Missing Bricks for Value creation - The future of Procurement by Reza Hagel CPO & Principle


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This is the introduction chapter of my book.
Highlighting a few case studies on my transformation projects that will be described in other chapters.
My 5 steps methodology to approach and manage projects.

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Missing Bricks for Value creation - The future of Procurement by Reza Hagel CPO & Principle

  1. 1. Procurement The Future of Procu rement REXCOM MISSING BRICKS FOR VALUE CREATION TELECOMMUNICATIONS Sourcing Best Practice An overview on Wireless & Fixed Operator’s Business, Financial & Technology IT & Telecommunications | Reza T. Hagel
  2. 2. Missing Bricks for Value Creation I would like to begin this book by thanking Mr. Arash M. Moghaddas for introducing me to the world of telecommunications. Furthermore, this book would not be possible without the support of my lovely wife Sanaz who has encouraged me in pursuing its writing. A special thanks to my mentor in Sony, Mr. Josuke Tomoda from whom I Iearned innovation management and product planning and Mr. Karl Heinz Muller in Vodafone Group who has been an inspiration in pursuing my career in the field of supply chain management. Page 1
  5. 5. Missing Bricks for Value Creation AUTHOR PRESENTATION TELECOM PIONEER WITH EXPERIENCE FROM FORTUNE500 TELECOM OPERATORS, MANUFACTURERS & SYSTEM INTEGRATORS TO EMERGING MARKET START-UPS ON GROUP, REGIONAL & NATIONAL LEVELS WITH EXPERIENCE FROM TIER 1, TIER2, TIER3 OPERATORS WITH OPERATIONS ACROSS MORE THAN 60 COUNTRIES WORLD’S LEADING TELECOMMUNICATIONS MANUFACTURING & SYSTSEM INTEGRATORS with a knowledge capacity, being in the global market as one of the pioneers in the telecom revolution in the mid 1990s, Mr. Hagel has been a key player in the development of telecom trends, market standards & price revolutions. LATEST AS REGIONAL VICE PRESIDENT PROCUREMENT & LOGISTICS FOR HUAWEI TECHNOLOGIES THE LARGEST TELECOMMUNICATIONS EQUIPMENT MANUFACTURER IN THE WORLD AND AS ADVISOR & CHIEF PROCUREMENT OFFICER FOR CISCO SYSTEMS IN MIDDLE EAST Mr. Hagel grew up in Paris, France and moved to Sweden at the age of 17 where he pursued his studies at Catrinelund College in Gothenburg. He later graduated with honors from Scandinavian Academy of Aeronautics in Sweden with a Bachelor degree in Aeronautical engineering and continued his education at Chalmers University of Technology in the field of advanced mathematics and graduated 2nd in his class. He later studied mechanical design & product development courses at Cranfield University in the UK. On his return back to Sweden, Mr. Hagel joined Gesab consulting as Product development expert towards the automotives, aeronautics and telecoms industries to later joining Sony & Ericsson in the year 2000 as a member of the turnaround joint venture team. Mr. Hagel was part of the global product planning team headed by Mr. Yosuke Tomoda from Sony Japan. MR. Hagel was responsible for the creation of business intelligence, global market & consumer behavior analysis and became product line responsible for the end to end management of Sony Ericsson first clamshell product developed by outsourcing manufacturing partners in Asia and the USA. As the head of product line MR. Hagel was P&L responsible. He created innovations and products (USP) Unique Selling Point, developed the Product & Market Business Plan and performed life cycle financial analysis, identifying market launch price and life cycle pricing strategy. Leading the Industrial design, together with defining the high-level technical specifications, travelling to manufacturing sites to perform audit and quality control and managing cross functional teams in USA, Taiwan and Sweden was the start-up activities performed by Mr. Hagel. He also initiated, studied and monitored R&D projects to push new technologies, innovative mobile services and content such as the MP3 player functionality, Sport mobile handset & Durability against water & dust now in use in latest Sony mobile phones. Z200 Sony Ericsson Sharp – Vodafone GX35 First Music Terminal At the age of 29 MR. Hagel was headhunted by Sharp Electronics headquartered in the UK, where he planned, developed and launched the Exclusive Music Mobile Handset GX35 in partnership with Vodafone Group in the UK and Germany. Having taken the business relationship between Sharp and Vodafone Group to another level Page 4
  6. 6. Missing Bricks for Value Creation FREELANCE MANAGEMENT CONSULTING SINCE 2006 FOUNDER OF REXCOM FREELANCE TELECOMS SOURCING EXECUTIVES GROUP WITH A POOL OF +1,000 EXPERT MEMBERS GLOBALLY and increased Sharp’s business & reputation within the European market, Mr. Hagel was offered to join the new group procurement organization of Mr. Karl Heinz Muller headquartered in Dusseldorf Germany responsible for the purchasing synergy of 44 group operating companies with Asian telecom manufacturers such as Samsung electronics, Sharp, LG, Panasonic, HTC, Pantek and Curitel. Beside participation in diverse group optimization projects such as group SAP roll-out, E-Sourcing strategy & pilot, Mr. Hagel has been part of Vodafone Group Procurement Process, Procedures & Policies development such as Group Vendor Management, Bid Management, Spend Management process & tools development. His main achievements during this period was to introduce and project manage the first Mobile TV Service in Europe by partnership with Samsung Electronics, He also managed the end to end engagement of a new group strategic Korean supplier Pantech & Curitel leading the ODM/OEM strategic program to a group contract signature with competitive group prices. By introducing the Bill Of Material analysis on components level to bring detailed cost awareness to plan multibillion group negotiations, Mr. Hagel has been instrumental in bringing manufacturing know-how into planned negotiations to achieve new price bracket during vendor negotiations. Having achieved significant marketing, project management and procurement experience, the way to reach maturity and gain global exposure for the understanding of cross category procurement expertise was to enter the consultancy sector. Since 2006, Mr. Hagel has been supporting the global telecom fixed & wireless operators and world leading telecommunications equipment manufacturers and system integrators with change management, transformation and operations management as freelance interim Supply chain Executive and latest as Regional Vice President Procurement & Logistics at Huawei technologies and as Advisor Chief Procurement Officer supporting the development of Cisco Systems regional sales organization. Mr. Hagel has during this time been managing multi-sites operations procurement & logistics organizations in more than 35 countries for group operators such as the Zain Group with 22 operations in Middle East and Africa, Huawei Technologies with 12 operations, Orange France Telecom and others. He has recruited, managed and developed multi-cultural teams of up to 130 (FTE) full time employees during challenging periods of change, by the integration, motivation and development of multi-geographic and virtual teams on Group, Regional and national levels. With a background in innovation, financial & risks management for fortune 500 companies, Mr. Hagel has been able to bring these know-how into managing consultancy procurement & logistics projects, understanding that Price has no meaning except in terms of the quality of the product and service delivered to stakeholders and organization. This approach has delivered unexpected outcomes, exceeding client’s expectations in different parts of the world including Europe, Middle East and Africa. The realized savings have always exceeded the targets set with the clients, but the aim has never been to cut cost rather than to understand it, analyzing and optimizing it. With an in deep knowledge of manufacturing, product and service development, Mr. Hagel has supported Operators to understand cost optimization across the value chain and driving vendor management with emphasis on opportunity assessment and vendor innovation development. Due to his P&L background, Mr. Hagel has always been analyzing not only the total cost of ownership but also the Business case and ROI which has allowed him to approach the stakeholder with a business perspective of value creation. During the past 13 years within the telecommunications sector, Mr. Hagel has been living and working in France, Belgium, Netherlands, Germany, Sweden, Dubai and Bahrain but his home remains Sweden. Page 5
  7. 7. Missing Bricks for Value Creation The case studies below have been chosen to highlight procurement value creation and give life examples of the topics of this book with related customer feedbacks, providing a complete outlook of the given theories with its applications. Organization development, change & transformation - Procurement BU Organization Development – Large European Mobile Operator (Operator) - Regional Procurement Organization Development – Large Manufacturer & System Integrator (Huawei) Procurement generating new revenues by partnering with customers and aligning operations - Fortune500 Equipment Manufacturer & System integrator and large group mobile operator key account - Fortune100 Equipment manufacturer & System integrator using procurement to understand customer behavior and strategic deal making (Cisco systems) Risk Management & Business Intelligence in Sourcing Strategy formation - Risk management & Procurement Empowerment, Large European wireless & fixed operator (Operator) - IT outsourcing BSS & OSS for Tier 1 mobile Group Operator in Europe (Orange France Telecom) By pass of Procurement & corporate damage control Tier1, Tier2, Tier3 Operators - For a major Group Content frame agreement signed by a Mobile Operator top Management, returned by Board and renegotiated by procurement (Zain Group) - By pass of Procurement for a new product acquisition & in market risk prevention (Operator) Strategic Vendor Management Tier1, Tier2, Tier3 Operator & Manufacturer - Vendor Management Optimization initiative on Regional level (Huawei Technologies) - Vendor Innovation by procurement efficiency project – Maintenance Support Services (Huawei Technologies) Value creation Tier1, Tier2, Tier3 Operator & Manufacturer - Creation of wireless terminal new price bracket – Cost Efficiency by Business Case & PRODUCT BOM (ASSEMBLY, COMPONENTS AND MATERIAL) Analysis (Zain Group) - 50% cost savings on Field maintenance service by Efficiency improvement & operations modeling (Huawei Technologies) - Leading ODM Project for Group mobile operator in Africa and Partner manufacturer in China (Zain Group) - Logistics Group Optimization Program – joint optimization program with vendor (Vodafone Group) 1. Integrated Demand Management (Forecasting and Manufacturing planning – weekly » Sony Ericsson Global HQ in Sweden group forecasting supporting lean manufacturing & cost » Sharp Europe HQ in the UK optimization in terms of Time to Market reaction » Huawei Technologies regional HQ in Bahrain (TTM), Production accuracy & Low inventory) » Cisco Systems Regional Office in UAE 2. Packaging (cost optimization by procurement – » Vodafone Group HQ in Germany » Orange France Telecom in Belgium 30% cost reduction) » Zain Group HQ in the Netherlands 3. Distribution center 25% cost reduction by » Operator Group HQ in Belgium relocation of assembly, kiting, flashing and packaging » du integrated Telecom. Company in Dubai centers Page 6
  8. 8. Missing Bricks for Value Creation CHAPTER 1 INTRODUCTION AND GRAND SUMMARY MISSING BRICKS FOR VALUE CREATION THE FUTUE OF PROCUREMENT A diet helps you lose weight quickly, But only a lifestyle change will provide sustainable & long-lasting health A TRUE STORY! MR. ALAN BROWN, A 53 YEARS OLD CONSTRUCTION WORKER FROM NEW JERSEY. Mr. Brown an old friend always declare to have more than 40 years procurement experience, performing his first buyer assignment at the age of 13 by receiving a one dollar bill to buy two bottles of milk. Alan soon was supporting on the household daily shopping activities. During the following years he learned the importance of benchmarking before selecting, especially when coming home with fruits & vegetables not at an acceptable standard of his mother and had to walk back to the store to negotiate the returns! In adult age, being a workaholic construction worker and bachelor, he paid no attention to the quality of food he consumed and before the age of 40 he gained 120 pounds overweight and had to be urgently hospitalized. After a recovery period and having lost his job, Alan returned home. During all these years, he had been shopping without any concern for the quality or price of his groceries. Now with limited income and health issues Mr. Brown decided for a lifestyle change as the only way to survive the crisis. He had to be careful on managing his budget and searching for healthy items at reasonable price and exercising on a daily basis. During the following weeks Alan performed a market research and soon had a helicopter view on all retails, outlet stores and low price super markets in New Jersey. To keep his health, he needed to study in detail any consumables; Counting each calories, Fat, Vitamins and Minerals and comparing not only the product specifications but also benchmarking the pricing from different low price supermarkets. He soon understood that price & quality are not the only factors to be considered and learned the meaning of total cost of ownership. So far he did not pay any attention to the price of transportation and the impact of services that some super markets offered to its member customers through various Loyalty programs such as free delivery, Special discounts, Credit and more. Today at the age of 53, Mr. Brown managed to lose 90 pounds and to keep his apartment during the unemployment period until finding another source of income. If Mr. Brown Can…You Can ! I tell this story for my team members each time they seem not aware of the vendor value proposition, specifications and market insides. The learning is about understanding the specifications of the goods & services purchased and assessing not only cost but the operations underlying its final delivery to the business owner. It’s a lesson that procurement managers should take to heart. Page 7
  9. 9. Missing Bricks for Value Creation RESEARCH Harvard Business school 97% OF ALL VERBAL NEGOTIATION TACTICS ARE PREDICTABLE 90% of the success in negotiation is down to proper planning Professor Max Bazerman The tactics used by procurement fall into two distinct stages 1. Reference an alternative to the solution (competition) 2. Then procurement use this alternative option as a way to bargain and trade for something in return Data isn’t glamorous, but when it comes to negotiation, it is the ultimate equalizer Professor Neil Rackham found that average negotiators frequently spend no more than 10 to 15 minutes planning their negotiation strategy Having been a telecoms marketing professional for Sony Ericsson & Sharp Electronics I fully understand the value of data intelligence in different if not all organization decision making as an important support tool. In procurement however data intelligence and its applications have not been used by its full potential. Today procurement professionals have guidelines on using data intelligence in category planning phase. This has not been the core activity of a busy Category manager and as such, down prioritized and not fully used in strategic planning and negotiations. I would like to start this book by highlighting the main issues facing Procurement organizations. Still today, procurement performance is finally down to cost savings. Top management perception, requirements and expectations from procurement need to be in line with the business owners expectations. Today there is a misfit between the two causing frustrations on both sides. Procurement being a process matter expert in center of a multitude of cross functional projects, need to be much more than a price focused support function in a leading edge organization with focus on Market Responsiveness, Competitiveness and Efficiency. Today most procurement organizations are not able to fully respond to their internal business owner’s expectations. Unless a mind-set storm to revive the spirit and motivation of procurement professionals in sustainability and value creation will be just other words in the procurement dictionary. Page 8
  10. 10. Missing Bricks for Value Creation Missing Brick for Value Creation Market maturation brings challenges to operators business. Wireless has been the growth engine for the telecom industry in the past decade. With the maturation of this market operators are facing challenges to growth. For majority of mobile operator’s profitability voice services have been the cash cow that is driving their business. Procurement in the center Many research from leading universities show that organizations are more aware of not being able to operate without reference to the markets into which they sell and also the markets from which they purchase their inputs. Procurement is the part of the business most exposed to the latter and therefore a potential important source not apparent to other executives on: • • • • • opportunities innovation competitor behavior best practices and most important Risk management In my years as sourcing performance improvement advisor I have come to believe that the major issue for the procurement function is how it can utilize all these strengths for the profit of the organization. Today’s businesses are under constant pressure to reduce costs yet many find it hard to do so in a sustainable fashion. RESEARCH STUDY KPMG NINE OF TEN COST REDUCTION PROGRAMS FAIL TO ACHIEVE THEIR TARGETS, AND THE GAINS THAT ARE ACHIEVED APPEAR TO BE SHORT LIVED. Procurement differentiator In the majority of telecom organizations and starting by the highest level being the CEO, the mindset is still ‘’I can procure it myself !’’ forcing procurement to establish its main differentiator to gain a sit at the strategic table. • • • • • Trusted advisors: supporting solution design and recommendations based on a sourcing risk management and mitigation report to be established as a trusted expert advisor Genuine functional insight: up-to-date procurement professionals managing complex client challenges with the support of a domain knowledge and industry database Collaboration in vision and execution: acting as business advisors to stakeholders and management from concept to realization of future state vision Focus on total value delivered: enhancing value across end to end supply chain instead of localized, incremental cost savings Sustainability of benefits: with focus on structural improvement and people development to deliver sustainable benefits Page 9
  11. 11. Missing Bricks for Value Creation PROCUREMENT WILL WIN A SEAT AT THE STRATEGY TABLE ONLY WHEN DEMONSTRATING ITS VALUE TO THE WIDER BUSINESS FINDING THE TRUE IDENTITY OF PROCUREMENT as long as you see me as a support function, I will act as such… The mentality of procurement organizations if tolerable on being a support function will never be the generation of value for the organization. Too many cases of frustration from both the internal customers not receiving the support required and the procurement team frustrations on the bypass and late involvement of procurement are few cases to highlight this misunderstanding of the function and to expect from it to perform at its highest potential. SALES ORGANIZATIONS PERCEPTION ON PROCUREMENT During a Chief Procurement Officer Workshop held by a leading telecom equipment manufacturer and system integrator, I had an interesting time with the regional sales organization about Procurement not understanding the product or service offered and the value it brings to the organization and are just focused on price reduction only by playing competitors against each other. I started to ask myself why procurement organizations can’t succeed in being seen as a strategic contributor and to provide Value rather than just cost reduction. Procurement professionals are using competition price benchmark to negotiate. As far as this approach is leading the procurement negotiation planning, the function will be seen as a support and administrative. This is a lesson that Sales organizations have understood and nowadays when a procurement professional is just price focused they immediately classify him as a non decision making component of the deal. PROCUREMENT LEADERS Professor Richard Lamming, Director, University of Southampton, School of Management, goes slightly further: “I don’t think there is a hope of procurement being seen as advisors on what to buy. Instead, as markets get more difficult, there is going to be a role for somebody who can say ‘here is the macro picture’, and sometimes to say ‘what you want is unavailable and here are alternatives’.” The maturity of procurement departments varies enormously across different operator organizations. In my experience, it is this level of maturity that determines the profile of the function. A procurement team with a strong leader and capable senior people, and a lean and integrated sourcing process and IT systems will have an organization that is relevant, central and responsive to the business. A team that lacks this leadership and necessary IT systems to provide visibility will tend to function in isolation, irrelevant to the business, remaining removed from core business decision makings. Still management are not convinced of the ‘’Realized Savings’’ delivered by the procurement organizations. When savings are created by procurement, they may disappear if not protected from being spent. This is done by working with P&L officers at budgeting times, and focusing on reducing where and how departments spend money. Page 10
  12. 12. Missing Bricks for Value Creation Today Procurement professionals consider the biggest barrier to their increased contribution to corporate strategy a lack of interest by others in what they have to offer and the necessary support from top management. Those outside the field, on the other hand, are more likely to see the function as too focused on costs and compliance instead of value and innovation. To play a greater role, procurement needs not only support from the corporate suite, but also to engage partnership with colleagues in other departments. Large technology investments risk being underused, especially because of inadequate skills. Procurement functions are investing in a wide range of technological tools, from reverse auctions to SRM (supplier Relationship Management) software, to help in their mission. Unfortunately these technology deployments often fail to deliver on initial expectations. Since the establishment of Rexcom in 2006, as freelance international management consultant I have developed a procurement best practise dashboard that has been in use in all client assignments around the globe. Information visibility, accessibility and accuracy is the most important approach to keep a close collaboration with stakeholders and suppliers. A Category Database, Vendor Contract Database and Registered Risk Database have been continuously supporting an accurate execution of each assignment. The unique differentiator which has enabled the success of my projects as a consultant was to establish trust and proactively engaged the stakeholder and developed the relationships to a collaborative planning and execution of assignments. To be able to establish trust, I am required to show the added value and differentiator of procurement each time I enter a new organization. FIVE MAIN ACTIVITIES HAVE SUPPORTED THIS APPROACH: 1. I have developed and used a standardized approach that has supported the development of multi-billion projects (UAB) Understanding, Analysing & Benchmarking. The main activities consist of performing (PRODUCT BOM Bill of material Analysis (ASSEMBLY, COMPONENTS AND MATERIAL)) and (SOM) Service Operation Modelling, (SBR) Supplier Business Review. Understanding, Analysing Vendor Business Case and performing (ROI) Return On Investment & (TCO) Total Cost of Ownership calculations. Performing global benchmarking of identified cost drivers at component level; all this to provide complete visibility and transparency. 2. Risk Management clearly has been the driver behind the trust established between me and my clients. It has been a major contributor for the value created and to establish a stakeholder and organization dependency to the services provided. I have used a defined risk management methodology and developed a specific tool in all assignments to manage telecom projects in a structure manner. 3. Opportunity assessment has generated the Wow! Factor as called in marketing. Delivering above expectations of stakeholders, top management and board of directors using methodology developed and used in majority of assignments. 4. Operations strategy and alignment have supported the growth of sales operations, customer satisfaction, and supplier engagement. The power of procurement as process matter expert to support a streamlined delivery of sales projects; managing customer expectations, aligning internal resources, suppliers and sub-contractors. 5. Partner supplier satisfaction rating becomes as important as Stakeholder satisfaction as both are elements to company success and need monitoring and support. An unsatisfied supplier who is not performing due a poor management of stakeholder needs immediate attention to secure business continuity. Page 11
  13. 13. Missing Bricks for Value Creation CLIENTS’ FEEDBACK: SOME EXAMPLES HAVE BEEN CHOSEN TO HIGHLIGHT THE PROJECT OUTCOME OF THE 5 DEFINED STANDARDIZED APPROACH ABOVE: ‘’Reza managed in a short time to understand the business models that were being used and opened the doors for new opportunities with our vendors. Besides this Reza has a very good knowledge on the Mobile Industry and shared with us his strategically insights..” Max Gobbaerts, Vendor Manager Data Devices, Belgacom ‘’Reza helped the Commercial team better understand procurement strategies and took the effort to assist in negotiations with suppliers to the great benefit of the Commercial Team. His capability to quickly grasp strategic thrusts and to co-operate as a willing, outcome driven team player and leader as the situation demanded was a . great asset.’’ - Michael Dabaly Jimma, Group Marketing Director, Celtel International ‘’As the Vice President of Procurement at Huawei MENA, Reza brought leadership to an organization that was struggling to find direction in the complex field of Procurement. Being the Regional Manager of MENA Site Business, it was important from a delivery perspective, for Procurement to be on the same page with my department to achieve customer goals during implementation. Without Reza involvement, we could not meet some of the deployment commitments.’’ - Patrick Hart, Regional Site Design Director, Huawei Regional Office, Bahrain “Reza has been able to optimize the Huawei performance and market positioning within the region by meeting the customer’s executive management and aligning our sales, PMO and procurement teams improving the end to end efficiency of the entire organization. I have seldom come across someone who has more charisma and gravitas than Reza.” - William Weihoo Loke, Procurement Specialist, Huawei Technologies, Saudi “Reza is highly knowledgeable in the Telco industry and understands fully the added-value role of purchasing in strategic deals. Negotiating with Reza can be a real challenge at times for any salesperson but his professionalism keeps even the most difficult moments a pleasure thanks to his keen sense of humour!” - Yves Dubus, Account Director, Atos Origin ‘’As Head of IT Procurement interim, Reza provided a new way of thinking and new approach to build, negotiate and finalize supplier contract & partner contract which are supporting our long term procurement strategy. Attend with Reza to contract negotiation phases is really an empowerment for technical profiles and a challenge for suppliers; he is always looking for his company interest. Great job. Thank you.’’ - BAYET Jean-Christophe, IT Project Manager, Orange France Telecom I found Reza to be an utmost professional in the field of telecom industry while working with him for the largest telecom operator in the Benelux market. He has the talent of displaying both sound business acumen as well as understanding how to manage and optimize business/ customer’s relationship getting the optimal effect of vendor potential into an organization. His strategic procurement approach and risk management, allowed our organization to get a very good insight in the market mechanisms behind a number of telecom services avoiding mistakes made by other operators. He has been able to implement new ways of purchasing for particular commodities, mitigating risks and improving our customer satisfaction in terms of improved efficiency, faster delivery and higher quality of products and services. Reza demonstrates a high level of energy and commitment. He operates with high integrity and knows the value of strategic procurement and relationship management. Willy Vyncke Procurement Expert, Proximus Page 12
  14. 14. Missing Bricks for Value Creation Some of the key operators concerns More Visibility More Choice More Value More Time SOME OF THE KEY ISSUES • • • • • • • • • • • • Higher labor costs Security risks Difficult to extend or modify business processes Proprietary interfaces, architectures, tool sets Custom, expensive integration Complicated and risky upgrades Unpredictable dependencies between products Constant patching and sub optimal configurations Vendor viability risk Fragmented service and support Inefficient licensing and portfolio management Fragmented customer and product data THE BEST IN CLASS ORGANIZATION ARE BECOMING EXPERTS IN DEVELOPING, ESTABLISHING AND MANAGING • • • • • • • • Industry-specific processes Model driven services Global Data Hubs Real time analytics Large transaction loads Standard. Hot-pluggable. Predictable tune-ups Proactive Support PROCUREMENT NEED TO IDENTIFY THE ORGANIZATION PAIN POINTS TO SUPPORT A VENDOR DRIVEN STRATEGIC SOLUTION Page 13