Skills for Tomorrow s Strategic Sourcing and Procurement Professionals

Skills for Tomorrow's Strategic Sourcing and Procurement Professionals Robert P. Moody ISM Dallas Meeting October 11, 2007

Agenda • • • Introduction Operational Procurement Objectives Skills for Tomorrow Conclusion Questions

Procurement is important World Class Procurement Cost Savings Potential Estimated Realistic Savings as a Percentage of Spend Source: Corporate Executive Board Procurement Strategy Council Research

What a difference a structured process makes … Source: Aberdeen Group - The CPO’s Strategic Agenda 2006

Operational Procurement Objectives • The five rights: – Right time – Right quantity – Right place – Right source – Right price

G S e e n l N e e S r c g e a t o l t t e e s i c o a t s Specific example: A. T. Kearney seven u t u r e step strategic sourcing process i p c m p i Step a p M Prof l n o ilel i 1 g d e n the e m i cate r I s e t gory n 2 t e n o p t r l t r o e a 3 r g t c t t r e t i h f a g 4 o e o t y s n l e u s i 5 p p u o s p a p u l t p 6 p i h l p e y l r 7 i s m e a r r s k Skills for Tomorrow Utilize a structured procurement process • Initiated by GM in the 1980 s – What is bought where? – Who sells what? – Where to buy what at “best value” – Identify suitable suppliers – Negotiate – Implement – Track results & restart (continuous cycle)

Skills for Tomorrow Sourcing and procurement as part of the larger organization Effective global procurement organizations generally employ a center-led organization with a category management concept Head of Global Procurement Operations Management Sourcing Support Services Category Management 1 Procurement Teams 2 Center-led procurement does not necessarily mean “centralized procurement” Notes: (1) Category Managers supported by Procurement Teams made up of corporate and business unit staff (2) Procurement Teams report dotted or solid line depending on the category/goal Source: ICG Commerce

Skills for Tomorrow Marketing, influencing and engagement • Provide procurement leadership to all functional and business unit groups • Align with your stakeholders’ key objectives • Utilize cross-functional/business teams with clear roles and responsibilities • Sharing the spend analysis results can create internal support for sourcing changes that reap savings • Report-out results and track progress

Skills for Tomorrow Project Planning and Management

Skills for Tomorrow Sourcing KPIs KPI Calculation Tier Catalogued Item/ Direct buy PO Line % (Count of PO lines with both a catalogued item number and flagged as direct buy divided by the count of all direct buy PO lines) x 100 2 Contract Compliance (Total paid invoice dollars under the Corporate contract supplier group divided by the total paid invoice dollars in the material group, during a given time period) x 100 2 EFT % (Sum of invoice dollars paid through EFT (RZAWE = ‘A’ or ‘T’) divided by the sum of invoice dollars paid for all invoices ) x 100 2 ERS % [Count of paid invoice lines flagged as ERS (ERS indicator = ‘X’) divided by the count of all paid invoice lines, minus the count of consignment paid invoice lines (Item category = ‘ 2’)] x 100 2 Fully E-Functional Procurement % (Count of paid invoice lines for which the PO was created through Auto. Source, the invoice was automatically generated through consignment, evaluated receipt settlement (ERS) or recurring payment, and the payment was made through electronic funds transfer (EFT) divided by the count of all paid invoice lines at a given location in a given time period) x 100 1 DPO Accounts payable dollar balance, excluding inter-company payables, divided by average purchases per day, calculated on a 90 day rolling average 2 Supplier On-time Delivery % (Count of receipt lines with deliver before receipt required date divided by count of all receipt lines) x 100 2 GRIR (unaudited invoices) Absolute dollar value (or %) of GRIR activity(unaudited invoices) > 30 days old based on invoice date. 2 P-card usage (Total p-card dollars divided by total non-raw materials purchase order line dollars) x 100 2 Total Procure to Pay Costs Sum of all costs related to requisition, procurement, receipt and payment of goods and services 2 Tier 1: performance of the business as a whole and enable the setting of business-wide targets Tier 2: performance of the configured processes and used to tactically manage the business Source: Corporate Executive Board OMR Toolkits

Skills for Tomorrow Supplier relationship management - skills & tools • • Supplier relationships are critical Treat everyone with respect Be data driven Negotiate based on facts and knowledge Share information when appropriate Help your suppliers be more successful Investigate software based SRM solutions

Skills for Tomorrow Cost & “Best Value” • Total Cost of Ownership (TCO) is best suited for comparing the value of commoditized products or services • Make certain your model accounts for benefits, risks and the time value of money if they apply to your situation TOC = Purchase Cost + Logistics • Inland Freight • Ocean/Air Freight • Transfer charges + Taxes • VAT • Incentives + Customs Duties & Fees + Other Costs • Quality • Safety Stock • Supplier Development • Currency

Skills for Tomorrow Keys to Procurement Transformation • • • Multi-year strategic planning Supply base rationalization Total cost focus Metrics Supplier development Staff development Integrated systems and processes Technology that enables process excellence Leadership

Conclusion • Consistently apply the basic operational procurement skills • Utilize a disciplined process • Create a sustainable environment • Identify and deploy best practices • Engage the stakeholders • Utilize visible, auditable metrics • Share the wins

Are you ready for tomorrow?