Uploaded byKapil Yadav
S2C PROCUREMENT OPTIMIZATION
The document outlines a comprehensive approach to source-to-contract (S2C) procurement optimization, emphasizing strategies to streamline processes and reduce costs. Key components include thorough analysis of spend, vendor management, category strategies, and continuous monitoring for improvement. The proposed methods aim to enhance operational efficiency, improve pricing and quality, and maximize value while minimizing procurement expenses.
More Related Content
Similar to S2C PROCUREMENT OPTIMIZATION
S2C PROCUREMENT OPTIMIZATION
- 1. S2C PROCUREMENT OPTIMIZATION — KapilAnand Yadav Kapil.anand.Yadav@gmail.com 16th March 2020 1
- 2.
- 3. Amidst growing pressureto streamline business processes and enhance operational performance, complete or incremental optimization across the sourcing life-cycle has become the need of the hour 3 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 4 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.
- 9. Optimizing Maverick Spend CostAvoidance 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
- 11.
- 12. Effective tail-spend analysiscan help better planning across categories by moving un-managed spend into managed categories, procured from strategic suppliers 12 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
- 14. 14 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
- 15. 15 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
- 16. 16 DISCOUNTING TERMS: Reviewingexisting 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 PurchaseIntervals 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.