
Tyres
Strategy & Direction
East
Tyres Commodity
Spend & Market
Intelligence
Strategy & Direction
Tyres
Spend & Market
Intelligence
Strategy & Direction
Germany
Tyres
Spend &
Intelligence
Strategy & Direction
Tyres
Strategy & Direction
North
AmericaGroup
As Is Spend &
Market Intelligence
Spend & Market
Intelligence
Spend & Market
Intelligence
Spend & Market
Intelligence
Spend & Market
Intelligence
Spend & Market
Intelligence
Category Category Category Category Category Category Category
Thomas Cook Group plc Page 12
Horizontal Group Orientation -
Centrally led Group Procurement
Strategy, direction setting,
governance and decision making
Future Procurement Model
Group
Purchasi
ng
Tyres Commodity
Mgt
Operational Tyres
Procurement
OperationalProcurement
Tyres Commodity
Mgt
Operational
Tyres Procurement
Tyres Commodity
Mgt
Operational
Tyres Procurement
Commodity
Mgt
Operational Tyres
Procurement
Tyres Commodity
Mgt
Operational Tyres
Procurement
Commodity
Mgt
Operational Tyres
Procurement
Tyres Commodity
Mgt
Operational
Tyres Procurement
As Is
To
Be
UK & I
Strategy & Direction
Tyres
Category B
Category C
Thomas Cook Procurement
Etc.East / WestGermanyGroup
Proc
Group
CFO
TC Group Suppliers& Service Delivery
Supply
Business Demand & Requirements
Strategy & Direction
Tyres
Category B
Category C
Strategy &Direction
Category Mgt
Category Mgt
Category Mgt
Category Mgt
Category Mgt
Category Mgt
Category Mgt
Strategy &Direction
Strategy &Direction
Glbal Cat MgrIT
OperationalProcurement
OperationalProcurement
OperationalProcurement
OperationalProcurement
OperationalProcurement
OperationalProcurement
Glbal Cat MgrMarketing
Glbal Cat MgrTraded Goods
Local Procurement
Local Procurement
Local Procurement
Procurements 3 Year Transformation Plan
2010 2011 2012
Achieve VisionAchieve VisionBest in Class
Strategic Business Partners
Centre of Excellence
Leading Edge Technology
Sourcing Teams seen as the Norm
Procurement Organisation Design (Group & Local)
Group Procurement Roles Filled
Group Policies Defined & Agreed
Group Procurement Vision, Plans & Policies Communicated
Stakeholder alignment (Group & Local)
Category Landscape Defined
Group Category Planning Defined
Group Spend Analysis Complete
Management of Strategic Suppliers Defined and Agreed
Supplier Management
Strategic Supplier Days
SRM Toolkit – UK Pilot
Agreed Group Category Plan
Top Talent Program
Development Plans & Succession Planning
Common Category Management Processes
Group E -Sourcing solution in Place
Group Contract Management Solution
Thomas Cook Group plc Page 13–1
Set Vision
Phase 1 Phase 2
Mobilise, Define, Design & Build Implement Refine
Define
Operating
Model
Design, Build
& Implement
Common
Processes
across TC
Best in class realised Skills & Competency Assessments
Common Target Setting
On-line Group Savings Tracker in Place
Procurement Benefits Tracked & Finance Sign of Obtained
Improved Procurement Intranet Usage
Group
Procurement
We have started on the transformation journey…….
Organisation
-New Organisation in place
-Clearly defined Roles & Responsibilities – Global v Local
Q2 Q1 Q4Q3 Q4 Q3Q2Q12010 2011
Status
-Group Wide Savings Tool
-Group Wide e-sourcing solution & Group Spend
-Improved P2P platform in all markets
-Group Wide Contracts Database
Systems
Processes
The commonly agreed transformation map leads Procurement towards its targets
Complete
In Progress
Complete
Under Review
In Progress
Complete
Thomas Cook Group plc Page 14
14
-Group Procurement Guidelines & Policies in Place
-Group Category Plans in Place
-Group Cat Management defined
-Common Processes in place
Processes
-Org chart & functions clearly defined & aligned
-Define competency requirements
-Full development program implemented
-Implement common target setting
People
In Progress
In Approval
In Progress
In Progress
Under Review
Communication & Governance
Stakeholder Engagement & Regular Meetings
In Progress
Not Started
In Progress
Supplier & Market
Thomas Cook Group plc Page 15
Market Consolidation
Procurement Integration Activities – Airline Synergies• 6 Airlines
• UK Merger – Thomas Cook Airline & MyTravel Airlines in 2007/8
• Condor merger talks with Air Berlin in 2008
• Regular individual cost cutting programmes but priority in each airline
• Synergies realised in an opportunistic way
Initial Situation:
• Best practice sharing
• Use of group buying power
• Supplier consolidationTarget
Thomas Cook Group plc Page 16
• Lead joint tenders for global catering supplier, in-flight entertainment etc
• Joint negotiation for ground handling contracts
• Supporting role in harmonising IT systems
• Reduce hotel accommodation contracts for travel
Procurement Action
• Million pounds of savings (up to 40%)
• Group Procurement Director part of Airline Synergy Board together with Airline CEOs
• Agreed within project to centralise fuel, maintenance, ground handling under group procurementResults
Procurement Integration Activities – IT Systems & Suppliers
• More than 1100 IT Suppliers
• >100 different desktop images
• >30 data centres
• Approx 500 IT projects
Initial Situation:
• Industrialise Infrastructure and deliver savings in excess of 25%
• Reduce no of IT-suppliers by 50%
• Deliver synergies with global suppliersTarget
Thomas Cook Group plc Page 17
• One managed global infrastructure tender incl; networks, data centres, desktops and service management
• Global mobile tender
• Supply chain quick-win initiative with common suppliers
• Assessment of further offshoring opportunities
Procurement Action
• Shortlist of two global infrastructure providers forecasting >25% savings
• New global contracts with Oracle, SAP, Microsoft
• Started assessment of Application Management & Development outsourcingResults
Procurement Integration Activities – Brochure Production
• 55 printers producing Thomas Cook Brochures
• Various paper suppliers
• Different paper quality, sizes etcInitial Situation:
• Reduce no of printers to 5-10
• Find single supplier for paper
• Further standardise quality where feasible and usefulTarget
Thomas Cook Group plc Page 18
• Tender paper volume to one single supplier
• Organise strategic partner days to communicate strategy, drive innovation and seek proposals
• Organise ‘look and feel’ board meetings to drive standardisation and downgrading of material
Procurement Action
• Global paper supplier delivered savings of 8%
• Reduced no of printers to 16 as a first step
• Drove out costs of up to 24% due to change of specification
• Agreed on future global tender process
Results
Lessons Learnt after 12 months transformation
• Create common vision and jointly develop strategy
• Stick to your strategy but remain flexible
• Do your stakeholder management
• Communicate successes
• Don’t underestimate cultural differences
Thomas Cook Group plc Page 19