Procurement Performance


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Strategic Procurement

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Procurement Performance

  1. 1. What you will get by conducting a Strategic Sourcing program? <ul><li>Strategic sourcing is an institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company. In a production environment, it is often considered one component of supply chain management. </li></ul><ul><li>Strategic sourcing has faced a lot of challenges including fluctuating economy and increased expectations to bolster the enterprises bottom-line. However, over the last few years have brought about a new, complex challenge: continue to drive procurement while finding fresh cost savings within other areas of corporate spending. </li></ul>
  2. 2. <ul><li>Identify cost reductions </li></ul><ul><li>Automate or streamline sourcing process </li></ul><ul><li>Centralize processes </li></ul><ul><li>Improve supplier management / collaboration </li></ul><ul><li>Mitigate supply risk </li></ul>Objectives of strategic sourcing
  3. 3. <ul><li>Insufficient visibility into timely/accurate spend data. </li></ul><ul><li>Limited budget/ or resources to implement e-sourcing. </li></ul><ul><li>Reluctance to adopt standardized sourcing processes. </li></ul><ul><li>Lack of executive support. </li></ul><ul><li>Strategic sourcing, in its very definition, is a process and program that requires actionable intelligence to drive day-to-day business decisions. In order for sourcing team members to accurately gauge spend patterns and trends that utilize the information within future sourcing projects, these projects must be enabled with future visibility to enterprise-wide spending. </li></ul>Top sourcing challenges
  4. 4. Savings Leakage <ul><li>Although sourcing group was designed to effectively cut down costs for enterprise spending and utilize those savings to aid cost containment efforts, there is quantifiable lack of follow through within organizations strategic sourcing programs </li></ul><ul><li>Nearly 2.2% of the average savings identified by the typical strategic sourcing group is lost due to savings leakage. </li></ul><ul><li>Savings leakage can occur due to a variety of causes including cost creep, poor contract management, gaps in processes/technology aspects, and changes in demand management. </li></ul>2.2% Savings Leakage 5.4% 3.2%
  5. 5. <ul><li>In order to alleviate the common pressures within the strategic sourcing program and attain the objectives of such efforts, top performing enterprises have employed two main strategies for driving spend under management and cost savings: </li></ul><ul><li>Standardization & Technology. </li></ul><ul><li>Standardized sourcing processes can drive awareness and understanding of corporate and its associated programmatic aspects; standardization is key component in formalizing the many aspects of strategic sourcing program to ensure best saving opportunities. </li></ul>Standardization & Technology
  6. 6. <ul><li>A-group companies are utilizing a combination of technology solutions and streamline the major sub-processes within their strategic sourcing programs: </li></ul><ul><li>E-Sourcing : automated strategic sourcing processes such as RFP and Online Requests </li></ul><ul><li>Contract Life Cycle Management Solutions: is a viable tool for combating savings leakage. Poor contract management and failure to monitor key agreement milestones can result in lower rate of realized savings from rates that where identified at the outset of supplier agreement. </li></ul><ul><li>Automated Spend Analysis (ASA) systems promote a repeatable data analysis process that can be used to leverage sourcing efforts. ASA data allow sourcing executives to ‘slice-and-dice’ spend data at will by supplier, category, pricing, etc., this information can be leveraged in sourcing projects to influence negotiations and boost cost savings. </li></ul>Technology
  7. 7. <ul><li>Spend Analysis : visibility is often the cornerstone of effective strategic sourcing due to actionable intelligence and knowledge gleaned from and inside look at the enterprise’s corporate spending. Spend analysis follows a series of steps data extraction/collection, data enrichment, data classification/cleansing, and reporting/analysis. By automating these processes, enterprises can easily manipulate and re-address their spend data report as often and easily as needed to fuel their sourcing efforts with real time and actionable intelligence that can help them renegotiate supplier contract as a means of producing superior cost savings. </li></ul>Technology
  8. 8. Best in the class technology solutions currently adopted. <ul><li>RA: Reverse Auctions, CS: Collaborative Sourcing, SA: Spend Analysis, CLCM: Contract Life Cycle Management, E-Srg: E-Sourcing </li></ul>
  9. 9. <ul><li>An active spend analysis program can be the most powerful weapon in the procurement and sourcing tool box. Through the analysis and reporting of this data through spend analysis system, the sourcing team can easily pinpoint spend patterns/trends and areas of consolidation and utilize that actionable intelligence in ongoing and new negotiations with major suppliers. </li></ul><ul><li>The modern strategic sourcing program must support sub-processes that when collaboratively linked and executed, can drive savings, spend visibility and sourcing excellence. </li></ul><ul><li>These sub-processes, include e-sourcing, contract life cycle management, and spend analysis, have been automated and streamlined by best in class enterprises and are a vast contributor to their strategic sourcing success. </li></ul>Automation of the strategic sourcing sub processes
  10. 10. <ul><li>In your Purchase demand management , by </li></ul><ul><ul><li>1. Optimizing specifications, </li></ul></ul><ul><ul><li>2. Reducing consumption, </li></ul></ul><ul><ul><li>3. Consolidating spends. </li></ul></ul><ul><li>In your Supply-base management , by </li></ul><ul><ul><li>4. restructuring your supply base, </li></ul></ul><ul><ul><li>5. increasing competition, </li></ul></ul><ul><ul><li>6. adjusting your relationship with suppliers. </li></ul></ul><ul><li>In your Total cost management , by </li></ul><ul><ul><li>7. Reducing transaction costs, </li></ul></ul><ul><ul><li>8. Reducing the Total Cost of Ownership, </li></ul></ul><ul><ul><li>9. Reducing the total cost of Supply Chain management. </li></ul></ul>The three main domains
  11. 11. Cash Cost Quality Service Purchase Demand Management Supply Base Management Restructure Relationships Increase Competition Optimize Supply Chain Costs Reduce Consumption Consolidate Spend Optimize Specification The Strategic Sourcing triangle is a nice way to represent the value one can created with strategic sourcing Total Cost Management Restructure Supply Base Reduce or Eliminate Transaction costs Reduce Lifecycle & TCO
  12. 12. <ul><li>Objective of strategic sourcing is savings implementation. It is critical that procurement groups work in conjunction with the CFO and finance team to properly follow through with the identified savings by officially communicating negotiated agreement terms and booking those savings into enterprise budgets and projects. </li></ul><ul><li>These areas are more closely linked than it appears; even if one area lags or fails, the entire strategic sourcing can crumble. Enterprises must align their strategic sourcing goals with these three sub-processes to capitalize on their savings opportunities. </li></ul><ul><li>The modern strategic sourcing program does not merely involve a steady pipeline and effective supplier negotiations; rather, it is an intricate foundation that depends on the success of its spend analysis, contract management and savings implementation initiatives. Contract lifecycle management is a key stop-gap to savings leakage. </li></ul>Summary