Procurement Model J. Patrican


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Procurement Model J. Patrican

  1. 1. Copyright © 2006 All Rights Reserved. Patrican & Associates Global Procurement Model : :
  2. 2. Global Procurement <ul><li>Transform from a function whose role was primarily administrative to one that delivers a competitive edge and significant value to the company </li></ul>
  3. 3. Strategic Imperative <ul><li>Create the competitive advantage </li></ul><ul><ul><li>Managing domestic and global suppliers is the most influential strategic lever companies can use to reduce costs and compete more effectively on price </li></ul></ul><ul><ul><li>Leverage size and scale to obtain </li></ul></ul><ul><ul><ul><li>lowest price </li></ul></ul></ul><ul><ul><ul><li>faster cycle time </li></ul></ul></ul><ul><li>Increase strategic sourcing management coverage to 95% </li></ul><ul><ul><li>Influence / control spend </li></ul></ul>
  4. 4. MRO Products MRO Services T & E Office Supplies Computer Products U.S. Average Percentage for Non-Production Expenditures
  5. 5. Path towards World Class Procurement <ul><li>Visibility (See the Money) </li></ul><ul><ul><li>Diagnostic of sourcing & purchasing function </li></ul></ul><ul><ul><ul><li>How much do we spend on goods & services </li></ul></ul></ul><ul><ul><ul><li>Where or with whom do we spend it </li></ul></ul></ul><ul><ul><ul><li>What are we buying from these suppliers and through what process </li></ul></ul></ul><ul><ul><ul><li>Who within the organization buys these goods and services </li></ul></ul></ul><ul><ul><ul><li>Why are we buying them </li></ul></ul></ul><ul><ul><ul><li>How does our performance compare to others across the industries </li></ul></ul></ul>
  6. 6. Path toward World Class Procurement <ul><li>Visibility continued </li></ul><ul><ul><li>Consolidate company wide spend </li></ul></ul><ul><ul><li>Review existing contracts </li></ul></ul><ul><ul><li>Develop market perspective </li></ul></ul><ul><ul><li>Determine supplier relationships </li></ul></ul><ul><ul><li>Identify sourcing opportunities </li></ul></ul>
  7. 7. Product Cost Information Intensive Process Costs Purchase Process Costs MRO Total Cost Picture
  8. 8. Need Identification 11% Approval & Review 23% Vendor Selection & Ordering 27% Material Receipt 7% Material Inventory & Issuance 21% Payment 11% Primary areas of cost reduction in an iCommerce environment 60%+ opportunity MRO Process Cost Picture
  9. 9. Path towards World Class Procurement <ul><li>Process (Get the money) </li></ul><ul><ul><li>Identify business requirements </li></ul></ul><ul><ul><li>P-Card (Procurement – to – Payment) </li></ul></ul><ul><ul><li>Determine potential suppliers </li></ul></ul><ul><ul><li>Evaluate market impact </li></ul></ul><ul><ul><li>Establish supplier management expectations </li></ul></ul><ul><ul><li>Develop supplier report card </li></ul></ul>
  10. 10. Path towards World Class Procurement <ul><li>Sustainability (Keep the money coming) </li></ul><ul><ul><li>Restructure organization </li></ul></ul><ul><ul><li>Improve skill sets </li></ul></ul><ul><ul><li>Implement technology enablers </li></ul></ul><ul><ul><li>Provide compliance mechanisms </li></ul></ul><ul><ul><li>Streamline process </li></ul></ul><ul><ul><li>Align culture </li></ul></ul>
  11. 11. Payoffs of an Procurement Model <ul><li>Reduced overhead costs </li></ul><ul><li>Improved task and process performance </li></ul><ul><li>Elimination of redundant activities </li></ul><ul><li>Strategic focus </li></ul><ul><li>Reduce use of suppliers </li></ul><ul><li>Drive majority of business through suppliers who deliver a major competitive advantage to us </li></ul>
  12. 12. Strategic Measurements <ul><li>Global purchase base Total throughout enterprise </li></ul><ul><li>Procurement contribution Control or influenced by procurement </li></ul><ul><li>Global expense reduction % reduction through strategy execution </li></ul><ul><li>Cumulative cash Yearly dollar savings improvement </li></ul><ul><li>e -supplier base Suppliers using “portal” </li></ul><ul><li>Supplier base reduction % reduction through supply base segmentation </li></ul>Base Year Goal Year Success in achieving our goals and delivering value will be determined by how well we perform against the measurements
  13. 13. Measurements <ul><li>Operations </li></ul><ul><ul><li>Quality of purchased items </li></ul></ul><ul><ul><li>Key supplier problems that could affect supply </li></ul></ul><ul><ul><li>Supplier delivery performance </li></ul></ul><ul><ul><li>Internal customer satisfaction </li></ul></ul><ul><ul><li>Purchase inventory dollars </li></ul></ul><ul><ul><li>Purchase cost savings </li></ul></ul><ul><li>Procurement </li></ul><ul><ul><li>Price negotiations resulting in savings </li></ul></ul><ul><ul><li>Creating leverage through combining volume </li></ul></ul><ul><ul><li>Monitoring delivery performance </li></ul></ul><ul><ul><li>Supplier scorecard utilization </li></ul></ul><ul><ul><li>Budget versus actual expenditures </li></ul></ul>
  14. 14. Components of World Class Procurement <ul><li>Combines strategic sourcing and supply management </li></ul><ul><li>Enable technologies and procurement infrastructure </li></ul><ul><li>Efficient operations and process </li></ul><ul><li>Modified employee behavior </li></ul>
  15. 15. Expected Commodity Cost Increases in 12 months <ul><li>50% to 78% Increase </li></ul><ul><li>Steel, Aluminum & other products </li></ul><ul><li>Energy </li></ul><ul><li>Petrochemicals & plastic resins </li></ul><ul><li>Packaging & paper </li></ul><ul><li>Office Supplies </li></ul><ul><li>Transportation </li></ul><ul><li>30% to 49% Increase </li></ul><ul><li>Electronic components </li></ul><ul><li>MRO </li></ul><ul><li>High end IT supplies </li></ul><ul><li>Printing </li></ul><ul><li>Furniture </li></ul><ul><li>Other indirect materials </li></ul>
  16. 16. Responses to Cost Increases <ul><li>Continue spend analysis to develop sourcing/supply strategies </li></ul><ul><li>Switch to new suppliers – Lowest delivered cost </li></ul>
  17. 17. Lowest Total Delivered Cost <ul><li>Supplier’s willingness and ability to collaborate to identify the true cost of transactions between their two companies and to assist the buying organization into driving those costs out of procurement program </li></ul>
  18. 18. James R. Patrican, III 1-607-227-3563, Patrican & Associates Enterprise Process Management Consultants 52 Reach Run Road Ithaca, NY 14850 Contact Information
  19. 19. Patrican & Associates Services <ul><li>  </li></ul><ul><li>ENTERPRISE BUSINESS REVIEW - The EBR will target tactical opportunities that enhance service levels and reduce costs. In fact, an aggressive EBR implementation could result in a 5 to 10 percent bottom line improvement. </li></ul><ul><li>  </li></ul><ul><li>SUPPLY CHAIN – Analysis of process, organization, and technology in order to have the maximum impact for improved performance. The supply chain represent 50 to 80 percent of a company’s total cost structure and has tremendous potential to achieve a 15 to 30 percent reduction in operating costs. The Supply Chain usually consists of the following strategic functions: Forecasting, Demand Planning, Scheduling, Inventory Management, Purchasing, Commodity Management, Sourcing, Logistics, Manufacturing and Warehousing. </li></ul><ul><li>  </li></ul><ul><li>PROCUREMENT TRANSFORMATION –Develop and implement a procurement organization that can function as a strategic lever within the enterprise to provide a continuous contribution to savings. We will establish the processes, practices infrastructure and organization to manage or influence the spend. We will make certain that immediate tactical savings are obtained and that continuous improvement will result in yearly savings. </li></ul><ul><li>  </li></ul><ul><li>OUTSOUCING – Preparation for outsourcing non-strategic functions by preparing the business case, developing the request for quote process, vendor evaluation, selection and negotiation. </li></ul><ul><li>  </li></ul>
  20. 20. Patrican & Associates Services - Continued <ul><li>TRAINING / IMPLEMENATION – Black belt trainers for Six Sigma and Lean Manufacturing are available for classroom training or to customize a program for your needs. We offer executive team building and facilitation and problem solving services. </li></ul><ul><li>  </li></ul><ul><li>EXECUTIVE / MANAGEMENT PERSONNEL – Provide supply chain executives to supplement your short-term needs. </li></ul><ul><li>  </li></ul><ul><li>SECURITY & INVESTIGATION - Services focus on compliance monitoring, investigations and crisis management. </li></ul><ul><li>  </li></ul><ul><li>PROCESS MANAGEMENT - Process Management will examine all the elements of the workflow including those that fall outside the area of your organizations responsibly. Define the required process interconnectivity, coordination, visibility and accountability. </li></ul>