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Direct Materials Sourcing & Procurement Strategies - Accelerating Savings and Improving Risk Mitigation | Ariba LIVE Rome
The document discusses strategies for direct materials sourcing and procurement, emphasizing the importance of risk management and cost reduction amid market complexities. It highlights key challenges such as supplier capabilities and price volatility, alongside the collaboration between procurement and finance to enhance efficiency. The use of technology and strategic sourcing tools is recommended for managing different categories of materials to drive savings and improve compliance.
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Direct Materials Sourcing & Procurement Strategies - Accelerating Savings and Improving Risk Mitigation | Ariba LIVE Rome
- 1. #AribaLIVE Direct Materials Sourcingand Procurement Strategies to Drive Accelerated Savings and Improved Risk Mitigation @ariba Speakers • Lois Fresne – Oriflame • Sundar Kamakshisundaram – Ariba, an SAP Company
- 2. Agenda • Introduction • Overviewof Direct Materials Sourcing – Business Drivers and Challenges Sourcing Meets Supply Chain: A Practitioner Point of View Identifying and Improving Risk Mitigation – Guidance • Direct Materials Sourcing @ Oriflame • Demo • Q & A © 2014 Ariba – an SAP company. All rights reserved.2
- 3. Key Challenges thatAffect Direct Material Sourcing and Procurement • Fragmented supply base with varying degree of supplier capability • Volatile supply markets • Intricate pricing and discounting structures Market Complexity • Detailed specifications, design requirements • Unique Raw Material needs • Large no. of line items to be evaluated with pricing dependent on both regions and volume Category Complexity • Strategic relationships with suppliers • Effective Risk Management – supply chain, financial, product design, safety and environmental etc. • Historical procurement policies • Regulatory, Environmental requirements Strategic Constraints © 2014 Ariba – an SAP company. All rights reserved.3
- 4. From Our 2014Manufacturing Commerce Predictions #4: Direct procurement becomes a key strategic skill for brand owners © 2014 Ariba – an SAP company. All rights reserved. • Brand owners seek to manage vendors, contracts, and services more holistically • Key suppliers are engaged during innovation and product development stages Buy Now! 4
- 5. Direct Procurement: ADelicate Balance Drivers • Reduce costs • Increase automation • Control spend • Increase revenues • Respond to market opportunities Risks • Supply volatility • Compliance Requirements • Supplier Reliability • Global supply base © 2014 Ariba – an SAP company. All rights reserved.5
- 6. Sourcing Success: Procurementand Finance Work Together © 2014 Ariba – an SAP company. All rights reserved. Source: IDC Manufacturing Insights, 2014 Product Design Input Demand Input PLAN Make/Build Deliver PLANPLAN PLAN 6
- 7. Assessing Risk inDirect Materials • Strategic Items – High profit impact, high supply risk, high sourcing difficulty, long-term contracts, executive visibility • Leverage Items – High profit impact, low supply risk, medium level visibility, focus on price competitiveness • Bottleneck Items – Low profit impact, high supply risk, high sourcing difficulty • Non-critical Items – Low profit impact, low supply risk, low sourcing difficulty, low level visibility, transaction focused © 2014 Ariba – an SAP company. All rights reserved. Source: Kraljic’s Portfolio Matrix 7
- 8. Risk Mitigation inDirect Materials • Strategic Items – Give most attention; cultivate supplier relationships; apply strategic sourcing/analytics; contingency planning • Leverage Items – Spend aggregation, flexibility to substitute suppliers/products, place high-volume orders • Bottleneck Items – Stock-up when item is available, seek alternative sources, find ways to control vendor • Non-critical Items – Automate as much of this spend as possible © 2014 Ariba – an SAP company. All rights reserved. Source: Kraljic’s Portfolio Matrix 8
- 9. Using Technology toMitigate Risk • E-procurement and catalog management help manage non-critical items • E-sourcing and Category Management are key tools for leverage items • Strategic Sourcing Tools are appropriate for effectively managing strategic items • Supplier Management is a focal point for bottleneck items © 2014 Ariba – an SAP company. All rights reserved. Source: Kraljic’s Portfolio Matrix Strategic Sourcing Tools eProcurement Catalog Management Supplier Management eSourcing Category Management 9
- 10. Capital Market DemandsMore © 2014 Ariba – an SAP company. All rights reserved.10
- 11. Productivity Barriers; Sourcingand Supply Chain Siloes • Profit • Supplier Risk • Cost • Service Level Sourcing Supply Chain © 2014 Ariba – an SAP company. All rights reserved.11
- 12. Collaborative and HolisticApproach Required Sourcing and Supply Chain Supply Chain Results Sourcing Results Business Processes © 2014 Ariba – an SAP company. All rights reserved.12
- 13. #AribaLIVE Direct Materials e-Sourcingat Oriflame Loic Fresne, Sr. Director, Oriflame @ariba
- 14. 2014-04-07 Copyright ©2012by Oriflame Cosmetics SA 14
- 15. 2014-04-07 Copyright ©2012by Oriflame Cosmetics SA Direct Material esourcing at Oriflame Ariba Live Event April 9th 2014
- 16. 2014-04-07 16 Agenda • OriflameBusiness Overview & Strategy • Oriflame Procurement Spends & Supplier Evaluation • Direct Spends & NPD activities • Ariba integration with IFS • Oriflame Sourcing Activity with Ariba • Q&A Copyright ©2012 by Oriflame Cosmetics SA
- 17. Oriflame Business Overview lastyears figures show no sales growth and margins lower than expectation 17Copyright ©2012 by Oriflame Cosmetics SA • 2013 FY Sales -3% in local currency – Units: -6% – Price/mix +6% – Exchange rates -5% • Margins impacted by currency • Challenges in CIS and Europe • Strong in the other regions: – Latin America, Turkey, Africa and Asia (29% of Group sales) • Good service levels and low inventory 0.10.1 0.1 0.20.2 0.2 0.30.40.30.3 0.4 0.4 0.5 0.70.7 0.8 0.9 1.1 1.31.3 1.51.51.5 1.4 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 bn EUR sales 1990 – 2011: CAGR organic sales of over 15% - long term target set at 10%
- 18. Strategic Directions 182014-04-07 Copyright©2012 by Oriflame Cosmetics SA • Securing income opportunity and leadership development leading to sales force growth • Brand building • Strong product programmes • Further develop online Channel • Operational efficiency • Geographic expansion • Focus on Margin improvements through sales growth and cost reductions
- 19. Procurement is partof Global Operations 2014-04-07 Copyright ©2012 by Oriflame Cosmetics SA 19
- 20. New Procurement organisationin Oct 2013 with increased focus on category management 202014-04-07 Copyright ©2013 by Oriflame Cosmetics SA Professional organization Edwin Koehler VP Global Procurement Loic Fresne Sr Dir. Global Indirect Procurement Tom Wade Dir. Strategic Sourcing Johan Gillbro Dir. Global Direct Procurement Jessica Tjulander Global Category Director Accessories Print Logistics Marketing Services Finished Goods Components Raw Materials FRA SKC PHC CCS WELL ACC Contracts Analysis IT
- 21. Overview of currentOriflame Spends 22 Spend breakdown EUR millions, 2013 Total 601342 259 Direct spend 260 Indirect spend 34182 259 ~35 22 26 Characteristics of indirect procurementResources 4 ~351 ▪ Procurement activities cover ~22 % of spend, partly on ad-hoc basis ▪ Main share of spend managed regionally or on country per country basis ▪ Few standardized processes and central guidelines in place Spend managed by central purchasing XX XX Purchasing FTEs Regional purchasers Copyright ©2012 by Oriflame Cosmetics SA
- 22. Supplier evaluation hierarchyin three levels Supplier approval stage Supplier performance stage Project performance stage CSQA I E Quality Technical Financial Sustainability CSQA I E
- 23. Supplier requirements definedwithin four approval building blocks A Excellent B Good C Acceptable D Poor/Weak E Unacceptable Minimum of C score is required to be an Oriflame supplier Quality Technical Financial Sustainability Owner Quality R&D Technical services Packaging Procurement Quality Scope of evaluation Quality processes and systems Production equipment and processes Financial solidity and liquidity Social and environmental processes and systems
- 24. 262014-04-07 Copyright ©2012by Oriflame Cosmetics SA Assured Supply Supplier is meeting our ever changing demand, providing support, flexibility, ensuring resources and being in control of fluctuations – keeping products supply under control. Quality Items delivered without quality issues and within our specification from approved suppliers. Service Supplier is able and eager to react to our needs. Supplier is striving to continuously improve and it is easy to do business with. Cost The lowest total product cost first time is provided. The cost is transparent. Supplier is consistent, works on cost improvements, offering rebate schemes. Innovation Supplier is creative and thinking “outside the box”, offering product and process development; increasing value through innovation. Environment and Ethics Supplier is aligned with our strategy to be a sustainable company, clearly demonstrating suitable policies and building ECO trend. Performance of Finished Goods, Packaging and Raw Material suppliers
- 25. Direct Spends focuson Projects for New Product Launches NPD 2014-04-07 Copyright 2011 By Oriflame Cosmetics SA Newness target >20% per Catalogue > 400 new products a year > 5 000 RFQs sent in 2011 before Ariba implementation • Multifunctional Team work by categories Cosmetics categories, Accessories & Wellness • Product development of hundreds of products • New Formulas & New Components (Capex) • Support Marketing in new concept briefs • Allocate New Products to Suppliers OTIF
- 26. The Oriflame Stage& Gate Process Idea Generation Develop Project Implement Project Produce Design Project G1 G2 G3 G4 G5 Identify opportunity Set targets Order components Make products Ship products Define product Design Formula Design Packaging Investigate suppliers & RFI Award suppliers Build tools Approve Packaging Approve Formula Develop formula Develop Packaging RFQ process Cost productCost Estimations & OCSA Target 2014-04-07 Copyright 2011 By Oriflame Cosmetics SA Procurement activities New product Development Process
- 27. Ariba Modules inscope Suppliers
- 28. Ariba integration withIFS, system overview for NPD 302014-04-07 Copyright ©2011 by Oriflame Cosmetics SA IFS System / ERP Transactions Planning JDA Pack Brief Structures FG EXW Price LT, MOQs… OCSA set up Ariba Sourcing RFQ Process Component Event 5 templates Step 1 Filling Event 1 template Step 2 Component EXW Prices, LT, MOQ s… Automated Awards to suppliers Customized Integration with IFS GM MRP, 4 Shifts ? Manual duplication of data
- 29. Oriflame Sourcing Activitywith Ariba • 1169 Sourcing Events in 2013 initiated by 24 active users (vs. 1297 events in 2012) Auction 9 RFI 1 RFP 1159 Total 1169 Personal & Hair Care 405 Skin Care 266 Fragrances 256 Colour Cosmetics 206 Unclassified 17 Wellness 11 Indirect Spend 8 1169 Event Volume Product Group Copyright ©2012 by Oriflame Cosmetics SA
- 30. 2014-04-07 Copyright ©2012by Oriflame Cosmetics SA 32
- 31. 2014-04-07 Copyright ©2011by Oriflame Cosmetics SA 33
- 32. Summary - WrapUp Balance Cost Reductions with Risk Mitigation Build Collaborative Relationships with Suppliers for maximum impact Leverage Business Networks to provide transparency ACCELERATE SAVINGS, IMPROVE COMPLIANCE & MITIGATE RISK!
- 33. Thank you Q A& Contact information: SundarKamakshisundaram Sr. Director – Global Solutions Marketing E: sundar.kamak@sap.com © 2014 Ariba – an SAP company. All rights reserved.
- 34. Please Complete SessionSurvey Locate Session 36 Click Surveys Button Select Breakout Survey Rate Session Thank you for joining us © 2014 Ariba – an SAP company. All rights reserved.
Editor's Notes
- #27 Klara
- #37 Click the schedule icon, select Full Schedule, select the day your session occurs at the bottom, and search on the session titleYou can also click the speaker icon and search for session speakers to find the sessionClick on the session to bring up detailsYou’ll see 3 tabs on the page, Details, Speakers, and Surveys, as shown on the slideClick on the Surveys tabClick on Breakout Session SurveyRespond to survey and click submit