Strategic Sourcing


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Strategic Sourcing

  1. 1. Strategic Sourcing “ The arm’s length buy-sell transaction , use your clout to beat up the supplier , is a highly outdated Model. We also believe that to share information is absolutely key , and sometimes this requires changing a lot of norms practices in your company where secrets are sovereign” Martin J. Garvin , Vice President Corporate Management , Dell Computers. “ Knowledge is Power” Mubarak Al-Mansouri Procurement Officer / Drilling and Logistics Commercial Division
  2. 2. AGENDA <ul><li>Mission and Goals </li></ul><ul><li>Introduction to Strategic Sourcing </li></ul><ul><li>Strategic Sourcing Process and ADMA-OPCO Opportunities. </li></ul><ul><li>Strategic Sourcing and Information Flow. </li></ul><ul><li>ADMA-OPCO Road Map to implement Strategic Sourcing. </li></ul>
  3. 3. Strategic Sourcing <ul><li>To develop and implement an effective system-wide, collaborative purchasing process designed to maintain or increase customer satisfaction (by enhancing product quality and service levels) and significantly lowering total cost by coordinating and leveraging common purchases across the ADMA-OPCO system. </li></ul>MISSION
  4. 4. ADMA-OPCO <ul><li>Complete Customer Satisfaction. </li></ul><ul><li>Continuous Improvement of Internal Service Levels and Product Quality. </li></ul><ul><li>Process Excellence. </li></ul><ul><li>Significant Total Cost Reduction (5%-15% Target). </li></ul><ul><li>The leveraging of an ADMA-OPCO buying power to obtain goods and services to End-Users. </li></ul>Goals
  5. 5. Definition of Strategic Sourcing <ul><li>Strategic sourcing is a process driven by an identified goal or need and consists of: </li></ul><ul><ul><li>Evaluating current and potential sourcing opportunities and relationships </li></ul></ul><ul><ul><li>Assessing their value and relevance according to long-term goals and overall business and supply management objectives </li></ul></ul><ul><ul><li>Formulating and applying action plans and processes for critical commodities or supply networks </li></ul></ul>Source: Institute for Supply Management Other Names: Procurement, Purchasing, Supply Management, Spend Management, Global Sourcing, Supply Relationship Management
  6. 6. Strategic Sourcing Analysis <ul><li>Process/Competence Analysis: </li></ul><ul><ul><li>Identify budget holders/end customers </li></ul></ul><ul><ul><li>Evaluate competencies of people involved in process </li></ul></ul><ul><ul><li>Undertake activity-based costing </li></ul></ul><ul><ul><li>Evaluate systems & procedures, extent of management information, controls </li></ul></ul><ul><ul><li>Identify extent of opportunism in organization </li></ul></ul><ul><ul><li>Identify waste of resources </li></ul></ul>
  7. 7. Strategic Sourcing Analysis <ul><li>Spend Analysis </li></ul><ul><li>Procurement Officer View </li></ul><ul><li>Who is Buying </li></ul><ul><li>What </li></ul><ul><li>From Whom </li></ul><ul><li>When </li></ul><ul><li>(Optionally) Where </li></ul><ul><li>At What Price </li></ul>Tools Spend Analysis <ul><li>Spend Analysis is the Process of </li></ul><ul><ul><li>Aggregating </li></ul></ul><ul><ul><li>Classifying </li></ul></ul><ul><ul><li>Leverage spending Data </li></ul></ul><ul><ul><li>ADMA-OPCO Opportunities </li></ul></ul><ul><ul><ul><li>Cost reduction </li></ul></ul></ul><ul><ul><ul><li>Performance improvement </li></ul></ul></ul><ul><ul><ul><li>Contract Compliance opportunities </li></ul></ul></ul>Analyze Spend
  8. 8. Strategic Sourcing Analysis <ul><li>Spend Analysis Users and Relationship </li></ul>
  9. 9. Strategic Sourcing Analysis <ul><li>Supply Base Analysis </li></ul><ul><ul><ul><li>Evaluate suppliers’ performance </li></ul></ul></ul><ul><ul><ul><li>ABC analysis </li></ul></ul></ul><ul><ul><ul><li>Supplier/customer preferencing </li></ul></ul></ul><ul><ul><ul><li>Identify and evaluate key suppliers’ </li></ul></ul></ul><ul><ul><ul><li>Map current supply/value streams </li></ul></ul></ul><ul><ul><ul><li>Vulnerability analysis </li></ul></ul></ul>
  10. 10. Strategic Sourcing Analysis <ul><li>Generate Options </li></ul><ul><ul><ul><li>Use of brainstorming, & SWOT Analysis </li></ul></ul></ul><ul><ul><ul><li> Business cases </li></ul></ul></ul><ul><ul><ul><li>Sourcing options including - Make/Buy,Outsourcing/Insourcing etc. </li></ul></ul></ul>
  11. 11. Strategic Sourcing is Evolving Traditional Purchasing Strategic Sourcing Global Supply Management ADMA-OPCO Paradigm Transaction Project Enablement Focus Price, Transaction management, Compliance Supplier rationalization, Spend consolidation, Cycle-time reduction, Standardization Balancing Total System Cost; Maximizing shareholder value; Enabling product innovation Reach Local; Many suppliers Multi-regional, Some collaboration with related functions Global; Highly collaborative across the enterprise and visible at executive levels Technology Spreadsheets Auctions, eSourcing, Basic optimization Technology enablement across all strategic sourcing processes People Decentralized Buyers Commodity Teams , Center-led or centralized Cross-functional teams Global
  12. 12. Strategic Sourcing Process Analyze Spend 1 Identify Requirements 2 Analyze Market 3 Implement Strategy 8 Manage Negotiations 6 Award & Contract 7 Develop Strategy 5 Traditional Procurement Strategic Sourcing 4
  13. 13. Identify Internal Requirements <ul><li>Procurement Officer View </li></ul><ul><li>What are the product and service requirements of the users? </li></ul><ul><ul><li>Quality requirements </li></ul></ul><ul><ul><li>Product specifications </li></ul></ul><ul><ul><li>Service performance expectations </li></ul></ul><ul><li>Are requirements different across divisions? </li></ul><ul><ul><li>Look for harmonization opportunities </li></ul></ul><ul><li>Fully understand the client requirements fully so Procurement Officers can assess Suppliers capability to deliver them </li></ul><ul><ul><li>Incumbents have a better opportunity to understand End-User requirements </li></ul></ul><ul><li>Develop creative solutions for End-user requirements </li></ul><ul><ul><li>There is more to the sourcing process than just selecting the lowest price </li></ul></ul><ul><li>Influence how End-user define their requirements </li></ul>Tools Specifications Surveys Interviews Identify Requirements
  14. 14. Analyze Market <ul><li>Procurement Officer View </li></ul><ul><li>What are the conditions of the specific market? </li></ul><ul><ul><li>Rising input costs, capacity constraints, barriers to entry, etc. </li></ul></ul><ul><li>Who makes up the supply base? </li></ul><ul><ul><li>Many players, dominant players? </li></ul></ul><ul><li>Are there new products, services or suppliers entering the market? </li></ul><ul><li>Are there diverse suppliers? </li></ul><ul><li>ADMA-OPCO Opportunities </li></ul><ul><li>Conduct Market Assessment </li></ul><ul><ul><li>Analyze Market Dynamics / Trends </li></ul></ul><ul><ul><li>Enhance Innovation and Leadership </li></ul></ul><ul><ul><li>Identify a Fair price of equipments and Product Life cycle. </li></ul></ul><ul><ul><li>Analyze Fright rate. </li></ul></ul><ul><ul><li>Looking for new suppliers within the Market. </li></ul></ul>Tools Internet research Supplier Diversity team Benchmarking (Collecting Data) Analyze Market
  15. 15. Develop Sourcing Strategy <ul><li>Procurement Officer View </li></ul><ul><li>Develop Specifications. </li></ul><ul><ul><li>Branded Specification should be Catalogued. </li></ul></ul><ul><li>Identify Sourcing levers </li></ul><ul><ul><li>ADMA-OPCO defines target costs for most products based on profit margins and final prices derived from market research. </li></ul></ul><ul><ul><li>Value Chain Analysis required in this stage. </li></ul></ul><ul><li>Develop End state Scenarios </li></ul><ul><ul><li>Split-Award, Package , Performance Criteria. </li></ul></ul><ul><li>Determine Potential mega-supplier approach. </li></ul><ul><ul><li>GASOS </li></ul></ul><ul><ul><li>Consolidated Suppliers </li></ul></ul>Tools Market Research Team Benchmarking (Collecting Data) Sourcing Strategy
  16. 16. Develop Strategy <ul><li>Procurement Officer View </li></ul><ul><li>Based on the internal requirements and the dynamics of the industry, determine negotiating strategy </li></ul><ul><ul><li>Negotiate with current supplier's </li></ul></ul><ul><ul><li>Bring in new suppliers </li></ul></ul><ul><ul><li>Go out to bid through: </li></ul></ul><ul><ul><ul><li>Reverse Auction </li></ul></ul></ul><ul><ul><ul><li>Traditional RFI, RFP, RFQ </li></ul></ul></ul>Tools E-Sourcing tools Cross-functional teams Project Management <ul><li>Procurement Strategy </li></ul><ul><li>Split - Award </li></ul><ul><li>Package </li></ul><ul><li>Performance Criteria ( Drill PDC / Rock) </li></ul><ul><li>Joint Procurement with Other OPCOS. </li></ul><ul><li>Straight Forward ( Price based) </li></ul><ul><li>Master Agreement </li></ul>Develop Strategy
  17. 17. Manage Negotiations <ul><li>Procurement Officer View </li></ul><ul><li>Develop key criteria for evaluating proposals based on internal requirements </li></ul><ul><li>Initiate negotiations under chosen strategy </li></ul><ul><li>Compare and rank results based on key criteria </li></ul><ul><li>ADMA-OPCO Opportunities </li></ul><ul><li>Provide value beyond traditional unit price reductions: </li></ul><ul><ul><li>Creating unique solutions </li></ul></ul><ul><ul><li>Innovation - new products and services that provide better quality and lower costs </li></ul></ul><ul><ul><li>Standardization </li></ul></ul><ul><ul><li>Usage/Inventory Reduction </li></ul></ul><ul><ul><li>Cycle Time Reduction </li></ul></ul><ul><li>Embrace e-Sourcing through online RFP and auction participation </li></ul><ul><li>Provide options like partnering with another supplier to increase capabilities and capacity </li></ul>Tools Online RFX Weights/scoring Standard templates Reverse Auction Manage Negotiation
  18. 18. Determining the Negotiation Strategy Value Complexity Low High High Auction RFP Auction RFP Renegotiate RFP Few suppliers Complex Pricing Complex Services Many suppliers Transaction based Clear Requirements Many suppliers High volume Single source of supply Proprietary products Complex Pricing Partner Strategic Suppliers
  19. 19. Award & Contract <ul><li>Procurement Officer View </li></ul><ul><li>Based on results, determine who the best overall suppliers’ </li></ul><ul><ul><li>Often a cross-functional team decision </li></ul></ul><ul><li>Finalize specific contract terms and conditions with suppliers </li></ul><ul><ul><li>Involve Procurement Officers , finance and legal </li></ul></ul><ul><li>ADMA-OPCO Opportunity </li></ul><ul><li>Appeal to all Shareholders </li></ul><ul><ul><li>Procurement Officers will be weighing price reductions with quality of product/ service and supplier diversity goals </li></ul></ul><ul><li>READ and UNDERSTAND the terms and conditions </li></ul><ul><li>Ensure you are not signing “bad” business </li></ul>Tools Automated weights/scoring Online contract management Cross-functional teams Award & Contract
  20. 20. Implement Strategy <ul><li>Procurement Officers View </li></ul><ul><li>Determine how contract will be rolled out </li></ul><ul><ul><li>Change management strategy </li></ul></ul><ul><li>Identify and track performance metrics </li></ul><ul><li>Communicate value to the shareholders. </li></ul><ul><li>Opportunity </li></ul><ul><li>Help ADMA-OPCO to track its diversity spending by: </li></ul><ul><ul><li>Providing proof of suppliers certification and recertifying each year </li></ul></ul><ul><ul><li>Confirming expediters amounts with each division </li></ul></ul><ul><li>Ensure quality and price performance measures are met on a continuous basis </li></ul><ul><li>Meet technology requirements </li></ul><ul><li>Provide recommendations for process improvements or cost reductions </li></ul>Tools Supplier Performance Supplier Portals Spend/Diversity Reporting Implement Strategy
  21. 21. Strategic Sourcing Information Flow Measure & Report Capture Learning Ensure Compliance
  22. 22. ADMA-OPCO Road Map to implement Strategic Sourcing <ul><li>ADMA-OPCO </li></ul>INCREASED CUSTOMER SATISFACTION and SIGNIFICANT COST REDUCTIONS Technology Implementation of Best Practices Identify/Prioritize Opportunities Establish User requirements Execute RFP Process/Select Supplier Develop Timely and Accurate View of Spending Data Simplify and Stream-line Processing (P-Card) E-Procurement Development Products and Services Processes Rationalize Current Specifications Evaluate New/Alternative Products Identify Non-Value Activities Best Practices Analysis Business Process Analysis Implement Continuous Improvement Practices/Metrics Conduct Spend Diagnostic Launch Cross Functional/Divisional Teams MISSION STRATEGIES TACTICS Monitor Compliance Collaborative Purchasing Process