Post on 23-Dec-2015
Procurement plan: process
2
Wx+3
Wx+2
High-level conclusionsDiscussion CEO
InterviewsStakeholders
Interview Buyer(s) (Benchmark)
Data analysis SiPM
Consolidation SiPM
Wx Wx+1
Wx+1
Wx
Problem definition and data collection
Advice and final presentation
Objectives Procurement Plan
1. Scan of current procurement (department)1. Benchmark
2. Opportunities
3. Barriers to change
2. Options
3. Advice1. Mission, incl. potential (€)
2. Strategy
3. Procurement Organisation structure incl. R&R
3
Process
4
Step 2: options and advice
Mission procurement department (LT measurabel goals) Strategy to achieve mission Organisations structure, R&R and function profile Short-term action plan
Methodology- WINS world-class benchmark
Interviews:- Barriers?- Purchasing outside department?- View on Procurement?- Best practices?- Benchmark- Time spent buyer
Data-analysis:- ABC and portfolio analysis- Saving Potential
Step 1: Internal analysis
Executive Summary
• Max 3 bullet points (examples)• If client does not invest in procurement, they will be outperformed by competitors*
– There is no procurement department, merely an “order” department– xxx
• Strategic procurement will lead to– Comulative DCF of xxx€, which will double(?) the current margin– Improved risc management by process driven as opposed to current ad-hoc appraoch– xxx
• Current procurement– Is operational, not strategic nor tacitcal – Manages “only” 18% of total expenditure– Lacks essential procurement knowledge and support for new role. There will be external recruitment
* = Status quo scenario
5
7
SiPM procurement benchmark: main view
0%
5%
10%
World-Class
Operational excellence
Catching up
Savings
Time
= 10% net reductionin total expenditure
Benchmark is based on WINS program
• World-Class Innovative Sourcing program• Yearly Objectives setting in function of long-term plan
• Evolution as opposed to revolution (continuous improvement)
• Simultaneously, disciplined and ruthless execution of 2 main steps:
8
What % of expenditure is being influenced by procurement
How professional do we *1 manage expenditure (“people - process - systems”, Measured on 8 segments). * 1: throughout the company
2. procurement coverage
1. Skills
WINS program
9
0%
CATCHING - UP
WORLD - CLASS
OPERATIONAL
EXCELLENCE
Mission
Skills
40%
80%
Co
ve
rag
e
CATCHING-UP 94%
WORLD-CLASS1%
OPERATIONALEXCELLENCE
5%
Bronze Silver Gold
100%
* 94% of other companies worldwide in catching-up phase
Definitions
• Procurement process can be splitted into strategic/tactical/operational
10
Strategies : mission, organisation, make or buy/category strategies, off-shore sourcing…
Order to payment process, replenishment, inventory, performance tracking, …
Specifications RFQ/RFI Negotiation Contract Cont. Improvement
Skills
1. Strategic intent
– Max 3-5 bullets based on interviews– In absence of plan, lack of accountability and focus:
• xxx• No sense of urgency
– Conservative culture, difficulties with change
2. Leadership Procurement
– xxx• Xx
13
3. Support of Tactical procurement process
– Mainly ad-hoc, few structure• Xxx
4. Supplier Selection process
– Xxx
14
Skills
5. Supplier relationship management
– Xxx
6. Strategic Cost Management
– xxx
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Skills
Price
Non
-Qua
lity
cost
sD
ispo
sal c
osts
Op
erat
ing
co
sts
Down time costs
Maintenance costs
Adverse Buy, Supp. Perf.…
Process costs
Price
Non
-Qua
lity
cost
sD
ispo
sal c
osts
Op
erat
ing
co
sts
Down time costs
Maintenance costs
Adverse Buy, Supp. Perf.…
Process costs
30%
70%
Here is the prize to be taken. Seems easy but many companies fail.
Current focus
7. Capital productivity
– Xxx
8. Operational Process
– xxx
16
Topic Time spend %
Strategy 0%
Selection process 20%
Continuous Improvement
0%
Operational tasks
80%
100%
Skills
17
Skills Benchmark Horizon: Short Term - Middle Term - long Term
0,0
2,0
4,0
6,0
8,0
10,0
Operationalprocesses
Design of tacticalprocess
tender process Relationshipmanagement
Strategic costmanagement
Capitalproductivity
Strategic Intent Leadership
Gold
Silver
Bronze
Skills: summary
Summary (max 3 bullets)
x% of turnover is being spent with suppliers
19
Conclusion:xxx
0
5
10
15
20
25
Turnover Profit IndirectLabourCosts
DirectLabourCosts
Overhead Cost ofSales
Miljoenen
25%
38%
xM€
xM€ is relative easy/difficult to manage
• There are x suppliers
• x % suppliers x% expenditure
20
Conclusion/advice:
ABC Analyse Leveranciers
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% Leveranciers
% U
itg
aven
Top 20 Leveranciers TotaalNEDAL ALUMINIUM BV € 1.119.034SERGE FERRARI SA € 935.300EMAX ALUMINIUM PROFIELEN NV € 755.066FORESCO NV € 476.328DMW METAALWERKEN NV € 443.256RACOR NV € 387.175ACOUSTIC EXTRUSION € 353.640SAPA RC PROFILES NV € 230.099TOTAL BELGIUM NV € 202.258PEETERS MARC BVBA € 193.734LENSSEN VERZINKERIJ NV € 188.836ACTIEF INTERIM NV € 162.428ME CONSTRUCT NV € 114.827GEBR. VAN DER WERFF B.V. € 110.417SKP NV € 104.193VAN LEEUWEN BUIZEN BELGIE NV € 99.163MARTENS TRAKTOR NV € 94.012STEEL SERVICE CENTER BREE NV € 91.861GEERITS VERHUUR NV € 89.260DISTEEL NV € 87.069Overige € 3.553.969Totaal € 9.791.926
20 leveranciers = 64% uitgaven
xM€ is relative easy/difficult to manage
• x categories cover y % of expenditure
21
Conclusion/advice:
Top 20 categorieën TotaalAankopen, Grondst. € 5.946.931Algemene onderaanneming € 1.544.695Lonen interims arbeiders € 332.678Transportkosten € 181.541Huur hulpmateriaal € 169.485Huur personenwagens € 147.130Publiciteit en advertenties € 142.973Brandstof bedrijfswagens € 136.127O & H., Gebouwen € 85.846Klein gerief € 83.063Aankopen werk en studie's € 79.581Huur hulpmateriaal LT contr. € 61.801Hotel & tickets arbeiders € 52.952Huur bedrijfswagens € 47.955Brandstof personenwagens € 45.821Electriciteit € 44.457Brochures & sales tools € 43.914Aankopen voor doorverkoop - Bi € 42.487Drukwerk en kantoorbehoeften € 38.341Verpakkingsmateriaal € 35.709Overige € 528.438Totaal € 9.791.926
WINS: combination Skills and Coverage
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0%
CATCHING - UP
WORLD - CLASS
OPERATIONAL
EXCELLENCE
Mission
Skills
40%
80%
Co
ve
rag
e
CATCHING-UP
WORLD-CLASS
OPERATIONALEXCELLENCE
Bronze Silver Gold
100%
Clientx%
Conclusion Internal Analysis
• Procurement Client has relative low/high benchmark score– xxx
• xxx
24*: reduction workingcapital, kaizen, performance measurements…)
26
Skills
Co
vera
ge
0%
40%
80%
Bronze Silver Gold
SiPM has developed 3 options
Client
Option 1Ex. “Logistic Partner”
Option 2Ex. “Strategic Procurement”
Option 3Ex. “Supply Chain Leadership”
Options
1. Logistic
partner
2. Strategic
Procurement
3. Supply Chain leadership
Objective xxx Lowest total costs Xxx
Innovative netwerk of suppliers: fast TTM, product development
Output Procurement will diliver: Xxx
Procurement will diliver: Supplier selection and
improvement Xxx
Procurement will diliver: Xxx
Organisation Hybrid Xxx Title: “replenisher”
Central procurement xxx Title: Procurement Manager:Senior
buyer
Central procurement > 80% of spend via procurement XxxTitle: Director of Supply
Time to implement
2 year 3-4 year 5 - … year
27
NPV and Discounted Cash Flow option 1, 2 and 3
31
Cumulative Discounted Clash Flows
-200.000
-100.000
0
100.000
200.000
300.000
400.000
500.000
600.000
700.000
800.000
2009 2010 2011 2012 2013
NPV = xyz €
NPV = xyz€
Investment in organisation limited return in jaar 1Option 1 mainly process improvement: “traditionally savings are difficult to measure”
Option 3
Option 2
Impact on nett margin option 2 and 3
32
Impact Netto Marge
400.000
500.000
600.000
700.000
800.000
900.000
1.000.000
1.100.000
1.200.000
1.300.000
2009 2010 2011 2012 2013
Current xk€
NPV = 3,2M€
NPV = 3,5M€Option 3
Option 2
Pro & Con’s 3 options
33
1. Logistic
partner
2. Strategic
Procurement
3. Supply Chain leadership
Pro
xxx Investment: x
xx Investment: y
xxx
Con
xxx xxx xxx Investment: z
34
Advice SiPM
Option 2: Strategic Procurement
• xk€ cumulative DCF * on 5 years
• Investment : 1 manager, 2 buyers and 1 assistent.
• Simultaneous improvement of skills and coverage (3-4 yr evolution revolution)
Skills
Co
vera
ge
0%
40%
80%
Bronze Silver Gold
2009
2010
2011
* = nett, including investment in new organisation
Client
Short-term actions (6-9 months)
• Recruitment– xxx
Next:
• xxx– Xxx
35
Com
plex
ity
High
Low
Hig
h
LowPotential
Start with these categoriesInterim
Publicity
Subcontracting
Transport
Fuel
Raw Materials
Rent cars
38
Financials
P&L company xTurnover 245.245.375COS 135.973.650 Materials 94.003.500 Dir Labour 41.970.150Gross margin 109.271.725 45%Overhead 62.342.100Ind. Labour 37.866.625Oper. Margin 9.063.000 4%
COST ORGANISATION Director Manager Buyer Replenisher Assistent Total FTE Total €/yrGross Salary/yr 140.000 100.000 70.000 60.000 50.000# people: option 1 1 1 2 150.000 option 2 1 1 1 3 260.000
Start
Step 1: Investment
39
Financials
- Gross and nett = exc. and inc. costs of new organisation- Savings = bottom line impact. Only 34% of traditional savings calculations are visible at the bottom line, hence multiply the figures times 3 to compare them with other companies.
WINS phase World-classyear 2009 2010 2111 2012 2013
Savings: option 1 1% 2% 3% 5% option 2 1% 3% 3% 6% 8%Gross saving: option 1 1.438.763 2.877.527 4.316.290 7.193.817 0 option 2 1.438.763 4.316.290 4.316.290 8.632.581 11.510.108Nett saving: option 1 1.288.763 2.727.527 4.166.290 7.043.817 option 2 1.178.763 4.056.290 4.056.290 8.372.581 11.250.108
SiPM benchmark WINS
Catching up Operat. excellence
Step 2: savings per option
40
Step 3: Discounted Cash Flows
Option 2: Discounted Cash Flows
1.193.299
2.338.415
3.307.336
5.177.4164.793.904
- €
1.000.000 €
2.000.000 €
3.000.000 €
4.000.000 €
5.000.000 €
6.000.000 €
2009 2010 2011 2012 2013
Option 3: Discounted Cash Flows
1.071.603
3.352.306 3.047.551
5.718.585
6.985.432
- €
1.000.000 €
2.000.000 €
3.000.000 €
4.000.000 €
5.000.000 €
6.000.000 €
7.000.000 €
8.000.000 €
2009 2010 2011 2012 2013
Financials
41
Step 3: Discounted Cash Flows (continued)
Cumulative Discounted Clash Flows
1.193.299
3.531.714
6.839.050
12.016.466
16.810.369
4.423.909
7.471.460
13.190.045
20.175.477
1.071.603
0
5.000.000
10.000.000
15.000.000
20.000.000
25.000.000
2009 2010 2011 2012 2013
Financials
42
Categorie Totaal Competitiviteit Past Focus Savings % SavingsAankopen, Grondst. € 5.946.931 2 2 5% € 297.347Algemene onderaanneming € 1.544.695 3 2 10% € 154.469Lonen interims arbeiders € 332.678 3 1 20% € 66.536Transportkosten € 181.541 3 2 10% € 18.154Huur hulpmateriaal € 169.485 3 2 10% € 16.948Huur personenwagens € 147.130 3 1 20% € 29.426Publiciteit en advertenties € 142.973 3 1 20% € 28.595Brandstof bedrijfswagens € 136.127 2 1 10% € 13.613O & H., Gebouwen € 85.846 3 1 20% € 17.169Klein gerief € 83.063 3 2 10% € 8.306… … … … … …Total € 9.397.553 € 761.158
8%
low estimate Competitiviteit
1 2 3Past focus 1 5% 10% 20%
2 2% 5% 10%3 1% 3% 5%
Double of current profit
Savings: 2nd benchmark
• Next to WINS benchmark, there is a 2nd detailed benchmark• Results are similar: in year 5, the margin would xxx
Coverage: definitions and methodology
• Definitions
Which of the following tactical steps can be influenced by procurement?
• Methodology
Source: buyers (Interviews and questionnaire)
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Specifications Quotations Negotiations Contract
Category Supplier Spend 2007 No control Some control Full ControlRaw Materials QODOL OL 13.987.927 XRaw Materials GORGO JO 11.691.254 XRaw Materials OMOJ OLU 9.443.363 XRaw Materials JOROGWO 5.520.519 XRaw Materials DMW MOKO 5.465.357 XSubcontracting ROWOR QV 4.648.950 X
To be filled out by buyer
• Definition
By buying smarter, you will be buying more efficient, cheaper and be protected against market fluctuations. We have been measuring your procurement against a benchmark on 8 different topics, ranging from strategic intent to … supplier relationship management.
• Methodology
Interviews + questionnaire
44
Skills: definitions and methodology
45
Central organisation: tactical process mainly (>60% of spend) driven by procurement
Decentral organisation: tactical process mainly (>60% of spend) driven by local departements
Hybrid organisation: For a number of categories, the tactical process is managed by procurement, for other categories by the local departments
All structures but the central structure are suboptimal in terms of efficiency. However, this does not imply that other structures are not good. A hybrid structure for example is the most desirable options for most multinationals, as this currently fits better with the culture of the company.
Organisation: definitions