Transcript Woolworth SC deck

World Class Strategic Sourcing
The Deloitte approach to optimise supply and procurement
Index
1. The new procurement environment
2. Overview of Strategic Sourcing
3. The Strategic Sourcing process
4. Final Words
Procurement has become increasingly sophisticated in order to drive margin
improvements
1st Wave Strategic Sourcing
• Centralised negotiations
• Fewer suppliers
2nd Wave Strategic Sourcing
• Competitive bidding process
• Abolition of “sacred cows” e.g.,
Marketing, IT functions, Legal
Demand Management
• Cost management imperative
• Standardised specs
Relative
Efficiency
• Policy/procedures outlined
Matrixed procurement function
• Some monitoring and tracking
• Procurement shares responsibilities
with centers of competence
• Procurement function
mainly contract
administration function
• Responsibilities by the various parts of
the organisation clearly defined
• Procurement and
contracting decisions
highly decentralised
Effective “end to end” procurement
management
• Vendor base fragmented
• MIS allows unit/price tracking
• Vendor relationships
“incestuous”
• System allows “policing” of
compliance
• Disbursement management
• Service and quality improvement
Up To Late 80s
90s
Procurement
(“In The Basement”)
Sourcing
(Easier cost improvement lever)
New Millenium
Supply Chain Management
(Source of sustainable total cost advantage)
Index
1. The new procurement environment
2. Overview of Strategic Sourcing
3. The Strategic Sourcing process
4. Final Words
Overview of Strategic Sourcing
• Procurement represents a significant opportunity for improving value
for money by reducing costs.
• Currently procurement activities are executed on an ad-hoc basis with
minimal contract coverage
• Strategic sourcing will assist us in choosing suppliers, allocating volumes
among suppliers, managing supply risk and optimizing the supplier base
performance, focusing on total cost of ownership
• The primary objective is to develop a number of strategic supplier
contracts with preferred suppliers, ensuring that our purchasing power is
utilized to the maximum extent
• A strategic sourcing review will be conducted on the materials and
services making up our annual projected expenditure including a detailed
spend analysis, market analysis, strategy development, bid solicitation and
evaluation and will result in the implementation of organisation wide supply
contracts.
5
Why Strategic Sourcing?
Strategic sourcing will assist us in choosing suppliers, allocating volumes among suppliers, managing supply risk
and optimizing the supplier base performance, focusing on total cost of ownership
Increase Shareholder Value
Revenue Growth
Operating Margin
Increased emphasis on
Supply Chain
Management
Increased client
satisfaction due to
better service / quality
of procured items
Improved
Communication and
Coordination with
suppliers
Improved contracting
and negotiating
skills of staff
Improved
relationships
with suppliers
Increased compliance,
compatibility and
standardisation
Asset Efficiency
Optimise asset
efficiency
Improved terms on
materials
Increased use of
supplier managed
inventory
Consolidated
inventory
Expectations
Increased emphasis
on continuous
proactive performance
management
Established culture on
operational excellence
Improved agility and
flexibility of partner
Organisations and
networks
World class procurement organisations must contain the following
Strategic sourcing activities provide short-term savings, however a holistic and comprehensive view of
Procurement and Compliance must be adopted in order to capture and sustain savings, and minimise cost of
non-compliance
Organisational Value
Spend Savings
Process Savings
Value Creation
Aligned Supply Chain
organisation
Compliance
Demand
Management
Strategic
Sourcing
Procure
to Pay
Inventory
Supplier
Management Management
Ongoing
Operations
Procurement Vision and Strategy
Preferential Procurement
Integrated Procurement Information
Change Management/Knowledge Management and Training
Integrated Measures, Tracking, Recording & Reporting Infrastructure
Top
Management
Sponsorship
Mandate
Empowerment
Accountability
& Incentives
Procurement
Infrastructure
Timelines
Schedule of timelines in accordance with the PFMA and MFMA. Strategic Sourcing underpins Demand
Management and thus needs to fall into the same types of timelines. MFMA example given
Month
Municipality
Budget Year
Mayor and Council/Entity Board
Administration – Municipality and Entity
July
Mayor begins planning for next 3 year budget
Senior officials of municipality begin planning for next 3 year
budget
August
Mayor tables in Council a time schedule
September
Council through IDP process reviews strategic objectives
October
Demand Planning including strategic sourcing
November
Demand Planning including strategic sourcing
Accounting officer/municipal manager reviews and drafts
changes to IDP
December
Council finalises tariff
Consolidate and prepare proposed budget
January
Approval and Submission of proposed budget for next 3
year budgets
Review proposed national and provincial allocations to
municipality
February
Council considers municipal entity proposed budget
Submit proposed budget to Mayor
March
Mayor tables municipality budget
Publish tabled budget, plans and proposed budget and plans
for next 3 year budgets
April
Consultation with national and provincial treasuries
Revise budget documentation in accordance with consultative
processes
May
Consider approval of budgets
Assist Accounting officer in preparing final budget
Demand Management
June
Approval of budgets and SDIP
Accounting officer submits to the Mayor and Council
Budget offices of municipality determine revenue projections
and proposed rate and service charges
South African Challenges
South African Organisations are faced with a number of constraints that need to be addressed when designing
and optimising their supply chains
• Skills Availability
– Limited skilled resources within the Supply Chain area
– Retention of limited skills not easy
• Requirement to cut costs and at the same time improve current
business performance
– Need to build capability with current staff and maintain momentum
around improvement initiatives
• Limited collaboration across the supply chain (internal & external)
• Visibility and cooperation across the supply chain
• Ability to embed supply chain improvements within the organisation
• Adoption of world class technology and systems that are readily
available to support process improvement
Index
1. The new procurement environment
2. Overview of Strategic Sourcing
3. The Strategic Sourcing process
4. Final Words
The Sourcing & Procurement “Hot” topic
Strategic Sourcing initiatives have resulted in significant benefits being obtained for organisations by focusing
on a total cost of ownership approach to procurement
• Purchasing comes down to two activities:
– Sourcing: includes all activities related to establishing and managing purchasing contracts
– Procurement: includes all activities related to identifying and fulfilling an actual purchasing need.
– Supply relationship management: Develop mutually beneficial relationships
Assess Internal
Supply Chain
Assess
Opportunity
Identify
Need
Assess Supply
Market
Define
Sourcing
Strategy
Create
Requisition
Go to tender and
evaluate
Award
Sourcing
Procurement
Execute
Sourcing Strategy
Create Purchase
Order
Shipping
Institutionalise
Sourcing Strategy
Create/Refine
Supplier Groups
Initiate
Relationship
Supplier
Relationship
Management
Define
Performance
Expectations
Manage
Performance
Payment &
Settlement
Assess
Relationship
Receive
Goods/
Services
Strategic Sourcing & Procurement
Purchasing has been getting a bad reputation due to missed deadlines, failed projects and broken savings
promises. However, there are companies that have successfully transformed their purchasing function and
created value along the way.
Wouldn't it be cool if ...
Reality
• Corporate purchasing helped to increase
shareholder value
• Profitability declines due to
increasing operating costs
• I could tell my stakeholders a success
story about our purchasing activities
• No visibility of how or if
purchasing contributes to
shareholder value
• Purchasing supported an increase in cash
flow
• I could influence demand and
specifications of goods/services that we
procure
• It seems we are investing lots of
money in purchasing projects but I
have yet to see a positive ROl
• Collecting basic spend data takes
forever and data is not reliable
• I had qualitative information about our
suppliers for contract negotiations
• I could drive down TCO (Total Cost of
Ownership) through purchasing initiatives
like strategic sourcing
• NO view on who my most
important suppliers are and what
my relationships with then should
look like
Strategic Sourcing
A procurement function needs to work through the defined
stages to achieve world class procurement capabilities
Level of Added Value
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Strategy fully supports the corporate goals and driven by corporate consensus
Managing the supply risk while leveraging the competitive strengths
Nurturing supplier relationships
Supplier base share improvement target for cost and innovation added value
Full visibility and trust across the external value chain
Procurement maintains a rationalised supplier network that delivers technology, knowledge,
products or service quality superior to competitors
Stage II:
Developing
Procurement
Stage I:
Reacting
Buying
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Partnership
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World Class
Stage IV:
High Performing
Procurement strategy aligned to corporate strategy
Suppliers selected for strategic fit and deliver continuous improvement
Data driven decision making
Full support over purchasing cycle
Risk sharing higher with the organisations co-located and jointly financed
Business planning optimises all commercial aspects, tax, investment, people
Stage III:
Advancing
Stage V:
Pioneering
Alliance
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Formal Planning processes
Focus on SRM and sharing business plans
Longer term, bigger value contracts with fewer suppliers
Collaboration on cost improvement, increased levels of risk sharing
Trained and qualified resources supporting all categories of spend
Key Performance Indicators in place.
Some category strategy creation, but not company wide, and not communicated effectively
Volume leverage through effective use of competition across categories
Track commercial measure of performance, targets for savings
Technology enables i.e. purchase to pay cycle improvement through automation
Selected supplier base consolidation
Training and recognition of skills required
Needs not anticipated, data not available or not used
No organisation wide procurement strategy, large supplier base
Transactional focus
Procurement provides ad-hoc tactical support
Low skills and resource, little career planning
Time Line (potentially 3-5 Years)
Building the Team – Managing the Project
A sourcing engagement can affect many parts of an organisation. It is critical to identify
and include the key affected groups in the process and develop a project management
plan across all stakeholders.
Who should you include?
Inputs to the Project Management Plan
•
Demand management or planning shall be a crossfunctional exercise that bring the supply chain
practitioner closer to the end user
•
Determine current and future needs
•
Formulate inputs for:
Head of
SCMU
Programme
managers
End Users
Technical
expertise
as required
Human
Resources
Cross
functional
team
Disposal
manager
Financial
services
•
Preparation of the budget
•
Annual performance plan (PFMA)
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Annual operational plan (PFMA)
•
Integrated Development Plan (MFMA)
•
Service Delivery and Budget Implementation
Plan (MFMA)
Logistics
manager
•
Demand
Manager
Acquisition
manager
•
Acquisition Plan
Champions for departments on process and
requirements
The Strategic Sourcing Process
Effective strategic sourcing requires a clear and logical approach to provide a transparent and objective analysis
of supplier capabilities, thereby ensuring sustainable savings without compromising service.
Define sourcing
categories
• Document spend
• Stratify spend
• Identify and
prioritize spend
opportunities
• Cross functional
team
development
2
Assess
Internal
Supply Chain
3
4
Assess
Supply
Market
Develop
Sourcing
Strategy
• Identify demand
drivers
• Identify potential
sources of supply
• Compile
opportunities
• Perform
specification
review, gap
analysis &
standardisation
review
• Perform supplier
specification
review
• Evaluate
industry(ies)
• Identify viable
sources of supply
• Brainstorm
process
enhancement and
supply strategies
• Perform supplier
assessments
• Perform supplier
comparisons
• Assess the
feasibility of
strategies
• Identify all related
Total Cost
activities
• Draft an action
plan
• Communicate
strategies
5
Execute
Sourcing
Strategy
• Develop supplier
solicitation
strategy
• Implement
supplier
solicitation
strategy
• Conduct supplier
negotiation
• Develop process
enhancement
strategy
• Obtain final
approvals
• Award contract
6
1
Institutionalise
Sourcing
Strategy
• Vendor management
• Transition to new
process
• Develop supplier
relationships
• Implement
operational changes
• Establish joint
supplier/Enterprise
process improvement
team
• Monitor and report
savings
• Monitor and report
performance
Either a tactical or strategic sourcing approach can be adopted to
deliver results
There are a number of available sourcing strategies. Not every strategy will suit the same business
situation. Depending on the maturity of the category, appropriate strategies should be selected to
deliver results.
Tactical
Increase Buying Power
Create an Advantage
• “Traditional sourcing”
• Often for commodity
items/categories
Volume
Concentration
• Those with simple
supply market
• Typically used if
category has not been
sourced previously
• The key objectives are
to achieve the best
price and rationalise
the supply base
Product
Specification
Improvement
Strategic
• Typically more
complex categories –
complex supply
market and more
complex products
• Highly detailed and
looking at all areas of
the supply chain
Best Price
Evaluation
Strategic
Sourcing
Joint Process
Improvement
• Typically longer
timescales than
tactical sourcing
• Fewer quick wins
Global Supply
Management
Relationship
Restructuring
• Used when the
category is welladvanced, the best
price has been
achieved
The scope of sourcing extends beyond supplier price negotiation and
takes into account the total cost of ownership
Amount paid to
the Supplier
Purchase
Price
Total
Acquisition Cost
(Actual Opportunity)
Demand Drivers
Specifications
Internal Policies & Procedures
Procurement Practices
Inventory Practices
Management Systems
Decommissioning/
Disposal
Internal Processes
Operational Practices
Factors generate
additional costs to
an organisation
once an item is
commissioned and
in use
World class companies demonstrate excellence across the three key
components of a strategically focused procurement organization
Organisation

Status and perceived
importance of the
Procurement Function

Partnerships with key
suppliers

Joint improvement teams

Cross-functional sourcing
teams

Accountability for savings

Regional and local structure
and responsibility
World Class
Procurement Capabilities
Process, Policies and
Procedures
• Simple and consistent purchasing process
• Clearly defined sourcing process and rules
• Authority to drive compliance given to
Procurement
• Ongoing focus on value analysis
• Simple access to quality information
• Focus on commodity management and
customer service
• View of sourcing, ordering, and accounts
payable as one process (Source-To-Pay)
Technology
• e-Procurement
• e-Sourcing
• Measurement systems for
reporting
• Transaction automation
• Procurement cards
• Project management tools
Critical Success Factors & Risks
The following critical success factors and risks have been identified as key levers to successful
Supply Chain Optimisation :
 Commitment by top management
 Acceptance from the business line leaders e.g. Directors
 Commitment of dedicated resources
 Allocation of funds (budgetary consideration)
 Qualified and motivated personnel
 Support from related disciplines
 Enabling tools (use of e-technology, ERP / GSS)
 Ability to track, capture and measure the benefits
 Transparency within the evaluation and adjudication process
 Confirm savings targets
 Organisation’s reputation in the marketplace may result in supplier
resistance
 Ability to enable change of behaviour within the organisation
 Monitor and reward top performance
Index
1. The new procurement environment
2. Overview of Strategic Sourcing
3. The Strategic Sourcing process
4. Final Words
The Truth about Strategic Sourcing
 Truth 1: It's powerful if you get it right
 Truth 2: Cost will always keep creeping back in
 Truth 3: It's not rocket science
 Truth 4: Money on the Table ≠ Money in the Bank
 Truth 5: Direct Purchasing ≠ Indirect Purchasing
 Truth 6: It's not just about Price
 Truth 7: A Commodity ≠ Commodity ≠ Commodity
 Truth 8: Information is all you need
 Truth 9: Only measured results are good results
 Truth 10: It's not about Technology
Contacts
If you have questions regarding strategic sourcing:
Katherine Levy
082 602 4107
[email protected]
Riana Bredell
082 578 6338
[email protected]