Benchmarking a Saudi Petro Chemicals Company for KPI

1. ATR Consulting Limited
Save Definitions & Benefits Tracking
Case Study : Leading Bank in UAE
Tahir Rafiq
Nov 2012
Applying automotive best practice in the Banking Industry.....
Author : Tahir Rafiq
Project Start Date:
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2. Interpretation of Save Definitions
1 A saving is realized by getting a better rate per unit. Price paid is less than previously paid for goods and services that
Price Reduction
Existing Contract fulfil a comparable business requirement in terms of quality and quantity or price paid is less than the average cost.
2 A saving realized against budgeted and unbudgeted new requirement that has an accounting impact. Minimum of
Price Reduction
3 quote value average made against an unbudgeted spend (new requirements). Obtaining less than 3 quotes is
New Contract
approved by exception and on the basis that the market environment dictates.
Cost Reduction
3
Demand Management A saving is realized through the elimination or reduction of demand / volume
4
Rebates A saving is realized by achieving a certain spend thresholds or profit share, typically through supplier cash
reimbursement.
5 A saving is realized from a change or reduction in specification that meets business requirements, or by added
Specification Change value through the purchase of enhanced specification of goods or services at no additional cost.
6 A saving is realized through a change that creates a benefit in terms of increased internal efficiency and / or
Process Driven reduced processing time.
Cost Avoidance
A saving is realized through reduction in future investment or expenditure. Negotiated price that is not lower
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than price previously paid but avoids a price increase formally requested by a supplier. Supply is realized from
Cost Avoidance existing ENBD stock due to asset recycling, requiring no purchase to fulfil need. Savings that are benchmarked
against either the market indices or by market comparison through an RFP benchmarking process.
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3. Savings Definition : Cost Reduction > Price Reduction > Existing Contract
Definition:
• Savings can be tracked to P&L Yes √ No
• Reduction of actual spend against last year (existing contract)
• Reduction in unit price for goods and services that meet the existing requirement.
Example:
A tender for existing cleaning services, current annual costs of 2.4 m pa is reduced to AED 2.0m pa. The new contract is
valid for 1 year and is awarded starting on 1st April 2012
Methodology :
Forecast Saving AED Millions
Calculate & Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013
Allocate AED 0.4M 0.3 0.1
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4. Savings Definition : Cost Reduction > Cost Reduction > New Contract
Definition:
• Savings can be tracked to P&L Yes √ No
• Negotiation of prices against various quotes
• Reduction in unit price for goods and services that meet the new requirement.
Methodology:
In the 2011/12 budget, Facilities has budgeted AED25m for the refurbishment of a regional office (including a
contingency of AED2m). Procurement supports the tender for the required fit-out services; 4 supplier proposals are
received costing AED19m, AED21m, AED24m and AED29m respectively. The second lowest proposal / bidder is awarded
the contract. The work will be completed and paid for during 2011/12 and costs will be depreciated over 10years.
Example:
Forecast Saving
Calculate & Allocate Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013
AED 2.25M 0.23M 0.23M 0.23M
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5. Savings Definition : Cost Reduction > Rebate
Definition:
• Savings can be tracked to P&L Yes √ No
• Supplier Cash Reimbursement, i.e. Based on achieving certain spend thresholds or profit share.
Methodology:
During annual negotiations for mobile telecom services, Etisalat offers to both reduce call tariffs and offers ENBD a
rebate in the form of AED 800K credit to the Billing Department on 31st Dec 2011
Example:
Forecast Saving
Calculate & Allocate Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013
AED 0.8K 0.8K - -
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6. Savings Definition : Demand Management
Definition:
• Savings can be tracked to P&L Yes √ No
• A saving is realized through the elimination or reduction of demand / volume
• ATM / CDM Call out Charges
Example:
ATM / CDM call out charges were reduced from an average of 12 thousand call outs to seven thousand call outs. Procurement
worked with the service provider to understand the nature of callouts and their frequency ( cash out, card reader fault, dispenser
failures etc). Various solutions were put in place which reduced the number of callouts. The resultant reduction in costs was from
approx. AED 7M to AED 4M. Data indicated a drop in callouts in September 2011 which plateaud in the subsequent 3 months.
Savings started in October 2011
Methodology :
Forecast Saving
Calculate & Allocate Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013
3M 0.75M 2.25M
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7. Savings Definition : Cost Reduction > Specification Change
Definition:
• Savings can be tracked to P&L Yes √ No
• Specification Change
• Reduction in unit price by changing the specification of goods and services that meet the existing requirement.
Methodology:
Procurement led an initiative with Marketing to change and standardize the specification of business cards across ENBD,
the specification was reduced from 340gsm to 300gsm without impacting quality of the cards. Annual savings were
achieved of AED 150K, the change was implemented immediately starting in February 2012.
Example:
Forecast Saving
Calculate & Allocate Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013
150K 137.5K 12.5K -
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8. Savings Definition : Cost Avoidance & Cost Reduction
Definition:
• Savings can be tracked to P&L Yes √ No √
•.Cost Reduction
• Cost Avoidance
Methodology:
Working with IT Services, the cost of hardware maintenance services are negotiated down by 25% from AED 0.8M to AED
0.6M per year. As a result, IT Services decides to switch from the Silver support programme (4 hour response) to the
Gold support programme (2 hour response); the cost of the Gold programme to ENBD will be AED 0.75m. The new
programme will commence from 1st Jan 2011
Example:
Forecast Saving
Calculate & Allocate Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013
0.05 (CR) 0.05 (CR) - -
0.150 (CA) 0.150 (CA)
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9. Savings Definition : Cost Avoidance
Definition:
• Savings can be tracked to P&L Yes No √
• Negotiated price that is not lower than price previously paid but avoids a price increase.
• Cost Avoidance
Example:
An IT services supplier requests a 3% increase in contract costs from AED3.1m pa to AED3.2m pa with the new costs
coming into effect from 1st August 2011; Procurement leads negotiations which result in the supplier withdrawing the
request for an increase.
Methodology :
Forecast Saving AED Millions
Calculate & Allocate Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013
AED 0.1 M AED 0.042M AED 0.058M
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10. Savings Definition : Cost Avoidance
Definition:
• Savings can be tracked to P&L Yes No √
• Negotiated price that is not lower than price previously paid but avoids a price increase.
•
Example:
Procurement supports Marketing to put in place a new supplier of graphic design services as a result of which the
contract price remains unchanged at AED 0.4m pa. However, the new supplier will provide some administrative services
(currently provided in-house within ENBD ) effectively freeing-up 1 day per week of a staff member who has a fully-
loaded cost to ENBD of AED 40,000 pa. The new contract commences on 1st April 2011
Methodology :
Forecast Saving
Calculate & Allocate Annualized Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013
8K 6k 2k
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11. Savings Definition : Process Driven
Definition:
• Savings can be tracked to P&L Yes √ No
• A saving is realized through a change that creates a benefit in terms of increased internal efficiency and / or reduced
processing time.
Example:
Reduction of 3 FTE’s as a result of P2P Automation. The cost of 3 FTE’s per annum was AED 360K, the redundancies were
made in May 2011
Methodology :
Annualized AED Forecast Saving AED
Calculate & Year 2011 Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013
Allocate 360K 240K 120K
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12. End of presentation
Tahir Rafiq
Feedback would be greatly received and appreciated
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