Procurement Outsourcing - An Opportunity
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Procurement Outsourcing - An Opportunity

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Procurement Outsourcing - An Opportunity Procurement Outsourcing - An Opportunity Presentation Transcript

  • Procurement OutsourcingAn OpportunityGuy StraffordDirector | buyingTeamTuesday 10 May 2011 This document is owned by buyingTeam © 2011 No copying or distribution is permitted without the prior consent of buyingTeam
  • Procurement is a prisoner of its heritage The procurement industry at large (i.e. directs & indirects): Is in its relative infancy Is not intellectually mature Is ill positioned in many businesses • It is not appreciated / recognised Does not attract the best talent This document is owned by buyingTeam © 2011 2 No copying or distribution is permitted without the prior consent of buyingTeam
  • ..which produces a problemWe typically find that businesses are:Not fully aware of how much (and what) they Not in control of their spend spend on procured goods & services Not realising the benefits well run indirect Not aware of the scale of the money they are procurement can bring wasting This document is owned by buyingTeam © 2011 3 No copying or distribution is permitted without the prior consent of buyingTeam
  • …which leaves a lot of opportunity on thetable Top pressures on the CFO Procurement’s impact on the CFO’s challenges ‘Procurement improvement brings better return than almost every other area priority: 5x the savings of any other BPO.’ - Everest, Nov 2008 ‘Procurement improvement is easier to realise than almost any other area of cost release. The alternative of reducing employment has high up front costs and there are significant delays to realisation of benefit.’ - Financial Dynamics research, Oct 2009 ‘5 – 15% of spend reduction depending on level of transformation.’ - Everest, May 2009 ‘Speed to value can be measured in weeks. Fast ROI is sited by 92% of executives as a reason for action on procurement.’ - Black Book of Outsourcing, 2009 One of the greatest improvements to profit, with the fastest return is to improve your procurement Source: Cranfield research This document is owned by buyingTeam © 2011 4 No copying or distribution is permitted without the prior consent of buyingTeam
  • Procurement needs redefiningIndirect/enabling and direct procurement are different Indirects/enabling Retail Factor Directs (inc Goods Not For Resale) (Goods for Resale) # of suppliers used High Low Medium Supply market # of potential suppliers in the High Low Low market # of categories of spend High Low Medium # of supply chain integration Low High High issues Process Average transaction £ Low High High # of transactions High Low Low # of decision makers High Low Low (1) Procurement is the decision No Sometimes Yes maker Influencers # of requisitioners High Low (1) Low (1) # of suppliers per Procurement High Low Low Manager Maverick spend issues Yes No No Business driver Enabling the business to run TCO & certainty of supply Gross margin Procurement’s main focus Internal & supply market Supply market Supply market & consumer Business Source of most value Changing internal behaviours Supply market Supply market Ability to see savings hit the Difficult Easy Easy bottom line This document is owned by buyingTeam © 2011 5 No copying or distribution is permitted without the prior consent of buyingTeam
  • P2P and sourcing face fundamentally different challenges Sourcing P2P Average 10- Category management Purchasing Sourcing Invoicing 50-70% 15% on in- Business engagement Settlement reduction in AP scope spend Spend management headcount Negotiation/ contracting Contract management Supplier management Performance management P2P helps Up to 0.5% of 15-25% on spend maverick spend Benefits from Sourcing: manage Benefits from P2P: Price/ TCO Sourcing Process cost improvements & enforce reduction in AP * Demand suppression best Errors in invoicing Enabler for Least adequate practice Working capital effective 1-3% for 10- specification by management working capital 15% of supply Reduced maverick improvements – management proving base cash & stock spending, & thereby control & increased spend under visibility Reduces suppliers’ management cost of supplying * Early payment Improved rebate Unable to discounts * management estimate Improved leverage Unable to Risk reduction estimate Service level improvements at no extra cost This document is owned by buyingTeam © 2011* Also applicable on direct spend 6 No copying or distribution is permitted without the prior consent of buyingTeam
  • Key elements of outsourcedprocurement –reality and expectation What it is Contrast with expectations Based on ability to drive Not labour arbitrage more value Based on Not direct procurement indirects/enabling for most part Probably requires spend Requires an investment more on Procurement case team and infrastructure Requires proximity to Is not about external stakeholders aggregation This document is owned by buyingTeam © 2011 7 No copying or distribution is permitted without the prior consent of buyingTeam
  • The key elements of any solutionAny solution to enabling/indirect procurement must take account of: Influencing the senior stakeholder to decide / choose smarter, when their priorities are more than savings Handle a lot of diverse suppliers in a way which can extract material value from them Deal with the noise which comes from day to day activities of lots of junior stakeholders and suppliers, which otherwise distracts from the above This document is owned by buyingTeam © 2011 8 No copying or distribution is permitted without the prior consent of buyingTeam
  • The inherent limitations of internalresource provide rationale for outsource Internally run resource is usually sub scale: Unleveraged Unleveraged people technology investment Short on Wrongly market Under positioned knowledge invested Too slow and insufficient value Outsource This document is owned by buyingTeam © 2011 9 No copying or distribution is permitted without the prior consent of buyingTeam
  • Procurement outsourcing trends This document is owned by buyingTeam © 2011 10 No copying or distribution is permitted without the prior consent of buyingTeam
  • Universal Music Group Case Study This document is owned by buyingTeam © 2011 11 No copying or distribution is permitted without the prior consent of buyingTeam
  • Universal Music Group Case Study Streaming Recording Studios &  Bespoke  European  Licensing Deal Producers Print &  Media Packaging Duplication Award  Mastering /  Product  Manufacturing Recording  Remixing Standard  Agency Budget Setting Manufacturing  Product  PR Print SRM Spec Back to Back Records Photography CPU Creative  D2C Video Rights Services T‐Shirts Versions Digi‐promo Artist  Production  Produce Physical  Promote &  Sell Music & Acquisition / A & R & Digital Product Advertise Merchandise Enabling Spend Travel Couriers Taxis Posters, FSDUs Property Consultancy Utilities Mobiles FM MFDs IT This document is owned by buyingTeam © 2011 12 No copying or distribution is permitted without the prior consent of buyingTeam
  • Our vision is a world in which procurement isan indispensible tool at the heart of everybusiness Expertise – Over 200 experts across all indirect categories and sectors Leverage – Managing more than €5bn of spend at any timeOur mission is to release procurement’s Delivery – Unique multi-client shared services delivery modelpotential, redefine it, move it to the heart of International – HQ in UK, offices inbusiness, and make our clients leaner, fitter, Benelux, Canada, France, Germany, Spain, Switzerlandand stronger as a result Uncompromised – Unbiased, always working in our clients’ best interest Partnership – Deep client relationships, maintained for the long term This document is owned by buyingTeam © 2011 13 No copying or distribution is permitted without the prior consent of buyingTeam
  • Thank you Guy Strafford Client Director buyingTeam T +44 (0)20 3465 4545 M +44 (0)7967 383625 guy.strafford@buyingteam.com www.buyingteam.com This document is owned by buyingTeam © 2011 14 No copying or distribution is permitted without the prior consent of buyingTeam