Amidst growing pressure to streamline business processes and enhance operational performance, complete or incremental optimization across the sourcing life-cycle has become the need of the hour.

1. S2C PROCUREMENT
OPTIMIZATION
— Kapil Anand Yadav
Kapil.anand.Yadav@gmail.com
16th March 2020
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2. 2
S2C PROCUREMENT:
OPTIMIZATION APPROACH

3. Amidst growing pressure to streamline business processes and enhance operational performance, complete or incremental optimization across the
sourcing life-cycle has become the need of the hour
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BUSINESS PERSPECTIVE
S2C Process Optimization Approach
Spend
Analytics
Category
Strategy
Vendor
Management
Negotiating &
Contracting
Procurement
Invoice &
Payment
Source-To-Contract Procure-To-Pay
Value
Levers
Target
Outcomes
Volume aggregation
Domain Expertise
Labor Arbitrage
Specification management
Technology Leverage
Improved Pricing and Quality
Lower Procurement Costs
Headcount Reduction
Improved Spend Visibility
Streamlined processes

4. 01..Define & Determine
• Define sourcing categories
• Gather category intelligence
• Analyze market place
• Internal vs external process review
• Determine category strategy
03..Implement
• Price benchmarking & negotiations
• Preferred vs Strategic suppliers
• Contract negotiations
• Contract initiation
• Performance KPIs
02..Explore & Plan
• Spend Analysis
• Identify cost drivers
• Supplier relationship mapping
• Establish supplier qualification
criterion
• Opportunity Assessment
04..Calibrate
• Supplier monitoring
• Savings tracking
• Cost-benefit analysis
• Continuous price & market
intelligence
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Build context and
scan horizon
Optimization and
cost savings
Formulate best-fit
approach
Continuous Improvement
PROPOSED APPROACH
Inclusive approach throughout Planning and Implementation cycle is critical to achieve continuous
improvement
First Quarter (or 3 months) focused on planning, set-up and initiating implementation for the rest of the year; Analysis of program
effectiveness at the end of each quarter to measure success and improvement areas

5. 5
PROPOSED APPROACH: DEFINE & DETERMINE
SPEND & COST OPTIMIZATION: Achieve Category Excellence by aligning sourcing strategy with market
movements, changing purchase dynamics and cost structures
Category Strategy & MI
Buyer vs Supplier
Dynamics
Cost Drivers
Pricing & Cost Structure
Pricing & Cost Structure
CATEGORY
GLOBE
Develop strategic playbooks that define the insight and
moves needed to –
• Create a competitive advantage
• Reconfigure bargaining power across critical
categories
Streamlining category strategy to conform with the disruptions in
external environment
Defining category cost structures through cost modeling and tear-
down analysis
Identifying the underlying cost drivers at the macro and micro level –
supply-demand balance, specifications, etc.
Developing value roadmap via collaborative optimization tools and
engaging in comprehensive scenario planning
Priority Areas

6. 6
PROPOSED APPROACH: EXPLORE & PLAN
VENDOR MIX & CONTRACT MANAGEMENT: Optimizing Vendor base to maximize cost and value benefits
with sustained TQM; Drive strategic choices that expand opportunity set
Ways to Play
Options
Spend & Cost
Analytics
Supplier
Optimization
Cost Optimization Engine
• Analysis of floor and ceiling price for services
using customized TCO modelling
• Analyze individual cost elements and
determining variables for effective
negotiation
Spend Analytics
• Full spend analysis platform to clean,
validate, classify and reports spend data
from all source systems
• Provide accurate, actionable information,
with granular, item-level visibility across the
enterprise
Develop Vendor Selection Criterion
• Scorecards developed via category intel
obtained from RFIs, Surveys, public filings
• Price-Performance-Capability Index
Evaluate Existing and Alternatives
• Performance of existing vendors using KPI
framework and price-to-performance ratio
• Identify potential alternative vendors with
better value proposition
Strategic vs Preferred
• Create a pool of strategic vendors who can
aggregate 75-80% of the volumes
Define Opportunity Set in terms of
cost saved, value delivered and turn-
around-time
• Performance and Capability benchmarking
• Cost Optimizing vendors vs Value
Maximizing Vendors
• Contracted vs off-contract volumes
• Maverick spending and discounting options
• Volume aggregation options
Visibility on cost and spend;
Assess buying power
Vendor Performance &
Strategic mix
Cost savings and Value
maximizing opportunities

7. 7
PROPOSED APPROACH: IMPLEMENT & CALIBRATE`
SUPPLIER MONITORING & RISK MANAGEMENT: Calibrate progress for continuous improvement and change
the ‘play’ if required
Opportunity Pocket Sign-off
Finalize cost saving and value creation levers
identified and deploy systems to implement
measures
Facilitate Negotiations
Leverage price and cost analysis to identify
negotiation opportunities and price leverage
for roll-out of new contracts
Contract Initiation
Set performance goals and initiate
procurement process under the new
contractual obligations
Establish Evaluation Criterion
Develop an evaluation criterion for suppliers
to measure their performance and assess
risks
Supplier Monitoring
Develop and set-up a supplier monitoring
mechanism w.r.t. quality, timeliness, country
risks, operational capabilities and financial
health
Category & Supplier Risk
Track category intelligence in real-time and
measure risks being faced by supplier(s) – to
identify new negotiation opportunities and
formulate mitigation strategies
Supply-Demand scenario
Periodically assess the supply-demand
scenario across categories to measure buyer
leverage, supplier power, price benchmarks
and disruptions
Analyze savings & Improvements
After the end of first quarter analyze cost
savings achieved and any process
improvements or supplier mix changes
required
Cost Savings & Value Creation
PRICE & SPEND ANALYSIS
SUPPLIER MIX
BUYING
LEVERAGE
CONTRACT
EXECUTION
Tools-Tech-Analysis-Process
IMPLEMENT CALIBRATE

8. 8
SPEND STATE
&
POTENTIAL SAVINGS

9. Optimizing Maverick Spend
Cost Avoidance Options
Consolidating Volumes by Optimizing Vendor
Mix
Continuous Spend-Quality-Performance
reviews
Reviewing Terms & Discounting options
Centralization of S2C Process
COST SAVING: KEY LEVERS
Focus on the following pillars to deliver cost savings

10. Maverick Spend 7-10% savings can be achieved across 20% of the spend
Volume
Consolidation
Avg Savings of 8% by consolidating 70% of volumes under strategic suppliers
Low-cost Sourcing 30% cost savings on bottom 10% of the volumes procured from low-cost suppliers
Cost Avoidance Average of 1% savings across categories by chaffing out ‘what’s not required’
Purchasing
Requests & Intervals
10% savings in operational costs by streamlining (OPEX = 1% of the total spend for category)
Reduction in
off-contract volumes
25% savings on off-contract spend assuming 25% volumes are off-contract
Discounts obtained
• 4% savings in spend assuming 30% of the contracts are extended for 24 months
• 6% savings in spend assuming 15% of the contracts are extended for 36 months
• Savings of 1-3% on 30% of contractual volumes under <30 days payment period
COST SAVING: REDUCTION POSSIBILITIES
…with the below mentioned initial possibilities to save costs

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COST SAVING LEVERS

12. Effective tail-spend analysis can help better planning across categories by moving un-managed spend into managed
categories, procured from strategic suppliers
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COST SAVING LEVERS: MAVERICK OR TAIL SPEND OPTIMIZATION
Maverick or Tail Spend Optimization: can reduce 7-10% in overall category costs plus the additional savings
via lower operational hassles
Mismanagement of Tail spend is a key
pain area for majority of the procurement
departments
• Though tail spend usually accounts for
~20% of the overall spend, it can be a
quick win when targeting cost savings
• Doing an in-depth spend analysis on tail
spend helps encourage compliance and
identify maverick spend
• The smaller suppliers that add up to
around 20% of total spend are defined
as the tail.
Suppliers
Discrption01
Sample Text
Too many vendors to
effectively manage
Higher price, discounts lost,
resources drained, high
processing costs
Too many transactions and
high processing costs
Possibility of inferior quality,
compliance risks
Pricing
Transaction
TQM
What
can
Tail
Spend
Optimization
Prevent

13. Vendor Mix Optimization: can save up-to 12% in overall category costs via volume aggregation, higher
buying leverage, stronger strategic partnerships and simplified processes
Convergence
COST SAVING LEVERS: VENDOR MIX OPTIMIZATION
Predominantly
Strategic Suppliers
Diverse
Suppliers
Converge & Consolidate
Key Drivers
Opportunities
Lower Procurement Costs
High Buying Leverage
Better Account Management
Enhanced Capabilities of Suppliers
Lower Support Staff requirement
Improved Pricing and Quality
Stronger Partnerships
Headcount Reduction
Streamlined Processes
Superior Risk Management
Large organizations, consolidate 70% of the procurement volumes under a pool of 3-4 Strategic Suppliers with best
Price vs Performance ratio, to negotiate on price and ensure quality

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COST SAVING LEVERS: BEST COST SOURCING
Supplier Scouting: Exploring new suppliers in-line with “Best Cost Country Sourcing”. Companies can
potentially save up-to 30% by purchasing 10% of low-end products/services from lowest-cost suppliers
Supplier identification in
local geography
Price from local
suppliers
Supplier technical and
commercial assessment
Competitive local cost
analysis
Price in low-cost
sourcing destination
Logistics cost
Custom duty and trade
tariffs
Inland logistics and
cumulative landed cost
DESTINATIONS
LOCAL vs LOW-COST
Strategic Choices
TRADE DYNAMICS
Volumes/unit rates/lead time
Sourcing Options
Local Sourcing Analysis Landed Cost Analysis

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COST SAVING LEVERS: VOLUME AGGREGATION
Supplier Optimization: Evaluation of supplier base with respect to operational capabilities, performance track
record and financial flexibility
ILLUSTRATIVE
OUTPUT
Suppliers with best
Cost/Performance
Ratio
Account for ~2/3rd of
overall spend
STRATEGIC
Empanelled suppliers
selected for a
specific service
category to assist
those business units
PREFERRED
Back-up suppliers
required when the
regular ones can’t
meet the asks or face
crisis
APPROVED
Shortlisted solely
based on cost-
advantage for less-
complex asks
LOW-COST
Supplier Classification

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DISCOUNTING TERMS: Reviewing existing and exploring new discounting terms via expert negotiations
COST SAVING LEVERS: REVISIT DISCOUNTING TERMS
3% to 8%
• Can vary across different products
and services
• Discounts are given over the total
billed amount
Volume-Based
0% to 6%
• Less than 12 Months – No Discount
• 12 Months to 24 Months – 2% to 3%
• >24 Months – 3% to 5%
Contract Length
0% to 3%
• Less than 15 Days – 3%
• 15-30 Days – 1% to 2%
• >30 Days – 0%
Payment Cycle
Depending upon the category, additional savings can be made by negotiating service/product specifications, delivery
time and pricing model

17. THE
PROCESS
Identify Soft-
Savings
Eliminate
Transaction Costs
Consolidate
Purchase Intervals
Alternative Pricing &
Engagement Models
Harmonization of
specifications
Prevent Duplication
of Orders
Depending upon the category, additional savings can be made by negotiating service/product specifications,
delivery time and pricing model and other aspects
COST SAVING LEVERS: OTHER COST SAVING OPTIONS

18. THANK YOU
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