S ix S igma Best Practices for Defining and Managing the Services Spend Category Presented By: H....

SSixix S SigmaigmaSSixix S Sigmaigma

VVII x x

n 1

ii 1

n 2

Best Practices for Defining and Managing Best Practices for Defining and Managing the the

Services Spend Category Services Spend Category

Presented By: H. Lee Muller, Presented By: H. Lee Muller, C.P.MC.P.M..


VVII x x

n 1

ii 1

n 2

OVERVIEW OF LEARNINGOVERVIEW OF LEARNING

The Growing importance of Services The Growing importance of Services GDPGDP Employment PictureEmployment Picture SG&A SG&A

Evaluating your Current Situation Evaluating your Current Situation

Services In your Company Services In your Company Collecting Data Collecting Data What to include? / What not to include? What to include? / What not to include?

Initial Subcategory Assessments Initial Subcategory Assessments

Developing a Strategy for ServicesDeveloping a Strategy for Services

Services e-ProcurementServices e-Procurement

Implementing a Strategy for Services Implementing a Strategy for Services

Managing and Continuously Improving Services Suppliers Managing and Continuously Improving Services Suppliers


VVII x x

n 1

ii 1

n 2

Name: Hazer Lee MullerHazer Lee Muller

ExperienceExperience Georgia-Pacific Corporation (2001 – Present)

Director of Services Honeywell (AlliedSignal) (1985 – 2001)

Regional Materials Manager, Operations Support Global Sourcing & Transitions Mgr. Various Supplier Quality assignments

EducationEducation Bachelor’s Degree in Economics (Montclair State University, NJ)

MBA Graduating Spring 2003 (Colorado State University)

CertificationsCertifications Six Sigma Black BeltASQ-C.Q.A.ISM-C.P.M.RAB Certified ISO9000 auditor

BIOBIO


VVII x x

n 1

ii 1

n 2

Fortune top 10 Companies then and nowFortune top 10 Companies then and now

1954 1954 1. General Motors 1. General Motors 2. Standard Oil (NJ)2. Standard Oil (NJ)3. U.S. Steel3. U.S. Steel4. GE4. GE5. Swift & Co.5. Swift & Co.6. Chrysler6. Chrysler7. Armour7. Armour8. Gulf Oil8. Gulf Oil9. Socony-Vacuum Oil9. Socony-Vacuum Oil10. DuPont10. DuPont

20012001

2. Exxon Mobil2. Exxon Mobil3. General Motors3. General Motors4. Ford4. Ford5. Enron5. Enron

8. Chevron Texaco8. Chevron Texaco

10. Philip Morris10. Philip Morris

1. Wal-Mart1. Wal-Mart

6. GE6. GE

7. CitiGroup7. CitiGroup

9. IBM9. IBM

Source: http://www.fortune.com/lists/F500/index.html

Services companies are growing in Economic importance and Impact Services companies are growing in Economic importance and Impact


VVII x x

n 1

ii 1

n 2

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1954 2000

Services

Mfg.

Trans

Communications

GDP $381 Billion GDP $9,872 Billion

Source: http://www.bea.gov/

Services as Component of GDP Services as Component of GDP Services as Component of GDP Services as Component of GDP

Services have more than Doubled as Component of GDP since 1954Services have more than Doubled as Component of GDP since 1954


VVII x x

n 1

ii 1

n 2

Employment in Services Vs Manufacturing 1991 - 2001Employment in Services Vs Manufacturing 1991 - 2001

Source: http://stats.bls.gov/Source: http://stats.bls.gov/

40,907,000

17,695,000

In ten (10) years from 1991 to 2001 jobs in the Services sector increased byIn ten (10) years from 1991 to 2001 jobs in the Services sector increased by 12,634,000 (45%) 12,634,000 (45%) The manufacturing sector lost 711,000 (-3.9%) jobsThe manufacturing sector lost 711,000 (-3.9%) jobs

Services’ increasingly important economic role reflected Services’ increasingly important economic role reflected

in employment Alsoin employment Also


VVII x x

n 1

ii 1

n 2

SG&A / Revenue SG&A / Revenue

According to an annual CFO magazine survey, cutting one percent from SG&A will tweak earnings by 2.3 percent on average. In this survey, the average net profit margin for companies is 5.06 percent; so slicing SG&A by one dollar has the same bottom-line effect as boosting sales by thirteen dollars.

Source: http://www3.best-in-class.com/


VVII x x

n 1

ii 1

n 2

SG&A / Revenue Example:SG&A / Revenue Example:

IBM2000 2001

Total Revenue 88,396 85,866SG&A 17,535 17,197Total Expenses 79,251 76,571Operating Income 9,145 9,295Income Before Taxes 11,534 10,953Income After Taxes 8,093 7,723Divident 20 10Net Income 8,073 7,713

Figures in Millions of Dollars

Source: http://w w w .investor.ibm.com

IBM2000 2001

Total Revenue 88,396 85,866SG&A 17,535 17,197Total Expenses 79,251 76,571Operating Income 9,145 9,295Income Before Taxes 11,534 10,953Income After Taxes 8,093 7,723Divident 20 10Net Income 8,073 7,713

Figures in Millions of Dollars

Source: http://w w w .investor.ibm.com

One percent One percent in SG&A translates to: 17,197,000,000 x 1% = 171,970,000 in SG&A translates to: 17,197,000,000 x 1% = 171,970,000

171,970,000 / 7,713,000,000 = 2.2% 171,970,000 / 7,713,000,000 = 2.2% in Net Income in Net Income

IBM ROS is 9% (7,713,000,000 / 85,866,000,000)IBM ROS is 9% (7,713,000,000 / 85,866,000,000)


VVII x x

n 1

ii 1

n 2

SG&A / Revenue / Various Industries SG&A / Revenue / Various Industries

http://www.cfo.com/printarticle/0,5317,6625,00.html


VVII x x

n 1

ii 1

n 2

Step IStep IEvaluating your Current Situation Evaluating your Current Situation

Step IStep IEvaluating your Current Situation Evaluating your Current Situation


VVII x x

n 1

ii 1

n 2

IT Hardware / Software &Service

$2000 MM

Telecom Hardware &services

$500 MM

Sales / MarketingCommunications

$3000 MM

Services

$2000 MM

Non-operating Rentalproperty & Equipment

$300 MM

Non-Operating supplies

$700 MM

Non-sourceable

$1500 MM

SG&Asubcategories - All

$12 Billion

Hardware- Desktops $XMM- Laptops $XMM- Printers $XMM- Monitors/Peripherals $XXMM- NT Servers $XMM- Midrange Servers $XMM- Lease Expense $XMMSoftware- Licenses & Maintenance $XXMMServices- Hardware Maintenance $XXMM- Consulting $XXMM- Outsourced Services $XXMM

Hardware- Phones / Switch brds ~$X MMLandlines- Voice$XX MM- Data$XX MM- Maintenance$XX MMWireless- Voice$XX MM- Data$XX MMConferencing- Video$XX MM- Telecom$XX MM

Printed Materials *- Web Printing$XMM- Sheet Printing$XXMM- Reproduction$XMMMarketing Events$XXMMMarketing Displays$XXMMDirect Mail $XXMMFullfillment Services$XXMMStudio Services- TV $XXMM- Video$XXMM- Photography $XXMMLabels $XX MM

Benefits- Health Ins. $XXXMMSubscriptions $XMMDues & Memberships$XXMMJanitorial $XXMMInsurance- General Risk ~XXMM- Maritime$XMM- Transportation$XXMMSmall Packages- Inbound $XXMM- Outbound $XXMMSecurity- Background checks$XXMM- Drug screening $XXMM- Guard service $XXMM- Monitoring service $XXMMTranslation Services $XXMMUniforms $XMMSaftey Shoes $XMMProfessional Services $XXX MMMail Room Service $XMMWaste-Hazardous Waste $XXMM-Non-hazardous $XXMMT&E- Airlines $XXMM- Travel Agency $XXMM- Hotels $XXMM- Event Planning $XXMM- Rental Cars $XXMMRelocation- Van Line $XXMM- Management $XXMMTemp Labor $XXMM- Light Industrial $XXMM- Clerical $XXMM- Professional $XXMMEvironmental Remediation$XXMMPayroll $XXMM

Records Storage $ XMMAircraft $6.1MMLight Fleet- Truck$XXMM- Cars $XXMM- Mgmt $XMM

Furniture $XXMMOffice Equip $XXMMOffice Supplies $XXMMPromotional $XXMMService Awards $XXMMStationary $XXMM- Forms- business cardsP-Card $XXMMPostage $XXMMFood Services- Cafeteria $XXMM- Vending $XXMM

Taxes and Fess$XXXMM- Corp. Taxes- Property Taxes- Other Taxes $XXMMRebates $XXXMMEmployee Parking$XMMMarta Rail Pass $XX MM

MRO

$2000 MM

Universe of Indirect Materials and Services Subcategories


VVII x x

n 1

ii 1

n 2

• History of purchases (G/L)• Unit prices by suppliers (invoice

files)• Volume purchased by supplier

(A/P)• Seasonality of purchase

(A/P, G/L)

• Information on current and past suppliers

• Unit prices• Price and pricing bases• Supplier characteristics

— Capacity— Quality— Location

• Term of payments• Supplier constraints• Product specs• Potential suppliers• Spend Analysis Software

• Product specs• Potential suppliers (name,

capabilities, quality)• Current supplier (capability,

quality, certification)• Bill of material structure• Possible alternative products

• Seasonality of end product• Sales Dept. requirements to

Purchasing Dept. (local, content, advantaged suppliers…)

• Target sales markets

• Incoming quality history• Volume by site• Seasonality of usage

• Volume history• Pricing• Service performance• Technical specs

Sales Dept. Manufacturing Dept Suppliers/Others

Accounting Dept Purchasing Dept Technical/Engineering Dept.

Sources of Preliminary Category Information


VVII x x

n 1

ii 1

n 2

Potential Potential “Services” “Services”

subcategories subcategories

Category StructureCategory Structure• SG&ASG&A• Indirect MaterialsIndirect Materials• Operation Operation

Support Support • MROMRO• Services Services

Management Level Management Level SegmentationSegmentation•Company levelCompany level•SBU levelSBU level•SBE levelSBE level•Site levelSite level

Scoped Scoped Category Category

Company Company

SBU SBU

SBE SBE

Site Site

Scoping Services for Your Organization Scoping Services for Your Organization


VVII x x

n 1

ii 1

n 2

Potential Potential “Services” “Services”

subcategories subcategories

Category StructureCategory Structure• SG&ASG&A• Indirect MaterialsIndirect Materials• Operation Operation

Support Support • MROMRO• Services Services


Things to Consider when Scoping the Category Structure Things to Consider when Scoping the Category Structure

Things to Consider:Things to Consider: Industry Industry GeographyGeographyProcurement OrganizationProcurement Organization StructureStructure Functional Organizations Functional Organizations

structure structure Resources Resources Skill Sets and Expertise Skill Sets and Expertise

Things to Consider:Things to Consider: Industry Industry GeographyGeographyProcurement OrganizationProcurement Organization StructureStructure Functional Organizations Functional Organizations

structure structure Resources Resources Skill Sets and Expertise Skill Sets and Expertise


VVII x x

n 1

ii 1

n 2

Management Level Management Level SegmentationSegmentation•Company levelCompany level•SBU levelSBU level•SBE levelSBE level•Site levelSite level


Company Company

SBU SBU

SBE SBE

Site Site

Things to Consider:Things to Consider: Opportunity for leverageOpportunity for leverage

- Used by all segmentsUsed by all segments- Used in all regions Used in all regions - Size of SpendSize of Spend

GeographyGeography National Potential National Potential Regional Potential Regional Potential Where does the expertise and Where does the expertise and

experience for the category experience for the category reside?reside?

How is the subcategory How is the subcategory currently sourced?currently sourced?

Things to Consider:Things to Consider: Opportunity for leverageOpportunity for leverage

- Used by all segmentsUsed by all segments- Used in all regions Used in all regions - Size of SpendSize of Spend

GeographyGeography National Potential National Potential Regional Potential Regional Potential Where does the expertise and Where does the expertise and

experience for the category experience for the category reside?reside?

How is the subcategory How is the subcategory currently sourced?currently sourced?

Things to Consider when Segmenting the Category Things to Consider when Segmenting the Category


VVII x x

n 1

ii 1

n 2

Source at CompanyLevel

Source at SBULevel

Source at SBELevel

Source at SiteLevel

SG&Asubcategories - All

$12 Billion

Hardware- Desktops $XMM- Laptops $XMM- Printers $XMM- Monitors/Peripherals $X.XMM- NT Servers $XMM- Midrange Servers $XMM- Lease Expense $XXMMSoftware- Licenses & Maintenance $XXMMServices- Hardware Maintenance $XXMM- Consulting $XXMM- Outsourced Services $XXMM

Hardware- Phones / Switch brds ~$X MMLandlines- Voice$XX MM- Data$XX MM- Maintenance$XX MMWireless- Voice$X.X MM- Data$XX MMConferencing- Video$XX MM- Telecom$XX MM

Printed Materials *- Web Printing$XMM- Sheet Printing$XXMM- Reproduction$XMMMarketing Events$X.XMMMarketing Displays$X.XMMDirect Mail $X.XMMFullfillment Services$XXMMStudio Services- TV $XXMM- Video$XXMM- Photography $XXMMLabels $X.X MM

Benefits- Health Ins. $XXXMMSubscriptions $XMMDues & Memberships$XXMMJanitorial $XXMMInsurance- General Risk ~$XXMM- Maritime$XXMM- Transportation$XXMMSmall Packages- Inbound $XXMM- Outbound $XXMMSecurity- Background checks$XXMM- Drug screening $XXMM- Guard service $XX.XMM- Monitoring service $XXMMTranslation Services $MMUniforms $X.XMMSaftey Shoes $XMMProfessional Services $XXXMMMail Room Service $XMMWaste-Hazardous Waste $XXMM-Non-hazardous $XXXMMT&E- Airlines $XXMM- Travel Agency $XXMM- Hotels $XX.XMM- Event Planning $XXMM- Rental Cars $X.XMMRelocation- Van Line $X.XMM- Management $XXMMTemp Labor $XX.XMM- Light Industrial $XXMM- Clerical $XXMM- Professional $XXMMEvironmental Remediation$XXMMPayroll $X.X MM

Records Storage $ XMMAircraft $X.XMMLight Fleet- Truck$XX.XMM- Cars $XXMM- Mgmt $.XMM

Furniture $X.XMMOffice Equip $X.XMMOffice Supplies $XXMMPromotional $X.XMMService Awards $XXMMStationary $X.XMM- Forms- business cardsP-Card $XX.XMMPostage $X.XMMFood Services- Cafeteria $XXMM- Vending $XXMM

Dues & Memberships$X.XMMJanitorial $X.XMM

Uniforms $X.XMM

Saftey Shoes $XMM

Mail Room Service $XMM

Waste-Hazardous Waste $XXMM-Non-hazardous $XXXMMFood Services- Cafeteria $XXMM- Vending $XXMM

Marketing Events $X.XMMMarketing Displays$X.XMMWireless- Voice$X.X MM- Data$XX MM

MRO


Uniforms $X.XMM

Saftey Shoes $XMM




MRO


Uniforms $X.XMM

Saftey Shoes $XMM




MRO

Scoped, Segmented Services Subcategories


VVII x x

n 1

ii 1

n 2


$2000 MM


$500 MM


$3000 MM

Services

$2000 MM


$300 MM


$700 MM

Company LevelSG&A Category

Hardware- Desktops $XMM- Laptops $XMM- Printers $XMM- Monitors/Peripherals $X.XMM- NT Servers $XMM- Midrange Servers $XMM- Lease Expense $XXMMSoftware- Licenses & Maintenance $XXMMServices- Hardware Maintenance $XXMM- Consulting $XXMM- Outsourced Services $XXMM

Hardware- Phones / Switch brds ~$X MMLandlines- Voice$XX MM- Data$XX MM- Maintenance$XX MMWireless- Voice$X.X MM- Data$XX MMConferencing- Video$XX MM- Telecom$XX MM

Printed Materials *- Web Printing$XMM- Sheet Printing$XXMM- Reproduction$XMMDirect Mail $X.XMMFullfillment Services$XXMMStudio Services- TV $XXMM- Video$XXMM- Photography $XXMMLabels $X.X MM

Benefits- Health Ins. $XXXMMSubscriptions $XMMInsurance- General Risk ~$XX.XMM- Maritime$XMM- Transportation$XX.XMMSmall Packages- Inbound $XXMM- Outbound $XXMMSecurity- Background checks$XXMM- Drug screening $XXMM- Guard service $XX.XMM- Monitoring service $XXMMTranslation Services $MMProfessional Services $XXXMMMail Room Service $XMMT&E- Airlines $XXMM- Travel Agency $XXMM- Hotels $XX.XMM- Event Planning $XXMM- Rental Cars $X.XMMRelocation- Van Line $X.XMM- Management $XXMMTemp Labor $XX.XMM- Light Industrial $XXMM- Clerical $XXMM- Professional $XXMMEvironmental Remediation$XXMMPayroll $X.X MM

Records Storage $ XMMAircraft $X.XMMLight Fleet- Truck$XX.XMM- Cars $XXMM- Mgmt $.XMM

Furniture $X.XMMOffice Equip $X.XMMOffice Supplies $XXMMPromotional $X.XMMService Awards $XXMMStationary $X.XMM- Forms- business cardsP-Card $XX.XMMPostage $X.XMM

Company Level Segment Services Subcategories


VVII x x

n 1

ii 1

n 2


$2000 MM


$500 MM


$3000 MM

Services

$2000 MM


$300 MM


$700 MM

Below CompanyLevel Categories

Wireless- Voice$X.X MM- Data$XX MM

Marketing Events$X.XMMMarketing Displays$X.XMM

Subscriptions $XMMDues & Memberships$X.XMMJanitorial $X.XMMUniforms $X.XMMSaftey Shoes $XMMMail Room Service $XMMWaste-Hazardous Waste $XXMM-Non-hazardous $XXXMM

Food Services- Cafeteria $XXMM- Vending $XXMM

MRO

$2000 MM

SBU, SBE, or Site Level Segment Services Subcategories


VVII x x

n 1

ii 1

n 2

Step IIStep II Initial Subcategory Assessments Initial Subcategory Assessments

Step IIStep II Initial Subcategory Assessments Initial Subcategory Assessments


VVII x x

n 1

ii 1

n 2

Initial Evaluation of Initial Evaluation of Current SituationCurrent Situation

Gather Initial Supply Gather Initial Supply base Intelligence base Intelligence

Assess:Assess:

Issues / BarriersIssues / Barriers Assess:Assess:

Opportunities / RisksOpportunities / Risks

• Current supplier(s)

• Subcategory spend

• Functional area ownership

• Recently sourced?

• Contract(s)

• Contract expiration dates

• Diversity Opportunity?

• P-card opportunity

• Subcategory description

Initial Subcategory Assessment


VVII x x

n 1

ii 1

n 2

Big Dawg Spend$100 MM

BU - A$50 MM

BU - B$30 MM

BU - C$20 MM

Data Source: ICG IMAUS (Corp. spend distributed)

Subcategory Status:

• Prime - Addecco

• Kelly, Olsten, CDI, Manpower

• Not sourced

• subcategory includes:

1) Light Industrial, 2) Clerical

3) Professional

• Contracts expiring Q32003

Diversity Opportunity:

• First and Second tier

P-Card Opportunity:

• Investigate

Initial Subcategory Assessment Summary 4up


VVII x x

n 1

ii 1

n 2



Assess:Assess:



• Major suppliers

• Overall size of the Industry

• Industry trends





• Contract(s)







VVII x x

n 1

ii 1

n 2

Market data

Note key: D = Diversity, IN = International, N = National, R =

Regional Industry has experienced some consolidation

-Adecco / Olsten merger 1999- Alert forms partnership with Adecco in 1997- Alert Staffing filed for chapter 11 protection in July 2002

Sluggish economy has impacted this industry $94 billion Industry world-wide 16 providers represent 29% of US Market (~7000 providers in US)

Sources: Staffingtoday.net, SI Industry report

Major Providers -Manpower (IN)-Addecco SA (IN) - AOC - AJILON -TAD - LEE HECHT - Jonathan Wren - Adecco Technical

-CDI (N)

-Kelly Services (IN)

-Olsten (franchises) (R)

-Georgia TEMP (R)

-Staff Workers (R)

-Alert Staffing (D)

-Act I Personnel (D)

-Personnel Connect (R)- NEW - SNELL Personnel


BU - A$50 MM

BU - B$30 MM

BU - C$20 MM


Subcategory Status:

• Prime - Addecco


• Not sourced



3) Professional




P-Card Opportunity:

• Investigate



VVII x x

n 1

ii 1

n 2



Assess:Assess:



• Major suppliers


• Industry trends





• Contract(s)





• Known complexities

•Known obstacles

• Regulatory

• Statutory

• Political

•Social



VVII x x

n 1

ii 1

n 2

Market data


BU - A$50 MM

BU - B$30 MM

BU - C$20 MM


Issues / Barriers to Sourcing

HR Strategy for Temp labor unclear

Internal resource does not currently compete with external suppliers

Some pressure to move away from existing agreements with incumbents -- killing credibility within industry

Subcategory Status:

• Prime - Addecco


• Not sourced



3) Professional




P-Card Opportunity:

• Investigate







-CDI (N)



-Georgia TEMP (R)

-Staff Workers (R)

-Alert Staffing (D)





VVII x x

n 1

ii 1

n 2



Assess:Assess:



• Major suppliers


• Industry trends





• Contract(s)





• Know complexities

•Know obstacles

• Regulatory

• Statutory

• Political

•Social

• Estimate potential benefits

• Estimate potential Risks



VVII x x

n 1

ii 1

n 2

Opportunity to reduce cost

LowLow

LowLow

HighHigh

HighHigh

Risk

MedMed

MedMed

Market data


BU - A$50 MM

BU - B$30 MM

BU - C$20 MM


Risk Elements:

• Potential divergence from overall Temp labor strategy?

Opportunity Elements:• Not Sourced • TCO / Make-buy / BV • Large, fragmented spend • Develop Sourcing Strategy• Validate market pricing

Issues / Barriers to Sourcing

HR Strategy for Temp labor unclear

Internal resource does not currently compete with external suppliers

Some pressure to move away from existing agreements with incumbents -- killing credibility within industry

Subcategory Status:

• Prime - Addecco


• Not sourced



3) Professional




P-Card Opportunity:

• Investigate







-CDI (N)



-Georgia TEMP (R)

-Staff Workers (R)

-Alert Staffing (D)





VVII x x

n 1

ii 1

n 2

Step IIIStep III Developing a Strategy for Services Developing a Strategy for Services

Step IIIStep III Developing a Strategy for Services Developing a Strategy for Services


VVII x x

n 1

ii 1

n 2

Opportunity to reduce cost

LowLow

LowLow

HighHigh

HighHigh

Risk

MedMed

MedMed

• BenefitsBenefits

• Temp LaborTemp Labor

• Professional ServicesProfessional Services

• Wireless Wireless

• Office SuppliesOffice Supplies

• IT ConsultingIT Consulting

• Janitorial Janitorial

Opportunitie

s

Opportunitie

s

• DeskTopsDeskTops

• Rental CarsRental Cars

• Insurances Insurances

• Subscriptions Subscriptions

• Waste DisposalWaste Disposal

• HotelsHotels

• Office Equipment Office Equipment

• P-CardP-Card

• Relocation ServiceRelocation Service

• UniformsUniforms

• Small PkgsSmall Pkgs

Developing a Strategy for Services

Aggregate Risk / Cost Reduction Analysis


VVII x x

n 1

ii 1

n 2

Developing a Strategy for Services (Con’t)

Planning and Prioritizing the category

Wave 3

Wave 2

Wave 1

Possible Implementation Waves

Priority

Screening

Drop

- Business Impact- Potential Savings

($ MM)

Wave 1

Wave 2

1. Ease of Implementing

Alternate Sourcing Strategy

Low High

M

L

D J

H

F

P

O

I

BA

E

CG

T

S

NQ

K

$1.25

$1.00

$0.75

$0.50

$0.25

Wave 3

Note: (1) Size of circle represents total expenditure for the category


VVII x x

n 1

ii 1

n 2

Things to think about Things to think about

What is the cultural climate within the organization? What is the cultural climate within the organization?

What is the companies value discipline(s)?What is the companies value discipline(s)?-Operational Excellence?Operational Excellence?

- Product leadership? Product leadership?

- Customer Intimacy?Customer Intimacy?

What are the company’s strategic objectives? What are the company’s strategic objectives?

- Cost control?Cost control?

- Sales growth?Sales growth?

- Earning growth?Earning growth?

- Diversity?Diversity?

Are there SBU/SBE/Site issues or objectives that should be considered?Are there SBU/SBE/Site issues or objectives that should be considered?

- Specific service issues Specific service issues

- Specific cost reduction opportunities Specific cost reduction opportunities

- Specific opportunities Specific opportunities

Possible Screening criteria


VVII x x

n 1

ii 1

n 2

Things to think about:Things to think about:

What is the strategic objective of the purchasing organization? What is the strategic objective of the purchasing organization? - Internal process Improvement? Internal process Improvement?

- Supplier process Improvement (productivity)?Supplier process Improvement (productivity)?

- Strong supplier partnerships?- Strong supplier partnerships?

- Commodity trading? Commodity trading?

- Supplier Alliances?Supplier Alliances?

- Strategic Sourcing?Strategic Sourcing?

What are the resources available to work the strategy?What are the resources available to work the strategy?- Analytic support?Analytic support?

- Category management?Category management?

What is the current economic climate?What is the current economic climate?-Buyers market?Buyers market?

- Sellers market?Sellers market?

Do unusual opportunities exist in specific categories?Do unusual opportunities exist in specific categories?- Distressed industryDistressed industry - New technologyNew technology

Possible Screening criteria Possible Screening criteria Con’tCon’t


VVII x x

n 1

ii 1

n 2

•Supply Strategy Decision Tree (Trident)Supply Strategy Decision Tree (Trident)

TechnicallyComplex

?

HighSpend

?

Price Volatility

?

Market Difficulty

?

StrategicImportance

?

Savings Potential

?

Savings Potential

?

Strategic Alliance

Close Relationship

Partnership

Commodity Trading

Simple Tender Leverage

Relationship Focus

Cost Focus

HighHigh

High High

High

Low Low

Low Low

Yes Yes

No

No

Low

Approaches


VVII x x

n 1

ii 1

n 2

Sub-Category

Category Baseline Spend $ 000

Annualized Savings $ 000

Savings %

Original Planned Start Date

Revised Planned Start Date

Original Realization Date

Revised Realization Date

Completion Year

Wave IInsurance (General risk, land, sea, air) $60,000 $0 0% 10/01/01 01/01/02 03/01/02 07/01/02 2002Professional Services $125,000 $2,100 2% 10/01/01 01/01/02 03/01/02 07/01/02 2002Rental Cars $5,300 $430 8% 01/01/02 01/01/02 05/01/02 05/01/02 2002IT Consulting $50,000 $3,750 8% 03/01/02 03/01/02 09/01/02 09/01/02 2002IT Peripherals - Group Printers v Local $6,500 $250 4% 03/01/02 03/01/02 09/01/02 09/01/02 2002Waste Disposal $70,000 $100 0% 10/01/01 03/01/02 03/01/02 09/01/02 2002Subscriptions $7,000 $140 2% 10/01/01 03/01/02 03/01/02 09/01/02 2002Wave IIHotels-2002 $20,000 $150 1% 06/01/02 06/01/02 01/01/03 01/01/03 2002Janitorial $3,000 $200 7% 06/01/02 06/01/02 12/01/02 12/01/02 2002Relo - Moving Company $3,000 $200 7% 06/01/02 06/01/02 10/01/02 10/01/02 2002Security (Focus on Monitoring services) $7,000 $300 4% 06/01/02 06/01/02 12/01/02 12/01/02 2002Office Equipment $5,000 $375 8% 06/01/02 06/01/02 10/01/02 10/01/02 2002Wave IIIIT Datacenter - make or buy $40,000 $1,500 4% 07/01/02 07/01/02 01/01/03 01/01/03 2002IT Voice & Data services $40,000 $1,250 3% 07/01/02 07/01/02 01/01/03 01/01/03 2002Temporary Services $54,000 $2,000 4% 08/01/01 07/01/02 12/01/02 12/01/02 2002Inbound FedEx/UPS $10,000 $750 8% 09/01/02 09/01/02 02/01/03 02/01/03 2003P-Card - Relaunch $25,000 $750 3% 09/01/02 09/01/02 02/01/03 02/01/03 2003Uniforms $5,000 $375 8% 09/01/02 09/01/02 02/01/03 02/01/03 2003

Totals: $535,800 $14,620

2002 Services Category Wave Plan Summary:


VVII x x

n 1

ii 1

n 2

Step IVStep IV Implementing the Strategy for ServicesImplementing the Strategy for Services

Step IVStep IV Implementing the Strategy for ServicesImplementing the Strategy for Services


VVII x x

n 1

ii 1

n 2

Analyze Analyze Current Current SituationSituation

Initial GOInitial GO

11 22 4433

Assess Assess Supply Supply BaseBase

Determine Determine Strategic Strategic Sourcing Sourcing Strategies Strategies to Applyto Apply

Strategy Strategy GOGO

Engage Engage SuppliersSuppliers

Execution Execution GOGO

55

DevelopDevelopTransitionTransition

PlanPlan

Determine Determine StrategiesStrategies

Gather InformationGather Information Implement StrategyImplement Strategy

66

Manage Manage Supply BaseSupply Base

And the Category Strategy is?And the Category Strategy is?

Leverage and Leverage and cost reductioncost reduction focused? focused?

Leverage and Leverage and cost controlcost control focused? focused?

Relationship and process Improvement focused?Relationship and process Improvement focused?

Diversity focused? Diversity focused?

The overall Category Strategy will Set the tone for how you approach the The overall Category Strategy will Set the tone for how you approach the sourcing process sourcing process


VVII x x

n 1

ii 1

n 2

Step VStep V Managing and Continuously Improving Managing and Continuously Improving

Services SuppliersServices Suppliers

Step VStep V Managing and Continuously Improving Managing and Continuously Improving

Services SuppliersServices Suppliers


VVII x x

n 1

ii 1

n 2

Analyze Analyze Current Current SituationSituation

Initial GOInitial GO

11 22 4433

Assess Assess Supply Supply BaseBase

Determine Determine Strategic Strategic Sourcing Sourcing

Strategies Strategies to Applyto Apply

Strategy Strategy GOGO

Engage Engage SuppliersSuppliers

Execution Execution GOGO

55

DevelopDevelopTransitionTransition

PlanPlan

Determine Determine StrategiesStrategies

Gather InformationGather Information Implement StrategyImplement Strategy

66

Manage Manage Supply BaseSupply Base

• Define Appropriate Management Structure

• Contract Management• Issue Resolution• Market Dynamics - suppliers

position relative to market• New Products,services &

technology• New suppliers• Competitor evolution• Pricing relative to market

• Communication Plan

• Confirm goals• Understand issues & current

metrics• Create metrics• Confirm collection methods• Set up review procedure• Take action based on

metrics• Communicate results

The degree to which these attributes are required is dependent on the category and the supplier

Supplier Management

• Set Goals• Review progress• Communicate results

Structured Process ImprovementRelationship Management Metrics


VVII x x

n 1

ii 1

n 2

Low

Low

High

HighOpportunity to reduce cost (including delivery of savings)

Risk

Spec Chem

OfficeSupplies

Fleet

Insurance

Wireless

Med

Supplier Management

Understand risk/opportunity inherent with supplier

Understand Risk/Opportunity


VVII x x

n 1

ii 1

n 2

A similar risk/opportunity matrix to the one developed in understanding the risk/opportunity inherent with the supplier can be used to show the appropriate management structure for supplier management.

Define appropriate Management Structure

Low

Low

High

HighOpportunity to reduce cost

(including delivery of savings)

Risk to G-PSmall TeamNo Steering Team

Cross-functional teamSteering Team

One personTeam not necessaryNo Steering Team

Increasing complexityof process and resources required

Supplier ManagementRelationship Management

S ix S igma Best Practices for Defining and Managing the Services Spend Category Presented By: H....

Documents

Transcript of S ix S igma Best Practices for Defining and Managing the Services Spend Category Presented By: H....