2022 Future of Procurement · 6 Pharma Industry Focus Procurement v 1.0 Drugs Operational mandate v 2.0 Portfolio diversification Role expands to include continuous savings requirement

Lausanne February 2017

Beyond Procurement - 2022 Future of Procurement

Gi les Breaul t Sammy Rashed

2

Personal Background More than two decades transforming and leading global organizat ions

5 6 12

1990 1995

7 8 3 8

Centralization & Re-engineering

Global Category Management

Demand Management

Offshoring & Outsourcing

Integrated Productivity &

Business Services

2000 2005 2010 2013 Beyond

Procurement

Next-level Productivity

Get the buy right

GILES BREAULT

SAMMY RASHED

3

Research & Publications

Through our global Academic network with leading institutions, seek to understand, evaluate, publish, and present findings related to top options by industry & geography on how Procurement can help businesses drive greater company-wide productivity

Advisory

§ Work with few companies at Sr. Exec. Level to develop & deploy next-level productivity strategy

§ Transformation blueprint to grow organizational readiness and Procurement capabilities

§  Intense, pragmatic and output-f o c u s e d , d r a w i n g f r o m experience, practice & research

§ Centered around personal relationships, and guidance / coaching

Industry Think Tanks

§ Gathering small groups of Procurement executives (12-15) in a single industrial sector

§ Balanced group of peers, thought leaders, practitioners, academicians and advisors

§ Three 1-day sessions to Assess, Analyze, and Solve a key question facing industry

§ Aim to share innovative content, develop concrete solutions, and build a close community

Learning Conferences

§ Standard or tailored-content p r o g r a m s c o v e r i n g b o t h strategy and implementation

§ Open enrolment (100–150 pers.) or in-house (~25 pers.) learning conferences

§ Topics include: Better-Selling to Pharma, Business Productivity, Global Business Services and LEAN for Procurement

§ Executive Coaching for high-caliber talent

Our unique offering Strategy & guidance for break-through results in cost optimization

4

Procurement at a Crossroad

The Beyond Procurement Global Study

2013 The Productivity Think Tank is Introduced

2014 Think Tank - Innovation Sourcing

2015 Think Tank - Procurement as Productivity Engine

2016 Think Tank - The New Skills/Capabilities of Procurement

Closing Thoughts / Q&A / Staying in Touch

Presentation Overview

5








6

Pharma Industry Focus Procurement v 1.0 Drugs Opera t iona l mandate

v 2.0 Por t fo l io d ivers i f ica t ion Role expands to inc lude con t inuous sav ings requ i rement + leverag ing company-w ide spend

v 3.0 Measures outcomes + ent rants f rom other industr ies

Requ i res the search fo r co -c rea ted va lue tha t d i rec t l y impac ts the pa t ien t exper ience

§  R e - e s t a b l i s h r e g i o n a l / l o c a l P r o c u r e m e n t presence

§  More marke t fac ing – tap in to suppl ier innovat ion s t reams

§  Par t i cu la r focus on IT as techno logy moves f rom in f ras t ruc tu re to de l i ve ry compan ion

§  Swi tch focus f rom cos t -op t im iza t ion to innovat ion

§  More cons idera t ion fo r supply base sources of cr ises

§  Reach Comprehensive Risk Mgmt th rough the fu l l va lue cha in

§  Involve up-f ront i n dec is ion -mak ing

§  Maste r and manage outsourced vo lume

§  Leverage to dr ive innovat ion

§  Broader product iv i ty i n i t i a t i ves

§  Move f rom cos t e f f i c iency to less tangib le outcomes

§  Crea te new sources of va lue

The Role of Procurement is Changing in Important Ways

Manage reputat ion r isk

More outsourcing

Greater category expertise

New measurements

More customer focused

*Source:

2014

7

§ Broad theme: Move f rom Category Management to Value co-creat ion

§ Not on ly one so lu t ion… need to pr ior i t ize opt ions a long two d imensions: performance and feasibi l i ty

Key changes in responsibility and positioning Procurement needs can no longer cont inue or grow

Historical process §  Spend penetration §  Process compliance §  Tactical negotiation with suppliers §  Short-term savings §  Reactive stand-alone role §  Concentrated on back-end

Current direction §  Spend optimization §  Process efficiency §  Driving demand mgmt with users § Multi-year productivity plan §  X-functional project leadership §  Early decision involvement

8








9

Evolution of Procurement and its drivers Procurement 's past success can l imi t future contr ibut ion

Goals

Key levers

Traditional purchasing Strategic procurement

Spend Optimization

What's Next?

▪  Pay right price & ensure compliance

▪  Optimize costs/value generation across businesses

▪  Generate savings

▪  Generate higher returns per dollar spend

▪  Centralized process ▪  Local / tactical buying

▪  Process

I

II

III IV

•  SRM as Value Creation

•  Innovation Sourcing

•  Total Cost-Base Management

•  Global Business Services

•  Comprehensive Risk management

•  Take over operational activities

•  Next Level ”Collaborative Buying”

•  Internal Consultant/ Project Managers

•  Embed function into business

•  Top Line Contributor 10

▪  Demand Mgmt ▪  Process Mgmt

▪  Internal

▪  Category Mgmt ▪  Aggregate volume

▪  External

Process & Systems

Skills

Acceptance

1 2

3

4

5

6

7

8

9

Top options identified

Path to master the productivity /cost challenge

© 2012 The Beyond Group AG

IN

NO

VATI

ON

P

RO

DU

CTI

VIT

Y G

RO

WTH

Focus

Hurdle

2013

2014

2015

10

0

8

Take over opera t ions 15

Comp. R isk Mgmt

G loba l Bus . Serv ices 58

To ta l Cos t -Base Mgmt 57

Sourc ing innova t ion 87

Top-L ine Con t r ibu to r 50

Embed Func t ion in to bus 19

Ex tended SRM 13

In t . consu l tan t /PM 44

Nex t -Leve l Co l lab . Buy ing

0

0

18

38

48

88

40

27

58

34

1 Based on implementation priority and return performance 2 Total Cost Base Management

Evaluating growth options Survey resul ts – Performance scale

The newcomer

Extended SRM shows the highest increase in importance. An average return of ~5% ist expected from this option

The veteran

Continuing to deliver high returns of ~5%, participants still highly value GBS, but do not expect further implementation efforts

The champions

Both options Sourcing Innovation and TCBM2 rank amongst the highest in terms of implementation priority as well as actual / expected return (ranging from 4 – 5 %); today as well as in the future1

Today Future

Four main productivity options to pursue Survey outcome: Importance rating Survey

▪  >100 participants from various industries and functions (procurement, finance, and other business stakeholders)

▪  Across Europe, North America, and Asia

Options with highest return expectation in Pharma Industry

11

2

3

4

2 3 4

Top-Line contributor

Collaborative Buying

Total Cost-Based Mgmt

Embed function

Ext. SRM

Internal Consulting

Sourcing Innovation

Take over operations

Risk Management

GBS

1

2

3

4

5

6

7

8

9

10

Org. readiness

Capabil i ty proficiency

2

4

5

1

6

7

8

9

10 3

Evaluating growth options Changes in 2013 Pharma resul ts vs . 2012 Global Survey resu l ts – Feasib i l i ty

7 8

4 4

6 1

9

5

2 3

X X

10

Deemed more feasible: •  Sourcing Innovation •  Total Cost-Base Mgmt •  SRM as value-creation

12

1

2

3

4

5

1 2 3 4 5 1 2 3 4 5Capabil i ty proficiency

2 x 2 by function

Procurement COO/CEO

Finance Business stakeholder

Undecided?

We need more

Needs convincing

Stay focused!

Top-Line contributor

Embed function

Ext. SRM

Internal Consulting

Collaborative Buying

Take over operations

Risk Management

GBS

Total Cost-Based Mgmt

Sourcing Innovation

1

2

3

4

5Org. readiness

13








14

Session 1 - May

PiP Think Tank overview Three 1-day sessions, each with dist inct purpose and outcome

Focus: ASSESS •  Understand the role and

impact of Innovation Sourcing through case-studies (int & ext to Pharma)

•  Build on Trading Relationship Mgmt methodology to generate innovation output

•  Identify Procurement challenges to better broker vendor innovation

Session 2 - Jul Focus: EXPLORE

•  Explore existing Innovation models and identify best for Procurement in Pharma

•  Get practical examples of successful application from Vendor and Customer perspective

•  Map internal mechanism within Buying organizations for driving Innovation Sourcing

Session 3 - Oct

Focus: SOLVE •  Develop effective

approach to drive Innovation Sourcing,

•  Identify, build & obtain unique capabilities Procurement will require to successfully lead

•  Elaborate required governance model to ensure promising ideas are visible, supported, and implemented

Host: Host: Host:

2013

15

2013 “Productivity in Pharma” think tank Aiming to move Procurement f rom “Contro l ler to Orchestrator”

Participants

Academia & Partners

¡  Smal l group of inv i ted senior business leaders f rom Procurement ¡  Part ic ipants f rom large / medium / smal l s ize Pharma companies ¡  Ser ies of three 1-day workshops focusing on lead quest ion:

“What are the key challenges & opportunities in the healthcare sector and pharmaceutical industry, and how to address by better

leveraging the unique capabilit ies within our supply base”

16

“We just can’t seem to escape this without recognising that what we want to achieve is a route to lower costs, not only a route to lower prices” “Of course we need to measure the performance of our most important suppliers, but this “crowds out” a much more important dialogue” “Our processes do not encourage suppliers to evaluate us as customers of choice who actively are seeking innovation and co-created value” “Our own buyers often have neither the time nor the knowledge to manage a deeper discussion with our most important suppliers”

Why are value based relationships so difficult for large organizations?

Focus on Cost Savings - Metrics management –

Control vs. Collaboration – No Priority / No time –

17

1.  SRM is broken §  Measurement / KPIs are limited (focus on Perf. Mgmt, Risk Mgmt, and Cost

savings) §  Systems aren’t adequate to move further §  Intelligence needed to access higher-level needs, and visibility into Supply-Base

capability §  Limited acceptance from business to move beyond savings & compliance §  Insufficient capabilities within Procurement to step-up

Ø SRM needs to help manage complexity and drive it out of the value chain Ø SRM is a cross-functional commercial activity, balancing risk, innovation, and

market opportunities

2.  Healthcare trends wil l have signif icant impact on Pharma industry

3.  This threat can be an opportunity for Procurement to differently leverage it ’s supply base §  Procurement needs to move from "controller” to “orchestrator” by building coalition

across value-chain §  SRM has potential to influence EVA, not only reduce COGS, through value co-

creation across entire supply chain §  Can’t directly address identified issues

2013 Summary of Conclusions

18

Trading Relationship Management (TRM) Canvas© Opportuni ty to t r igger the spark of innovat ion and create tangible value vis ib le to customers

Supplier Buyer Customer

2 3

4 5

1

6

Understand Translate Seek & Share

Communicate Select & Implement Assess

Value generation © 2013 The Beyond Group AG

19








20

“Productivity in Pharma” think tank 2014 ser ies: Helping Procurement dr ive Innovat ion Sourcing

Members

Partners

¡  Smal l g roup o f i nv i ted s r. bus iness leaders f rom Procurement ¡  Par t i c ipan ts f rom la rge /med ium/sma l l s i ze Pharma compan ies ¡  Ser ies o f th ree 1 -day workshops focus ing on lead ques t ion :

ENJOIN PARTNERS

Ser

ies

Day

C

ontri

buto

rs

Aca

dem

ia

“How can Procurement strike the spark of innovation from suppliers, nurture it, and help carry it from idea to realization”

21

Why Innovation Sourcing isn’t working?

22

Anecdotal survey among CPO’s reveal 5 basic t ruths about Innovat ion Sourcing

© 2013 The Beyond Group AG

The ability to interact with suppliers allowing for the collaborative discovery, development and use of novel ideas in processes or products that create an

enhanced value proposition for both parties

Sourcing Innovation – What is it?

- yet there are common truths we can extract. Some conclusions: There is a great deal of literature/experience available but no absolute way of defining an approach

•  Buyer/Supplier strategies differ

•  Know what type of innovation to look for: S-C-T-D

•  Make sure you are solving a real need (PULL not PUSH)

•  Share your strategy & expectations with right suppliers

•  Focused Search •  Use of appropriate

tools •  Portals •  Fairs •  Crowd Sourcing

•  Collaborative •  Methodology e.g.

W-F-G-M model •  Do not over

regulate

1- Random is Not Acceptable

3- Champion the Process

•  Systemic Facilitation •  Have mandate! •  Communicate with

internal stakeholders •  Communicate with

suppliers – process & expectations

•  Visible Program •  Senior Level

Involvement

4- Manage Expectations

•  Protection of Intellectual Property

•  Profit Sharing approach

•  Close the loop •  Supplier •  Customers •  Internal

•  Clear visible & objective process

2- Strategic Landscape 5- Talent

•  Recognize new talent needs

•  Develop new role profiles

•  Recruit from leading organizations

•  Talent and progression for highest qualified only

23








24

“Productivity in Pharma” think tank 2015 ser ies: Transforming Procurement into the Product iv i ty Engine

Members

Partners

¡  Smal l g roup o f i nv i ted s r. bus iness leaders f rom Procurement ¡  Par t i c ipan ts f rom la rge /med ium/sma l l s i ze Pharma compan ies ¡  Ser ies o f th ree 1 -day workshops focus ing on lead ques t ion :

“How can we equip Procurement to become the recognized Productivity engine of the organization”

Ser

ies

Day

C

ontri

buto

rs

Aca

dem

ia

25

Productivity in Pharma Target output for 2015 ser ies

1.  MEASUREMENT : How to frame Procurement’s value proposit ion, f i t in business planning, and demonstrate what we do has an impact?

2.  SKILLS: What skills are needed that enable better partnering internally and externally, managing projects as a Trusted advisor?

3.  STRUCTURE which includes Procurement “basics” as well as “beyond”, but which?

4.  MANDATE : Define a clear mandate around expectations, our responsibil i ty, and logical l imits

26 26

Four ways of reducing cost in organizations

External

Price

Internal

Structure

Third Party Spend

Activities & Footprint

Organization Fixed Costs

Buy Less

Price Traditional Category Management and negotiations, Supplier Consolidation & Selection etc.

Demand Management Business to identify “essen-tials” and reduce spend at the source

Structure Further consolidate and streamline back office functions (Transformation of Finance, HR, Communications, Legal, etc.)

Fixed Costs Structured global effort to reduce commercial and administrative offices, Manufacturing and Development site footprint

Demand

27








28

Supplier Organization Customer

Understand Translate Seek & Share

Communicate Select & Implement Assess

Where we began the 2016 series New Posi t ions and Ski l ls

Cross-functional Integrator

Business Partner

Al l iance Manager

•  Big Picture •  Risk Mgmt & Scenarios •  Engagement and

Communication •  Ambassador Skills &

Conflict management

•  Project Management skills •  Influencing skills •  Business case development •  Change Management •  Credibility through

performance

•  Alignment and Structure •  Intrapreneurial skills •  Game changer capability •  Credible experience – earn

your right to be at the table •  Consultation skills

29

§  Corporat ions wi l l become more dependent on their external network §  The role of procurement wi l l s ignif icant ly change into a much smaller

highly strategic organization §  I t is focused on creating entrepreneurial value with suppliers and

increasingly with customers §  Routine tasks wi l l most ly be transferred to Global Business Services

organizat ion (GBS)

Ø  As a consequence business partnering wi l l become a key to success for procurement

Ø  The ski l ls of procurement professionals wi l l have to change Ø  The Business Partner wi l l master a broad span of competencies, be

passionately engaged beyond procurement… Ø  …and require the necessary environment to succeed

Burning Platform for Business Partnership Excerpts f rom Givaudan CPO presentat ion on Day 1

Background

Impact

30

¡  Combine customer / category ro les where natura l f i t

¡  Raise expectat ions, del iver and secure ro le

¡  Al ign wi th business st ructure ¡  No paral le l s t rategy, s ingle

a l igned approach

Becoming a recognized Business Partner Don’t manage processes to meet funct ional object ives, manage relat ionships to meet business strategy MANDATE & STRUCTURE KNOWLEDGE

SKILLS LANGUAGE & COMMUNICATION

¡  End-to-end knowledge (e.g. regulatory to commercia l )

¡  Credib le business exper t ise ¡  Business Strategy & Planning Cycle

¡  External Market t rends

¡  Engage wel l and manage re lat ionships

¡  Open, Agi le ¡  Analyt ics & ins ights ¡  Vis ionary, In t rapreneur,

and game changer

¡  Keep i t s imple ¡  Listen more than ta lk

¡  Learn and use business language ¡  Demonstrate real va lue and focus on

contr ibut ion, not per formance

31

Becoming a “Connector” Growing need for Procurement to be a stronger network manager

Why so important?

Procurement is uniquely positioned within the organization. Some clear opportunities:

§  Increasingly tasked with “bringing the outside in” §  Communications between and even within

departments not always solid §  Need for standardization and harmonization across

all functions §  No natural owner for cross-functional Project

Management

Connectors §  People with special gift for bringing the world

together. §  Know lots and different kinds of people §  They are curious, self-confident, sociable

and have high energy

32

Procurement as Alliance Manager How to to become accepted and recognized

1. OBJECTIVES & INCENTIVES

2. MINDSET

Go beyond financial objectives 1.  Mutual object ives for both sides (e.g. savings

and prof i tabi l i ty), c loser to corporate goals 2.  Progress milestones against 3-5 year journey

(evaluate 1-5 level, incl . relat ionship) 3.  Impact on P&L (overal l , not incremental)

Ø  ACTION : ident i fy a pain-point (not too large) and f ix i t through the al l iance (which can' t be solved by ourselves) as f i rst proof of concept (answer f rom mgmt must be: where else can this be appl ied)

Not just from Procurement but also the entire organization 1.  Be seen as having good commercial awareness

( incl . what real dr ivers are) 2.  Connector mental i ty, stop managing the your

personal interest and manage to the mutual outcome

3.  Leadership, courage to think di fference

Ø  ACTION: select a p i lo t to demonstrate, and put a l l resources at i t to be successfu l

33

3. SKILLS

4. PROCESS & SYSTEMS

Alliance Management is team effort, and Procurement can take a leadership role 1.  Communicat ion 2.  Emotional Intel l igence (bui lds on connector

mental i ty) 3.  Project Management 4.  + Strategic Planning

Ø  ACTION: assess your peers

1.  Quali ty Management Something l ike SRM abi l i ty to evaluate qual i ty AM

2.  Lifecycle Management 3.  System that acts as repository to manage

al l iances

Ø  ACTION: star t conversat ion so process at buying and sel l ing is a l igned

Procurement as Alliance Manager How to to become accepted and recognized

34

The CPO of the future: a complete business person ”You must lead with your head, heart hands… and guts” J F B a r i l , C o n n e c t i n g P a r t n e r s

Heart §  Wants value for all partners §  Perceived as principled and

trustworthy

Hands §  Credible Experience §  Finance and Legal

Knowledge §  Industry 4.0 Cognizant

Guts! §  Strong Advocate §  Unafraid of manageable risks §  Manages Conflicts §  Don’t ask for permission

Head §  Understands the totality of the

business §  CEO of own business

35








36

Staying engaged with the Beyond Group A few ways of contr ibut ing to and benef i t ing f rom our work

§  Monthly series building on topic of Entrepreneurship

§  Applying current research and work to the function, helping Procurement become “the Corporate Intrapreneur”

§  https://www.procurementleaders.com/blog/my-blog--guest-blog/beyond-procurement-the-corporate-intrapreneur--595433

Blog series

§  Three 1-day sessions starting November 2016 New Jersey, USA

§  Topic “Procurement as the Orchestrator of Value-Creation and Sourcing Innovation”

§  Three 1 ½ -day sessions starting May 2017 in Basel, CH

§  Theme: “Growing the Digital and Agility capabilities to drive efficiency in Procurement”

Will include Technology showdown

Documents

2022 Future of Procurement · 6 Pharma Industry Focus Procurement v 1.0 Drugs Operational mandate v 2.0 Portfolio diversification Role expands to include continuous savings requirement