Procurement Models for the Future

Did You Know!

That now is the time to take

the lead – only a handful of

pioneers have started

investing in 4 areas of

procurement excellence!

Dhawan, Walters, Bhattacharjya Procurement Models for the Future

Copyright © 2011 Accenture All Rights Reserved.

Procurement and Supply Chain Strategy

Procurement Models for the Future

Raj DhawanConsultant, SCMAccenture

David WaltersProfessor, SCMUniversity of Sydney

Jyoti Bhattacharjya & Yujie CaiUniversity of Sydney

What to Expect Today• Learn about future trends in procurement

– Learn what high performers in procurement do– Self-assess the maturity level of your procurement

organisation– Discuss and reflect what needs to be done to

transform your procurement organisation– Learn about immediate next steps



Agenda


Contextsetting

Self Assessment Future Trends Discussion &Analysis

• Technology• Process• Organisation

• Current state • Target state

• Group discussion• Live analysis• Results and debrief


• What lies ahead• Technology• Process• Organisation

Discussion Framework



Process

Technology

Organisation

Advanced Analytics

Risk Management

Closed-loop Spend Management

Capability Gaps

1

2

3

4

Basic

Average

Above Average

AdvancedNext Level of Excellence

Procurement Maturity Continuum



Current Maturity Levels Future

leaders

laggards

Procurement

Process

Technology

Organisation

Agenda



• Maturity• Self Assessment• Future Trends

TECHNOLOGY

PROCESS

ORGANISATION

TECHNOLOGY

Technology: Introduction



• Use of technology in procurement• What really matters• How to get where you need to be• Includes

– Use of technology – Requisition to Pay

Technology: Maturity Continuum


Basic Average Above Average Advanced

Upstream technologies

No e-tools available Manual

communication with vendors

Simple RFxs emailed, some piloting of reverse auctions for a few categories

No procurement decision-support capability

Limited awareness of eCommerce benefits

RFx, reverse auction, spend management and reporting are used for all categories as appropriate

Procurement actively involved in driving technology enablement (e.g. eSourcing)

Moderate use of Internet based RFQ/RFP solutions

Extensive use of technology enablers, including e-Procurement, eSourcing, and e-Auctions

Self service / corporate procurement portal

eSourcing is integrated with Contract Management and the R2P process

Spend Visibility

No Management Information reports available

Reporting is available but there is limited granularity and coverage across total corporate spend

Manual management Information reports

No consistent reporting framework

MIS reporting functionality linked to procurement strategy and targets

Data and Management Information drives procurement and sourcing

Strategic decisions enabled by real time management information reporting

Management reporting fully aligned to business strategy

Market Intelligence

No market data/ external information outside the public domain is collected and used

Subscriptions are taken out with providers of indexes and market data on an ad hoc basis

There are subscriptions to all required information sources to support effective sourcing

Dedicated resources are available to pull together market information

Automated systems deliver rich external information to buyers through a customised portal

A pool of dedicated sourcing analysts provide customised information to buyers on an as needs basis


Technology Use

Technology: Maturity Continuum



Ordering Isolated transaction processing systems with multiple manual hand-offs

No single integrated system or R2P process exists

Transaction systems exist but are dispersed and disaggregated

No single R2P process or system exists across the business

E-Catalogue only available for “easier” categories

Systems and processes are integrated to accelerate transaction processing

Buyer portal is available and utilised

E-catalogues available for key categories

ERP leveraged on organisation-wide basis allowing full data capture, common measurements, and decision support capability

End to End integration channels optimised by category & user environment

Receipt to Payment

Accounts Payable processes are managed by local teams

The majority of processes are manual and paper based

Limited usage of 3 way match

Accounts Payable activities are managed by a centralised team

A single instance of a dedicated system is used for processing transactions

3 way matches are commonly used

Some payment and mismatch issues occur

Accounts Payable is managed by a centralised team

3 way matches are used for the majority of spend

Processes are generally automated

Payment and mismatch issues are limited

Accounts Payable activity is consolidated in a shared services center

3 way match process exists for all transactions except defined and documented exceptions

There is a high degree of process automation and leading practice technologies are adopted e.g. OCR

High levels of on-time payment and few mismatches

Master Data Mgmnt

No common master data or standards

Master data processes are not defined and documented

Some master data harmonisation has taken place but discrepancies still exist

A relatively high proportion of items have been coded

Dedicated master data resources may exist but processes are informal

Common vendor master Common item master Most products have been

coded Master data processes

with approvals and controls exist but some are manual

Dedicated coding team

Common vendor master Common item master Virtually all appropriate items have been coded Automated master data processes with

approvals and controls Dedicated coding team


Requisition to Pay


Ordering Isolated transaction processing systems with multiple manual hand-offs

No single integrated system or R2P process exists

Transaction systems exist but are dispersed and disaggregated

No single R2P process or system exists across the business

E-Catalogue only available for “easier” categories

Systems and processes are integrated to accelerate transaction processing

Buyer portal is available and utilised

E-catalogues available for key categories

ERP leveraged on organisation-wide basis allowing full data capture, common measurements, and decision support capability

End to End integration channels optimised by category & user environment

Receipt to Payment

Accounts Payable processes are managed by local teams

The majority of processes are manual and paper based

Limited usage of 3 way match

Accounts Payable activities are managed by a centralised team

A single instance of a dedicated system is used for processing transactions

3 way matches are commonly used

Some payment and mismatch issues occur

Accounts Payable is managed by a centralised team

3 way matches are used for the majority of spend

Processes are generally automated

Payment and mismatch issues are limited

Accounts Payable activity is consolidated in a shared services center

3 way match process exists for all transactions except defined and documented exceptions

There is a high degree of process automation and leading practice technologies are adopted e.g. OCR

High levels of on-time payment and few mismatches


Technology: Self Assessment


√

√

Self Assessment is anonymous

ILLUSTRATIVE

1.Identify current state using2.Identify target state (2-yr horizon) using

√

Future: Advanced Analytics



The process of using quantitative methods to derive actionable insights and outcomes from data.

• Involves the capture and use of data to support fact-based decision making and gaining competitive advantage

• Typically reporting on what has happened in the past

• Using predictive analytics based on historical data to ascertain what will happen in the future

Overview




Source: Competing on Analytics: The New Science of Winning (Davenport / Harris)

What?

Com

petit

ive

Adv

anta

ge

Sophistication of Intelligence

Optimization

Predictive Modeling

Forecasting/extrapolation

Statistical analysis

Alerts

Query/drill down

Ad hoc reports

Standard Reports

“What’s the best that can happen?”

“What will happen next?”

“What if these trends continue?”

“Why is this happening?”

“What actions are needed?”

“What exactly is the problem?”

“How many, how often, where?”

“What happened?”

Predictive Analytics

Descriptive Analytics

Source: Competing on Analytics: The New Science of Winning, Davenport / Harris

Sophistication Levels




• When to order and how many• Accurate information on volume

leading to better negotiating power

• Lesser chances of going out of stock or having excess

• Improved communication with business units and vendors

Improved understanding of stocks and flows

Source: When to Map and When to Model, PhD thesis, Univ of Sydney, Rajat Dhawan

Evidence

• Native ability – to comprehend complex procurement

issues is limited – too many variables to process

• Fact-based decision making – leads to better results – accurate,

measurable, resulting in lower costs and greater savings.




• Analytical tools – improve our ability to capture right

information, process it and help in informed decision making.

Conclusion




• Organisation– Top leadership awareness and support– Partnership with business units– Skill-set not available

• Processes – One-off versus operationalised

• Systems– Right technology not available; antiquated– Technology not usable

• Data– Data in multiple systems– Data not captured; existing data not analysed

Source: Analytics Coming of Age, Procurement Professional (CIPSA), Apr 2011, Rajat Dhawan & Olaf Schatteman

Implementation Challenges

Agenda




TECHNOLOGY

PROCESS

ORGANISATION

Process: Introduction



• Key processes in procurement• What really matters• How to get where you need to be• Includes

– Sourcing and Category Management– Contract Management– Supplier Relationship Management

Process: Maturity Continuum



Methodology & Process

No documented strategic sourcing methodology exists

Significant expenditure is managed outside procurement

Procurement use "Three quotes" approach, mainly with incumbents

A documented sourcing methodology exists and is used to support most sourcing activities

Procurement managers/ budget holders provide sign-off for sourcing decisions

The sourcing process incorporates customer requirements analysis and some market analysis

Basic category planning takes place, mainly locally or on the Business Unit level

Limited expenditure is managed outside procurement and the standard process

A documented sourcing methodology exists, procurement staff have been trained in it, and it is robustly applied to all appropriate spend

The sourcing process incorporates defined approval stage gate meetings attended by cross-functional teams

All stages of the sourcing process are template driven

Detailed and robust customer requirements and market analysis is undertaken

Detailed annual category planning takes place, aggregating demand across sites, business units and CAPEX/ OPEX

Standard supplier selection criteria are available at the company level and incorporate TCO measures

All spend is managed and controlled by procurement

Cross-functional teams use a standardised and documented sourcing methodology in which all members have been trained

Sourcing governance is monitored by cross-functional executive teams

Standard sourcing methodology templates that have been customised at the category level are available. Cross-functional teams challenge specifications and requirements using fact-based market and demand information provided by dedicated analyst teams

Category planning incorporates global and low cost sourcing analysis and has a long term focus

Standard supplier selection criteria are available at the category level and incorporate TCO measures


Sourcing and Category Management




Contract Management

Contracts are often managed outside the function by non-commercial staff

No or limited contract management processes and no contract database

Simple boilerplate contracts usually for spot purchases

Procurement is involved in the management of contracts for the majority of spend areas

Multiple basic informal contract databases

Ad hoc contract compliance management

Contract horizon based on immediate requirements

Procurement owns commercial relationships

Contracts based on supplier alliance agreements

Tools to centrally manage contracts and contract compliance are in place

Procurement owns commercial relationships and is supported by appropriate technical resources

There is a defined contract implementation methodology

Contracts manage risk, and focus on continuous improvement & value add

Centrally logged contracts and pro-active management of contract compliance

Product & Supplier Portfolio Management

There is a long tail of suppliers with a low amount of spend and a high number of one-time vendors

There are no or few documented product standards

There have been no or few attempts to rationalise the number of different products used

Product standards have been implemented in some areas of spend

A number of product rationalisation products have been run

There are common agreed technical standards for the majority of products

A process is in place between technical and procurement teams to agree product standards and specifications

There has been a high degree of product and service rationalisation

Common agreed technical standards exist for all commonly used products

Procurement and technical staff work collaboratively as part of cross-functional teams to select products that meet technical requirements and standards, as well commercial priorities


Contract Management




Supplier Performance Management

No formal supplier performance metrics

Procurement organisation and suppliers have no clear understanding of key success factors

Key success factors known but not directly tied to performance measures.

Possible to track supplier delivery/ quality performance with manual effort.

Quality, delivery, lead-time measures available and used in negotiations with suppliers and linked to total cost model analysis.

Periodic reviews of performance with suppliers.

Key supplier metrics collected passively and available to decision makers on demand.

Measures linked to total cost model. Suppliers track their own status, take

corrective action as necessary.

Supplier Relationship Management

No supply base segmentation

Relationships are managed at a relatively junior level in the buying organisation for most suppliers

SRM is reactive with interactions - primarily when problems occur

The supply base is segmented but implementation of strategies is sporadic

Little proactive feedback to suppliers

Vendors providing limited value added services

Supplier interactions limited to technical support rather than value add

Some long term planning has taken place with a few key suppliers

Some proactive feedback to suppliers

Collaborative arrangements with some key suppliers

Suppliers provide basic value add activities

Suppliers are empowered to innovate in delivering services; innovative deal structures are put in place with key suppliers to share risk and reward

Strategic planning conducted with suppliers using TCO analysis

Multiple levels of interaction with suppliers

Joint Process/Product improvements, including e-Supply Chain integration.






Business Performance and Productivity Drivers:Supplier

Responses

Performance Management: Revenue Growth and Market Response

Maximise the performance of key management ratios (ROI, working capital productivity, marketing, etc) by creating value adding processes that reduce risk.

Fixed Capital EffectivenessUse service to improve the return on investment or to the lower investment in facilities

Risk ReductionCollaborative activities such as R&D and industry procurement activities not only reduces costs but increases quality and reliability through component standardisation and therefore customer confidence

Cost ManagementReduce value-in-use (acquisition) -costs; installation, operating costs, staff training, and maintenance costs etc.

Working Capital EfficiencyUse service (frequency, reliability and accuracy) to accelerate transfer payments and lower inventory holding costs and cash flow generation.

Optimising the Use of Time The effective (strategic) use of time is reflected in time-to-market and competitive advantage gained. The efficient (operational) use of time is the time response to customer requests (quotations, orders, deliveries, returns, etc) and its competitive impactCustomer Satisfaction

Create order winning product-service criteria based on customer facing processes (value drivers) – rather than order qualifying criteria

Supplier Added Value Activities that Increase Customer Productivity Performance

Source: Walters (2011)




Operational Efficiency: SRM

Financial Operating Response ManagementInventory productivity

Receivables Payables Cash2Cash CycleOperating cash Working capital cycle efficiency

Synchronised Operating and Cash Cycles

Procurement and Manufacturing Operations Response ManagementPer cent throughput Relative manufacturing cycle time

Relative manufacturing costs/revenues Per cent on time delivery Lead time flexibility response Order flexibility response

Order cycle time (P/A) Resources utilisation (P/A) WastageResources productivity (P/A)

Inter-organisational “Operations” Network Facilities





DemandChainProfile

TargetCustomer/Market

Customer Value Drivers

Value Proposition

Value Delivery Considerations & Implications

Demand Chain Analysis

Managing Value Chain Network Planning & Performance

Product-service specification and

design

Procurement, Manufacturing and Inventory Management and “Production”,

Marketingand Sales Operations

ValueDelivery:

Distribution

Customer Services

Management

Response Management: Integrating and Coordinating ResourcesSupplier Relationship Management Customer Relationship Management

Competitor Relationship Management



Identifying and Targeting the Customer(s) - Managing the Response


Contract Management

Contracts are often managed outside the function by non-commercial staff

Procurement is involved in the management of contracts for the majority of spend areas

Multiple basic informal

Procurement owns commercial relationships

Contracts based on supplier alliance agreements

Tools to centrally manage contracts and contract compliance are in place

Procurement owns commercial relationships and is supported by appropriate technical resources

There is a defined contract implementation methodology

Product & Supplier Portfolio Management

There is a long tail of suppliers with a low amount of spend and a high number of one-time vendors

There are no or few documented

Product standards have been implemented in some areas of spend

A number of product rationalisation products have been run

There are common agreed technical standards for the majority of products

A process is in place between technical and procurement teams to agree product standards and specifications

Common agreed technical standards exist for all commonly used products

Procurement and technical staff work collaboratively as part of cross-functional teams to select products that meet technical requirements and standards, as well commercial priorities


Process: Self Assessment


1. Identify current state using2. Identify target state (2-yr horizon) using

√

√

√


ILLUSTRATIVE

Future: Risk Management



More needs to be done to manage risk • the political, environmental, and economic instability of late will stay, and

leaders recognise that risk must be proactively managed.

Future leaders will need to:

• Realise risk issues have a greater cost impact, and take up far more time, than most buyers’ efforts to capture savings through negotiation.

• Address supplier and price volatility risks when developing procurement strategies.

• Apply a comprehensive, end-to-end approach to anticipating, monitoring and mitigating risk.

• Use of a “risk management framework”—a comprehensive, end-to-end approach to anticipating, monitoring and mitigating risk.

Risk

Source: Procurement Mastery Research, Accenture, 2011




• Organisation & Governance• Design a well-defined organisation structure with explicit roles and responsibilities and accountabilities to

decisions and identify risk ownership.

• Risk Management Processes • That identify critical supply categories and vendors. The processes should capture risks and include monitoring

activities to identify potential problems. They must be consistent throughout the organisation.

• Risk Analytics • To identify, measure and monitor operational risks. They should comprise metrics that allow a company to see

when and where an operational risk exists and focus it with related management initiatives. Analytical tools should also quantify the impacts of risk items.

• Risk Reporting • That delivers focused, relevant and timely information that enables management to make informed decisions

Ideally analytics should help management predict an event or risk.

• Information Management and Data Governance• Should help maximise performance by integrating and coordinating processes across organisational boundaries,

and regions. It requires managing and making internal and external information transparent to management to achieve an enterprise-wide perspective of risk that contributes to better decision making.

Five ‘Essentials’ of Risk Management

Future: Closed Loop Spend Management



Sales

Fees

Travel

Labor & Benefits

Transport

…

HR Marketing Supply Finance IT/IS …

Appoint Senior Category Owners, aligned with Procurement Category Mgt

Define consumption policies, optimized specifications and optimal sourcing strategies

Category Ownership2 Zero-based Budget

Create bottom-up budget starting from a zero base, adhering to strict policies

Control & MonitoringMonthly Variance Report by Sub Category and Entity Level - Example figures -

Apr-08in USD

Entity xyzCost Category Budget Mon Actuals Mon Var Mon Var Mon %

01 Fees 12,984,168 11,454,191 1,529,977 12%0102 Insurance 7,543,567 6,209,382 1,334,185 18%0104 Audit Fees 2,599,883 2,389,493 210,390 8%0105 Recruitment 1,508,845 1,392,830 116,015 8%0106 Legal Fees 677,786 809,392 -131,606 -19%0107 Consultant Fees 197,196 190,002 7,194 4%0108 Medical fees 456,890 463,092 -6,202 -1%

02 Travel & Meetings 16,280,335 17,079,003 -798,668 -5%0201 Flights 3,320,554 3,492,099 -171,545 -5%0202 Lodging 6,065,169 6,209,392 -144,223 -2%0203 Meetings & Events 2,659,867 2,589,383 70,484 3%0204 Meals 2,426,755 2,393,299 33,456 1%0205 Ground Transportation 1,807,990 2,394,830 -586,840 -32%

06 Telecom 2,795,000 2,167,667 627,333 22%0601 Mobile Services 2,089,000 1,628,739 460,261 22%0602 Telephone Services 706,000 538,928 167,072 24%

TOTAL TOTAL 47,769,282 46,253,864 1,515,419 3%

Track actual variances against the budget and document during monthly meetings to ensure budget achievement by year end

5

Visibility

Provide full transparency on ‘who-spends-how-much-on-what’

1

Procurement

Translate into Buying Channels and “I need” portal and transfer to Procurement Middle Office - BSC

Closed Loop

3

4

Model



The visibility is created by mapping the key financial transactional data into a matrix made of Cost Categories and Business Functions

GL

Accounts

Cost CentersCost Category

structure

Travel

Marketing

Transport

Fees

Services

…

Finance HR IT/IS …

DetailedTransactional

Data

Functions defined by Organisational structure

Future: Closed Loop Spend ManagementVisibility

ILLUSTRATIVE

Low Hanging Fruit



• Define maximum CRM spend by segment

• Enforce max. phone allowance

• Do not allow business class for flights < 6h

• Define POS maximum spend by segment / Only purchase in POS Catalogue

• Challenge Consultant spend not supported by strategic plan

Each Cost Category owner is responsible for identifying and prioritising significant opportunities in their area which are easy to implement

HighLow

High

Size of opportunity

Ease of implementation

Low

Medium

Medium

• Challenge Market Research expenses

• Centralize all office supplies procurement

• Optimize office space in sales centers

• Define mandatory agency fees list

• Reduce # travels to same destination

• Challenge sponsorship costs vs. brand equity building

• Enhance Employee Referral Program and E-recruitment

Priority for

Implementation• Implement new car

policy and review entitlement

Future: Closed Loop Spend ManagementCategory Ownership & Policies

ILLUSTRATIVE



At the end of the process, the Category Owner will present its conclusion to the Budget Holder and they negotiate on the Final budget. The scope will drive the effort

Negotiation Rounds

Category owner

Budget holder

Send New Proposal

Final agreement on the Budget

Quantified Opportunities To Optimize Budget

Budget

Reduce cost of dues & memberships by defining a policy limit on spend per FTE per year on dues & memberships

Check & challenge company cars costs

Align & benchmark the spare parts, maintenance and 3rd party labor consumption per brewery (cost / produced hl)

Reduce price by benchmarking consultancy/audit rates

Reduce consumption by evaluating necessity of consulting/audit projects

Reduce FTE driven office supplies consumption by defining a minimum allowance per employee (20 euro per emp. per month)

Reduce the cost of Secretaries, Administrative Assistants, Receptionists and Call Centers by benchmarking with other functions

Reduce lodging costs by reviewing the list of preferred hotels

Reduce frequency of travel by rationalizing trips of employees from the same function to same destinations

Opportunity

860Corporate Affairs

500Labor & Benefits

1.000Fees

1.000

450Maintenance

785Travel

1.000

700Services

30

Savings (k€)Cost Category

Reduce cost of dues & memberships by defining a policy limit on spend per FTE per year on dues & memberships

Check & challenge company cars costs

Align & benchmark the spare parts, maintenance and 3rd party labor consumption per brewery (cost / produced hl)

Reduce price by benchmarking consultancy/audit rates

Reduce consumption by evaluating necessity of consulting/audit projects

Reduce FTE driven office supplies consumption by defining a minimum allowance per employee (20 euro per emp. per month)

Reduce the cost of Secretaries, Administrative Assistants, Receptionists and Call Centers by benchmarking with other functions

Reduce lodging costs by reviewing the list of preferred hotels

Reduce frequency of travel by rationalizing trips of employees from the same function to same destinations

Opportunity

860Corporate Affairs

500Labor & Benefits

1.000Fees

1.000

450Maintenance

785Travel

1.000

700Services

30

Savings (k€)Cost Category

Send New Proposal

Future: Closed Loop Spend ManagementZero-based Budget

ILLUSTRATIVE



Actual consumption is triggered by the “I need” portal in which policies and how to order/work with procurement is guided in the so-called buying channels

“I need” Portal

Procurement Middle Office

Policies and how to order/work with procurement is guided in the so-called buying channels

Preferred suppliers are presented

Prerequisites and other useful information can be consulted

Invoices are booked by the back-office in the right cost category

Often requiring chart of account changes/ training of AP people to properly book invoices

The back-office also acts as supplier helpdesk

Future: Closed Loop Spend ManagementProcurement



Each month a cascade of meetings takes place where analyses and actions are filtered up through to the Cost Category Owners for review and action

* Depending on the month closing cycle the monthly routine will start as of week 2 or week 3

1 2 3 4 5 ……

Regional Meeting

Category Meeting

Executive Team

Meeting

Reg

ion

Glo

bal

1-2h

1h

0,5-1h

Workday of Week 3 *

Analysis of variances at regional level per Category

Analysis of variances at

Sub-Category level

e.g. EMEA Meeting

e.g. Services Meeting

Site Meeting

Cou

ntry

1-2h

Analysis of variances at site

level per Category e.g. Country Meeting

Future: Closed Loop Spend ManagementControl & Monitoring

ILLUSTRATIVE

Agenda




TECHNOLOGY

PROCESS

ORGANISATION

Organisation: Introduction



• What is the role of procurement organisation in managing spend

• Centralised versus decentralised structures• How to get where you need to be• Includes

– Procurement Strategy– People & Workforce

Organisation: Maturity Continuum



Vision & Strategy

A basic procurement function exits but has no documented strategy

Procurement has a basic set of priorities and objectives have been created

There is a defined procurement strategy which has been derived based on organisational priorities and as a result of external benchmarking; strategy is executed through a series of coordinated projects

Procurement strategy is vertically integrated to corporate strategy

The strategy is cascaded through a departmental objective setting process and embedded in personal performance objectives

Organisational Alignment

Procurement viewed as an back office function

Executive sponsorship is limited

Procurement is perceived as having a tactical role

No Procurement representation in executive leadership team

Procurement viewed as important to enable corporate savings

CPO leads centrally with strong leadership and dedicated resources in place

Procurement viewed as a strategic function critical to the future of the business

CPO sits at Board Level /reports to CEO

Metrics and Measures

No clear performance metrics

Key measures focus on cost/price competitiveness

The scorecard incorporates other procurement focused metrics

A balanced scorecard for purchasing is used but is manually derived

There is a feedback loop into operations for performance data

Metrics are communicated to stakeholders on a periodic basis

Purchasing targets set at board level Metrics are tied to company strategic

objectives and aligned to drivers of shareholder return

The balanced scorecard is IT enabled


Procurement Strategy

Organisation: Maturity Continuum



Organisation Structure

Decentralised sourcing No cross-division

interaction

Some policies in place to guide centralised sourcing activities

Procurement excluded from strategic planning

Procurement treated as a central corporate function with strong leadership and dedicated resources

Centrally led procurement organisation optimised to manage organisation-wide spend portfolio

Training & Development

No formal requirements on competency building and no clear career path; no formal training program exist

Minimal focus on career development and minimal investment in training

In most cases individual competency linked to career progression and rewards

Training matrix outlines skills necessary by position and reviewed at individual level

Individual competency linked to career progression and rewards

Training linked to strategic priorities, includes Procurement and Business skills

Staff & Performance

People deployed to meet Procurement administration activities

Traditional transactional skill sets

Procurement attracts and develops personnel in management and category focused sourcing areas

Some strategic thinking skills in addition to transactional skills

Network of global people/skills including partners, suppliers and outsourced services

People developed, dynamically matched, and cross trained throughout the corporation


People and Workforce


Vision & Strategy

A basic procurement function exits but has no documented strategy

Procurement has a basic set of priorities and objectives have been created

There is a defined procurement strategy which has been derived based on organisational priorities and as a result of external benchmarking; strategy is executed through a series of coordinated projects

Procurement strategy is vertically integrated to corporate strategy

The strategy is cascaded through a departmental objective setting process and embedded in personal performance objectives

Organisational Alignment

Procurement viewed as an back office function

Executive sponsorship is limited

Procurement is perceived as having a tactical role

No Procurement representation in executive leadership team

Procurement viewed as important to enable corporate savings

CPO leads centrally with strong leadership and dedicated resources in place

Procurement viewed as a strategic function critical to the future of the business

CPO sits at Board Level /reports to CEO


Organisation: Self Assessment


√

√


ILLUSTRATIVE

1. Identify current state using2. Identify target state (2-yr horizon) using

√

Future: Workforce Capabilities



• Running powerful training programs that not only improve the skills of its employees but helps make the function – with procurement at its core – an attractive area to work and a breeding ground for talent for the company as a whole

• Capability development initiatives – continual improvement of on-the-job skills at every level

• Programs that focus on “learning how to learn”, as well as how to work competently with cross-functional counterparts in the safety, legal, finance, projects, engineering, and operational functions;

• Action learning programs – activities in which real business problems are solved in small groups

• Individuals targeted as high performers within procurement, finance, HR, operations, etc., are eligible for additional training, special projects, and networking opportunities

Research shows that not even the leaders are doing well with workforce and organisation.

Here's what some companies are doing to move out in front...

Source: Procurement Mastery Research, Accenture, 2011

Agenda



• State of the Art• Roadmap to Target State• Future Trends

TECHNOLOGY

PROCESS

ORGANISATION

• Debrief & Next Steps

Recap: Future Focus Areas



Advanced Analytics Closed-Loop Spend Management

Risk Management Workforce Capabilities

1

2

3

4

Immediate Next Steps



Advanced Analytics Closed-Loop Spend Management

Risk Management Workforce Capabilities

• Analyse what could you do with information; then work backwards to ensure you’ve got the right data and tools to extract, process and present intelligence

• Invest in systems; ensure they are integrated• Create awareness; change culture from gut-feel to

fact-based decision making• Consider processes that can be supported by data

• Create visibility on the cost structure; review GL accounts and standardize across the company; key to enable consistent benchmarking and analysis

• Reviewing policy compliance is the first step in finding savings

• Increase number of "hands-free" transactions, improves contract / channel compliance and optimises the operational effort

• Effective strategies are those that identify areas of risk and work to minimise its effects - build risk analysis into strategic analysis and decision making.

• In the current environment market and financial risk are no longer constants or given they change rapidly - that's why the GFC caught many organisations unawares.

• Learn from experience

• Competition no longer matter of being Company vs Company it is value chain vs value chain

• Organisational boundaries overlap those of partners encouraging trust and a free exchange of information/knowledge.

• By adopting a collaborative approach with suppliers costly levels of inventory holding are lower and cycle times (operating and cash2cash) reduced.

1

2

3

4

Debrief


• Start focusing on the 4 future focus areas – this where the future lies!

• Get top-management support–Procurement/Finance/Board.

• Collaborate with business units – ensure they understand the change; share skills

and information where possible.

• Revisit processes; enforce them.

• Revisit procurement technology landscape; learn to walk before you run.

• Gauge where you currently are and where would you like to be – have a plan for

change.

• Get external support to kick-start changes/introduce rigour.


Debrief: Technology



Note: Results presented are aggregated by Technology maturity, and not by individual components within Technology. Detailed analysis available on request.

Debrief: Process



Note: Results presented are aggregated by Process maturity, and not by individual components within Technology. Detailed analysis available on request.

Thank You



www.rajatdhawan.com Further Interest Summary of Results and Presentation

[email protected]@sydney.edu.au

www.rajatdhawan.com

• Context• Maturity• Self Assessment• Future Trends

• Debrief & Next Steps

Appendix



Self Assessments• Are anonymous• Fill it to the best of abilities• Demographic info is optional

– Detailed analysis– Presentation summary– Future work





Stage 5Analytical

Competitors

Stage 4Analytical

Companies

Stage 3Analytical Aspirations

Stage 2Localised Analytics

Stage 1Analytical Novice

Routinely uses analytics as a distinctive capability, takes an enterprise-wide approach, has committed and involved leadership, and has achieved large-scale results.

Has established analytical capabilities, and has a few significant initiatives under way – but progress is slow and missing critical elements.

Organisation lacks one or several of the pre-requisites for serious analytical work.

Applies analytics regularly, and realizes benefits across the organisation.

Pockets of analytical activity, but they are uncoordinated and not focused on strategic targets.

WHICH STAGE OF PROCUREMENT ANALYTICS IS YOUR ORGANISATION IN?

Future: Advanced AnalyticsContinuum




Risk Anticipation Risk Monitoring Risk Mitigation

Develop strategies to avoid/minimise exposure to risk

Track potential risk set indicators

Take quick and appropriate actions to minimise effects

Procurement StrategySourcing and Category

Management

Supplier Relationship Management Requisition to Pay

Process and Technology

Workforce and Organisation

ProcurementPerformance

Risk Management Framework

Risk Management Framework



Key Performance Indicators (KPIs) are defined to measure price and consumption, then benchmarked both internally and externally

Cost Category KPI Benchmark

Travel # Trips to the same destination 2 trips / employee / month

Price per night per destination Brussels = 100 €, London = 120 €

Agency Fees Agency Fees vs Deployment Cost 10-20%

Transport Cost / km 0,7 € / km

Services Office supplies / employee 250 € / employee / year

Telecom Mobile expense / employee 40 € / employee / month

Maintenance % labor cost for unplanned maintenance 10 %

Billing rate / 3rd party supplier / hour 21 € / hour

Corporate Affairs Price of gifts / employee 50 € / gift

Free products / employee 40 € / employee / year

Labor & Benefits Training budget / employee 400 € / employee / year

Utilities Cost / employee 15 € / employee / month ILLUSTRATIVE

Future: Closed Loop Spend ManagementVisibility



Budget holders build their budget zero-base with great amount of detail, adhering to top down targets and strict global policies

Budget Templates

Are built for all (Sub-)Categories

Contain enough details to allow full understanding on the budget construction

Might have a different level of detail, depending on the Category

Contain enough attributes to enable powerful analysis and benchmarking

Travel Budget Template

Future: Closed Loop Spend ManagementZero-based Budget

ILLUSTRATIVE



Challenging cost is no longer a Finance-only activity; Category ownership creates a shared responsibility driving sustainable savings opportunities

Cost Category ExecutiveOwner

Labor & Benefits

Sales & Marketing

Transport

Maintenance

Rent

Taxes

Services

Fees

Travel

Telecom

…

Have deep understanding of cost drivers

Challenge budgets, across all departments

Enforce disciplined execution

Drive fact-based cost savings

Monitor costs

Lead by example

Sustain savings

…who has a set of responsibilities but is also empowered to make tough decisions

For each category, an owner is appointed at the top level…

Future: Closed Loop Spend ManagementCategory Ownership & Policies

ILLUSTRATIVE



TO-BE Situation: An innovative operating model is at the heart of maximum procurement value at a low operating cost

Procurement (Operational ) ProcessesSourcing & Category Management

Internal Business users

Suppliers

Local User interface: Local Purchasing RepresentationPerform Requisitions & Fulfillment

Perform CustomerServices (Helpdesk)

Provide Sourcing Support

Execute local Contract Implementation

Execute Spot Buys(<2.5k)

Corporate Procurement – Zone(s)

Roles: Cat. Leader and Manager

Front Office: Corporate/ BU/ Local Sourcing Roles: Cat. Leader and Manager

Finance shared service center (Back-Office)

InvoiceProcessing

SupplierHelpdesk

Optimize User Compliance –Satisfaction

Optimize Contracts

eSourcingServices

Value Tracking/BudgetingServices

PO & FulfillmentServices

Execute Spot Buys (>2,5K)

SourcingSupport

LPR Helpdesk (future- > User)

Item- Master DataMgmt

Procurement Center (Middle Office)

Future: Closed Loop Spend ManagementPurchasing



The variances against the budget are tracked and documented during monthly meetings to ensure budget achievement and actions trigger continuous improvement

L1 North West RegionL2 TOTAL

Cost Category Rev. Act08 Mon Actuals Mon Var Mon Var Mon % Rev. Act08 Mon Actuals Mon Var Mon Var Mon %Fees … … … … 37.708.197 35.972.801 1.735.396 5%

Real Property Taxes … … … … 16.110.035 15.309.223 800.812 5%Insurance … … … … 7.543.567 6.209.382 1.334.185 18%

General Taxes and Licenses … … … … 8.613.994 9.209.387 -595.393 -7%Audit Fees … … … … 2.599.883 2.389.493 210.390 8%

Recruitment … … … … 1.508.845 1.392.830 116.015 8%Legal Fees … … … … 677.786 809.392 -131.606 -19%

Consultant Fees … … … … 197.196 190.002 7.194 4%Medical fees … … … … 456.890 463.092 -6.202 -1%

Travel & Meetings … … … … 16.280.335 17.079.003 -798.668 -5%Flights … … … … 3.320.554 3.492.099 -171.545 -5%

Lodging … … … … 6.065.169 6.209.392 -144.223 -2%Meetings & Events (Non Customer Entertainment) … … … … 2.659.867 2.589.383 70.484 3%

Meals … … … … 2.426.755 2.393.299 33.456 1%Ground Transportation … … … … 1.807.990 2.394.830 -586.840 -32%

Telecom … … … … 2.795.000 2.167.667 627.333 22%Mobile Services … … … … 2.089.000 1.628.739 460.261 22%

Telephone Services … … … … 706.000 538.928 167.072 24%TOTAL … … … … 47.769.282 46.253.864 1.515.419 3%

Franchise St PeteApr-09in RUR

Apr-09in RUR

L1 Moscow RegionL2 TOTAL

Cost Category Rev. Act08 Mon Actuals Mon Var Mon Var Mon % Rev. Act08 Mon Actuals Mon Var Mon Var Mon %Fees … … … … 37.708.197 35.972.801 1.735.396 5%

Real Property Taxes … … … … 16.110.035 15.309.223 800.812 5%Insurance … … … … 7.543.567 6.209.382 1.334.185 18%

General Taxes and Licenses … … … … 8.613.994 9.209.387 -595.393 -7%Audit Fees … … … … 2.599.883 2.389.493 210.390 8%

Recruitment … … … … 1.508.845 1.392.830 116.015 8%Legal Fees … … … … 677.786 809.392 -131.606 -19%

Consultant Fees … … … … 197.196 190.002 7.194 4%Medical fees … … … … 456.890 463.092 -6.202 -1%

Travel & Meetings … … … … 16.280.335 17.079.003 -798.668 -5%Flights … … … … 3.320.554 3.492.099 -171.545 -5%

Lodging … … … … 6.065.169 6.209.392 -144.223 -2%Meetings & Events (Non Customer Entertainment) … … … … 2.659.867 2.589.383 70.484 3%

Meals … … … … 2.426.755 2.393.299 33.456 1%Ground Transportation … … … … 1.807.990 2.394.830 -586.840 -32%

Telecom … … … … 2.795.000 2.167.667 627.333 22%Mobile Services … … … … 2.089.000 1.628.739 460.261 22%

Telephone Services … … … … 706.000 538.928 167.072 24%TOTAL … … … … 47.769.282 46.253.864 1.515.419 3%

Franchise MoscowApr-09in RUR

Apr-09in RUR

L1 Other RegionL2 TOTAL

Cost Category Rev. Act08 Mon Actuals Mon Var Mon Var Mon % Rev. Act08 Mon Actuals Mon Var Mon Var Mon %Fees 235.676.231 206.217.130 29.459.101 12% 37.708.197 35.972.801 1.735.396 5%

Real Property Taxes 100.687.718 76.546.115 24.141.603 24% 16.110.035 15.309.223 800.812 5%Insurance 47.147.296 47.621.905 -474.609 -1% 7.543.567 6.209.382 1.334.185 18%

General Taxes and Licenses 53.837.462 49.005.553 4.831.910 9% 8.613.994 9.209.387 -595.393 -7%Audit Fees 16.249.266 15.294.728 954.538 6% 2.599.883 2.389.493 210.390 8%

Recruitment 9.430.283 9.576.433 -146.149 -2% 1.508.845 1.392.830 116.015 8%Legal Fees 4.236.165 4.533.288 -297.123 -7% 677.786 809.392 -131.606 -19%

Consultant Fees 1.232.477 1.159.555 72.922 6% 197.196 190.002 7.194 4%Medical fees 2.855.564 2.479.555 376.009 13% 456.890 463.092 -6.202 -1%

Travel & Meetings 101.752.094 93.934.517 7.817.578 8% 16.280.335 17.079.003 -798.668 -5%Flights 20.753.465 19.206.545 1.546.920 7% 3.320.554 3.492.099 -171.545 -5%

Lodging 37.907.303 34.151.656 3.755.647 10% 6.065.169 6.209.392 -144.223 -2%Meetings & Events (Non Customer Entertainment) 16.624.166 14.241.607 2.382.559 14% 2.659.867 2.589.383 70.484 3%

Meals 15.167.221 13.163.145 2.004.076 13% 2.426.755 2.393.299 33.456 1%Ground Transportation 11.299.940 13.171.565 -1.871.625 -17% 1.807.990 2.394.830 -586.840 -32%

Telecom 17.468.750 11.922.169 5.546.582 32% 2.795.000 2.167.667 627.333 22%Mobile Services 13.056.250 8.958.065 4.098.186 31% 2.089.000 1.628.739 460.261 22%

Telephone Services 4.412.500 2.964.104 1.448.396 33% 706.000 538.928 167.072 24%TOTAL 238.846.412 231.269.318 7.577.094 3% 47.769.282 46.253.864 1.515.419 3%

Franchise UralsApr-09in RUR

2009 Variance to Revised Actuals 08 Analysis (in RUR) - APRIL YTD

Region: Moscow Region

Apr-09in RUR

L1 Moscow RegionCost Category Rev. Act08 Mon Actuals Mon Var Mon Var Mon %

01 Fees 235.676.231 206.217.130 29.459.101 12%0101 Real Property Taxes 100.687.718 76.546.115 24.141.603 24%0102 Insurance 47.147.296 47.621.905 -474.609 -1% Phasing0103 General Taxes and Licenses 53.837.462 49.005.553 4.831.910 9%0104 Audit Fees 16.249.266 15.294.728 954.538 6%

0105 Recruitment 9.430.283 9.576.433 -146.149 -2% Error in budgetingTo be cross-checked with HR, check estimation on # hired people

0106 Legal Fees 4.236.165 4.533.288 -297.123 -7% Phasing0107 Consultant Fees 1.232.477 1.159.555 72.922 6%0108 Medical fees 2.855.564 2.479.555 376.009 13%

02 Travel & Meetings 101.752.094 93.934.517 7.817.578 8%0201 Flights 20.753.465 19.206.545 1.546.920 7%0202 Lodging 37.907.303 34.151.656 3.755.647 10%0203 Meetings & Events 16.624.166 14.241.607 2.382.559 14%0204 Meals 15.167.221 13.163.145 2.004.076 13%

0205 Ground Transportation 11.299.940 13.171.565 -1.871.625 -17% Error meeting needs to be recharged to correct cost centers

Finance will check and correct. Estimated correction is 1,7m RUR

06 Telecom 17.468.750 11.922.169 5.546.582 32%0601 Mobile Services 13.056.250 8.958.065 4.098.186 31%0602 Telephone Services 4.412.500 2.964.104 1.448.396 33%

TOTAL TOTAL 238.846.412 231.269.318 7.577.094 3%

Variance Explanations Corrective Actions

Input from Finance Output from Category Team

Updated and consolidated Variance Report

Agreement on Action Plan, Responsible and Due date

Variance Reports for the Category by Region

INPUT REPORT DURING THE MEETING OUTPUT REPORT

Future: Closed Loop Spend ManagementControl & Monitoring

ILLUSTRATIVE



What is the Customers’ Expectation of Value?

What is the customer value to be delivered-: customer/market “value driver” characteristics?Market/segment volume?Who are the end- users? Is the product-service a candidate for imitation and commoditization?What are the preferred product-service format alternatives?What are the product-service production format alternatives?How active are competitors? Who are they? Do they have a presence in all of the market or specific segments?What are the market constraints (if any)?

One

Design and Development

What is the required R&D expertise? What resources (assets, processes, capabilities and capacities are required for success? What are the investment implications (capital, capacity, forecast utilisation?)Are they already available? Who owns them? Where are they?Which of them are “core” to the customer/market opportunity?What are the competitive issues?Are there enablers that can create a CA What is the likely number of tasks the product will be expected to undertake?

Two

Procurement and Manufacturing

Product complexity The role of differentiationMarket/production volumes Range & varietyProduction process options;

Project? Job? Flow Line? Continuous Process?

Procurement profile;Standard components (product, industry)Modular build?Exclusive/specific components?Industry purchasing group?

Three








High

Medium

Low

ChemicalsFood

(Impact of wheat & milk prices)

Mining & Metals

Manufacturing

Pharmaceutical and Medical Products

Low

Construction

Industrial EquipmentConsumer Goods

Retail

Media and Entertainment

Communication

Medium

Transportation(Impact of Oil Prices)

Oil, Gas and other Natural Resources

Automotive30% of component

suppliers in bankruptcy situation

Aerospace and Defence

(Single source supply)

Electronics and High Technology

High

Perceived Exposure to Supplier Risks

Perceived Exposure to

Price Fluctuations

Source: High Performance in Procurement Risk Management (Accenture, 2010)

Risk Exposure by Industry

Procurement Models for the Future

Business

procurement

based decision

ensure budget

decision making

assessmentself

detailed analysis

monthly meetings

mitigating