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Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 1 10 Ideas that Go Beyond Sourcing IASTA hosted Webinar May 2, 2012 Presented by: Jason Busch

Spend Matters- 10 Ideas That Go Beyond Basic Sourcing (IASTA webcast)

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Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 1

10 Ideas that Go Beyond Sourcing

IASTA hosted Webinar

May 2, 2012

Presented by: Jason Busch

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 2

10 Spend Matters ideas that go beyond basic sourcing to enhance procurement’s value to the business

• Given the current market context, it’s critical to

think beyond the basics to deliver value to the

business

• Improving procurement’s value to the business

requires embracing new sourcing-related tools

(contract management, supplier management,

etc.) wrapped around basic strategic sourcing

activity and services spend knowledge to drive

additional savings

• There are ten ways (outside of transaction-

related focus areas) that we see to deliver this

new value

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 3

1: Go beyond basic eRFX and reverse auction capabilities

Advanced sourcing/optimization•Fluid RFI/RFP process

•More flexible data collection

•Supplier creativity/alternative specifications/alternative proposals

•Ability to fully explore – not just weight – all price and non-price factors in a tender

•Create and apply constraints

•Ability to run scenarios based on constraints and present a menu of outcomes for stakeholders to consider

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 4

2: Connect sourcing activity to contracts – implement savings faster and manage compliance

Sourcing and Contract Management•Link sourcing outputs to implemented savings

•Move from a static view of contracts as “papers in a vault” to dynamic usage and reference

•Use contract management as an opportunity to create greater trust and transparency with suppliers and shareholders

•Looking at contract management as an opportunity to locate additional savings and cost avoidance opportunities

•Ability to integrate with – and fully leverage – sourcing, spend analysis and related information to create an integrated contract lifecycle solution

•A user experience built around procurement and legal together to drive the contracting – and contract management – process

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 5

3: Go beyond the contracting basics

Advanced contracting philosophies •Pursue an active compliance approach that leverages internal systems and marketplace information (e.g., commodity pricing trends, currency rates)

•Make your contract management system a repository for the entire organization to rely on (procurement, legal, etc.)

•Rethink the notion of a contract– Make the contract a living document designed to manage

and govern the relationship versus serving as a static piece of paper to refer back to for re-sourcing or legal purposes

– Influence up front – introduce contract terms (e.g., indemnification) into the negotiation phase of a relationship; this can result in material savings and can foster a basis of mutual understanding and trust

– Think long-term – the ownership and transference of risk is often as important as the exchange of physical goods

Contract

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 6

4: Invest in capabilities to support basic supplier management activities

Supplier Management Activities •Supplier on-boarding (i.e., the need to efficiently electronically enable suppliers for eProcurement and invoicing)

•Supplier portals (i.e., basic portal capability designed to capture supplier information for a range of initiatives: eProcurement, supplier diversity, green/CSR, e-sourcing)

•Supplier performance and quality management (i.e., tracking qualitative and quantitative supplier performance metrics such as on-time performance, escapes, PPM; surveys such as ISO, QS, TS to qualify suppliers and ensure claimed credentials were real)

•Supply risk management (i.e., monitoring supply risk factors including financial data, operational data, compliance information)

•Spend visibility/supplier enrichment at the item level (i.e., creating a common – or virtual – vendor master with detailed and accurate information into spending data to drive sourcing strategies)

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 7

5: Leverage supplier management initiatives to drive advanced cost and risk reduction

Advanced Activities•Go multi-tier

•Embrace approaches that leverage the intersection of different datasets to drive visibility and predictive analytics (supplier performance information, supplier financial risk, geospatial, country risk, etc.)

•Invest in supply chain traceability to support the business in new ways

– Market entrance/new product introduction

– Avoidance of “conflict” items such as conflict minerals

– Certification that products do not contain restricted or hazardous substances

•Consider network, BPO and other approaches

Source: Aravo

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 8

6: Hunt for big category game (even if anti-poaching types are defending their territory)

Next Level Categories •Combine sourcing, contract management, compliance and transactional management

•High visibility (and high-value) services categories

– Marketing

– Legal

– Accounting

– Consulting

– BPO and outsourcing

•Pursue direct materials spend in new ways– Alternative specifications

– Demand aggregation

– Commodity management/hedging

– Supplier-generated innovation

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 9

7: Embrace specialists and specialty tools for advanced services categories

Supplier Management Activities •Consider specialty advisors (just as you would when buying BPO)

– Focus on knowledge transfer and building internal self-sufficiency

– Identify internal/external candidates to lead efforts for larger opportunities

•Understand the importance of generating trust within the business and winning executive support

•Use advanced (standard) toolsets when possible for sourcing activities, but leverage additional solutions as needed in specific categories (marketing spend intelligence, matters management/legal, etc.)

•Leverage a VMS for SOW/project-based engagements when required

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 10

8: Partner with suppliers in creative ways including targeting total cost

Focus on the total relationship cost•Understand the TCO of doing business with global suppliers

– Balance of global sourcing and regional sourcing

– Re-shoring

•Embed cost models at all stages of the sourcing lifecycle

•Put on your operational efficiency hat

– Joint cost take out programs

– Put waste in the crosshairs

– Just-in-time (JIT), vendor management inventory (VMI) and related programs for direct spend

•Understand “sweet spot” for preferred services suppliers and pooling the right set of business for them

Source: Chainlink

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 11

9: Track implemented savings, cost avoidance and results from a finance-driven perspective

Savings Implementation •Savings tracking and forecasting systems help companies drive savings opportunity identification in a way that goes beyond spend analysis

•They can accelerate the execution of savings implementation initiatives and objectives and reduce savings leakage by pinpointing and documenting specific areas where lost savings occurred

•For tracking information, users can get extremely granular with the inputs they want to report against on a high level including market indexes, rebate structures, baselines, currency rates, cost structures, dimensionality, target costing/pricing, budgets and forecasts

•On the actual reporting side, procurement leaders can define specific savings tracking mechanisms and fields (e.g., price savings, market/commodity/index fluctuation savings, currency fluctuation savings, substitution savings, batch size savings, spend reduction savings, external savings, realized savings) they wish to measure against

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 12

10: Deploy commodity management programs alongside sourcing activities

Get Serious About Direct Spend •Develop a point of view and explain to management and shareholders the underlying reasons driving commodity volatility and forecasting uncertainty •Reduce commodity exposure•Understand how to best price the underlying risk elements of contracts•Explore how suppliers price (and potentially misprice) risk •Lower overall costs (potentially) despite upward pressure on raw material inputs•Build more collaborative relationships with suppliers that help make us a customer of choice•Aggregate the buy (to enable hedging, to buy forward in rising markets, to create more effective budgeting/planning/forecasting, etc.)•Statistical modeling for demand planning and forecasting, plus more to correlate factors on the supply side. Gathering intelligence and building tools around it (looking for correlations)

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 13

Contact details

Jason BuschManaging Director, Azul Partners, Inc.Founder and Executive Editor, www.spendmatters.com Email: [email protected]: 773-525-7406

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Hartham Park

Corsham, WiltshireSN13 ORP

United Kingdom

Operations: +44 (0) 870.199.4060Sales: +44 (0) 1249.700726

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