Five Ways Your Procurement Could Be Leaving Money On The Table

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Enterprises that provide their strategic procurement teams with proper tools can expect them to deliver year-over-year cost savings, close to 10 times their expenses.

This presentation

• lists five key pieces of intelligence that enable more effective supply management and procurement planning

• describes a real-life negotiation in which superior supply chain visibility and collaboration helped minimize a dramatic price hike attempted by a supplier

• presents a recent analyst’s report that confirms the value of strategic procurement, and describes several key characteristics of the top-performing teams... especially how they exploit technology to gather this strategic intelligence and avoid leaving money on the table.

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Five Ways Your Procurement Could Be Leaving Money On The Table

  1. 1. FIVE WAYS YOUR PROCUREMENTCOULD BE LEAVING MONEY ON THE TABLE(a white paper summary)www.kinaxis.comcompany /resource center /white papers <br />Chuck Thomasdirector, professional servicescthomas@kinaxis.com<br />Copyright © Kinaxis 2009. All rights reserved. <br />
  2. 2. The role of strategic procurement<br /><ul><li>Expected to deliver year-over-year cost savings. (At the top end, this can be close to 10 times their expenses.)
  3. 3. Any local purchasing agent, focused only on his own factory or region, worries mainly about how to get the best price on enough supply to get through coming months with no outages.
  4. 4. Strategic procurement teams take a wider view over a longer timeframe, seeking to maximize the return on a much larger total spend and save the enterprise millions of dollars.</li></ul>Copyright © Kinaxis 2009. All rights reserved. <br />
  5. 5. Five key types of intelligence<br />#1: Total past spend with a given supplier<br /><ul><li>The total spend at the supplier level may not be difficult to find in a smaller company. However, a larger organization may be challenged.
  6. 6. The enterprise may be running numerous instances of the same ERP system in different divisions or regions. Or worse, it may be running incompatible systems.
  7. 7. Purchasing may be focused by division or region, with little information-sharing between them.
  8. 8. Parts and vendors may be given different code numbers by each division.
  9. 9. Without this basic number, purchasers lose a valuable negotiating chip.</li></ul>Copyright © Kinaxis 2009. All rights reserved. <br />
  10. 10. Five key types of intelligence <br />#2 Total projected spend with a supplier in the future<br /><ul><li>Knowing what a company plans to spend in the coming months, quarters and years.
  11. 11. Any ERP system can provide a preview of future requirements at the component level, but it will only have the same precision and forward visibility as the forecasts in the system.
  12. 12. If several divisions buy the same component for different product lines, it can be a challenge to roll up all those purchases into one global number.
  13. 13. A system that provides this capability can truly leverage the expert knowledge of the entire sourcing community, including Product Management, Engineering, QA, and Operations. </li></ul>Copyright © Kinaxis 2009. All rights reserved. <br />
  14. 14. Five key types of intelligence <br />#3 Total projected demand by product<br /><ul><li>Breaks down sum of all demand by product.
  15. 15. This might be achievable for companies that produce only a small number of end products. But this challenge is amplified greatly for any enterprise with
  16. 16. multiple business units;
  17. 17. multiple manufacturing sites, some internal, and some owned by third-party contract manufacturers or ODM’s;
  18. 18. and many different systems containing the necessary data.
  19. 19. Without these numbers, procurement likely occurs at the most tactical, disbursed level.</li></ul>Copyright © Kinaxis 2009. All rights reserved. <br />
  20. 20. Five key types of intelligence <br />#4 Key cost drivers in manufactured products<br /><ul><li>If a product is complex (large bill of materials with many levels, produced with components and subassemblies made in multiple plants, by hundreds of suppliers around the globe,) the challenge is significant.
  21. 21. Many companies do some form of manual data consolidation as a brute-force exercise once a year, or whenever they feel the pain. But this approach is not sustainable, and can be wrought with errors.
  22. 22. An ideal system can perform data consolidation and reporting on an ad hoc basis, completing it quickly whenever the information is most needed.</li></ul>Copyright © Kinaxis 2009. All rights reserved. <br />
  23. 23. Five key types of intelligence <br />#5 Life cycle dynamics that influence pricing<br /><ul><li>Most components are more expensive in the early part of their life cycle, when the supplier must recoup an investment in R&D.
  24. 24. At the end of life, or once a part is commoditized, the price naturally gets lower. Existing inventorymay be cleared out, offering a tempting price on a volume of some component―but will it become obsolete before it’s used up?
  25. 25. The same dynamics come into play for the brand-owner’s products. New products with no competition can be priced higher; as competitors and alternatives emerge, these prices naturally fall.
  26. 26. A system that can capture and convey the life cycle of purchased components and assembled products is a powerful asset during negotiations.</li></ul>Copyright © Kinaxis 2009. All rights reserved. <br />
  27. 27. Strategic procurement in play<br /><ul><li>A key supplier (90%+ worldwide market share for a family of niche components) announced intended price increase of 50%.
  28. 28. Using strategic intelligence, one manufacturer was able to drill down to a granular level and bargain component by component.
  29. 29. One of the product lines was winding down, so the company accepted a larger increase on components for that line. In exchange, it won a smaller increase on components for a newer line.
  30. 30. Actual cost increase to manufacturer was about 20%. </li></ul>Copyright © Kinaxis 2009. All rights reserved. <br />
  31. 31. Moving to procurement mastery<br /><ul><li>“Procurement masters are different. They approach the function more strategically and holistically. They engage more fully with suppliers and frequently work to partner, rather than bargain.” Accenture
  32. 32. Some stats:
  33. 33. 82% of top-performing procurement teams use technology to support their efforts.
  34. 34. Technology to promote supplier integration is used by two-thirds of the top-performers.
  35. 35. 76% of the top companies use tools for harmonizing master data—creating a central corporate repository </li></ul>“High Performance through Procurement: Accenture research and insights into procurement performance mastery,” Accenture, 2007, page 3.<br />Copyright © Kinaxis 2009. All rights reserved. <br />
  36. 36. Harmonizing data and better reporting<br /><ul><li>Data harmonization is a key process in strategic procurement (consolidated data from disparate and incompatible ERP and other systems)
  37. 37. The key to procurement mastery is to systematically gather all the required information, combine it with ERP data, and provide visibility through ad-hoc reporting.
  38. 38. Technologythat provides these capabilities can deliver all five types of strategic information, and revolutionize corporate relationships with suppliers.</li></ul>Copyright © Kinaxis 2009. All rights reserved. <br />
  39. 39. Conclusion<br /><ul><li>A truly effective information system provides a way to leverage the knowledge and skills of the procurement organization to negotiate from a more informed position.
  40. 40. This position will be based on:
  41. 41. Detailed component volumes, past and future (intelligence types #1, #2 and #3)
  42. 42. Crucial, specific knowledge of programs and customers (intelligence types #3 and #5)
  43. 43. Other metadata related to the product, its value chain, and life cycle (intelligence types #4 and #5.)</li></ul>Copyright © Kinaxis 2009. All rights reserved. <br />
  44. 44. Download the white paper:Five Ways Your ProcurementCould be Leaving Money on the Tablewww.kinaxis.comcompany /resource center /white papers <br />Copyright © Kinaxis 2009. All rights reserved<br />
  45. 45. Share your comments <br />& ideas...<br />http://blog.kinaxis.com<br />http://community.kinaxis.com<br />Copyright © Kinaxis 2009. All rights reserved. <br />

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