Sourcing Information Products

© A.T. Kearney 2006

Presentation

Date: 5th October 2006

Rowan Atkins, Operations Director, Europe Procurement SolutionsHelen Clegg, Knowledge Manager, Europe, Procurement Solutions

SLA Europe, London

Sourcing information products and services

2A.T. Kearney X/mm.yyyy/00000

Agenda

Overview of A.T. Kearney

A.T. Kearney Procurement Solutions

Knowledge management at A.T. Kearney Procurement Solutions

The seven step strategic sourcing process




A.T. Kearney is a leading international top management consulting firm

Asia PacificBangkokBeijingHong KongJakartaKuala LumpurMelbourneNew DelhiSeoul

ParisPragueStockholmStuttgartViennaWarsaw Zurich

AmericasAtlantaBostonBuenos AiresCaracasChicagoClevelandCosta MesaDallas

DetroitMexico CityMiamiMinneapolisNew YorkOttawaSan DiegoSan Francisco

Santa ClaraSão PauloStamfordTorontoWashington, D.C.

ShanghaiSydneyTokyoWellington

AfricaJohannesburg

EuropeAmsterdamBarcelonaBerlinBrusselsCopenhagen DüsseldorfFrankfurtHelsinki

IstanbulLisbon LondonMadridMilanMoscowMunichOslo

Office Locations

• $800 million in annual revenues• Approximately 2,600 consultants worldwide

A Large and Growing Company

• 60 offices in 35 countries• Two-thirds of revenue from outside the U.S.

A Global Services Organisation

• Established in 1926• Average consultant work experience: 17 years• Merged in 1996 with EDS, global leader in IT outsourcing and

services• MBO in January 2006, wholly owned by partners

Unsurpassed Experience and Capabilities



A.T. Kearney is the recognized market leader in procurement with a unique experience across all industries

"Invention" of Global Sourcing

Extension toStrategic Sourcing

Building and LeveragingTools and Know-how

Results

• 500+ projects last 3 years

• 600consultants

• $ 400 bn. volumeanalyzed

• $ 68 bn. saved

• $ 15 mil. p.a. invested in Intellectual Capital

Automotive

Enginee-ring

FinancialIndustries

Telecommu-nication

ProcessIndustry

Utilities

Retail/Con-sumer Goods

SourcingBPO

Consortia

• Carrefour, Campell, M&S, Sara Lee, Sears, Unilever, …

• e.on, EnBW, RWE, Anglian Water...

• Akzo, Chevron, Clorox, Corus, DSM, Elf, Henkel, Hoogovens, Norsk Hydro, Novartis, Shell, SSAB…

• Bell South, GE, HP, Lucent, Nortel, Deutsche Telekom, Telefonica, Telstra, Swisscom, …

• American Express, Banco Santander, Bank of America, Barclays, Citibank, Crédit Lyonnais, JP Morgan, Prudential, Société Générale, …

• ABB, Blohm + Voss, Fincatieri, Fluor Daniel, Hochtief, Holzmann, Impregilo, Kvaerner, Lurgi, Salzgitter, VA Tech, …

• CNH, DAF, Deere, Fiat, Ford, GM, Iveco, Mack, Mercedes-Benz, RVI, Volvo, VW, ArvinMeritor, Bosch, Dana, Delphi, Faurecia, Federal Mogul, Getrag, Visteon, …

Selection

1990 1995 2000 2004© A.T. Kearney 2006


A.T. Kearney Procurement Solutions



A.T. Kearney Supply Management

A.T. Kearney Procurement Solutions is part of A.T. Kearney

Management Consulting (MC) Procurement Solutions (PS)

Consulting focus (highly customized approaches to specific customer needs)

Industry specific approaches

Complex change management challenges

Innovation in next generation offerings

Service focus (repeatable solutions to needs)

Advantage through specialization (spend management, categories, technology, etc.)

Innovations in technology enablement, categories, delivery model

Capability focus Capability focus



Knowledge Management at A.T. Kearney Procurement Solutions



Knowledge management services

Supplier search service

•Leveraging our global research departments in addition to internal and external databases

Client opportunity assessment

•Category diagnostic and prioritization of client spend profile, recommendation of the of the most sourceable categories based on tangible results and supply market conditions

Supply market analysis

•Profiling category supply markets

Auction setups

•Best practice auction setups

RFP development Sourcing strategy development

•Developing a sourcing strategy based on client’s category situation

Data mining analysis

•Analysis of internet negotiations results for the purpose of trend and predictive insights

Case studies



Supply Market Solutions – delivering content and knowledge to external clients



The KM team delivers content and knowledge to our consultants and sourcing managers through category packs

Content – Category knowledge packs

01 Sourcing tree

02 Data collection templates

03 Kick-off workshop document

04 Sourcing strategy

05 Supplier market analysis

06 Supplier lists

07 RFP template

08 Specifications

09 Negotiation strategy

10 Online-negotiations

11 Baseline (price benchmarking, quantity structure, results)

12 Contract template

13 Final report

14 Case study

Category pack structure

Content1. Ausgangssituation2. Angestrebte

Beschaffungssituation3.Beschaffungsgruppenbaum4. Teammitglieder5. Strategie6. Ausschreibung7. Basisdaten für den

Preisvergleich8. Verhandlungen9. Ergebnis10. Savings11. Übersicht der

Rahmenverträge12. Status13. Nächste Schritte

Category packs contain key, structured information for

steps of the sourcing process

Category packs contain templates to accelerate the

sourcing process

ID Bezeichnung Men

ge

€/Std. € €/Std. €1 Chemiearbeiter,Kunststoff-

verarbeiter,Maschinenbediener 0 18,50 0 15,20 0

2 Kunststoff-Schweißer 0 21,00 0 19,70 03 A-E-Schweißer 0 20,50 0 20,00 04 WIG-, HD-Schweißer 0 21,50 0 21,00 05 MAG-Schweißer 0 21,00 0 20,50 06 Maschinenschlosser/

Metallbauschlosser 0 19,00 0 19,00 07 Schlosser im E-Bereich 0 19,00 0 19,00 08 Rohrvorrichter ISO 0 21,00 0 20,50 09 Elektriker Industrie 0 19,80 0 19,50 0

10 Elektriker Handwerk 0 19,80 0 19,50 011 Staplerfahrer/

Kommisionierer (Lager/Versand) 0 14,30 0 14,30 0

12 Staplerfahrer (Lager/Versand) 0 14,30 0 14,30 0

13 Schlosserhelfer 0 15,00 0 14,00 014 Elektrikerhelfer 0 15,00 0 14,00 015 Produktionshelfer 0 13,30 0 13,00 016 Lagerhelfer 0 13,30 0 13,00 017 Maler 0 20,00 0 19,50 018 Schreiner 0 20,00 0 19,50 019 Heizungs-Sanitär-Installateur 0 20,00 0 19,50 020 Dachdecker 0 20,00 0 19,50 021 Maurer 0 20,00 0 19,50 022 Wachschutzpersonal 0 15,50 0 14,40 023 Hausmeister 0 19,80 0 19,50 024 Maschinenführer 0 16,00 0 16,00 025 Empfangspersonal/Telefondi

enst 0 16,30 0 16,00 026 Sekretär/in 0 19,00 0 18,00 027 Sachbearbeiter 0 19,00 0 18,00 0

Angebotswert -31.12.2003 (75%)

Angebotswert 1.1.04-31.3.05 (125%)

Summe 01.04.03-31.03.2005

Festpreise bis

Zahlung

Angebotene Qualifikationen ges.

Abdeckung ges.

Fehlende Bedarfs-Qualifikationen

Bemerkungen

30.06.2005

Lieferant 2Lieferant 1

27

30.06.2005

0

14 Tage 3 %

0

100%100%

27

14 Tage 3 %



The seven step strategic sourcing process



Profile the Category

Select Sourcing Strategy

Generate Supplier Portfolio

Select Implement-ation Path

Negotiate and Select Suppliers

Integrate Suppliers

Benchmark Supply Market

A.T. Kearney has developed the seven step strategic sourcing process to improve procurement

1 2 3 4 5 6 7

This methodology can be used to source many products and services an organization may need – these could be indirect or direct goods

IT hardware & software

Temporary labour

Fabricated metal parts

Rabbits

Chicken wings

Utility poles

Online databases, subscription services & primary market research






Sourcing information products is relevant to information professionals in all sectors

Types of products and services typically sourced

Categories of information products/services

Academic Public Special

Online databases √ √

Journals √ √

Books/directories √ √ √

Audio/video materials √ √

Secondary market research √ √

Primary market research √

Other products/services Academic Public Special

Library equipment and supplies √ √

Cataloging services √ √



Some categories of information products can be complex to source

The difficulty in comparing products on a feature-by-feature basis

The overlap in the content offered and products purchased

The unique features of some products which core users will find indispensable (e.g. Alacra’s ability to download content in xls format)

The different pricing structures of the products

The difference in users’ needs

The monopoly of the supplier in some sectors (eg real-time stock market data), which limits the relative power of the buyer

Reasons for complexity include



Information professionals need an effective methodology to evaluate the different products

Compare apples with apples instead of apples with pears

Understand the exact needs of user base

Demonstrate to management that you get value for money from your suppliers and in some cases make savings

Demonstrate to management that you can think strategically

Demonstrate to management that you can align user needs with the strategic direction of your organization

Justify your recommendation to stakeholders

Using a methodology has advantages. It allows you to:



Preparing for the strategic sourcing process

Put together a small sourcing team if your category of information product is a complex one

Talk with your incumbent suppliers

Keep an open mind



Each step in the process has a number of representative activities

Representative activities

Profile the category

Select sourcing strategy

Generate supplier portfolio

Select implementation path

Negotiate and select suppliers

Integrate suppliers

Monitor the supply market

1

2

3

4

5

6

7

• Profile the volumes spent on products/services being sourced, details of specifications, current prices and suppliers

• Understand your end-user/customer requirements

• Decide your go-to-market approach – e.g. combining total spend across units, negotiating on price only – see Gemstone

• Widen your supplier base – investigate all viable suppliers • Identify leverage points

• Decide how best to execute your sourcing strategy – either by traditional RFP or eRFP; or perhaps just developing incumbent suppliers.

• Develop criteria and weightings for RFP• Develop RFP template

• A) Conduct the RFP process (traditional or eRFP), issue RFP and analyse the responses

• B) Negotiation process – either traditional face-to-face or eAuction

• Prepare a transition plan for new suppliers• Manage implementation of any new suppliers

• Capture lessons learned • Incorporate lessons learned for your next strategic sourcing process

Step



Step one

Profile the category•Spend analysis - understand your organization’s internal spend for the information product/service you are sourcing. Does more than one department purchase the same product?

•What is the volume usage of the products which you currently purchase?

•What is your current pricing agreement and terms & conditions with each of your suppliers?

•Needs analysis - how many users of each product do you have and are you aware of their needs and future needs? What about potential users?

•Supply market analysis - what does the supply market actually look like?

Do your homework thoroughly – it will make the whole process more effective



Contract Relationship Non-Contract relationship

Major Major Publishing Publishing CompanyCompany• Business Unit 7

– Credit ratings– Investment research

• Business Unit 9– Indices– Credit ratings– Securities codes

• Business Unit 8– Securities codes– Credit ratings

• Business Unit 5– Relationship Mgt– All Categories

• Business Unit 6– Commodities– Energy information

service

• Business Unit 1– Specialist Data– Stock market news– Energy information

service

• Business Unit 3– Indices

• Business Unit 4– Credit ratings

• Business Unit 2– Indices– Securities codes

Multiple relationships with suppliers exist in many organizations. Through a strategic sourcing exercise, one company discovered that nine different business units were purchasing information (with or without contracts) from a major publisher. As a result, the company was able to optimize its total spend in negotiations with the supplier as well as to reduce costs by eliminating duplication of resources.

Multiple relationships with one supplier



• Increasing availability of information from other sources, e.g. World Wide Web, as search engines such as Google and Yahoo continue to mature and Wikipedia products develop.

1 Low

2

3

4

5 High

Five forces analysis for the information products industry

Example

• Some suppliers have unique content which cannot be bought from other sources

• Continuing to invest money in new tools and in developing content.

• Some suppliers pursuing a full-service, one-stop shop model.

• Greater awareness of pricing policies putting pressure on suppliers to be more flexible with pricing.

• Beginning to manage demand and negotiate more effectively.

• Individual departments within a company can band together to leverage buying power.

• Opportunities still exist to switch suppliers.• Buyers are increasingly able to purchase

services tailored to their needs.

• Industry is continuously changing and this will bring potential opportunities for new entrants.

• New entrants need deep pockets and strong strategy

• Opportunities still exist in Asia-Pacific• Most products are web-based, therefore main

differentiator will likely be ease of navigation.

Industry Competition

Rivalry Among Existing Firms 3

• Mature industry with a small number of large, powerful suppliers is pushing suppliers to be more responsive with their pricing policies and terms & conditions.

• Less competition due to industry consolidation, but buyers can still switch suppliers

• Information aggregators are forming alliances that enable them to provide value-added content analysis such as reputation management and other services

Threat of New Entrants 2

Bargaining Power of Buyers 4Bargaining Power of Suppliers 3

Threat of Substitute Products or Services 2© A.T. Kearney 2006


Step two

•Select your go-to-market approach

•Do you want to combine your organization’s total spend to gain leverage with the supplier or do you want to negotiate on price only? Which strategy best suits the type of information product or service you are sourcing?

•Also consider demand management as a strategy. Does your department or organization need all the passwords or seats that it currently pays for?

Now you are ready to engage with suppliers

Select sourcing strategy



Sourcing strategies

Exercise Power Create Advantage

The Strategic Sourcing

Gemstone

Best-Price Evaluation

Joint Process

Improvement

Volume Concentration

Product Specification Improvement

Relationship Restructuring

Global Sourcing

• Conduct product value analysis• Rationalize / standardize

specifications

• Reengineer joint processes• Support supplier operations

improvement

• Establish/develop key suppliers• Employ strategic alliances/partnering

• Expand geographic supply base• Develop new suppliers

• Compare “total” costs • Model “should-costs”• Renegotiate prices• Hold an online auction

• Consolidate number of suppliers• Aggregate volume across units• Redistribute volume among suppliers



Step three

•Identify all viable suppliers, even those you have not previously considered

•Although the information products industry has seen enormous consolidation, there are still new players entering the industry

•Ensure your criteria for supplier selection covers all your requirements

•Don’t discard any suppliers at this stage

Weighing up all potential suppliers gives you a better idea of the supply market and the competition between the suppliers

Generate supplier portfolio



Step four

•How will you best execute your sourcing strategy?

•Traditional RFP (email to suppliers) or eRFP (online) – another way of getting the required request for proposal out to participating suppliers

•Put together a small sourcing team

•Develop your RFP template – build it around your objectives and business requirements

•Analyse previous contracts and correspondence and obtain any additional information you need from your incumbent suppliers

•Be clear about what you want to accomplish and design your questions accordingly

•Develop your RFP evaluation criteria and weightings for analyzing the responses – what are your key factors for choosing a suppliers?

Select implementation path



Step four

They introduce rigor and discipline into the purchasing process

They create a level playing field

They have measurable criteria for evaluating suppliers’ products/offerings

The information manager is seen working at a strategic level

The RFP benefits suppliers too, giving them a clear understanding of your needs

The information manager is in the driver’s seat – your starting point is not the supplier’s standard terms & conditions

Advantages of RFPs



Step four

They replace paper-based processes with a web-based solution that streamlines and standardizes the data collection and analysis process

Suppliers can input their responses online, so no need to send out templates by email

E-sourcing reduces the number of laborious manual steps, accelerating the whole sourcing process – it can reduce time from months to hours

To be most effective, there need to be three or more suppliers

Advantages of eRFPs

If you work for a large organization, you may find that e-sourcing tools are already being used to source other products and services



RFP content outline - example

Content Comments

Introduction Background information on your company, why you are conducting an RFP process etc.

Instructions to suppliers Outline the steps the supplier must go through to complete the RFP, include key dates, details of contact person, scope of proposal, state your confidentiality terms, outline your criteria for evaluation (price/functionality/content etc).

General requirements for all suppliers Content and capabilities, pricing, terms & conditions, duration of contract etc.

Specific requirements for all suppliers Account management, pricing, training & support, IT environment issues etc.

Intent to respond Provide a form that suppliers use to show their intent to respond to the RFP, checklist etc.

Bid responses Qualitative and quantitative response documents that you have put together (e.g. product content or pricing information in more depth)



Step five

•Conduct the RFP process (traditional or online) – issue your RFP

•Analyse your responses

•Prepare for the negotiations round – either traditional face-to-face or eAuction (online)

•For either approach you should pull together your negotiations team – assign them different roles

•Think about hiring a professional negotiatior or perhaps there is an experienced negotiator in your organization?

•Develop your negotiations strategy, using all the information you have collected and analysed

•Put yourself in your potential suppliers’ shoes – what will be their likely objectives? They are not always all obvious!

In a traditional negotiations process, several meetings may be required before an acceptable agreement to all parties is reached

Negotiate and select suppliers



Long list/RFI

Data source:• Existing

suppliers• Trade fairs• Industry

contacts• Research

Step 1

Criteria:• Content• Geographic

coverage• Language• Functionality

Feasible suppliers

Short list

100% 70% 25%

RFP1)

Step 2

Criteria:• Full text• Indexing• Downloading• Billing

The supplier selection process

1) RFP=Request for Proposal2) RfI=Request for Information

Typical selection process



Invest time in preparing agreed responses to anticipated questions from suppliers

Will decisions be made on price considerations alone?

Who at Company X will be making the final decision?

How many rounds of negotiation will there be?

When will you award the contract?

How many suppliers have you invited to negotiations?

Question Answer

The basis will be cost, content and functionality

The final decision will be made by the Head of Research

There is no fixed number of negotiation rounds

Contracts will be awarded early in December

The number of suppliers is not fixed at this stage

Think how your answer may be used in the negotiation process – plan your own communications strategy



Negotiation tactics worksheet: Supplier X

Prepare counter responses to the responses you anticipate from the suppliers

Issue

Price

Keymessage

Anticipatedresponse

Counterresponse

concessions priority

Product

Service

Other



Factors in the lotting, build and execution of internet negotiations

Internet negotiations

TacticsStrategy

Lotting strategy

Support bidding•Product bundling•Market basket•Bid parameters

Support award•By product•By plant•By country•By volume

•Best bid•Extension•Length of time•Reports•Messaging•Multi direction bidding•Target pricing

•Category sequence•Nested or straight•Use of bid conponents•Multi currency•Contract length•Volume discounts•Single /multi source•Rules disclosure

Build and execution



Make sure you are well prepared before you enter the negotiation process

Negotiations Checklist

Define roles in your negotiations team

Supply market analysis

SWOT analysis on suppliers

Negotiation strategy

Negotiation tactics worksheet

Anticipated responses and your counter responses



Some tips for successful negotiating

Always negotiate in a team

Never concede anything without getting something in return

Stay calm and polite

Start low

The highest ranking person is not necessarily the most suitable person for doing the negotiating



Step six

•If you are disengaging a current supplier and working with a new one, remember to:

•Identify the transition issues

•Identify the organizational issues you may face

•Create the new processes and procedures necessary to get your new supplier on board

•Communicate what you are doing to your stakeholders

Integrate suppliers

Integrating suppliers can take up to one third or more of the sourcing process



Step seven

•This step is about keeping abreast of what is going on in your supply market so that you will be in a strong position to negotiate when your contracts are up for renewal

•Keep your eyes and ears open for news of potential new suppliers

•Network with other information professionals

•Go to trade fairs

•Read the information professional literature

•Read the quality press

•Also remember to benchmark your supplier performance – how do they stack up against the metrics you agreed with them in the contract? Do they need to improve in any area?

Monitor the supply market



Conclusion



Sourcing information products strategically uses many skills that information professionals have…

Researching the market – finding out as much as you can about suppliers, SWOT analysis, pricing structure, competitive position

Interpreting data – volume usage, pricing

Understanding user needs

Defining user requirements



…and enables information professionals to develop new ones

Constructing sound RFPs

Negotiating

Thinking strategically


Sourcing Information Products

Documents

kearney supply management

supply market solutions

knowledge management

sourcing managers

sourcing tree

repeatable solutions

sourcing process ca

strategic sourcing building