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Intensive Savings Delivery Programmes 1 © supply chainge management ltd. 2008 Intensive Savings Programmes (as an interim manager) Petro-chemicals Pan-European Post Acquisition Purchasing Synergies NOVA acquired four large chemical plants from Shell - giving £ 500m turnover Replaced McKinsey’s role in previous acquisitions Led first pan-European supplier conference & intensive negotiation programme 1 year assignment Delivered synergy target in 12 weeks. Exceeded annual savings target too Substantially exceeded client’s expectations Awarded 2 “applause!” awards & offered the permanent role Polymer compounding industry Client wanted a review of a selection of spend categories Identified global suppliers using supplier industry research tools incl. India Launched global RFQs and engaged with suppliers Re-negotiated categories based upon global quotations Delivered annual savings target 7% (> £ 400k) in 8 weeks (brand new industry entirely unsupported) Substantially exceeded client’s expectations Contract extended Invited to examine supply chain improvement opportunities. 2 © supply chainge management ltd. 2008 Carefully designed & well executed processes... Project 1a Synergies (PIES) Project 1a nsive European Purchasin Purchasing: Inte g: Inten Pan-European Purchasing Synergies Programme March April May June July August September October Project 1a: Raw Materials Synergies - Intensive Project 1b: Raw Materials Synergies (ongoing material rationalisation focus) DJ (F/T) Analyst/Indirect Buyer (F/T) (Global synergies ??) PIES Team DJ (P/T) & SAP Process Purchasing Rep. (F/T) SAP (Purchasing) Implementation Manual Input Spend/Volu me Spreadshee t Leaders Individual Kick-off Communic ations Project 1a Create “Fax- shot” Report Data “Fax-shot” (- NA &?) Eur. Vols by Item Preparation Stored Data Org. Developments “Responses from Potential Suppliers Review RFQ Create Suppl ier Email Addre European ss Book Category – including by existing Eur. & NA suppliers Merge Predefined Process Multi-document Reports: Priorities for 1.Progress Material Rationalisation/ Process 2.Savings Standardisation & Substitution Manual Input Report Data Preparation PIE S Teaan Need m inspection activity Predefined Process here ? Merge Current (2000): prices volumes contract details DJ Review Review Pan - European Purchasing Operations Management JU/DP/LH/DJ & Team • DJ • Analyst/Indirect Buyer (F/T 6 months) • Material Technologist (P/T 6 months -> ongoing) •SAP Purchasing Rep. (F/T) Note: this programme does not address $ 0.7m freight opportunities. Quotes from Suppliers Input Quotation Data to Spreadsheet Quotation Spreadsheet Ongoing operational line management roles Develop Negotiation Strategy Week 20/3 Week 27/3 Week 3/4 Week 10/4 Week 17/4 Week 24/4 Contract Update Contracts Week 1/5 Week 8/5 Week 15/5 Week 21/5 Consolidate/Validate Data (Analyst) Identify Supplier Long Lists by Category – Kompass (DJ) Email RFQs LaunchRFQs RFPs to potential suppliers & analysis of quotes (DJ) to Suppliers DJ 50% availability Booked holidays & Bank Holidays Preparation of RFQs & nego. dates for current supply base (DJ) Multi-documen t Manual Process Preparation of Presentations “Big Bang” (DJ) Supplier Communication Day “Big Bang” & subsequent meetings Measure Savings Select Suppliers for Negotiation Week 13/3 ? Distribute Local Copies of Contracts Shell Acquisition Purchasing Change Management Programme Week 6/3 Pittsburgh Launch (DJ) Stored Data DJ (P/T) / TBD Resource Requirements Week 28/2 European Launch (DJ) Create & Resource Allocation Confirmed (JU) Email RFQs Prepare for Supplier Meeting (Associate) Merge Copies of contract details to sites Manual Process t Leaders Purchasing: Intensive European Synergies (PIES) Measure Savings Review Produce RFQ Email Address Book by Category “Fax-shot” to Suppliers Auto send “Fax-shot” Technologis Analyst Specs. vs. volume data PIES Team Programme Management 20th March Meeting (Formal Launch ?) Obtain Information & Input Kick Off Communica tion (by Phone?) Merge Purchasing: Intensive European Synergies (PIES) Obtain & harmonise specs and volumes Analyst Obtain Supplier Databases Supplier Databases To next page pean Syne rgies (PIES ) Technologist Advise on Database Selection Current (2000): prices projected volumes contract details Project 3: Pan European Indirect Spend Analysis Project 4: Strategic Pan European Purchasing projects e.g. MRO Project 5: Material Speci fications (from Techn ology) “Identify Potential Suppliers” “Get the Data Resource Requirements” Right DJ (F/T)+ Analyst (F/T) +Continuously support from NA PS raw Update ion Informat matl. leaders & Input Material Technologist (P/T) Packaging Consultant Project 2: Pallets & Octoboxes Systems/ structure review sive Euro (from Spend Data Analysis ng &/or European Purchasi Logistics teams) European Site Meetings (DJ) Negotiation Tactics Planning (DJ) First Round Negotiations (DJ) ? Second Round Negotiations (DJ) Measure Savings (Analyst) Negotiation Priorities Negotiations for each Material Negotiation Strategies Implement Savings at Sites (Analyst) Negotiation Technologist Process Manual Input Report Data Preparation Stored Data Predefined Process Merge Multi-document Manual Process Analyst Helen wants to visit European Sites Leaders Key: Changes from presentation in week 2 3 © supply chainge management ltd. 2008 Prioritising Negotiation Programmes Focus by Supplier Hi Hi Strategic Bottleneck / Collaborative Start Here Proportion of Project Spend Supply Market Risk / Challenge ow ow Routine / Transactional Leverage / Opportunist Start Here Lo Lo Chance of Success Lo Hi Lo Value / Expenditure Hi Kraljic Output: Added focus on highest priority suppliers e.g. some suppliers may supply several lower value systems not picked up in key sub-systems Also need to understand risk (quality, lead time/liquidated damages etc.) Opportunities for e-auction ? 4 © supply chainge management ltd. 2008 Prioritising Negotiation Programmes Hi Low Spend Low Levels of Competition Supply Market Risk / Challenge High Levels of Competition Lo Bottleneck / Collaborative High Spend Strategic Risk of Not Achieving Savings Monopolistic suppliers Easier for the supplier to say “No” Risk of Not Achieving Savings Easier for the supplier to say “No” PROJECT APPROACH Prepare a “bespoke” approach that acknowledges the complications of the relationship. E.g. Threaten giving development projects to new emerging suppliers. Consider working on the lower risk suppliers in this segment first. PROJECT APPROACH Ignore (Should be few suppliers here (e.g. BA < 10) ow Routine / Transactional Leverage / Opportunist Low Spend High Spend Good Chance of Achieving Savings Good Chance of Achieving Savings PROJECT APPROACH Move into here once finished in Leverage PROJECT APPROACH Start here and move progressively left Lo Value / Expenditure Impact on end product / service attractiveness 5 Hi © supply chainge management ltd. 2008 Prioritising Negotiation Programmes (cont) Focus by Sub-system Value Where’s the value in the entire system? Use the BoM Structure Focus on the Pareto value Cascade the target prices through the major sub-systems & components What are the drivers of these prices Sanity check Risk (e.g. delivery and quality) Where’s the risk in the entire system Use the logistics plan Focus on the pareto long lead time sub-systems ? What are the drivers of these lead times ? “Real” lead times? Elapsed time vs. op time ratio Can we buy ourselves time? (Same for quality and other risks) 6 © supply chainge management ltd. 2008 e-Sourcing Facilitates easy like for like comparisons for multiple suppliers & large nos of SKUs Requires preparation….but really worth it Conditions suppliers that customer has high expectations Barriers to adoption no longer significant, even for SMEs (e.g. £ 5k per seat/annum) Auctions (when used) typically deliver an additional ~10% 33% saving on leaflets Remarkable result for “Fleet Management” 7 © supply chainge management ltd. 2008 Managing Supplier Conditioning Co-ordinated multi-media campaign XX% savings needed… Letters from CPO / CFO / CEO etc. (PR/Comms support?) “Introduction of auctions” Standard Presentation Packs / Supplier Conferences gin Mana plie g Sup CGU of Ex ement t Set ed Mov Produc Project to NUI Claims 100 90 80 70 60 % 50 40 30 20 10 0 & erger The M laims NUI C • ~50 •£2 OND JAS AMJ h J FM with growt OND J AS to cope AMJ n in place J FM solutio • Interim Now J FM Step projects bn + of mo Impr inuous ovem …to del • policy-holders rate partne • corpo • NUI ters adjus • loss Year rs ion With Satisfact ion With Satisfact Claims Claims nt Settleme 100 % Handling V. Satisfied 100 % % Satisfied V. Satisfied 2 No opinion 1 LA Co. Dissatisfied LA Co. V. Dissatisfied % Satisfied Co. 2 LA No opinion 1 LA Co. Dissatisfied LA Co. V. Dissatisfied Co. 3 LA Co. 4 LA 3 LA Co. 4 ty to 5 Loyalty end ity to y : Propens LA Co. Recomm t Settlemen very d Deli Year 5 er y hold polic rtant to As a ’s impo what me? Renew Year of 3 old Segme asure to me need t… cos nt ple Exam ?) Labour & Profit (Indirect ?) O’heads Labour Office (Direct Back Costs Adjusters Loss NUI Costs : Drivers ? Cost Goods B&W Fees e.g. Property Others Carpets t Settlemen Brown e.g. Contents & White Goods s of Scale buy) re 1. Economie consortium Architectu (e.g. rs vs. chain 2. value St.” wholesalevs. rs - “High wholesale rers - Direct - Manufactu? -3. Others published to the investmen t communit y * all synergies, Re-con tracting ... g With existing atio cs n... isti racter lly Begin rea key cha sin after Re-contrac “What value cha ting and r the Resea Isve rching of ou or dri an on-go ing progr globa amme cause ?” l suppl to conso cost - Suppliersy chain lidate the total create opportunitie - Purcha sing & s qualifi Techn cation ology teams progra priorit mme ise Other ement © supp ly c hainge manag > 450% NOVA Che micals’ Re-co Expect ntracting ations.. retro-acti Redu . ce NOVA ve to Feb 1st. ownership Chemicals year total ltd. 2008 Add value to NOVA Chemicals’ customers . % Probably % Possibly Probably Possibly 1 LA Co. 2 LA Co. 3 LA Co. 4 LA Co. LA Co. 1 LA Co. 2 LA Co. 3 LA Co. 4 LA Co. NOVA ll Acq uisition ... 5 person’s Assig contact n neces details sary resou Valid rces ate RFQ details, Maint complete ain & return Re-contracthe sense it prom ting in of urgency ptly Have to comp one meet the decis ing follow lete * responsibl e for pan-Europ ion make # See ing RFQ Gordon ean sales O’Kell r there Tel: (?) +44 (0)161 5 14 776 5545 Fax: +44 (0) 161 776 5541 Resear ching... Runs in paral lel with Re-contrac ting Using inten Proposal sive wide area * (RFP ) to test faxed Requ ests For market prices Exam ining new supply - appro opportunit ved suppli ers ies with - unapp roved both: suppli * less detailed Che micals’ Nomi nate Expect Re-contrac a leader* ations.. to own ting the relati . Ensur onship e during today# you give us this on year cost - proces s produ hereafterof ctivitie - suppli s at NOVA er mater Chemicals ial produ - suppli ctivitie er proces s s produ - suppli ctivitie er manag s ed consig - etc. nment stocks Jewellery Detail ing The She Febru ary 1st this year Europ ean reven ues of 4 plant $500m s on 3 sites acqu € 32m ired spend and 46 € 9m suppliers spend - raw and 30 materials suppliers - packa ging Re- Chemicals’ suppl contrac new markiers in recog ting wit Is focus nition et positi ed aroun h Sup on globa of NOVA (RFQ) d a detai plier X lly. and a led single Durin The “follow-onRequest for g the Shell team Hunts meeting.” Quotation Existi man acqui will be ng suppl involved. sition ier at Embr some aced Re-co NOVA Chemicals ntracting Resu and packaging sites lt: grow th from $ 0.8m to $ 3.7m * raw material Ration alis Househ NUI Costs Re-con Resear tracting Ratio ching nalisat ion 2 total the objectives ES”... 1 3 istics racter key cha really “What ue chain ue our val or drive val ?” lders cause licy-ho to po - - Propensi Etc. Janua ry 1st last year 7 styre nics sites acquired Syne rgies of $65m* Syne targeted rgies of over 3 $30m* Purch years achieved asing in year Team Cons achieved 1 olidation synergy of volum targets es & suppl iers is not just on-go Purchasin il* * to meet in “PI Definitely Advocac 100 % LA Co. LA Co. 100 % Definitely No/unlikely Year 2 Fees 0 We also ors indicat re… Some we measu t e tha of valu 0 Year NUI Costs Brande Service Year Year Year 1 to able first be t… must cos total this we To do re value and measu ent NU Improved Settlement Settlement Settlement for results (PIES ) The Thr ee R’s Cont Fees Fees Settlement ter iver bet across: deliver s… st also holder We mu to policye re valu NUI Costs Fees NUI Costs NUI Costs Fees costs able influence or Mot Services al air Leg erty Rept Goods Prop lacemen Services Rep Adjusting Loss inuo Cont NUI Costs to need e ers we valu ket lead leading ment As mar a market Adjust develop for Loss s chain Service e gramm The Pro about s… simply ion It’s not fee reduct ental ent ovem ge increm Chan us Impr k d to thin ntly… We nee differe entally fundam Website / Webinars Mana ging Su pplier Cond Purch itioning asing 70%... Intens Europeive The Hun ...of ac tsman an Synerg Acquisi quisiti tion... ies ons fa “PIES” ing dition r C on than the RFQ sent ers. to existing suppliers Benefit s of Eng ageme nt... Poten tial suppliers for increased volum during Rationalisa es for pro-a Align ment ctive tion with a Ceme global styrenics nt the relationshi leader p as we contin ue to grow 13 © supp ly c hainge manage ment ltd. 2008 Emails “Supplier Rationalisation” Phone calls • Purchasing • Logistics • Supplier Quality Meetings “Lean Supplier Interventions” “Global Sourcing Initiative” 8 © supply chainge management ltd. 2008 Cost Modelling e.g. Raw Material Price Variations eg metals Quotation Analysis Form Other O/h + Profit Depreciation Indirect Labour 12 9 12 12 9 LME Copper Prices $/Tonne Direct Labour 22 12 10,000 9,000 8,000 7,000 22 Direct Materials 45 $/Tonne 6,000 5,000 4,000 3,000 2,000 22.5 1,000 Se p06 No v-0 6 Ja n07 M ar -0 7 M ay -0 7 Ju l-0 7 Se p07 No v-0 7 Ja n08 M ar -0 8 M ay -0 8 Ju l-0 8 Se p08 No v-0 8 Ja n09 M ar -0 9 M ay -0 9 Ju l-0 9 - Examples: • Plastic Mouldings • Man-made Textiles (e.g. Polyester Staple Fibres) • Metal Pressings 9 © supply chainge management ltd. 2008 Cost Modelling Volume Increases / Decreases – say 2x volume Quotation Analysis Form Other O/h + Profit Depreciation Indirect Labour 12 9 6 12 4.5 6 Volume Before Direct Labour 22 Direct Materials 45 After 2x Example: Strategic Make vs. Buy: Case Example 1 • Right-sourcing of electrical control systems categories: • pressings • turned and prismatic machining • coil winding • moulding • plating Modelling effects on fixed costs & ROCE ROCE Target 25% - achieved 41% Design: ROCE > 25% ROCE = 41% Make Best in Class 45 Pan-European Solonoid Manufacturer Multi-disciplinary Team Strategic Make vs Buy Concept Design: ~ 3 months Target: 22 Process technology road maps Product technology road maps Identify core / non core processes Model allocation of remaining fixed costs TUPE employees and transfer capital equipment Consolidate plants Dispose of assets (land, buildings etc) Outsourced Competitiveness of In-House Process Technologies Outsource Turning Milling Grinding Presswork Retained Coining (high tolerance presswork) Copper Coil Winding Assembly Worst in Class Low Importance to Business’ Competitive Advantage 149 10 High © supp ly c hainge management ltd. 2008 © supply chainge management ltd. 2008 What Information is Available for Cost Modelling? E.g. If volume effects are key opportunity: What’s known about the split between direct and indirect costs? What’s known about volume changes? Our volume changes by line Total volume changes by line Possible sources of information: QUAFs Database Hosts (e.g. volume increases) Published accounts Category Manager’s knowledge Questionnaires (RFIs / eRFIs) Org charts SQA Audits Other touch points: Supplier Management Team Logistics Factory gate monitoring Lean re-engineering diagnostics 11 © supply chainge management ltd. 2008 Database Hosts Web based pay as you go service No training required Largest source for immediate intelligence gathering 40,000 sources Journals and Periodicals 20,000+ licensed news sources 13 languages 163 countries 2000 global newspapers Newswires, Associated Press, PR Newswire, AAP Newsfeed, Datamonitor Newswire, US News, PA Newswires & FinancialWire Hundreds of UK regional newspapers Information on > 46,000,000 companies Creditreform Companies, Directory of Corporate Affiliations Executive Directories, Dun and Bradstreet, Hoover's Company Profiles, Investext, Bundesanzeiger, Mergent, Hoppenstedt and Worldscope International Company Profiles, ICC Directory of UK Companies, ICC Financial Analysis Reports and ICC Full-Text Quoted Company Annual Reports. 12 © supply chainge management ltd. 2008 McKinsey Negotiation Process Team based negotiation Synergistic: “X heads are better than one” Tag-team approach to questions Variety of styles / role playing Rules of engagement - maverick s can derail progress Value of consensus in identifying & validating SWOTs Rigorous planning Post N egotia tion Ev alua SU PPLIER: ______ ______ y learni ngs / tak eawa ee ke 1. 2. 3. Who we re tod ys from ay’s pa Name this ne gotiatio n? rticipa nts Position Role Ex Key de hibited cis in Nego negotia ion make tiation rs not tions? includ ed tod Name ay tha t we ne ed to ensure are inc Position luded in future What fac ts or inf ormati on did 1. we lea rn tod 2. ay? t). Pos PLIE SUP on s (c3. tion 5.4. lua a 6. v E __ R: __ ____ ____ ____ ____ cif spe 7. 8.__ ____ ext ic n step eed en sw e re th at a p Ste Next to ta b ke Wh ay’s d n to do Base iew? rv inte 1. 2. Formal debriefs to close the loop Back to planning the next negotiation tion ______ __ e the thr n iatio got t Ne Objectives SWOTs Role playing ______ What ar disc , ion uss go t ne wha ? tion hip otia ners neg Ow ext en ber em re th mM a Te efo on tiati tac tics u yo198 do re nd 2 the 7 alist in Re At ta Target t wha ng, eeti r? rst m pplie su ur fi n yo om the o d fr Base ipate c anti resp onse do you No ic gs Savin y Likel 5 3 Enth sti usia c 1 ne ld wou n? How otiatio neg nle, No Hosti erat ive coop ’s day of to to the al Exp ssifyec cla tation you s (Stre 199 Supplie r-Spe cific St rength ngths 199 & Wea s & Wea knesse ply inge manag ement ltd. 8 200 cha knesse s) Weakn ess Streng th 1 2 1 1 1 2 2 5 4 3 5 4 3 3 5 4 3 2 5 4 3 2 5 4 3 2 1 4 3 2 1 1 3 2 1 Rating © sup s •Produ ct char acteris •New tics / ru produc nability t deve •Innov lopmen ating pa t ck aging •Globa / logisti l cove cs rage / •Flexib capabi ility lity require to customer ments produc t •Total cost of ownersh menta lity ip redu ction •Other •Overa ll © suppl y chain ge mana gement ltd. 2008 et ch h Str ReacTarget 4 1 Intern se in u we nd me com 5 4 4 5 5 200 200 © supp ly 13 chainge manageme nt ltd. 2008 © supply chainge management ltd. 2008 Contract Models Structured process to develop bespoke contracts from standard models… Contract Management Procedure, Guidelines & Standard Forms (available on intranet) Generic Contract Frameworks • Direct Goods Purchasing to become a key interface between budget holders, to facilitate the evaluation of risk and specify requirements including target service levels and Legal (Sheila) (e.g. Raw Materials & Packaging) • Indirect Goods • Services (e.g. Development Services) Have contract models been established? Have they been set up as “non negotiable” ? Risks ? (Legal & Purchasing) • Capital Equipment • etc. (available on intranet) (Legal) Risk Evaluation Bespoked Schedule/s • Risk • Scale of Likely Impact • Probability of Occurrence • Prevention • Mitigating Action • etc • Commercial Specification • Service Level Agreement • Prices & Incentivisation • etc. (Purchasing & Internal Customer) Bespoke Contract To be used for invitation to tender (ITT) & contract negotiation. (Purchasing & Legal) Guidelines for Drafting Comprehensive Purchasing Specifications --including Service Level -Agreements (SLAs) - 14 Examples of good practise become future standards On-line Contract Repository Signed contracts to scanned & be held in .pdf form on a central Server i.e. accessible to Legal, Purchasing, etc. with change control procedure. -(available on intranet) (Purchasing) © supply chainge management ltd. 2008