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Corporate parent linkages.pdf

  1. 1. Understanding Strategic Sourcing
  2. 2. Strategic Sourcing <ul><li>Definition </li></ul><ul><li>Trends </li></ul><ul><li>The Process </li></ul><ul><li>Tools & Technologies </li></ul>
  3. 3. 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
  4. 4. Strategic Sourcing is Evolving Adapted from FreeMarkets Supply Evolution Traditional Purchasing Strategic Sourcing Global Supply Management Cross-functional teams Global Commodity Teams, Center-led or centralized Decentralized Buyers People Technology enablement across all strategic sourcing processes Auctions, eSourcing, Basic optimization Spreadsheets Technology Global; Highly collaborative across the enterprise and visible at executive levels Multi-regional, Some collaboration with related functions Local; Many suppliers Reach Balancing Total System Cost; Maximizing shareholder value; Enabling product innovation Supplier rationalization, Spend consolidation, Cycle-time reduction, Standardization Price, Transaction management, Compliance Focus Enablement Project Transaction Paradigm
  5. 5. Procurement Organization is Changing Center-Led is becoming the norm, and large companies are leading the charge. Decide where YOUR client is… Center-Led Procurement , Aberdeen, November 2005 A Model of Effectiveness , Procurement Strategy Council, 2004
  6. 6. Strategic Sourcing Often Leads to Supplier Consolidation <ul><li>US Postal Service </li></ul><ul><ul><li>Maintenance & Repair (MRO) </li></ul></ul><ul><ul><ul><li>1,000 suppliers down to 2 suppliers </li></ul></ul></ul><ul><ul><ul><li>Savings of more than $250MM </li></ul></ul></ul><ul><li>Waste Management </li></ul><ul><ul><li>Reduced 500,000 suppliers to 50,000 </li></ul></ul><ul><ul><li>$278MM in cost savings over five years </li></ul></ul><ul><ul><li>95% of spend is with 6,600 suppliers </li></ul></ul><ul><li>Raytheon </li></ul><ul><ul><li>Had 27,000 to 45,000 suppliers (estimated) </li></ul></ul><ul><ul><li>Goal was to reduce by 20% each year </li></ul></ul><ul><ul><li>Continues to meet supplier diversity goals, even with supplier consolidation </li></ul></ul>Source: Supply Base Rationalization , CAPS Research , Jan 2005
  7. 7. Strategic Sourcing Drives Value Areas that procurement has not tapped are prime savings opportunities Source: Procurement Strategy Council, 2004 Percent of Respondents Estimated Savings as a % of Spend
  8. 8. Strategic Sourcing Process Analyze Spend Identify Requirements Analyze Market Implement Strategy Manage Negotiations Award & Contract Develop Strategy Traditional Procurement Strategic Sourcing
  9. 9. Analyze Spend <ul><li>Buyer’s View </li></ul><ul><li>What are we buying across divisions? </li></ul><ul><li>How many suppliers do we use? </li></ul><ul><li>How does pricing compare across divisions? </li></ul><ul><li>Can we consolidate our spend by reducing suppliers and obtain better pricing? </li></ul>Tools Spend Analysis <ul><li>WBE’s Opportunity </li></ul><ul><li>Even though companies are looking to consolidate suppliers, many are also looking to increase diversity spending </li></ul>Analyze Spend
  10. 10. Identify Internal Requirements <ul><li>Buyer’s 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>WBE’s Opportunity </li></ul><ul><li>Fully understand the client requirements fully so you can assess your capability to deliver them </li></ul><ul><ul><li>Incumbents have a better opportunity to understand client requirements </li></ul></ul><ul><li>Develop creative solutions for client 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 customers define their requirements </li></ul>Tools Specifications Surveys Interviews Identify Requirements
  11. 11. Analyze Market <ul><li>Buyer’s 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>WBE’s Opportunity </li></ul><ul><li>It is often difficult for corporations to determine whether there are diverse suppliers available </li></ul><ul><ul><li>Register your certification and participate in match-making events </li></ul></ul><ul><ul><li>Some categories have fewer diverse suppliers – which creates more opportunities </li></ul></ul><ul><li>Don’t compete on price alone. Bring new products, services and solutions that other suppliers don’t offer </li></ul>Tools Internet research Supplier Diversity team Benchmarking (Collecting Data) Analyze Market
  12. 12. Develop Strategy <ul><li>Buyer’s 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 eSourcing tools Cross-functional teams Project Management <ul><li>WBE’s Opportunity </li></ul><ul><li>Companies are more likely to open up bids if they know there are multiple capable suppliers </li></ul><ul><ul><li>Make your presence and your abilities known </li></ul></ul><ul><li>If you are the incumbent, maintain contact throughout the strategy development </li></ul><ul><li>Develop capability to be successful regardless of strategy </li></ul><ul><li>Maintain contact with Supplier Diversity </li></ul>Develop Strategy
  13. 13. Manage Negotiations <ul><li>Buyer’s 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>WBE’s Opportunity </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 eSourcing 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
  14. 14. Award & Contract <ul><li>Buyer’s View </li></ul><ul><li>Based on results, determine who the best overall supplier(s) </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 buyer, finance and legal </li></ul></ul><ul><li>WBE’s Opportunity </li></ul><ul><li>Appeal to all stakeholders </li></ul><ul><ul><li>Client category teams 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
  15. 15. Implement Strategy <ul><li>Buyer’s 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 stakeholders </li></ul><ul><li>WBE’s Opportunity </li></ul><ul><li>Help companies to track their diversity spending by: </li></ul><ul><ul><li>Providing proof of certification and recertifying each year </li></ul></ul><ul><ul><li>Confirming sales 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
  16. 16. Methods & Tools of Strategic Sourcing An online bidding event where multiple suppliers are invited to compete in a small time window (e.g. one hour) for the best price on a product or service. Other factors are assessed in addition to the auction outcome before the award. Reverse Auction (always electronic) Buyers use a combination of RFI and RFP to ask questions about the company, the market, the service and the products, as well as obtain price quotes. Request for Proposal (RFP) (electronic or paper-based) Buyers use this when they know exactly what they want and they have qualified the suppliers that are quoting. Request for Quotation (RFQ) (electronic or paper-based) Buyers use this when they need more information about the suppliers and product or service offerings, before they can determine requirements for a price quote. Request for Information (RFI) (electronic or paper-based)
  17. 17. 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
  18. 18. Technology Is Growing Across Procurement Use technology to your advantage by understanding and embracing it. Spend Analysis KPI Reporting PO, Receipt, Invoice generation and handling eProcurement Content acquisition Catalog maintenance Online contract management Supplier Performance eCollaboration RFPs and negotiations Online reverse auctions Procurement Intelligence Operational Procurement Catalog Management Contract & Supplier Management Strategic Sourcing
  19. 19. Understanding Strategic Sourcing