Präsentation

Report
Why Procurement Matters
Increase your profit – through effective procurement
Birmingham, June 15th, 2011
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 1
Agenda
Source: INVERTO
•
About INVERTO
•
Why procurement matters
© INVERTO 2011 | IOD | 15.06.2011 | Slide 2
INVERTO is an international management consulting firm
specialised in procurement cost optimisation
We deliver real, sustainable savings which directly impact on
our client‘s operating profit.
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 3
INVERTO is 100% focused on improving its clients’ procurement performance
Team-Sourcing®
Fast reduction in costs of purchased goods and services
Services
Consulting
Improving strategy,
process &
organisation
Training/Coaching
Up-skilling and
development of
resources
e-Sourcing
Suite of professional
procurement
management tools
INVERTO’s
Co-Sourcing approach
Specialists
Know-how
Tools
Expertise
Knowledge bank
Software
Assets
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 4
With the experience, scale and reach to deliver large, international projects
Number of employees (average p.a.)
Turnover (€m p.a.)
25,0
22,5
23
Germany
~ 120
IT1)
20,5
International
79
7
11,5
8,0
48
30
33
15
20
21
02
03
04
4,6
2,4
02
20
3,3
03
04
05
06
07
08
09
10
Projects
Markets
1)
Outsourcing
in 2007
Source:
INVERTO
2) Global Sourcing Offices
21
22
17
68
70
08
09
70
42
05
06
07
10
China
Sourcing Offices:
Hong Kong
and Shanghai
Benelux
Rotterdam
Clients
87
Poland
Sourcing Office: Warsaw
UK
London
Former retail, industry and
consulting executives
Germany, Belgium, The
Netherlands, Austria, Swiss,
locations around the globe
Global purchasing
Europe, Asia, America
90
29
Germany
Head Office: Cologne
Team
30
91
New office 2011
Munich
U.A.E.
Branch: Dubai
India
Sourcing Office: Mumbai
© INVERTO 2011 | IOD | 15.06.2011 | Slide 5
Our clients are leading mid-cap companies, large corporate groups
and some of the world’s top private equity businesses
Retail,
Wholesale
Consumer
Goods
Source: INVERTO
Private Equity Investment
Pharma/
Health care
Mechanical
Engineering
Automotive
Other
Industries
© INVERTO 2011 | IOD | 15.06.2011 | Slide 6
We deliver results in the shortest possible time through
a unique combination of skills, knowledge and tools
Sourcing Experts
„Hands-on“
Global supplier/ benchmark
database with comprehensive data
on currently over 85.000 qualified
suppliers, including:
INVERTO consultants with specific
category experience to;
• Co-ordinate each work stream
• Audit reports
• Support the buying
organisation on-site and
• Performance records
• Price benchmarking
• Execute delivery
High speed
implementation
e-Sourcing Software
Local sourcing offices in:
• Warsaw (Eastern, SE Europe)
• Mumbai (South Asia)
• Hong Kong and Shanghai
(China, SE Asia)
• Manages the entire strategic
sourcing process
Source: INVERTO
• Production capability
Global Sourcing Offices
INVERTO´s proprietary leadingedge e-Sourcing solution;
“e-Contor”;
• Rapidly conducts large,
complex tenders
INVERTO Supplier/
Benchmark Database
„Managed“
In-country supplier research,
audits, negotiations, ongoing
operational supplier mgmt.
© INVERTO 2011 | IOD | 15.06.2011 | Slide 7
Agenda
Source: INVERTO
•
About INVERTO
•
Why procurement matters
© INVERTO 2011 | IOD | 15.06.2011 | Slide 8
Procurement in context
•
Price deflationary pressures from new competitors
•
Suppliers consolidating and increasing prices
•
Commodity price volatility driving up costs
•
Labour related costs optimised
•
Company margins squeezed
•
P&L and Balance Sheet impacted
•
Declining EBITDA
Your Customers
YOU
Your Suppliers
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 9
External expenditure is responsible for more than 75% of a company's costs
Total costs (%)
Direct purchasing costs per sector (%)
100
Labour
≈ 30%
60-70%
Other
≈10%
50-60%
Indirect materials
40-50%
≈ 60%
Material costs
Direct materials
10-20%
Company (Example)
Source: INVERTO
Retail
Assembly
Manufacturing
Service
© INVERTO 2011 | IOD | 15.06.2011 | Slide 10
Effective procurement adds value to any business - It really is that simple
Reduction of external purchased costs ...
... leads to significant profit improvement
Result equivalent to a
revenue increase of 75 %
or £75m
£100m
EBIT
Other
expenses
3%
Labour
30 %
Purchased costs
60 %
7%
£60m purchasing volume
50 % addressable
7.5 % savings
Bottom-line impact = £2.25m
Source: INVERTO
EBIT +75 %
© INVERTO 2011 | IOD | 15.06.2011 | Slide 11
Companies are improving their procurement, and driving out savings
Savings
Procurement influence within the organisation
Procurement strategy recognised as a integral part of company strategy
Procurement and supply base as a source of Added Value
Value Focus
Savings through cost-out and value-add
Supply Chain Management and strategic partnerships with key suppliers
Suppliers recognised as a external sources of knowledge
Cost Focus
Savings through a Total Cost of Ownership approach
Category management based on effective processes
Procurement managed by professional resources
Price Focus
Savings through price reduction
Part-time sourcing , in the business
Focus is “on-time, to budget”
Availability Focus
No savings
Procurement evolution over time/ Savings realisation
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 12
Our experience shows that procurement is still under-leveraged
• No senior management awareness
• Procurement still undeveloped
• Lack of management expertise/capability within
procurement
Many companies
have started
initiatives to elevate
procurement
• Lack of investment in support tools
…but
• Procurement not integrated into all business
functions
• Percentage of Low-Cost Country Sourcing still
comparatively low
• Procurement involved too late in business
decisions
• Too little focus on “Indirect Spend”
… which leads to….
…high levels of opportunity for significant EBIT impact
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 13
What could procurement improvement do for your business?
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 14
Driving profitability through procurement at
HUGO BOSS
Case Study
Birmingham, June 15th, 2011
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 15
Agenda
Source: INVERTO
•
About HUGO BOSS
•
The Role of Procurement
© INVERTO 2011 | IOD | 15.06.2011 | Slide 16
• Corporate Sales
€1,686 m.
• Net Income
€112 m.
• Employees
9,593
• Market Presence
110 countries
• HUGO BOSS Shops
1,389
• DOS*
330
• Point of Sales
over 6,100
*directly operated stores
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 17
The Times They Are-A-Changing
The past!
• Continuous sales growth approx. +10 % p.a*
• Continuous EBIT growth approx.+13% p.a.*
• Worldwide store expansion approx. +25% p.a.*
• Successive adjustment from franchise to DOS
• Strong brand development and licensing of several products
Times are changing!
• Decline in sales approx. -7% in 2009
• Strong decline of annual net profit approx. -27% in 2008
• Retailers adjusting strategies
• Owner Permira (Private Equity) still has high profit
expecations
• Urgent need for corrective action in 2010
Source: INVERTO
*from 2004 to 2008
© INVERTO 2011 | IOD | 15.06.2011 | Slide 18
HUGO BOSS has largely neglected Non-Production Material Spend for years
HUGO BOSS: Initial situation of procurement of indirect spend (Non-Production Material)
• Purchasing volume of Non-Production-Material HUGO BOSS AG (HB) in 2008 approx.
274 m. € (amounts to 1/6 of total sales!)
• Approx. 2,700 suppliers Non-Production-Material (NPM)
• Total spend structured in 12 categories – 94 subcategories
• NPM has been neglected by management over the years
• Approx. 35 % of purchasing volume sourced locally
• Approx. 78 % of purchasing volume sourced in Germany
• Approx. 5 % A-Suppliers
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 19
Agenda
Source: INVERTO
•
About HUGO BOSS
•
The Role of Procurement
© INVERTO 2011 | IOD | 15.06.2011 | Slide 20
Introducing 5 principles to NPM Procurement at HUGO BOSS
» ´Sourcing Governance´ to
ensure compliance «
»Procurement is a core process
5
in the HUGO BOSS value chain
«
1
4
» Procurement activities
must be sustainable
Procurement
of Non-Production
Material
2
«
3
» Procurement increases the
company value «
» Our buyers are as important
as our sales people «
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 21
1
Changing global parameters lead to a strategic role for procurement
Globalisation
Scarce
resources
Shorter
innovation
cycles
Increased
competitive
pressure forces
companies to
focus on core
competencies
=> More products
and services
procured
externally
Spend increases
and procurement
starts to play
pivotal role in
value chain
Strategic tasks of
procurement dept.:
- Define procurement
strategies
- Supplier management
- Internal pooling of
demand
Requirements
• Clear cut procurement processes (strategic, transactional)
• Central procurement organisation
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 22
“Procurement makes half the profit”
2
Procurement responsible for prices and payment terms which significantly influence cash flow and thus,
company value
Reduction of external spend ...
100%
EBITDA
Other
expenses
Labour
External spend
... leads to significant profit improvement
Result equivalent to a
revenue increase of € 133m
20 %
5%
25 %
50 %
€274 m NPM volume
50 % addressable
15 % savings
Bottom-line impact = €20m
Source: INVERTO
EBIT +15 %
© INVERTO 2011 | IOD | 15.06.2011 | Slide 23
3
Change perception of procurement – shape up the image!
• Despite of its increased importance in recent years, procurement is still neglected in many
companies and does not hold the position it deserves
• Often, a negative image of procurement is reflected in budget, remuneration and motivation
• Clear metrics to measure performance and success in procurement (share of profit derived from
cost avoidance for production and non-production materials)
• Management attention (install CPO or direct report to CFO)
• Motivate high potentials – show career path in procurement
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 24
Sustainability – buyers will become supplier networkers, who safeguard and
4
maximize yield
Determining factors for procurement in the future
• Globalisation
Professional
SRM
• Increasing cluster risk
• Decreasing vertical integration (therefore
increased supplier dependance)
• Concentration of supplier markets
• Establish long-term relationships
with suppliers
• Improve procurement through
centralisation, training, inter-
nationalisation
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 25
5
Get a grip on compliance risks in procurement
Study shows1):
• With 45% procurement is one of the departments most susceptible to corruption
• 64% of corruption cases are systematically planned, 37% are recurring cases
• Culprits mostly men (aged 41-60 years) with higher qualification, who occupy same
position for 6-10years
Introduce „Sourcing Goverance“
• Procurement is responsible for identification and evaluation of risks along the supply chain and to
mitigate the damage potential
• Suppliers are stakeholders who define the image of a company
• „Four-eyes-principle“ between procurement and the demand owner
1) IIR
Study on corruption in procurement, 2006
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 26
Case studies - Procurement in a company
like yours
Increase your profit – through effective procurement
London, September 22nd, 2010
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 27
Extensive experience sourcing over £3bn in direct
and indirect spend categories across all industries
Gears for machine tool Shopping trolleys for
manufacturers
retailers
Dairy for discounter
Electric motors for
automotive suppliers
Blister packaging for
pharmaceutical
Textile fashion for
retailers
Source: INVERTO
Steel tubes for the
automotive industry
Mannequins for
department stores
Industrial robots for
automotive suppliers
Logistics services and
equipment
© INVERTO 2011 | IOD | 15.06.2011 | Slide 28
Case study: Packaging – FMCG company
Industry:
Turnover:
Employees:
Locations:
FMCG - Production and retailing
€3.6 bn
12,500
4 production locations, 1000 stores
Initial situation
Implementation
Demand
Data analysis/validation
• Total project spend: €790 m.
• Packaging: €23.1 m.
• Number products: 282
• Number suppliers: 12
• Analysis of current contracts
• Aggregation of demand data into 3
product groups
Procurement situation
• Complex product requirements
• 23 products with 282 different print
specifications
• 12 suppliers across 5 European
countries
• Long and close supplier relations
• Supplier selection done by head of
procurement and production
Source: INVERTO
Product group strategy
• Bundling
• Reduction of number of suppliers
• Enhancement of competition
Implementation
• Tender with 60 suppliers from 7
countries (D, I, GR, TR, PL, A, CH)
• 2 negotiation rounds with 19 suppliers,
3 site visits
• Identification and implementation of 2
new suppliers (D, PL)
Results
• Project duration: 7 months
• savings: 2,1 m. € (9%)
• Closure of 18-month contracts
(Price indexation)
• Reduction of suppliers from 12 to
9, with the introduction of 2 new
suppliers
© INVERTO 2011 | IOD | 15.06.2011 | Slide 29
Case study: Marketing – retail company
Company:
Turnover:
Employees:
Stores:
Retail chainstore
ca. €1,700m
> 9,000
> 1,000 stores in 21 countries
Initial situation
Implementation
Demand:
Total project: €10.6m
- Catalogues, Brochures,
Mailings
- Number of services: 42
- Number of suppliers: >40
Data analyis/validation:
• Analysis of each individual product
requirement
• Analysis of the process and
requirement for each individual
user
Sourcing situation:
• Decentralised and independent
procurement in each country
• Sourcing responsibility of
marketing functions
• Different sourcing approach,
process and professionalism in
each country
• Incomplete and non-existant
specifications
Product group strategy:
• Bundling of similar/standard
requirments
• Pool of preferred suppliers defined
• Standard process defined
Source: INVERTO
Results
• Project duration: 4 Months
• Savings: €1.3m (12.5%)
• Number of suppliers reduced from
40 to 10
• Seperation of strategic sourcing
from local procurement, ensuring
long term sustainability
Implementation:
• Setup IT tool with catalogue
• Tendered complete requirements
• Selection of 10 suppliers in 7
countries
• Setup of strategic and operational
purchase teams
© INVERTO 2011 | IOD | 15.06.2011 | Slide 30
Case study: Low-Cost Country Sourcing – Cosmetics Manufacturer
I
Preparation
• Extensive analysis and
benchmarking of 13 categories
• Identified 7 categories with saving
potential through China sourcing
• Defined goals, strategies, product
specifications, quality and production
requirements
• Identified potential Chinese and
Asian suppliers in each of the
categories
IV
Implementation
• Savings: €263k from €2.2m over 7
product categories (11.8%)
• Supplier consolidation:
- 4 new key suppliers introduced
to improve competition
- Traders were identified and
switched to producers where
possible.
Source: INVERTO
II
Sourcing Process
China
Sourcing
Tender
• Managed tender programme for 7
product categories (524 products)
engaging directly with more than 150
Asian suppliers
• More than 30 pre-audits and supplier
visits of current and potential suppliers
• Direct communication with suppliers
before, during and after the tender to
ensure maximum efficiency and
outcome
III
Negotiation
• Language and culture difference
continue to be the biggest barrier
negotiating with Chinese suppliers
• Client representation ensured through a
deep understanding of the client and
their business requirements
• Fast and highly targeted negotiations
speaking “the language of suppliers“
© INVERTO 2011 | IOD | 15.06.2011 | Slide 31
Case study: Media spend – Department store
Company:
Turnover:
Employees:
Stores:
Department store
ca. €3,500m
> 25,000
123 stores in 2 countries
Initial situation
Demand:
Total project: €38,0m
- Loose inserts (newspaper)
- Radio ads
- Ads in class magazines
- Newspaper ads
- Number of services: 4
- Number of suppliers: 1 media
agency
Sourcing situation:
• Procurement of media services
through inhouse agency which is
responsible for all formats
• Client had to accept corporate
prices
• Client assumed that inhouse
agency didn´t have market prices
Source: INVERTO
Implementation
Data analyis/validation:
• Analysis of every single advertising
medium including publication date,
price, circulation
• Identification of all relevant media
agencies
• Invitation of 27 media agencies to
pitch
Media pitch:
• 1 rd.: qualitative evaluation of
agencies through case study incl.
first price indication
• 2. rd: detailled quotation of >
14,000 individual prices by 4 top
agencies
• 3. rd: price negotiation with 2
agencies
Results
• Project duration: 4 months
• Savings: €10,4 m (27,4%)
• Award to new external agency
• Considerable increase in service
level
© INVERTO 2011 | IOD | 15.06.2011 | Slide 32
Case study: Steel Tubes – Automotive company
Initial situation:
• Commodity: Precision steel tubes
• Purchasing volume: €24m p.a.
• 61 parts for 9 plants worldwide
• 6 existing suppliers, partly local
• Centralised sourcing from HQ
Preparation
1 Month
Review/ Re-Negotiation
after 24 months generates
additional € 0.5m
RFQ/RFI
1 Month
Negotiation
2 Months
1 Month
• Price agreements
fixed with current
and new suppliers
• 260 suppliers
pre-qualified
• 27 qualified
quotations received
• 14 supplier
negotiations held
• Product groups/
specifications
developed
• All major suppliers
worldwide identified
• Samples, target
prices passed to
suppliers
• RFQ with openbook-calc. set up
• TCO-benchmarks
set up
Implementation
Step 1
• Suppliers
evaluated by team
Supplier strategy,
RFQ concept
Market price
level
Sustainable
competition
Savings
short-term
Existing suppliers
0
1.0m
2.4m
2.4m
New suppliers
0
5.1m
4.1m
0
Source: INVERTO
12 Months
• Release process
(Samples, assembly
tests, series start)
accompanied
• Refusal sent to
remaining
suppliers
Savings
(€ m)
Implementation
Step 2
• Barriers removed
as ”Moderator“
Savings
mid-/ long-term


4.1m (17.1%)
2.4m (10.0%)
© INVERTO 2011 | IOD | 15.06.2011 | Slide 33
Case study: Facility management (cleaning) – manufacturing company
Industry sector:
Sales:
Employees:
Sites:
Mechanical engineering
€ 1,524m
4,617
3 plants
Initial situation
Demand:
• Project total indirect spend:
€ 200m
• Cleaning: € 1.8m
- No. of items: 60
- No. of suppliers: 10
- Demand pattern: 89%
janitorial cleaning, 11%
industrial cleaning
Sourcing situation:
• Decentralised buying from local
sites
• No uniform procurement
guidelines/functional specifications
for supplier requests
• Large number of small suppliers
Source: INVERTO
Implementation
Data analysis/validation:
• Data retrieval from SAP system
• Aggregation of data
• Validation of data base and
definition of functional service
specifications
Category strategy:
• Consistent approach for facility
management
• Bundling of demands
• Reduction of no. of suppliers
• Increasing competition
Results
• Project duration: 10 months
• Savings: €640k (36%)
• 18 month contracts
• Decrease of no. of suppliers to 4
• Increased knowledge of specific
service requirements
• Strong negotiation position based
on full understanding of cost
drivers
Implementation:
• Tender with 60 suppliers
• Site inspections/supplier day
• Negotiations with 10 suppliers
© INVERTO 2011 | IOD | 15.06.2011 | Slide 34
Tools, Techniques, Knowledge
Increase your profit – through effective procurement
Birmingham, June 15th, 2011
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 35
Agenda
Source: INVERTO
•
Spend – how much, on what, with whom?
•
Tactical cost reduction techniques
•
Strategic supplier management
•
Containing supplier price increases
© INVERTO 2011 | IOD | 15.06.2011 | Slide 36
Nearly all our assignments start with a spend analysis
Phase 1
4 – 6 weeks
Opportunity
analysis
• Analysis
- Categories
- Suppliers &
contracts
- Strategies
- Organisation,
processes
- Systems
Phase 2 (6 – 12 months)
Procurement strategy & organisation
• Definition of comprehensive procurement strategy
• Development of category management approach
• Streamlining of purchasing processes
- Strategic sourcing
Implementation road map
• Action plan
• Project management
• Resourcing
- Operational purchasing
• Resource development and training analysis
program
Immediate cost reduction initiatives
• Results
- Spend cube
- Savings potential
per category
- Levers
- Effort/barriers
- Team organisation, resources
- Planning
Source: INVERTO
Co-Sourcing projects
• Prepare sourcing initiatives (wave 1, 2, 3)
- Aggregation of demand data
- Analysis of relevant supply markets
• Develop and implement “quick wins”
• Full sourcing and tender pipeline
• Train staff „on-the-job“ in approach
First tangible
and e-sourcing tools
results after 2-3
• Negotiate contracts
months
Working Capital Program
Savings generated by
systematically extending
terms of payment and
re-negotiating
discounts for all suppliers
© INVERTO 2011 | IOD | 15.06.2011 | Slide 37
…and are based on detailed data collection and analysis
The spend cube provides answers to the questions: who buys what, from whom, at what price?
1
2
subsidiary
1
3
…
…
…
Accounts payable master
Categories
Supplier
Finance
subsidiary
2
Master data
Purchasing volumes
1
2
3
…
Business
segments/
Functions
…
…
Cost drivers / Cost analysis
Finance
Marketing
Manufacturing
Cost types on cost analysis page
Cost analysis from the profit and loss account
IT
subsidiary
…
...
…
1
2
3
…
…
Material group codes
Material
management
Supplier
Purchasing volume
Volume
Value
Function
Department
...
…
subsidiary
…
Material group key
…
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 38
Understanding your spend is the foundation of successful procurement
Transparency requires three dimensions of analysis
(a) Suppliers
(b) Buyers
(c) Categories
•Identification of key suppliers;
Company
Business Unit
Category
Contracts
by annual value
by volume
by parts
Buyers
•Identification of who is buying, and
for whom
•Identification of key metrics;
Preferred suppliers
Non-contract spend
Pareto analysis
Suppliers
Categories
•Identification of key cost
categories;
Categories
Sub-categories
The output is a complete understanding across the entire organisation;
„who buys what, from which supplier, at what price“
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 39
and allows you to quantify the financial opportunity
Savings potential
Supplier
developm.
Know HowTransfer
Process
optimization
Speicifikat.
Standardis.
System
supplier
Increase
competiotn
Pur.
Vol. [£k]
Internat.
Sourcing
Sub-category
Bundling
Leverage
%
from
to
[£k]
[£k]
Prio
Maintenance & Support
825.0
8-12
66.0
99.0
2
Oracle
819.5
6-9
49.1
73.8
3
Agency Contractors
378.7
5-9
18.9
34.1
2
Network Equipment
344.2
5-7
17.2
24.1
2
Applications
337.3
4-6
13.5
20.2
3
Server & Network Software
320.2
12-15
38.4
48.0
3
Storage Devices
312.8
8-12
25.0
37.5
1
Consultancy/Development
296.5
10-14
29.7
41.5
2
Laptops
290.7
8-12
23.3
34.9
1
Network Equipment (Sun)
219.4
5-7
11.0
15.4
2
PC’s / Workstations
211.3
8-12
16.9
25.4
1
Network Equipment (Intel)
112.8
5-7
5.6
7.9
2
Peripherals
103.3
5-7
5.2
7.2
1
Consumables
88.8
18-22
16.0
19.5
1
Lines Phones, Faxes
80.4
14-17
11.3
13.7
1
TOTAL
Source: INVERTO
£4,741k
7.3%–10.6%
£347k – £502k
© INVERTO 2011 | IOD | 15.06.2011 | Slide 40
Agenda
Source: INVERTO
•
Spend – how much, on what, with whom?
•
Tactical cost reduction techniques
•
Strategic supplier management
•
Containing supplier price increases
© INVERTO 2011 | IOD | 15.06.2011 | Slide 41
Focus on your Leverage suppliers and use tactical commercial levers
Cost Reduction Levers
Commercial Levers
Cross-functional Levers

2 Demand aggregation




Volume consolidation
Supplier rationalisation
Extend contract scope/duration
External aggregation in
procurement communities
1 Price Evaluation




Price leveling
Price benchmarking
Comparison of terms and conditions
Target price calculation
3 Competitive leverage





Extension of supply base
Competitive leverage
Global sourcing
Development of new suppliers
Source: INVERTO

2
Demand
aggregation
Price
evaluation

Product
optimisation
Cost Reduction
Levers of
Procurement

Process
optimisation
1


Competitive
leverage
3
Optimisation
of value-add



Product Optimisation
Standardisation
Design-to-cost
Specification review
(no nice to have’s, simplification)
Process Optimisation
Supplier development
Simplification of interfaces and
processes
Improved procurement logistics
Optimisation of Value-Add
Elimination of intermediate
levels/dealers
Re-tailored supply scope
(split, merger)
© INVERTO 2011 | IOD | 15.06.2011 | Slide 42
To convert savings into £££ P&L impact - execution is everything
No of potential suppliers
29.09.2009
12.10.2009
14.10.2009
11.11.2009
9
21.11.2009
23.12.2009
4
1-4
44
Tender process
• Detailed market research (INVERTO
DB)
• Comprehensive tender documents
• Start tender, motivate suppliers
• Evaluation of proposals, negotiation
• Screening, audits, trials
• Tender award, contract
122
235
Invited
suppliers
Registered
suppliers
Proposals
provided
1. round
negotiation
2. round
negotiation
Audit/
implementation
Co-sourcing ensures delivery of results for clients through; resource, skills, expertise, technology, fee model
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 43
Agenda
Source: INVERTO
•
Spend – how much, on what, with whom?
•
Tactical cost reduction techniques
•
Strategic supplier management
•
Containing supplier price increases
© INVERTO 2011 | IOD | 15.06.2011 | Slide 44
Categorising your key suppliers will help you define the best approach to each
High
Strategic suppliers
Market difficulty
Critical suppliers
Each segment will have a different strategy
Acquisition suppliers
Low
0
Leverage suppliers
£
£££
Annual expenditure
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 45
Categorising your key suppliers will help you define the best approach to each
High
Strategic suppliers
Market difficulty
Critical suppliers
Acquisition suppliers
“Streamline administration”

Acquisition suppliers
Leverage suppliers

Low
0
£
£££
Move to Leverage:
 Bundle volumes
 Consolidate suppliers
 Agree volume rebates
Simplify and automate:
 Catalogues and transaction platforms
 Automate – minimise day-to-day effort
Annual expenditure
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 46
Categorising your key suppliers will help you define the best approach to each
High
Strategic suppliers
Market difficulty
Critical suppliers
Critical suppliers
“Reduce the risk”

Acquisition suppliers
Low
0
Leverage suppliers

£
Annual expenditure
Source: INVERTO
£££
Move to Acquisition:
 Market analysis – find
alternatives
 Seek substitution options
 Risk and vulnerability
analysis
Manage the risk:
 Enter into co-operation
 Guarantee delivery
 Back-up supplies
 Hold safety stock
© INVERTO 2011 | IOD | 15.06.2011 | Slide 47
Categorising your key suppliers will help you define the best approach to each
High
Strategic suppliers
Market difficulty
Critical suppliers
Strategic suppliers
“Create competitive advantage”

Acquisition suppliers
Leverage suppliers

Low
0
£
£££
Move to Leverage
 Review specifications
 Develop new suppliers
 Unsettle existing suppliers
Guarantee stable relationships
 Exclusive agreements
 JV’s, partnerships
 Board to board contact
 Push for performance and value-add
Annual expenditure
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 48
Categorising your key suppliers will help you define the best approach to each
High
Strategic suppliers
Market difficulty
Critical suppliers
Leverage suppliers
“Minimise price”

Acquisition suppliers

Leverage suppliers



Low
0
£
Maximise competition vs. Preferred Supplier
Use market power – hard negotiation
No/short contracts
Maximise competition – RFPs/e-Auction
Change suppliers often
£££
Annual expenditure
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 49
Agenda
Source: INVERTO
•
Spend – how much, on what, with whom?
•
Tactical cost reduction techniques
•
Strategic supplier management
•
Containing supplier price increases
© INVERTO 2011 | IOD | 15.06.2011 | Slide 50
Cost avoidance and containment – PARC it!
PARC
Pre-empt
Avoid
Reject
Research
Ignore
“No” –
outright
Negotiate
Shelter
Minimise
“No” –
LOA
Escalate
Forecast
Substitute
Delay
Postpone
Condition
Eliminate
Deny
Offset
Challenge
Justify
Impose
Evaluate
Coordinate
Pro-Active
Source: INVERTO
Contain
Re-active
© INVERTO 2011 | IOD | 15.06.2011 | Slide 51
Justify: “Price is a policy, cost is a fact”
Initial situation
Supplier price request
Should-cost pricing
Price (£/piece)
Description
• Supplier for wooden pallets
£10.00
0.50 Steel
£10.30 (+3%)
0.80
Steel (+60%)
calls for price increase of
£9.10 (-9%)
0.80 Steel (+60%)
3% due to higher material
costs
• Steel price increased
5.50
Wood
5.50
Wood
4.30 Wood (-22%)
3.10
Production
3.10
Production
• Wood price dropped
significantly
3.10 Production
“prices should reduce by 9%”
0.90 Transportation
Source: INVERTO
0.90
Transportation
0,90
0.90 € Transportation
© INVERTO 2011 | IOD | 15.06.2011 | Slide 52
Thank you!
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 53
Panel Session – Q&A
Increase your profit – through effective procurement
London, September 22nd, 2010
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 54
Retail – Direct Spend: Significant tangible savings for brand / private label merchandise
Merchandise
Category
Product class
Purchsg. vol. Savings
p.a. [k €]
p.a. [k €]
Savings
p.a. (%)
Ø Duration
(months)
Lever
Gen. personal hygiene (paper,
tissues etc.)
7.000
591
8,4%
9 LCC Programme
Metal
products
Beauty
/ Personal Care /
Hygiene
Metal products
Feminine / Nursing hygiene
3.250
112
3,5%
5 supplier managment
Hair products
24.000
1.400
5,8%
9 supplier managment
Metal products
Oral hygiene
2.850
86
3,0%
4 supplier managment
Laundry
4.200
336
8,0%
5 Increased competitoin
Metal products
Homecare
Metal products
Surface care
2.140
257
12,0%
4 Increased competition
Fresheners /Deodorisers
1.900
190
10,0%
6 supplier management
Metal products
Insect / Pest Control
2.250
248
11,0%
5 increased competition
Metal products
Household / Kitchen
Merchandise
Tableware (disposable)
1.980
416
21,0%
6 LCC Programme
Kitchen storage (bags, containers, ...)
3.850
270
7,0%
8 Increased competition
Nutritional supplements
2.103
147
7,0%
3 Increased competition
Pet food (shelf stable)
7.402
518
7,0%
5 Increased competition
Baby hygiene (diapers, pads etc.)
7.000
420
6,0%
4 Increased competition
Baby furniture
1.950
254
13,0%
3 Increased competition
Pet care / Food
Baby care
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 55
Retail - Direct Spend: 3 examples of INVERTO´s approach
Pet Care / Food
Customer
Pet Care
Demand
Purchsg.
vol. in m €
Action taken
Savings
Main lever
Pet Welfare/Hygiene
Pet Nutr. Supplements
Pet Accessoires
Pet Food/Drinks
Private label dog
Nat´l superfood: Dry/canned,
market chain
biscuits, treats
3.230
Pet Food
Preassure on current
Int´l tender with
supplier: Increased
630 T€
64 pre-qualified
competition through 34
= 19,5%
suppliers
alternative qualified
proposals
Pet Drinks
Beauty / Personal Care / Hygiene
Customer
Skin Products
Hair Products
Hair Removal Products
Hair Care Products
Cosmetics/Frangrances
Demand
Hair Care Products
(Brand product):
Wholesale
Hair care assortHair Products
ment of int´l
brand
Purchsg.
vol. in m €
Action taken
Savings
6.733
Data analysis,
negotiation
with supplier
Transparency of price
components and calcu808 T€
lation through detailed
= 12,0%
analysis. Well prepared
negotiation.
Purchsg.
vol. in m €
Action taken
Savings
Main lever
Personal Hygiene Products
General Personal Hygiene
Cotton Wool Products
Customer
Antiperspir. /deo
Demand
Main lever
Toilet Paper
Feminine / Nursing Hygiene
Oral Hygiene
Discounter
Private label toilet
paper
3.114
Int´l tender with
Identification of a new
452 T€
48 pre-qualified
highly qualified supplier
= 14,5%
suppliers
in Slovenia
Body Products
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 56
Retail – Direct Spend – Fashion / Non Food
Produkt
Kategorie
Produktklassen
EKV p.a.
T. €
Einsparung
T. €
Einsparung
p.a. (%)
Dauer
(Monaten)
Wesentlicher
Stellhebel
Womenswear
180.000
14.400
9%
9 supplier managment
Metal products
Fashion (brands)
Metal products
Menswear
109.000
9.800
8%
12 supplier managment
Childrenswear
14.000
800
5,5%
6 supplier managment
Metal products
Accessoires
47.000
1.400
3%
5 supplier managment
Underwear (seaml.)
3.200
690
24%
9 supplier development
Metal products
T-Shirts
6.400
1.150
18%
Metal products
Fashion
(Private Label)
Bras
12.600
2.208
…
18%
6 supplier development
Metal products
Stockings
5.640
1.620
29%
5 increased competition
Metal products
Jeans/Denim
6.363
886
14%
6 supplier development
Candles
2200
176
8%
8 LCC Programme
Foils
2.103
147
7%
3 Increased competition
Pet food
7.402
518
7%
2 Increased competition
Tissues
7.000
420
6%
2 Increased competition
Household articles
Plastic, rubber products
12 LCC Programme
Toiletries / misc. articles
.
.
.
Source: INVERTO
Back
© INVERTO 2011 | IOD | 15.06.2011 | Slide 57
Retail/ FMCG - Indirect spend: significant savings potential across all categories
INVERTO Projects (Indirect Spend)
Category
Product classes (Excerpt INVERTO database)
IT /
Hardware, Network, IT Services, Software, Licensing,
Telecommunication Handheld Mobile Devices (outlets)
Purchsg. vol.
p.a. in m €
Savings
p.a. (m €)
Savings
p.a. (%)
Ø Duration
(months)
10,3
3,2
31%
7
Office Supplies
Printing paper , toner, ink, stationary, foils
3,5
0,7
20%
4
Facility Mgmt.
Cleaning services, cash transportation, safes, alarm systems, store detectives,
waste disposal, utilities
20,1
3,9
19%
5
Marketing
Advertising / marketing agency, POS agency, printing (magazines, brochures,
flyer), lithography, image processing, outdoor advertising
48,0
8,8
18%
5
Capex
Packaging machines, cleaning machines, escalators, refrigeration
units, bale press machines etc.
29,4
3,7
12%
3
Shop fitting
Construction work, lighting,fixtures , shlef systems, X-Mas decoration, mannequins, fittings etc.
14,0
1,7
12%
4
Logistics
Sea freight, containers, truck logistics, warehousing, air freight etc.
101,0
12,1
12%
6
Temporary Labor
Management, skilled, unskilled labor
27,7
3,2
12%
6
Financial Services
Working Capital, “rapid cash”, auditors, leasing, A/P recovery etc.
7,7
0,8
10%
3
Packaging
Shopping bags (PE, paper), transportation packaging, paper, paletts, crates,
cases, containers, adhesive tape etc.
58,4
5,5
9%
5
Utilities
Electricity, gas, water
10,4
0,7
6%
2
Vehicles /
transportation
Car rental, leasing, travel management, airlines etc.
32,0
1,8
6%
6
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 58
Industrial - Direct spend – deep sub-category experience in metal components
Purchased spend (direct spend)
Sub category
Products, services (excerpt)
Total vol.
[Mill. €]
Savings
p.a. [Mill. €]
Savings
p.a. [%]
Ø duration
[months]
Turning parts
Iron casting, spheroidal iron casting, magnesium die casting, sand casting,
aluminium casting, zinc die casting, hook blocks, counterweights
Ball pins, turning parts, precision turning parts, milling parts, pistons, bearing
parts, valve seating
Rods, tubes
Rod end bearings (precision steel), piston rods, squeezed tubes, bended tubes,
precision steel tubes, pipes (seamless)
91,8
4,8
5%
6
Forging parts
Fork tines, chain cables, eyebolts, chain holders, gear housings, wheel hubs, etc.
44,5
4,4
10%
6
Pistons
Aluminium pistons, steel pistons
24,0
2,0
8%
6
Sheet metal parts
Sheets, belts, plates (aluminium), mild steel (plate, flat, round, angle)
34,2
1,3
4%
6
Stamping parts
Consoles, discs, rod end bearings, angular sheets, bottom parts, forks, brackets,
stamping parts, drawn parts, bearing plates, unlocking devices
10,1
0,9
9%
11
Chassis
Equipment locker
5,0
0,9
18%
5
Tools, moulds
Jigs, tools, moulds
2,4
0,6
25%
4
Fasteners
Fasteners, sleeves, pins
2,6
0,4
15%
3
Profiles
Aluminium profiles, steel profiles (non-alloy), steel parts, metal parts,
shafts with profiles, mast profiles
3,6
0,3
8%
4
Gears
Gearing parts
0,4
0,05
13%
5
Springs
Springs for motors, coil springs, saucer springs
0,6
0,04
7%
3
348,3
27,4
8%
6
Casting parts
Total
Source: INVERTO
62,3
6,5
10%
5
66,8
5,2
8%
7
© INVERTO 2011 | IOD | 15.06.2011 | Slide 59
Industrial - Direct spend – electronics and electrical components
Purchased spend (direct spend)
Sub category
Wiring harnesses
Electrical, electronic
systems
Electronic
subassembly
Products, services (excerpt)
Total vol.
[Mill. €]
Savings
p.a. [Mill. €]
Savings
p.a. [%]
Ø duration
[months]
Wiring harnesses
14,0
1,7
12%
6
Electronic devices, electrical assembly, integrated circuits
19,5
1,4
7%
6
Electronic subassembly, PCBs
14,5
1,4
10%
6
Transformers
Convertors, power supply units, transformers
4,1
0,4
10%
4
Steering systems
Control systems
1,5
0,3
20%
8
Control cabinets
Control cabinets, control cabinet mountings
3,9
0,3
8%
5
2,1
0,3
14%
5
Electrical connectors Heavy duty connectors, plug cords, power supply lines, isolators
DC/AC-motors
Electric standard motors, DC motors, lifting units for cranes (DC motors),
hydraulic motors (AC motors)
3,0
0,3
10%
9
Cables, conductors
Electric cables, electrical goods, conductors, switches, circuit breakers
3,3
0,2
6%
3
Compressors
Compressors
2,5
0,1
4%
6
Sensors
Ultrasonic sensors
0,3
0,1
33%
3
68,7
6,5
9%
6
Total
Source: INVERTO
© INVERTO 2011 | IOD | 15.06.2011 | Slide 60
Industrial - Direct spend - plastic parts, raw materials and additives
Purchased spend (direct spend)
Sub category
Products, services (excerpt)
Total vol.
[Mill. €]
Savings
p.a. [Mill. €]
Savings
p.a. [%]
Ø duration
[months]
Plastic parts
Injection moulded
parts
Piston rod guides, ball cups, guide bushings, return elements, oil cushion units,
spring cages, separating pistons, bumpers, housing parts
25,1
3,5
14%
9
Hoses
Flexible hoses, fibre-reinforced hoses
23,8
2,5
11%
7
Tires
Solid rubber wheels
12,7
1,0
8%
6
Gaskets
Stamped gaskets, foamed gaskets, shaft seals
8,6
0,9
10%
7
Plastic parts
Brake pads, plastic/rubber/foam parts
13,6
0,9
7%
6
Pressing parts
Brake rings, duroplastic parts
0,3
0,1
33%
7
84,1
8,9
10%
7
Total
Raw materials, additives
Polymers
PA, PE, PC, PP, ABS, PMMA, HFFR Compounds, etc.
30,3
1,0
3%
5
Polymer additives
Master batches, additives, dye
11,7
1,2
10%
5
42,0
2,2
5%
5
Total
Source: INVERTO
Back
© INVERTO 2011 | IOD | 15.06.2011 | Slide 61
Industrial - Indirect spend categories
Purchased spend (indirect spend)
Category
Sub category, products, services (excerpt)
Total vol.
[Mill. €]
Savings
p.a. [Mill. €]
Savings
p.a. [%]
Ø duration
[months]
Business process
outsourcing
HR services, IT services, logistic services
4,8
1,9
40%
7
Office supplies
Copying paper, office supplies, sales slip rolls, printers, copiers, toner cartridges
9,0
1,8
20%
5
16,1
3,0
19%
4
7,8
1,4
18%
4
37,7
6,3
17%
5
219,1
35,2
16%
5
8,5
1,2
14%
3
44,4
5,7
13%
9
66,0
7,7
12%
3
241,0
23,0
10%
6
64,3
5,5
´9%
5
139,8
11,9
9%
5
42,9
3,1
7%
5
10,3
0,7
7%
2
911,7
108,4
12%
5
IT hardware, WAN services, mobile phone services, software licenses,
network operating/services
Tax consulting, certification services, auditing, engineering consulting, in-house
Consulting services trainings, professional trainings, legal services
Cleaning services, production services, office services, green area services,
Facility Management catering, pest control, security services, waste disposal, working clothes
Marketing products, Advertising material, flyers, labels, mailings, marketing services, package inserts,
print media etc.
services
Credit insurance, interest rates, derivates, leasing, payment terms,
Financial services
insurance
IT/Telco
Maintenance, repair
Processing machines, handling equipment
Technical equipment, Carrying systems, ducts, cleaning machines, construction works, cooling
machinery
systems, electrical systems, forwarding systems, packaging machines etc.
CEP services, road freight (FTL, LTFT, bulk, silo, containers, tanks), sea freight
Logistics services
(forwarders, carriers), warehousing, inbound logistics
Skilled labour, unskilled labour, On-Site management, contract for services
Temporary labour
and labour
Bags, cases, cardboards, containers, IBCs, folded boxes, labels, packaging serPackaging
vices, pallets, paper, plastic boxes/foils/trays, profiles, tapes, tins, wire, wood, etc.
Fuel, industrial trucks, prepaid gas cards, tires, travel management, vehicle
Fleet
leasing, car rental
Energy
Total
Source: INVERTO
Electricity, gas, water
© INVERTO 2011 | IOD | 15.06.2011 | Slide 62

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