IASTA's "Procurement Leadership in the Perfect Storm," featuring OfficeMax
 

IASTA's "Procurement Leadership in the Perfect Storm," featuring OfficeMax

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Procurement Leadership in the Perfect Storm (featuring Iasta and OfficeMax) ...

Procurement Leadership in the Perfect Storm (featuring Iasta and OfficeMax)

The current economic crisis that continues to negatively impact global markets has dramatically altered the competitive landscape for corporations. Every day, the news is the same. Demand, revenue, profits, and shareholder value are all down while the costs and risks of doing business are all up.

This “Perfect Storm” of economic conditions has created a once-in-a-career opportunity for procurement leaders to change the storyboard around procurement. By transforming the role of procurement from a cost center functionary to a must-have strategic partner, you can seize the opportunity to redefine procurement as a key driver of increased profits, market share growth, and competitive differentiation.

In this webinar we will share four basic strategies that underpin a successful procurement transformation:

1. Structure and plan a procurement transformation for your enterprise;
2. Package the initiative to ensure cross-functional executive sponsorship;
3. Socialize and sell the initiative to the leadership of every business unit; and then
4. Successfully execute the transformation and forever change procurement’s role in your enterprise

We will also share some tactical tools that can help achieve your transformative goals:

- Increase the amount of spend under management
- Leverage new technology to conduct opportunity & savings assessment
- Develop and refine the existing procurement organizational structure to include a center of excellence
- Establish cross-functional team to leverage resident subject matter experts
- Fully optimize every dollar spent on external goods and services
- Deliver implemented savings to the company’s bottom-line

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  • MATT
  • MATT
  • (MIKE) OfficeMax is Headquartered in Naperville, IL 31,000 Associates make this a successful company Leader in B2B and Retail Office products We serve everyone from individuals to global enterprises – some of whom are attending today’s webinar – and everyone in between
  • (MIKE) OfficeMax is composed of 3 segments : - Contract - Retail - Corporate and Other In the Contract segment – our 2009 revenue was $3.7B Our Business to Business services include a wide range of solutions A. Office Supplies and Furniture B. Technology Products and Solutions C. Document Services In the Retail segment – our 2009 revenue was $3.6B Those services are similar to our B2B services but are offered through our retail stores We also have our Impress division which offers Print and Document services to both our retail and B2B customers.
  • (MIKE) In terms of our Contract footprint : We have 24 Customer Fulfillment Centers – or as we call them CFCs – in the US and Puerto Rico These service approximately 71% of our contract business which translates into $2.6B in revenue We also have 20 international CFCs These CFCs service the remaining 29% of our contract business which translates into $1.1B in revenue
  • (MIKE) In terms of our Retail footprint : We have 933 retail locations throughout North America which includes Hawaii, Alaska, Puerto Rico, and the Virgin Islands Through a 51% owned joint venture in Mexico , we have and additional 77 retail stores Collectively, these locations account for $3.6B in revenue
  • (MIKE) We have all been witness to the global economic recession over the past two + years One of the metrics that we monitor from a sales revenue standpoint is White Collar Employment . The reason we watch that metric so closely is because our sales are correlated to white collar employment Notice that the Professional/Business trend line begins to show a drop in mid 08 and appears to have bottomed out in mid-09 after a sharp drop for the previous year. Also notice that the Professional/Business trend line passed the Total Non farm labor trend line downward slide in mid 08 and has crossed back over in early 09 on the way out of the recession. We certainly hope this trend continues.
  • (MIKE) Once we had finished successfully executing our restructuring plan – our management team put an aggressive growth plan in place The thinking was to position the company in a way that we could take advantage of opportunities as the market recovers Simply put – all of us at OfficeMax have been tasked with increasing EBIT and market share . Strategic Sourcing’s role in this was to change how direct and indirect goods and services are procured… …And transform into a Global Procurement Function . 4 Pronged Approach 5 year aggressive savings target Implement an enterprise wide, best in class procurement model. Implement a contract compliance process enterprise wide. Centralized Source2Pay Program concurrent with a multi-year Systems Upgrade
  • (MIKE) We looked at several models for Indirect Procurement . Centralized – Consolidate procurement including subject matter experts Decentralized – Allow each department or division to handle their own procurement A hybrid of the two – Allows for a consultative role which enables all functions to collaborate on and leverage existing expertise. We chose the Hybrid Model and it was the right decision because it is working well and the results support that.
  • (MIKE) Any change presents challenges and this process change certainly has had it challenges … .but none that we were not able to overcome . Savings - No one wants budget reductions . … but when the economy is going in the tank the business must respond and our team at OfficeMax has responded . Procurement is focused on the least cost - We have proven that we can negotiate contracts that have the least total cost of ownership … .and we did it working alongside the stakeholders inside each of the functions Relationship issues - with Suppliers where we have had long solid relationships and others where they were customers … Who wants to lose revenue? Worked with our sales team and the functions to overcome this challenge . Multiple Process Disconnects - everyone has their way of doing things … and their process is always the best! General Inertia – you have this anytime you are doing something new … it may take a while to turn an aircraft carrier , but when it does turn, look out!
  • (Matt)
  • (MATT)
  • (MATT)
  • (MIKE) It is very important to establish a common language . Have you gone into an organization that uses jargon and acronyms that you don’t understand . I bet most of you have. If you have, you understand the importance of creating a common language and process and sharing it with the organization. The process we have here at OfficeMax is shown in this chart: Identify – Spend Visibility is the single most important element that you can establish to begin the process of leverage your market position. (IASTA’s ability to help OfficeMax establish our spend was, by far, the most important and most impactful part of the program thus far.) Don’t underestimate how important this is. Plan – Once you know your spend, who are you going to source, do your stakeholders agree and support the plan ? Leverage – How do you do that? You begin with an RFx . We have found that Collaboration with our internal customers and suppliers prior to the RFx being presented allows for better acceptance and better response. Control – Probably the most important item under this part of Common Language is the T&C’s. These can cost you money or they can save you money and do not discount their importance in a contract. Execute – Rate control is probably the most important aspect of this area along with tactical process control. Sustain – Don’t give it back! Keep what you have worked for! Through score-carding, or KPIs , you will have an ongoing analysis of your successes that can be communicated to management, internal customers
  • (MIKE) How much success you will have on a project like this is directly tied to how good you are at winning over the hearts and minds of the business It takes time . The mistrust from previous failed processes is always present . If you encounter resistance , start by initially offering your customers tactical support . Offer to handle all of the headaches associated with an RFP because that’s a thorn in everyone’s side! It is critical that you do a good job and let them “get the glory” Over time, if you do a good job , you’ll find that they trust you more and more and they will give your team more and more responsibility The Functional Trust Factor Chart above depicts how – over time - this approach leads takes your involvement from the periphery to a must-have strategic partner … WHICH IS WHERE YOU WANT TO BE
  • (MATT)
  • (MATT)
  • (MIKE) With IASTA’s support we have completed Spend Analysis on $2.2B in spend . We have identified and cataloged 97% of our supplier contracts . We have a fully engaged Spend Information Management System Team that allows us to communicate throughout the organization in a timely manner. This team has also been able to provide support to establish policies and procedures that will allow OfficeMax to sustain the savings we have in place today. Current Savings are 6 fiscal quarters ahead of plan thanks to the SIMS team, IASTA, and the management team here at OfficeMax. We are breaking new ground with what we buy and how we buy it . Iasta has provided a better means to identify opportunities and get these opportunities to market. We are now working with benefits, legal, IT, and marketing on their requirements and we never had that opportunity in the past . We are transitioning strategic sourcing to a global procurement function that will allow for greater leverage and standardizing throughout OfficeMax’ locations.
  • (MIKE) Next I would like to discuss our 7 step Roadmap to Savings Sustainability . Strategy – Develop a plan of action. Just do it! Organization – Ensure your organization employs the skill sets needed for specific functions. Don’t have a Buyer when you need a Category Manager and vice versa. Culture – Work with other departments to ensure they know you support their organization and are involved in procurement strategy. Performance Management – Keep a score card or KPI or whatever you want to call it and share it with the organization.
  • (MIKE) Strategic Sourcing – Make sure you know your spend and have a plan to spend it wisely and include all stakeholders in the decisions. Lowest total cost of ownership with your customer involved will allow success. Supplier Development – Through the use of KPIs that your internal customer, the supplier, and Procurement have developed will allow for continuous improvement. Procurement Automation – This is important to allow systems to perform as many tactical processes as possible in order that value added work can happen!
  • (MIKE) At OfficeMax we now, Have the Tools to deliver value to every function Have the Voice due to a Perfect Storm within the economy. Have credibility based on Bottom Line Results. Thank You, Now we are available for questions.

IASTA's "Procurement Leadership in the Perfect Storm," featuring OfficeMax IASTA's "Procurement Leadership in the Perfect Storm," featuring OfficeMax Presentation Transcript

  • Procurement Leadership in the “Perfect Storm” Presented by: Copyright © 2010 Iasta, All rights reserved
  • Welcome Introducing IASTA AGENDA Introducing OfficeMax The “Perfect Storm” The OfficeMax Executive Mandate The Approach Procurement Leadership Mining the Opportunities in the Perfect Storm Sustainable Procurement Excellence Copyright © 2010 Iasta, All rights reserved
  • Keys to the OfficeMax Transformation SmartSource SRM® SmartSource SRM combines critical sourcing components into one application and include auction and RFx, award analysis & decision optimization, contract management, supplier management with supplier self-registration SmartAnalytics® “After a thorough review, On demand technology that delivers spend visibility, spend analysis and compliance monitoring to a user’s fingertips. Users we found generate reports and analyze spend from the single, centralized that Iasta repository of spend data that is classified to a common language. offered Nordstrom the ™ SmartServices best solution set, combined with The Iasta Consulting Group brings together experienced PEOPLE, highest value for proven PROCESSES and powerful TECHNOLOGY to help clients our money.” optimize every dollar they spend on goods and services anywhere in the enterprise. Copyright © 2010 Iasta, All rights reserved
  • Iasta’s Global FootprintIasta works with over 150 global companies of varioussizes and international locations. "After a thorough review of the e-Sourcing market, which included over 10 vendors, we found that Iasta offered the best solution set, combined with highest value for Burlington Coat Factory.” Copyright © 2010 Iasta, All rights reserved
  • OfficeMax Profile► OfficeMax is a leader in both business-to-business and retail office products distribution.► OfficeMax customers are served by approximately 31,000 associates through direct sales, catalogs, the Internet, and retail stores.► Common stock trades on the New York Stock Exchange Passionate under the ticker symbol OMX.► Corporate headquarters is in Naperville, Illinois. Innovative► Markets OfficeMax serves  Enterprise-Level Organizations Fun  Mid-Size Businesses  Small Businesses  Home Offices and Individuals Copyright © 2010 Iasta, All rights reserved
  • OfficeMax Organizational ProfileOfficeMax manages its business using three reportable segments:► OfficeMax – Contract  Markets and sells office supplies and paper, technology products and solutions, office furniture and print and document services directly to large corporate and government offices, as well as to small and medium-sized offices.  2009 Revenue: $3.7B► OfficeMax – Retail Passionate  Markets and sells office supplies and paper, print and document services, technology products and solutions and office furniture to small and medium-sized businesses and consumers through a network of retail stores. Innovative  2009 Revenue: $3.6B► Corporate and Other Fun  Operating expenses that cannot be allocated to the Contract or Retail segments 2009 Top line revenue of $7.2B (source: OMX 2009 annual report) Copyright © 2010 Iasta, All rights reserved
  • Contract Footprint Copyright © 2010 Iasta, All rights reserved
  • Retail Footprint Copyright © 2010 Iasta, All rights reserved
  • The “Perfect Storm” Copyright © 2010 Iasta, All rights reserved
  • The “Perfect Storm” $10 The Great Recession $9.2 $9.0 $9.1 $9 $8.3 $8 $7.2 Sales ($ Billions) $7 $6 $5 “55% of all adults $4 in the U.S. labor $3 force say that in $2 the past 30 months, they have $1 suffered a spell of $0 unemployment, 2005 2006 2007 2008 2009 a cut in pay, a Year reduction in hours. or have become  OfficeMax revenues declined more than 20 percent from 2005 to 2009; vast majority of involuntary part- the decline occurred during The Great Recession time workers.”  Remained profitable by reducing fixed annual costs by over $400 million since 2005 Pew Research  Not making expense cuts in areas that would be a detriment to customer service June 30, 2010 Copyright © 2010 Iasta, All rights reserved
  • Executive MandateIncrease EBIT and market share► Procurement’s role – Transform how direct and indirect goods and services are procured by transitioning into a Global Procurement function.► The Four-pronged mandate – “Our team 1. Aggressive, cumulative 5-year savings targets remains highly focused on the 2. Implement an enterprise wide, best-in-class procurement successful process model execution of our five-year 3. Implement an enterprise wide, best-in-class contract strategic growth compliance process plan.” 4. Centralize spend in an enterprise-wide Source2Pay program concurrent with a multi-year ERP systems upgrade -Sam Duncan OfficeMax CEO Copyright © 2010 Iasta, All rights reserved
  • The OfficeMax Indirect Procurement ModelThere are three conventional approaches to IndirectProcurement:► Centralized Procurement► Decentralized Procurement Hybrid Model► Hybrid Procurement Framework  Refine existing hybrid modelOfficeMax selected the Hybrid model processesIn the Hybrid model Procurement assumes a consultative  Integrate effective functionalrole that enables all functions to leverage & optimize processesexisting subject matter expertise  Establish and execute on deliverables Copyright © 2010 Iasta, All rights reserved
  • Challenges Savings = Budget reductions (Who wants to help that cause? It might include my job.) Perception that procurement was only focused on the bottom line Any type of Relationship issues significant  In many cases, functions had strong, long running change in an organization will relationships with suppliers (It wouldn’t be “fair”) present challenges.  In some cases, suppliers were also significant customers of ours! (Who wants to be the one to Being able to overcome those lose revenue?) challenges is key to procurement Multiple process disconnects transformation General inertia success. Copyright © 2010 Iasta, All rights reserved
  • The Approach - SIMS “Spend Information Management System (SIMS) Team”  Grass roots implementation of Hybrid Procurement Model  Upstream reporting  Track and report deliverables  Procurement delegates  tactical support  Business-function delegates  strategic advisory support Procurement can Establish the Hybrid Procurement Model Framework serve as the catalyst for  Refine existing Hybrid Model processes & establish deliverables positive change  Integrate and leverage existing effective functional processes when the approach is based Synergize Existing Expertise on collaboration  Sourcing Wave Strategies and the focus is centered on  Centralize Contracts, Spend Analysis and Supply Base shareholder  Cross-Functional development of value. ◦ Procurement Opportunities ◦ Policies/Procedures ◦ Communication Network Copyright © 2010 Iasta, All rights reserved
  • SIMS Framework Store Operations Supply Marketing & Chain Hybrid Indirect Advertising Procurement Budget Model Savings Procurement Spend Governance Analysis Strategic Sourcing EPMO Finance Information Finance Technology Contract Supplier Compliance Consolidation Contract Call Human Legal Resources Copyright © 2010 Iasta, All rights reserved
  • Process Foundation Budget Savings Hybrid Model Process Core Contract Compliance Source2Pay Copyright © 2010 Iasta, All rights reserved
  • Establishing a Common Language IDENTIFY PLAN LEVERAGE CONTROL EXECUTE SUSTAIN STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 STEP 6 Opportunity Strategy Source & Contract & Invoice & Monitor & Identification Development Negotiate Implement Pay Manage Spend Visibility  Category  Standardized  Template Mgmt  Enablement  Define approach Contract Visibility Knowledge Process  Codify T&Cs  Automation  Facilitation Supplier  Stakeholder  Template Mgmt  Price Compliance  Rate compliance  Score-carding Assessment Alignment  Vendor Database  Eliminate Paper  Tactical process  Supplier  Sourcing  RFx  Implement control development Methodology  Knowledge Mgmt Purchase Order  Dynamic  TCO  Collaboration  Feed Institutional discounting  LCC Sourcing Knowledgebase  Target Setting Copyright © 2010 Iasta, All rights reserved
  • Progressively Winning Heart and Minds Tactical Administration On Demand Support Tactical Role  Tactical  Manage  Tactical  Award administration supplier self- administration scenario of RFx events registration & of RFx events development NDA mgmt & analysis  Help desk  Strategic support for  Supplier advisory support  Contract software & communications of RFPs, scope & implementation process spec documents, support questions bidding structure Functional Trust Factor Functional Trust Factor Ownership: Business Function Ownership: Business Function SME Resources Fully Managed Category Strategic Role  Dedicated  Stakeholder  Dedicated  Real time mgmt Subject collaboration for Sourcing of supplier Matter Expert procurement Managers relationships  Full strategy administration  Monthly KPM  Full of RFx events  Award scenario reporting to administration  Category & development & business of RFx events market analysis functions analysis Functional Trust Factor Functional Trust Factor Ownership: Shared Ownership: Procurement Copyright © 2010 Iasta, All rights reserved
  • Sample Indirect Spend Tree (Levels One & Two) Total Indirect Spend $x.xxB Marketing Finance Supply Chain IT Store Ops Sales ($ xxxM) ($ xxxM) ($ xxxM) ($ xxxM) ($ xxxM) ($xxxM) Media ($xx.xM) Level 1 = Top Line Spend by Function Physical Products ($xx.xM) Labor ($xx.xM) Level 2 = Strategic Spend Buckets E-Commerce ($xx.xM) Information ($xx.xM) Copyright © 2010 Iasta, All rights reserved
  • Procurement Strategy by Function* Sample Spend Taxonomy Scatter Plot - Marketing 5.0 Paper 4.5 Ad Printing 4.0 Signage Source Partner Packaging 3.5 Letters/Envelopes 3.0 Catalog PrintingReward Brown Bag Printing 2.5 Uniforms 2.0 Sales Collateral Ad Agency 1.5 Manage Manage Consulting 1.0 Transactions Risk Graphic Design Labor Photography 0.5 Logistics 0.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Risk *Risk/Reward metrics in this plot are for illustrative purposes only Copyright © 2010 Iasta, All rights reserved
  • Progress and Results to Date Completed Spend Analysis on $2.2B in spend Completed Contract Call for top 97% supplier contracts “Our team Fully engaged SIMS Team remains highly focused on the successful Current savings 6 fiscal quarters ahead of plan execution of our five-year Breaking new ground in new areas of the business strategic growth plan.” Transitioning strategic sourcing to a global procurement Sam Duncan OfficeMax CEO function Copyright © 2010 Iasta, All rights reserved
  • Roadmap to Savings Sustainability Dimension of Examples of Best PracticeProcurement Management Description Applications Capitalize on supply market Ability of Procurement to opportunities as a part of develop plan of action to Strategy strategy to drive value through achieve organizational goals cost leadership, innovation and and objectives revenue realization Embed procurement skills and Structured hierarchy of knowledge in key business Procurement group focused on Organization processes rather than functions; maximizing organizational differentiated strategic (CM) vs. opportunities tactical (Buyer) Rotate high-potential An integrated pattern of professionals as ambassadors of human knowledge, belief, and procurement excellence across Culture behavior supporting functions throughout the organization and Procurement organization. Provide incentives strategy for procurement process excellence Link procurement metrics to The process of assessing strategic objectives and toPerformance Management progress toward achieving corporate results and proactively predetermined goals control procurement processes Copyright © 2010 Iasta, All rights reserved
  • Roadmap to Savings Sustainability Dimension of Examples of Best PracticeProcurement Management Description Applications A rigorous process of assessing all costs associated Apply advanced techniques (e.g. with a spend category and cross-functional specifications, competitively bidding the Strategic Sourcing demand management, eRFPs, category to identify suppliers eAuctions) to leverage full value that offer optimal total cost, potential quality and service performance A rigorous process of assessing all costs associated with a spend category and Effectively manage the tension Supplier Development working with existing suppliers between value creation and risk to reduce total cost, gain management efficiencies and improve quality/service. Automate and upgrade operating Streamlining operations as it processes using e-business Procurement Automation relates to transactional technologies (e.g. Order facilitation of purchases management software, trading exchanges) Copyright © 2010 Iasta, All rights reserved
  • Conclusion Procurement  now has the tools  now has the voice  now has the credibility Thank You Copyright © 2010 Iasta, All rights reserved
  • For More Info… Iasta Global HQ Iasta European HQ 12800 N. Meridian St. Hartham Park Suite 425 Corsham, Wiltshire Carmel, IN 46032 SN13 0RPUnited States of America United KingdomOperations: 317.594.8600 Operations: +44 (0) 870 199 4060 Sales: sales@iasta.com Sales: +44 (0) 1249 700726 www.Iasta.com eSourcing | eSourcing | forum Iasta Alliance Group wiki www.eSourcingWiki.com www.LinkedIn.com www.eSourcingForum.com www.Twitter.com/Iasta.com Copyright © 2010 Iasta, All rights reserved