S S ix ix S S igma igma V V I I x x n 1 i i1 n 2 Best Practices for Defining and Best Practices for Defining and Managing Managing the the Services Spend Category Services Spend Category Presented By: H. Lee Muller, Presented By: H. Lee Muller, C.P.M C.P.M.
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S ix S igma Best Practices for Defining and Managing the Services Spend Category Presented By: H. Lee Muller, C.P.M.
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Best Practices for Defining and Managing Best Practices for Defining and Managing the the
Services Spend Category Services Spend Category
Presented By: H. Lee Muller, Presented By: H. Lee Muller, C.P.MC.P.M..
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OVERVIEW OF LEARNINGOVERVIEW OF LEARNING
The Growing importance of Services The Growing importance of Services GDPGDP Employment PictureEmployment Picture SG&A SG&A
Evaluating your Current Situation Evaluating your Current Situation
Services In your Company Services In your Company Collecting Data Collecting Data What to include? / What not to include? What to include? / What not to include?
In ten (10) years from 1991 to 2001 jobs in the Services sector increased byIn ten (10) years from 1991 to 2001 jobs in the Services sector increased by 12,634,000 (45%) 12,634,000 (45%) The manufacturing sector lost 711,000 (-3.9%) jobsThe manufacturing sector lost 711,000 (-3.9%) jobs
Services’ increasingly important economic role reflected Services’ increasingly important economic role reflected
in employment Alsoin employment Also
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SG&A / Revenue SG&A / Revenue
According to an annual CFO magazine survey, cutting one percent from SG&A will tweak earnings by 2.3 percent on average. In this survey, the average net profit margin for companies is 5.06 percent; so slicing SG&A by one dollar has the same bottom-line effect as boosting sales by thirteen dollars.
Source: http://www3.best-in-class.com/
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SG&A / Revenue Example:SG&A / Revenue Example:
IBM2000 2001
Total Revenue 88,396 85,866SG&A 17,535 17,197Total Expenses 79,251 76,571Operating Income 9,145 9,295Income Before Taxes 11,534 10,953Income After Taxes 8,093 7,723Divident 20 10Net Income 8,073 7,713
Figures in Millions of Dollars
Source: http://w w w .investor.ibm.com
IBM2000 2001
Total Revenue 88,396 85,866SG&A 17,535 17,197Total Expenses 79,251 76,571Operating Income 9,145 9,295Income Before Taxes 11,534 10,953Income After Taxes 8,093 7,723Divident 20 10Net Income 8,073 7,713
Figures in Millions of Dollars
Source: http://w w w .investor.ibm.com
One percent One percent in SG&A translates to: 17,197,000,000 x 1% = 171,970,000 in SG&A translates to: 17,197,000,000 x 1% = 171,970,000
171,970,000 / 7,713,000,000 = 2.2% 171,970,000 / 7,713,000,000 = 2.2% in Net Income in Net Income
IBM ROS is 9% (7,713,000,000 / 85,866,000,000)IBM ROS is 9% (7,713,000,000 / 85,866,000,000)
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SG&A / Revenue / Various Industries SG&A / Revenue / Various Industries
Things to Consider when Scoping the Category Structure Things to Consider when Scoping the Category Structure
Things to Consider:Things to Consider: Industry Industry GeographyGeographyProcurement OrganizationProcurement Organization StructureStructure Functional Organizations Functional Organizations
structure structure Resources Resources Skill Sets and Expertise Skill Sets and Expertise
Things to Consider:Things to Consider: Industry Industry GeographyGeographyProcurement OrganizationProcurement Organization StructureStructure Functional Organizations Functional Organizations
structure structure Resources Resources Skill Sets and Expertise Skill Sets and Expertise
Things to Consider:Things to Consider: Opportunity for leverageOpportunity for leverage
- Used by all segmentsUsed by all segments- Used in all regions Used in all regions - Size of SpendSize of Spend
GeographyGeography National Potential National Potential Regional Potential Regional Potential Where does the expertise and Where does the expertise and
experience for the category experience for the category reside?reside?
How is the subcategory How is the subcategory currently sourced?currently sourced?
Things to Consider:Things to Consider: Opportunity for leverageOpportunity for leverage
- Used by all segmentsUsed by all segments- Used in all regions Used in all regions - Size of SpendSize of Spend
GeographyGeography National Potential National Potential Regional Potential Regional Potential Where does the expertise and Where does the expertise and
experience for the category experience for the category reside?reside?
How is the subcategory How is the subcategory currently sourced?currently sourced?
Things to Consider when Segmenting the Category Things to Consider when Segmenting the Category
Printed Materials *- Web Printing$XMM- Sheet Printing$XXMM- Reproduction$XMMDirect Mail $X.XMMFullfillment Services$XXMMStudio Services- TV $XXMM- Video$XXMM- Photography $XXMMLabels $X.X MM
Benefits- Health Ins. $XXXMMSubscriptions $XMMInsurance- General Risk ~$XX.XMM- Maritime$XMM- Transportation$XX.XMMSmall Packages- Inbound $XXMM- Outbound $XXMMSecurity- Background checks$XXMM- Drug screening $XXMM- Guard service $XX.XMM- Monitoring service $XXMMTranslation Services $MMProfessional Services $XXXMMMail Room Service $XMMT&E- Airlines $XXMM- Travel Agency $XXMM- Hotels $XX.XMM- Event Planning $XXMM- Rental Cars $X.XMMRelocation- Van Line $X.XMM- Management $XXMMTemp Labor $XX.XMM- Light Industrial $XXMM- Clerical $XXMM- Professional $XXMMEvironmental Remediation$XXMMPayroll $X.X MM
Internal resource does not currently compete with external suppliers
Some pressure to move away from existing agreements with incumbents -- killing credibility within industry
Subcategory Status:
• Prime - Addecco
• Kelly, Olsten, CDI, Manpower
• Not sourced
• subcategory includes:
1) Light Industrial, 2) Clerical
3) Professional
• Contracts expiring Q32003
Diversity Opportunity:
• First and Second tier
P-Card Opportunity:
• Investigate
Note key: D = Diversity, IN = International, N = National, R =
Regional Industry has experienced some consolidation
-Adecco / Olsten merger 1999- Alert forms partnership with Adecco in 1997- Alert Staffing filed for chapter 11 protection in July 2002
Sluggish economy has impacted this industry $94 billion Industry world-wide 16 providers represent 29% of US Market (~7000 providers in US)
Sources: Staffingtoday.net, SI Industry report
Major Providers -Manpower (IN)-Addecco SA (IN) - AOC - AJILON -TAD - LEE HECHT - Jonathan Wren - Adecco Technical
-CDI (N)
-Kelly Services (IN)
-Olsten (franchises) (R)
-Georgia TEMP (R)
-Staff Workers (R)
-Alert Staffing (D)
-Act I Personnel (D)
-Personnel Connect (R)- NEW - SNELL Personnel
Initial Subcategory Assessment Summary 4up
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Step IIIStep III Developing a Strategy for Services Developing a Strategy for Services
Step IIIStep III Developing a Strategy for Services Developing a Strategy for Services
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Opportunity to reduce cost
LowLow
LowLow
HighHigh
HighHigh
Risk
MedMed
MedMed
• BenefitsBenefits
• Temp LaborTemp Labor
• Professional ServicesProfessional Services
• Wireless Wireless
• Office SuppliesOffice Supplies
• IT ConsultingIT Consulting
• Janitorial Janitorial
Opportunitie
s
Opportunitie
s
• DeskTopsDeskTops
• Rental CarsRental Cars
• Insurances Insurances
• Subscriptions Subscriptions
• Waste DisposalWaste Disposal
• HotelsHotels
• Office Equipment Office Equipment
• P-CardP-Card
• Relocation ServiceRelocation Service
• UniformsUniforms
• Small PkgsSmall Pkgs
Developing a Strategy for Services
Aggregate Risk / Cost Reduction Analysis
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Developing a Strategy for Services (Con’t)
Planning and Prioritizing the category
Wave 3
Wave 2
Wave 1
Possible Implementation Waves
Priority
Screening
Drop
- Business Impact- Potential Savings
($ MM)
Wave 1
Wave 2
1. Ease of Implementing
Alternate Sourcing Strategy
Low High
M
L
D J
H
F
P
O
I
BA
E
CG
T
S
NQ
K
$1.25
$1.00
$0.75
$0.50
$0.25
Wave 3
Note: (1) Size of circle represents total expenditure for the category
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Things to think about Things to think about
What is the cultural climate within the organization? What is the cultural climate within the organization?
What is the companies value discipline(s)?What is the companies value discipline(s)?-Operational Excellence?Operational Excellence?
- Product leadership? Product leadership?
- Customer Intimacy?Customer Intimacy?
What are the company’s strategic objectives? What are the company’s strategic objectives?
- Cost control?Cost control?
- Sales growth?Sales growth?
- Earning growth?Earning growth?
- Diversity?Diversity?
Are there SBU/SBE/Site issues or objectives that should be considered?Are there SBU/SBE/Site issues or objectives that should be considered?
- Specific service issues Specific service issues
- Specific cost reduction opportunities Specific cost reduction opportunities
- Specific opportunities Specific opportunities
Possible Screening criteria
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Things to think about:Things to think about:
What is the strategic objective of the purchasing organization? What is the strategic objective of the purchasing organization? - Internal process Improvement? Internal process Improvement?
- Supplier process Improvement (productivity)?Supplier process Improvement (productivity)?
What are the resources available to work the strategy?What are the resources available to work the strategy?- Analytic support?Analytic support?
- Category management?Category management?
What is the current economic climate?What is the current economic climate?-Buyers market?Buyers market?
- Sellers market?Sellers market?
Do unusual opportunities exist in specific categories?Do unusual opportunities exist in specific categories?- Distressed industryDistressed industry - New technologyNew technology
Possible Screening criteria Possible Screening criteria Con’tCon’t
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•Supply Strategy Decision Tree (Trident)Supply Strategy Decision Tree (Trident)
Gather InformationGather Information Implement StrategyImplement Strategy
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Manage Manage Supply BaseSupply Base
And the Category Strategy is?And the Category Strategy is?
Leverage and Leverage and cost reductioncost reduction focused? focused?
Leverage and Leverage and cost controlcost control focused? focused?
Relationship and process Improvement focused?Relationship and process Improvement focused?
Diversity focused? Diversity focused?
The overall Category Strategy will Set the tone for how you approach the The overall Category Strategy will Set the tone for how you approach the sourcing process sourcing process
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Step VStep V Managing and Continuously Improving Managing and Continuously Improving
Services SuppliersServices Suppliers
Step VStep V Managing and Continuously Improving Managing and Continuously Improving
Services SuppliersServices Suppliers
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Analyze Analyze Current Current SituationSituation
position relative to market• New Products,services &
technology• New suppliers• Competitor evolution• Pricing relative to market
• Communication Plan
• Confirm goals• Understand issues & current
metrics• Create metrics• Confirm collection methods• Set up review procedure• Take action based on
metrics• Communicate results
The degree to which these attributes are required is dependent on the category and the supplier
Supplier Management
• Set Goals• Review progress• Communicate results
Structured Process ImprovementRelationship Management Metrics
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Low
Low
High
HighOpportunity to reduce cost (including delivery of savings)
Risk
Spec Chem
OfficeSupplies
Fleet
Insurance
Wireless
Med
Supplier Management
Understand risk/opportunity inherent with supplier
Understand Risk/Opportunity
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A similar risk/opportunity matrix to the one developed in understanding the risk/opportunity inherent with the supplier can be used to show the appropriate management structure for supplier management.
Define appropriate Management Structure
Low
Low
High
HighOpportunity to reduce cost
(including delivery of savings)
Risk to G-PSmall TeamNo Steering Team
Cross-functional teamSteering Team
One personTeam not necessaryNo Steering Team
Increasing complexityof process and resources required