Getting to the world class procurement best practices

1 Getting to world class procurement best practices Sharing PasiaWorld2016 Philippine Conference10 November 2016 Senior Vice President Supply ChainLBCA gendaBackgroundOur evolving roleCurrent state assessmentBest practicesFollow a programNext StepsShow the resultsProcurement : BackgroundGovernancePeopleProcessEnabler s Weak and traditional policies in place Treating procurement as catch basin for supply chain issues Discounting procurement in strategic planning Few procurement centered initiatives to improve bottom line savings Low investment on skills development Stuck on buyer only mentality Lack of proper training in best practices to elevate procurement organization Maintaining a silo mentality with other business units best practices are not made available or totally unused Dealing with

2 Too many third party intermediaries Lack of collaboration with other key business units No coordination of spend across geographic & business boundaries Idle and disaggregated data left unutilized for factual decision making Underutilized eCommercein expanding the market place None-implementation of eProcurement in organization with large processing requirementsAfter working with numerous companies, we have seen an evident pattern within the procurement organization than can still be improved:Business ImperativeProcurement is a vital part of an organization that enables conversion of resources to profit.

3 Similar to other profit generating business units, procurement can create value and improve the bottom line of the ; $ Overhead; $ Labor; $ Materials; $ Labor; $ Overhead; $ Profit; $ Materials; $ Three Options to improve bottom line: Increase Revenue Cut cost ; Lay Off Manage SpendBalancing Cost and Risk to Create Value!10% Savings60% IncreaseInvoice& PayIdentifyOpportunityDevelopStrategySou rce &NegotiateImplementContract& Execute Monitor & ManageCurrent State of procurement : Tactical vsStrategicHistoricSpendAnalysisDemandAn alysisSupply Market AnalysisStrategicSourcingE-SourcingEstab lish KRA EvaluationCriteriaNegotiationStrategyCat egory ManagementRFQ, RFP.

4 RFIN egotiation /SelectionCreate / ManageContractBest practiceAdoptionManageOrderReceiveInvoic esReconcileInvoicesManageExceptionsPayTr ackKRAM anageCompliance &IssuesProcess RequisitionCross-functionalTeamsProcurem ent Level of ExpertiseProcess RequisitionManageOrderSeamless with Finance/APSampleFrom Highly Transactional to StrategicSample CompanyIdealNotes: Current activities are highly clerical and transactional. Limited involvement on strategic functions It is important to increase value in the following areas: Supply Market Intelligence Supplier Prequalification Strategic Sourcing Contract Management Supplier Performance and ScorecardingSampleProcurement : From Transactional to Strategic Most of procurement activity is on low value transactions.

5 This low-value transactions account to approx85% of all transactions but contributes only 13% of the total Count%Amount % <200 KXXX71%XXX, >200k but <=500K XXX14%XXX, >500k but <=2M XX9%XXX, >2M but <=5M XX 3%XXX, >5M but <=10M XX 2%XXX, Total XXXX100%XXX, : High volume of buying transactions -SAMPLE Some best PracticesBest PracticesS&OPStrategic SourcingTactical OperationalSpend AnalysisMaterials coding/standardizationCategory ManagementSupplier Discover & AccreditationGlobal SourcingeProcurementGroup BuyingProcurement Out-taskingProcurement AugmentationSales & Operation PlanningA systematic management decision-making, reporting and communication tool ensuring synchronization of overall strategic goals to the downstream supply chain implementation plan.

6 Balancing overall resource capacity to meet total customer market Financial & Operating PlansBridge customer value to supply chain efficiencyRegulate master schedules & Sales planProvide long range vision to short term processesFactual decision making for key business activitiesLinks strategic plan to details schedulesStrategic SourcingDefine The ScopeStrategically Segment PurchasesSelect Tailored ApproachesApply a rigorous processStep 1 Profile CategoryOpportunitiesCOMMODITYPROFILEEac h component of the analysis will contribute to creating a comprehensive commodity profile and opportunity identification.

7 B. Spend AnalysisHistorical and forecast spend by: Market Business unit Supplier Product/service MonthC. Needs AssessmentCustomer requirementsSpecificationsFunctionalityS ub-commodity groupingsFuture trendsBusiness impactTechnologyD. Total Cost AnalysisTotal cost elementsSupplier cost breakdownInternal cost driversCost modelProcessing costsE. Relationship AnalysisCurrent customer status & volumeCurrent supplier status & volumePast performance levels & satisfaction levelsStakeholders who need to be involvedStrategic Sourcing.

8 Profile CategoryCRITICAL Complex specifications requiring complex process Few alternate products available Few qualified sources of supply New technology/processes involved in provision of the product or serviceNegotiated Close RelationshipSTRATEGIC Strategic to profitability and operations Few qualified supply sources Large expenditures Design to quality critical Complex specificationsAlliance/Long Term RelationshipsROUTINE Many existing alternate products and services Low value Small individual transactions Unspecified items for everyday useeCatalogs/ procurement CardLEVERAGE High-expenditure area Many existing alternate products and services Many qualified supply sources Goods and services are readily available eBidding/Blanket Purchase OrdersSpend ValueRisk & OpportunityStrategic Sourcing MatrixExact placement of the sourcing group is less important than its relative placement15 Strategic Sourcing.

9 ApproachProfile Category & Supply MarketSourcing Strategy for Sourcing CategorySupplier Portfolio GenerationSelection of plan for implementationOperational Integration with SuppliersNegotiation & Selection of SuppliersContinuous Benchmarking Supply Market16 Strategic Sourcing : ApproachGlobalSourcingBest PriceEvaluationVolumeConcentrationProduc tSpecificationImprovementJointProcessImp rovementRelationshipRestructuringStrateg icSourcingExpand supply baseDevelop new suppliersProfit from global supply/demand imbalancesCompare total costsModel should-costs Renegotiate pricesUnbundle pricingCombine volume from different commodity categoriesConsolidate number of suppliers Pool volume across unitsRedistribute volume among suppliersReengineer joint processesShare productivity gainIntegrate

10 LogisticsSupport supplier operations improvementEstablish/develop key suppliersEmploy strategic alliances/partneringImplement Supplier Management Program Develop integrated supply chainConduct product value analysis & engineering s substitute materialsPursue system buying alternatives Optimize life cycle costs TCO encompasses all direct and indirect costs that are incurred over the life of the material or serviceThe life-cycle stages are: Requirements Definition Source Identification Acquisition Storage Installation Operation/Maintenance RetirementTotal Cost of Ownership (TCO)37%28%16%12%7%Valve ExampleProcurement(Price)