2107 Key Success Factors for High-Performance Strategic ...

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Censeo Consulting Group, Inc. – Copyright 2007. All rights reserved.

Dr. Timothy M. LaseterSr. Advisor, Censeo Consulting Group

Operations Faculty

Darden Graduate Business School

University of Virginia

High-Performing Strategic Sourcing Programs

Breakout Session # 2107

April 24, 2007

Mr. Ash BediDirector

Censeo Consulting Group

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What is Strategic Sourcing?

DEFINED BY STRATEGIC SOURCING DEFINITIONSStrategic Sourcing

Roundtable

(Session 4, January 13, 2005)

Strategic sourcing is NOT….an answer…it is NOT leveraged buying..

Strategic Sourcing IS…

A PROCESS for systematically analyzing and developing optimal strategies for buying goods and services.

DATA DRIVEN – fact-based analysis to drive decision making rather than just “hunches”

HOLISTIC process that addresses customer needs, market conditions, organizational goals and objectives, and other environmental factors

Based on MARKET INTELLIGENCE and takes into account small business capabilities Inclusive of CUSTOMER REQUIREMENTS A CROSS-FUNCTIONAL APPROACH About SUPPORTING AN ORGANIZATION’S MISSION through procured goods and

services About DEVELOPING ORGANIZATION WIDE STRATEGIES

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Key Success Factors

Five Key Success Factors for driving high performance strategic sourcing programs

1. Governance & Leadership

2. Comprehensive sourcing approach

3. Analytical rigor

4. Resource mix

5. Ongoing Performance Management

Based on research and experience

across many industries

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Governance and LeadershipCharacteristics of Governance and Leadership prevalent in successful programs

– Multi-tiered structured with cross-functional and senior leadership involvement• Senior leadership “champions” program and helps procurement/acquisition to develop credibility by outwardly

supporting sourcing initiatives

• Beyond senior leadership, multiple tiers of governance ensure appropriate level of oversight and involvement

• Cross-functional involvement ensures “buy in” and ownership by key stakeholders

– Clearly defined decision making processes• Well-defined and detailed decision making processes ensure key decisions are approved at appropriate levels

so that can be enforced

• Distributed decision making authority ensures both timely decisions and sense of control to appropriate levels

– Incentives and accountability • Metrics and incentives are aligned to meet the needs of the program and relevant stakeholders

• Accountability starts from the top and flows down to each level

Source: Organizing for Effective Spend Management, Best Practices Study, March 2007 – Censeo Consulting Group, Inc. Copyright 2007.

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Example of Governance Structure

Operating Administrations/ModesOperating Administrations/Modes

STRATEGIC SOURCING PROGRAM GOVERNANCE STRUCTURE

Executive Steering Group (ESG)

Executive Steering Group (ESG)

Enterprise Commodity

Teams

Enterprise Commodity

Teams

Multi-divisional Commodity

Teams

Multi-divisional Commodity

Teams

Single OA Commodity

Teams

Single OA Commodity

Teams

Architecture Review Board (ARB)

Architecture Review Board (ARB)

IT Commodity Councils

IT Commodity Councils

ENTERPRISE (IT) GOVERNANCE

STRUCTURE

Commodity Team OA participation

dependent on nature of

commodity

Deputy CIO is a key member of this group

Key linkage to CIO organization –

Coordination processNeeds to be defined

Relevant OA CIOs as key members

Representation from CIO organization

ARB representative to participateStrategic Sourcing Directors

Strategic Sourcing Directors

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Comprehensive Sourcing Approach

• Comprehensive understanding of internal and external environment– Internal (processes, costs, supplier relationships, demand)– External (market conditions, supply chain)

• Commodity strategy goes beyond supply relationships and contract structure

– “Go to Market” approach– Internal levers including processes, policies and technologies to drive

compliance and manage demand

• Continuous process of management– Follow through on implementation (change management, communication)– Continually assess customer needs and markets– Focus on metrics and measurement to drive corrective action

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Example of Comprehensive Sourcing Approach

SOURCING TACTICS OVERVIEWSOURCING TACTICS OVERVIEW

SOURCING TACTIC

EXPLANATIONIMPLEMENTA-TION HORIZON

SUPPLY SUPPLY SIDESIDE

Competitive Bidding • Select a set of small businesses to compete with each other for work

through a task order multiple-award vehicleNear-term

Volume Redistribution • Award greater volume of work to suppliers based on performance. Intermediate-term

Best Value/Price Analysis• Institute a process whereby supplier business is adjusted based on

closely monitored performance metrics.Intermediate-term

PROCESSPROCESS

Process Standardization & Improvement

• Consider the use of an automated tool (accessible by end users and COs) as an ordering portal with pre-defined rules for ordering, and contract & supplier selection.

Long-term

Collaborative Cost Reduction Opportunities

• Work jointly with suppliers to explore cost reduction opportunities and to identify suppliers that are more efficient at meeting DoD needs.

• Utilize the degree of supplier participation in this area as part of overall supplier performance assessment.

Intermediate-term

DEMAND DEMAND SIDESIDE

Labor Category Accuracy

• End User involvement in the ordering process should be expanded to include participation in the selection of skill level alternatives (prior to proposal creation) to assist in the accuracy of skill levels selected and enabling end-users to make trade-offs in cost versus skill level.

Near- term

A comprehensive sourcing approach identifies all possible souring levers – supply, demand and process-related

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Analytic Rigor

• Data and factual analysis drive overall approach and strategy, in combination with experiential knowledge

• Understanding costs is a key component of a fact-based analysis– Total Cost Analysis helps identify key cost elements and drivers– Industry cost structure analysis leads to identification opportunities

for collaboration and negotiation leverage

• Comprehensive understanding of markets, beyond identification of suppliers, is key to developing an approach that optimizes costs across buyer and supplier

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Example of Analytic RigorThis example shows how an analysis of the cost components of employee relocation reveals the two major cost areas – real estate and household goods transportation

The analysis serves to focus the sourcing effort on areas where there is likely greatest benefit

The analysis serves to focus the sourcing effort on areas where there is likely greatest benefit

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Example of Analytic RigorThis example shows how understanding the macro-level prospects of an industry (unit growth) can be used to better understand the imperatives of individual suppliers

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Resource Mix

Resource mix is dependent on the size and scope of effort, but some key considerations include:

– Level of Resources• Senior leadership to endorse and “champion”• Other levels with knowledge and expertise in subject matter

– Dedicated versus Ad-hoc Resources• Typically some of level of dedicated resources are required• Outreach to key stakeholders and SMEs

– Cross-functional versus procurement• Procurement is typically the common link across all initiatives, whether leading or

supporting• “Customers” typically run initiatives where they have clear ownership• Areas where there is no clear ownership are handled by procurement

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Example of Resource Mix – Government Client Commodity Team

Executive Sponsor Executive Sponsor

Program/Analytical Support

Program/Analytical Support Customer/Functional RepsCustomer/Functional Reps

ProcurementProcurement

• Requirements Analysis• Data Analysis• Market Analysis• Procurement Policy

Analysis• Change Management

Commodity Team Lead Commodity Team Lead

Small Business – Small Business SpecialistsStakeholders - Internal and External to GovtExperts - Subject Matter Experts and AdvisorsIndustry - Associations and Suppliers

Small Business – Small Business SpecialistsStakeholders - Internal and External to GovtExperts - Subject Matter Experts and AdvisorsIndustry - Associations and Suppliers

• Functional Managers• Program Managers

• Contracting Officer• Contract Specialist

Typically Full-Time RolesTypically Full-Time RolesPart-Time RolesPart-Time Roles

Full-Time During Step 4Legend:

Commodity Team Structure

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Ongoing Performance Management

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Example of Ongoing Performance Management (Objectives & Metrics)

Plan Component Overall Objectives Performance Metrics

Supplier Performance Management

Monitor supplier performance against agreed to contractual terms and provide timely feedback to drive performance improvements

Order acknowledge time Order to ship time Order shipment notification Order to delivery time Out of stock notification prior to shipment Monthly performance metrics reporting (as per RFQ) Monthly usage reporting (as per RFQ)

Internal Performance Management

Take proactive actions to meet the needs of the user community and drive usage of new supply arrangements

Total year-to-date spend with new supply arrangement(s) # of agencies utilizing new supply arrangements % agency spend thru new supply arrangements User satisfaction with new supply arrangements

Benefits Tracking & Reporting

Track estimated savings from use of new supply arrangements

Estimated realized cumulative savings (based on spend with new supply arrangement(s) and agency level price baseline)

OFFICE SUPPLIES COMMODITY MANAGEMENT PLAN OBJECTIVES & PERFORMANCE METRICSOFFICE SUPPLIES COMMODITY MANAGEMENT PLAN OBJECTIVES & PERFORMANCE METRICSOFFICE SUPPLIES COMMODITY MANAGEMENT PLAN OBJECTIVES & PERFORMANCE METRICSOFFICE SUPPLIES COMMODITY MANAGEMENT PLAN OBJECTIVES & PERFORMANCE METRICS

Ongoing commodity & performance management addresses supplier performance, internal performance, and benefits measurement

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Questions?

Please send request by email to get a copy of the Censeo Best Practices Study “Organizing for Spend Management”

Contact Info

Dr. Timothy M. Laseter

[email protected]

OR

[email protected]

(434) 924-4078

Dr. Timothy M. Laseter

[email protected]

OR

[email protected]

(434) 924-4078

Mr. Ash Bedi

[email protected]

(425) 894-8285

Mr. Ash Bedi

[email protected]

(425) 894-8285

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Censeo Consulting Group Corporate Summary

Censeo Consulting Group helps organizations create maximum efficiencies throughout

their supply chain by structuring optimal supply relationships based on a deep

understanding of internal needs and supply markets.

Censeo at a Glance

Focus in supply chain and procurement – not a “general management” consulting firm - all facets of company including people, resources, intellectual capital built to provide supply chain and procurement consulting

Serving Fortune 100 commercial clients and Federal government clients worldwide …

Staff with deep expertise in supply chain, sourcing and procurement

Most staff from previous experience from large, prestigious consulting firms such as A.T. Kearney, and Booz Allen Hamilton

Lean cost structure with low overhead in order to provide strategy consulting services at extremely competitive rates

Strategic partnerships to deliver full life-cycle services

Censeo Clients Include

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Censeo’s sourcing and procurement expertise aligns with three core capability areas: Consulting, Training & Research

Supply Chain Strategy

Commodity Sourcing Strategies

Commodity Lifecycle Management

Sourcing Organization Design & Governance

Strategic Sourcing Program Management

Strategic Sourcing Learning Lab

Custom Training Programs

Online Strategic Sourcing Courses

Commodity Market Intelligence

Supplier Discovery, Evaluation & Selection

Strategic Sourcing Benchmarking

Spend Analysis

eSourcing

Supplier & Sourcing Performance Management

Demand Management

Small Business / Supplier Diversity Strategies

Offshoring / Outsourcing

2107 Key Success Factors for High-Performance Strategic ...

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