Embed Size (px)
Citation preview
Leading global excellence in procurement and supply
CIPS Switzerland Network Group Event
Innovation in Purchasing - 26 June 2013
• 3 events in 9 months, Basel is the 4th meeting • 150 attendees
• CIPS has > 200 paying members resident in CH
• CIPS-Switzerland Linkedin.com has ~ 180 connections
CIPS-Switzerland, facts & figures
Geneva, April 2013
Zurich, Feb 2013 Zurich, Sept 2012
CIPS-Switzerland plan for 2013
• 20th Feb Zurich Negotiation Body- Language & Corporate training
• 17th Apr Geneva Purchasing as a value creator
• 26th June Basel Innovation in Purchasing
• “?”th Sept Basel Reflections of a CFO. Internationals in Switzerland
• 17th Sept Zurich Careers in Purchasing • Early-Dec Zurich Consult the stars –
what will 2014, and beyond, bring purchasing
26th June 2013, AGENDA 18:00 Event Registration 18:30 Event start and introductions 18.45 “Welcome and CIPS Update”
Presentation by David Noble CIPS CEO 19.20 “Innovation in purchasing” Presentation by Thomas Ebel / Theano Liakopoulou – McKinsey & Company 19.55 “Shopping, Trading or Procurement
- an innovation journey enhancing value from your Contract Awards” Presentation by Douglas Else-Jack
20.30 Refreshments and networking 21.00 Event close
Leading global excellence in procurement and supply
CIPS Update
David Noble
Innovation in
Procurement & Supply
&CIPS June 2013
Shift in the economic centre of gravity
The Global Agenda
Increased environmental and social responsibility
Global Recession
Acceleration of technological progress
Changes in the geo-political & macro-economic environment
Demographic change
The Scramble for raw materials
The CEO’s new environment
Key messages
PWC 16th Annual survey (1,330 CEO’s surveyed)
Growth Agenda
• Aim to form new strategic
alliances or JV’s in next 12
months whilst M&A activity
declining
• Plan to collaborate with adjacent
industries on co-development
products and services
Key messages
Peter Drucker – ‘Partnerships not ownerships will be key to
success’
Risk - (Between 1970-2011 man made
disasters increased x3 and natural
disasters x7)
• Operational effectiveness in their
top 3 priorities
• They are diversifying their supply
chains and expanding their
suppliers into more territories
Innovation in the Profession
Profession CIPS
• Creating procurement and supply capability for strategic change
• Centres of Excellence
• Enterprise development - SME’s/Diversity
• Master Awards / CSI
• Influencing at the top table
• Licence to Practice
• Demonstrating value (profit centres) • Return on investment
CIPS: Professionalising the Profession
Performanc
e
Proces
s
People
Certificatio
n
Corporate
Academy
Corporate Award
Qualifications
Membership
World Class Supply Journey
S G
P Capability Gap
Analysis
CIPS Professional Journey – The Vision
JOU
RN
EY
LICENCE TO PRACTICE
CIPS GLOBAL STANDARD IN PROCUREMENT AND
SUPPLY
CIPS Corporate Award Practitioner & Advanced
Practitioner
Academic Qualifications Led Route
MCIPS - LICENCE TO OPERATE
Postgraduate Level Executive Diploma
Masters Level Practioner
CIPS: Professionalising the Profession CERTIFICATION
STANDARD - Process Compliance
& Capability
Corporate
Academy
Corporate Award
Qualifications
Membership
Master Awards
ADVANCED STANDARD
– Strategic Alignment & Performance
S G
P
Capability Gap
Analysis
Performanc
e
Proces
s
People
CIPS Master Awards
Phase 1 – 2013
Capital
Projects
September 2013
Supply Risk
October 2013
Influencing the senior
community
November 2013
CIPS can offer customised derivatives of each programme based on sector, industry, category
and geographical regions (80:20 rule) and can be offered in company and as an open programme
Phase 2 – 2014
Global Supply Networks
Enterprise Development
Mergers & Acquisitions
Phase 3 – 2014/15
Commissioning
Contract & Performance Management
Supply Chain Finance
13
CIPS Sustainability Index Overview
• An independent index that assesses and rates the economic, social and
environmental credentials of your supply chain
• Enables buyers to identify
supply chain risk
• Enables suppliers to
demonstrate their
sustainability credentials
to current and prospective
buyers
• Over 14000 suppliers in pipeline following April UK launch
• U.S research completed – aim to launch Q4 2013
A Global Enterprise UK, ROW & MENA
55.23% Membership
PRETORIA
AFRICA 31.4%
Membership
SINGAPORE
ASIA-PAC 11.07%
Membership
Melbourn
e
Shanghai
Public Good
Negotiation Challenge
United Nations World Bank
A procurement and supply profession open to all, for the benefit of
all
• Access for all • Supporting the disadvantaged • The best and brightest • Young people
www.cipsfoundation.org
Global Public Sector Partnership with NIGP
Graduate Intern Programme
BTEC in Schools
Leading global excellence in procurement and supply
The profession can make a strategic difference
Innovation through harnessing our strategic powers is huge
Need capable individuals who can define the professions role and deliver this message to the senior levels
CIPS ‘Licence to Practice programme underpins this
05/07/2013
Summary
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Procurement 2020
Innovate now !!!
Thomas Ebel
McKinsey & Company | 18
Which trends are shaping the
next decade and the future of
Procurement ?
SOURCE: McKinsey Procurement 20/20
McKinsey & Company | 19
Pricing the planet The new economic drivers
The global grid
The great rebalancing The productivity imperative
Five major trends are shaping the next decade and beyond
SOURCE: McKinsey Procurement 20/20: Supply Entrepreneurship in a Changing World
McKinsey & Company | 20
“The great global rebalancing”
The economic center of gravity will shift
from developed to developing countries
SOURCE: UNCAD, Global Insight, GMI analysis
>50% of GDP growth will come
from non-OECD countries
>30% A
>40% B
>50% C
>60% D
Overview Procurement 2020
McKinsey & Company | 21
Emerging markets will soon outpace the developed world in
consumption growth
1 Consuming class – daily disposable income is ≥USD10; below consuming class, <USD10; incomes adjusted for purchasing-power parity
2 Projected
3 Estimate based on 2010 private-consumption share of GDP per country and GDP estimates for 2010 and 2025; assumes private consumption’s share
of GDP will remain constant
World population
SOURCE: Angus Maddison, founder of Groningen Growth and Development Centre, University of Groningen; Homi Kharas, senior
fellow at Wolfensohn Center for Development at Brookings Institution; McKinsey Global Institute analysis
Billions
World consumption
USD trillions
0.9
1.2
2.4 4.2
20252
7.9
3.7
2010
6.8
4.4
1990
5.2
4.0
1970
3.7
2.8
1950
2.5
2.2
0.3
Below consuming class1
Consuming class1
Developed markets
Emerging markets
20253
64.0
34.0
30.0
2010
38.0
26.0
12.0
THE GREAT REBALANCING
McKinsey & Company | 22
1 Corresponds to exports of goods.
Trade routes have expanded, and trade patterns
have become increasingly complex
SOURCE: IHS Global Insight; IMF’s Direction of Trade; McKinsey Global Institute analysis
$50 billion–100 billion
$100 billion–500 billion
$500 billion or more Lines show total trade flows1 between regions
$ billion
THE GREAT REBALANCING
In 1990, the United States and Western Europe
were the main hubs for trade flows
By 2010, trade flows had become a complex web,
with the addition of Asia and the Middle East
McKinsey & Company | 23
Large developing economies are moving up in global manufacturing
SOURCE: IHS Global Insight; McKinsey Global Institute analysis
1 South Korea ranked 25 in 1980
2 In 2000, Indonesia ranked 20 and Russia ranked 21
NOTE: Based on IHS Global Insight database sample of 75 economies, of which 28 are developed and 47 are developing. Manufacturing here is
calculated top down from the IHS Global Insight aggregate; there might be discrepancy with bottom-up calculations elsewhere
Top 15 manufacturers by share of global nominal manufacturing gross value added
Rank
7 China China France South Korea
13 Netherlands Turkey Taiwan Indonesia2
11 Mexico South Korea1 Spain Russia2
9 Spain Spain Canada United Kingdom
1 United States United States United States United States
6 Italy France Italy Brazil
15 India Taiwan Turkey Canada
2 Germany Japan Japan China
8 Brazil Brazil South Korea France
4 United Kingdom Italy China Germany
5 France United Kingdom United Kingdom Italy
3 Japan Germany Germany Japan
12 Australia Mexico Brazil Mexico
14 Argentina India India Spain
10 Canada Canada Mexico India
1980 1990 2000 2010
THE GREAT REBALANCING
McKinsey & Company | 24
Real value creation will come more and more from E2E value chain
integration – Non-core activities can be sourced externally
Value generation through tight E2E control and integration
• Vision, design, brand, customer promise (differentiating and controlled in-house)
• Integrated eco-system: iTunes, App Store, all devices
• Tight management of all partners in the chain along strict policies
Configuration &
testing
Distribution
& Sales Marketing
Software
& content
Look
& feel
Manufacturing
& assembly
Hardware
Design & development
Non-core outsourced
activities
Differentiating
activities
EXAMPLE Apple example
SOURCE: McKinsey Procurement 20/20: Supply Entrepreneurship in a Changing World
THE PRODUCTIVITY IMPERATIVE
McKinsey & Company | 25 25 25 25
Integrators are farming out more and more activities, which can be
observed from the above-GDP growth rates of functional specialists
Support
functions
IT
HR
Finance
R&D and Design Manufacturing Supply Chain
Management Marketing & Sales
16%3 10-17%4
2.7% Global real GDP growth
1 Based on growth of Original Design Manufacturers in CE industry
2 Based on growth of Manufacturing Service providers in CE industry
3 Based on average growth of Warehousing and logistics specialists, 04-10
X% Indicative growth rate
Value chain
functions
4 Based on industry growth rates of Market Research and Call Centers
5 IMS offshore outsourcing, based on interviews (McKinsey)
6 CAGR 2006-2010, Gartner Marketing growth 10-20%
7 Everest Research 2008
17%1 26%2
Global forwarding
25
10%5
12%6
20%7
Indicative growth rates in %, 2002-2010, example Functional Specialists
THE PRODUCTIVITY IMPERATIVE
McKinsey & Company | 26
Large aircraft makers such as Boeing have outsourced
more of their manufacturing programs
1 Estimated
2 The number is a rough estimate due to integration of Vought plant into Boeing
SOURCE: International Association of Machinists and Aerospace Workers; Boeing; Reuters; McKinsey Global Institute
analysis
Parts built by
Boeing in-house
Boeing has transformed itself into a systems integrator
and has outsourced an increasing proportion of its aircraft
737 Classic at
start of production
10% outsourced
747 series at
start of production
20% outsourced1
787 Dreamliner
at start of production
80% outsourced2
THE PRODUCTIVITY IMPERATIVE
McKinsey & Company | 27
Procurement is best positioned to support this shift towards
functional specialists as a natural interface with external providers
Customers
Configuration
& testing
Distribution
& sales Marketing
Manufacturing
& assembly Software
& content
Look &
feel Hardware
Design & development
R&D suppliers,
partners,
competitors, …
Raw materials,
manufacturing and
assembly suppl., …
Freight,
warehousing,
services, …
Other
Procurement
organizations
Procurement
Procurement is optimally positioned to …
▪ Orchestrate the end-to-end value chain
▪ Manage external providers for performance
▪ Scout for external best-practices and innovations
▪ Benchmark the competitiveness of internal
functions and areas of value add with the
functional excellence available on the market
SOURCE: McKinsey Procurement 20/20: Supply Entrepreneurship in a Changing World
THE PRODUCTIVITY IMPERATIVE
McKinsey & Company | 28
The torrent of global Internet information exchange is growing
at 31% CAGR
Exabytes per month by type
Expected Global Consumer IP Traffic 2011–2016
SOURCE: 2012 Cisco Virtual Indexing Forecast and Methodology, Library of Congress
Mobile Data
Managed IP
Internet
U.S.
Congress
Library
0.00025
15
2016E
97
8
74
2015E
76
5
13
58
2014E
60
3
11
45
2013E
47
2 9
36
2012
37
1 7
29
2011
26
0 5
20
31% CAGR Comparison
data stored
in the U.S.
Library of
Congress
THE GLOBAL GRID
McKinsey & Company | 29
0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
Wheat
Soybean-Oil
Crude-Oil
Corn
Copper
Aluminum
Commodities have seen significant increases in volatility
SOURCE: Bloomberg; Farm Foundation; McKinsey
1990 1995 2000 2005 2012
Cash price
Indexed (nominal)
19
19
19
24
32
28
24
31
33
35 36
Soy
Wheat
Corn
Aluminum
Crude
52
70
31
22
Materials
36 Copper
Other
Grains 1987-07 %
change 2008-12
3 Gasoline
12
1 Annualized standard deviation of monthly returns (%)
Volatility1
THE PRICE OF THE PLANET
20
22
29
McKinsey & Company | 30
Given the competitive pressure, e.g. Auto, OEMs have little or no
flexibility to pass on the increased raw material cost to end customers
SOURCE: MEPS, Thomson, ICIS Pricing, Metal bulletin, Overdrive, team analysis
120
110
100
90
80
Jan-12 Oct-11 Jul-11 Apr-11 Jan-11 Oct-10 Jul-10 Apr-10 Jan-10 Oct-09 Jul-09 Apr-09 Jan-09
240
Innova
Swift
Indica
Santro
Alto
150
160
170
180
230
220
190
210
130
Scorpio
140
Weighted
index1
Copper
Aluminium
Steel
Prices of highest selling car models and key commodities for last 3 years
Jan’09 prices indexed to 100 for comparison purpose
Palladium &
Rubber have grown
to more than 3x of
Jan-09 prices
1 Weighted index : 32% steel + 18% Al + 9% Copper + 15% crude (proxy for pet-chem derivatives) +18% Rubber + 8% Pd (proxy for precious metals)
THE PRICE OF THE PLANET
McKinsey & Company | 31
Procurement can enact 10 key levers to translate sourcing risk into
competitive advantage
Develop playbooks to ensure quick response on a set of critical
processes (e.g., support supplier in distress) with clear owners
Develop playbooks
Optimize level and location of inventory to e.g., capture the
benefits of raw material volatility; ensure reactivity
Optimize inventory
Transfer risks, e.g. price increase or currency risks to suppliers and
customers
Implement flexible supplier and
customer contracting strategy
Set-up financial, physical or synthetic hedging or take out
insurance
Transfer risks to third parties
Define transparent SLAs, conditions , code of conducts in suppliers
contracts and conduct periodic review of compliance
Establish explicit T&Cs
Increase supplier robustness by adapting supplier selection criteria,
promoting supplier agility, and developing their ecosystems
Select and develop agile
suppliers and ecosystems
Use quantitative scenarios to take key uncertainties into account,
e.g., bankruptcy, to make strategic decisions
Factor key uncertainties into
supplier strategy
Develop modularization/standardization/reuse/late differentiation,
develop material switchability
Develop modularization
approach
Influence customer demand pattern to reduce P&L impact of
e.g., raw material price increases
Shape and effectively forecast
customer demand
Actively monitor raw material price evolution and establish full
transparency for key raw material cost.
Set up systematic reviewing
1
2
3
4
5
6
7
8
9
10
Description Levers Cases
SOURCE: McKinsey Procurement 20/20: Supply Entrepreneurship in a Changing World
THE PRICE OF THE PLANET
McKinsey & Company | 32 SOURCE: OECD corporate tax statistics, Economic Intelligence Unit
22
45
26
2
Not significant
Priority but not top 3
Top 3 agenda point
Most important
2
28
70
Less important
No change
More important
Expectations on change in government
interventions affecting companies
% of respondents1
Where ESR falls on the CEO’s agenda
% of respondents1
How importance of CSR has changed
over the past 5 years
% of respondents1
9
25
64
Decrease
Stay the same
Increase
“In the next decade, the most
successful companies will be
those that integrate
sustainability into their core
businesses”
– Jim Owens, former CEO
Caterpillar
"We believe that a company's
success is combining
economic performance with
active management of social
and environmental factors"
– Hans Vestberg, CEO
Ericsson
“The government has moved
in next door, and it ain't
leaving”
– Jeff Immelt, GE
Environmental, social, and regulatory (ESR) influences are becoming
increasingly critical to all companies
1 McKinsey Global Survey results “The business of sustainability “; 2011, total of 3,203 respondents; “don’t know” not shown
THE NEW ECONOMIC DRIVERS
McKinsey & Company | 33
Environmental
Social
Regulatory
While these influences can generate direct costs because of their
associated risks, they also open new value creation opportunities EXAMPLES
SOURCE: McKinsey Procurement 20/20: Supply Entrepreneurship in a Changing World
Direct cost Risks Value creation
opportunities
▪ Environmental
incidents
▪ Non-compliance to
standards
▪ CO2 emissions
▪ Energy efficiency
▪ Water management
▪ Waste processing
▪ Supplier
compliance
management
▪ Supplier choice
limitations
▪ Brand damage from
supplier actions/
ethics
▪ Mitigating impacts
on community
health
▪ Access to new/
captive markets
▪ ‘Social image’
attracts
customers/
employees
▪ Emission
allowance trading
▪ New, energy/water
saving products
▪ Customer loyalty
▪ Shape supply
industry
▪ Tax optimal
procurement
footprint
▪ Legal risks
▪ Taxes, duties, tariffs
▪ Prescribed quality
specifications
THE NEW ECONOMIC DRIVERS
McKinsey & Company | 34
Sourcing decisions shall incorporate ESR effects by considering the
“Total Impact of Ownership” (TIO) instead of the traditional TCO
SOURCE: McKinsey Global Survey results “The business of sustainability “
Social
2-3
Environmental
4
Traditional TCO
100
Total Impact of
Ownership (TIO)
109-110
Regulatory
3
Procure-
ment
related
effects
▪ Suppliers’
cost
▪ Internal cost
▪ Joint cost
▪ GHG
▪ Water
▪ Waste
▪ Safety
▪ Health
▪ Social wellness
▪ Regulations
▪ Taxes, tariffs
▪ Ethics,
corruption
Traditional TCO elements New TCO elements
Typical effects (varies by industry / company)
Expected average cost impacts of different ESR influences, %
Estimation method
▪ Assess likelihood of
risk, including effect
of mitigation plans
▪ Assess associated
impact
▪ Multiply both
estimates
THE NEW ECONOMIC DRIVERS
McKinsey & Company | 35
Implications on Purchasing and Supply Management will be profound
SOURCE: McKinsey Procurement 20/20: Supply Entrepreneurship in a Changing World
The great
global
rebalancing
Sourcing
decision
making will shift
its own gravity
to anticipate the
increasing
relevance of
developing
countries
Total cost will
take on a new,
broader
meaning, driven
by consumer
and state driven
environmental,
social, and
governmental
influences
1
Value creation
will increasingly
come from
managing end-
to-end value
chain
integration
along the
network of
partners and
suppliers
Large and
always
increasing data
flows will enable
new levels of
control,
collaboration,
and value
extraction
Dynamically
managing
volatility,
disruptions,
and scarcity,
will become a
differentiator
The
productivity
imperative
2
Big data and
the global grid
3
The price of
the planet
4
The new
economic
drivers
5
McKinsey & Company | 36
How can we foster Procurement
innovation to drive competitive
advantage?
SOURCE: McKinsey Procurement 20/20
McKinsey & Company | 37
What does innovation mean to you ?
SOURCE: McKinsey Procurement 20/20: Supply Entrepreneurship in a Changing World
Innovation @ < Wikipedia >
Original, new and more effective
products, processes, services,
technologies, or ideas that "break
in to" the market or into society.
Innovation refers to the use of and
ideas whereas invention refers to
the creation of it.
Innovation differs from
improvement in that innovation
refers to the notion of doing
something different rather than
doing the same thing better.
McKinsey & Company | 38
What does innovation mean to you ?
SOURCE: McKinsey Procurement 20/20: Supply Entrepreneurship in a Changing World
McKinsey & Company | 39
Breakthrough innovations can be almost exclusively
externally driven, example IPOD …
SOURCE: Interviews; web search; Bloomberg; McKinsey
Tony Fadell
Software
Content
Hardware
Specifications
File transfer
Compatibility
Music production
Storage
Functionality
Music Books
Mobile HDD
Digital converter
Firewire (1394)
Touch Key
Planar Lith- ium battery
Flash memory chip
Channel
Brand
Sourcing
innovation
Concept
The iPOD was born through sourcing innovation
HIGH TECH EXAMPLE
McKinsey & Company | 40
What is the true frontier for innovation in Procurement?
External innovation
▪ Revenue: 169 USD billion
▪ Gross profit: 69 USD billion
▪ Market cap: 378 USD billion
▪ Employees: 80,000 FTEs
Procurement innovation
McKinsey & Company | 41
The next frontier in Procurement: Innovate now
the way we …
… create value for the business: Value creation 1
SOURCE: McKinsey
2 … interface with suppliers: Supplier colllaboration
3 … monitor and incentivize our partners: Performance contracting
4 … understand and mitigate business risk: Procurement risk management
5 … define modular offerings for category needs: scalable solutions
6 … develop Procurement talent to corporate leaders: People development
7 … apply teardown labs and analytics for true costing: Design-to-value
8 … measure our achievement as professionals: Value measurement
McKinsey & Company | 42 42 42 42
Walmart strongly
pushes customer
collaboration across
all major collabo-
ration themes
Existing collaboration
efforts already span
the major consumer
goods players across
their entire network
Collaboration partners Collaboration themes Collaborative / vendor
managed inventory
Joint demand planning
Joint replenishment planning
Joint logistics lean value
stream mapping and flow
optimization
Joint volume planning
Category captain/management
In-store sales staff
Joint planogram optimization
Joint store fixture and signage
optimization
Joint packaging and product
development
Joint shopper insights
research
Innovating the way we work with suppliers: collaboration at scale 1/2
SOURCE: McKinsey
McKinsey & Company | 43
Innovating the way we work with suppliers
▪ Requirement data access, alerts
▪ Downstream visibility ( inventory, sales data)
▪ Information exchange on initiatives, e.g.
news
Better
communication
▪ Joint site visits to best-practice sites
▪ Joint training, e.g. on lean, collaborative
planning
▪ Experience exchange, sharing of best ideas
and approaches
▪ Expert networks: joint networks of topic experts
across company boundaries
Sharing
experience and
know how
▪ Embedded collaboration: supplier key accounts
work 1 month per year at buyer site, and vice-
versa buyer quality and supply chain staff
Close
interaction
▪ 48 hour escalation line
▪ Joint issue resolution teams, e.g. deviations
▪ Emergency taskforce of technical experts
Fast and
effective issue
resolution
1/2
SOURCE: McKinsey
McKinsey & Company | 44
Time to step up performance monitoring and contracting 3
Holistic view of performance Transparency and instant feedback
Monetary incentives Non-monetary rewards
SOURCE: McKinsey
McKinsey & Company | 45
Effective Procurement Risk Management combines both
commodity-based and supplier-based risks and opportunities
Commodity risk assessments
Internal Demand
Specifications
Industry demand
Industry capacity/supply
Market cost
Supplier risk assessments
Supplier Cost
Financial
Regulatory Compliance & Quality
Geo Political
Supply Agreement
Reputational1
Sourcing risk dashboard
= + Commodity-based
risks and opportunities
Supplier-based
risks and opportunities
Integrated approach to
Procurement Risk Management
Risk/
Opportunity
Categories
Risk
dashboards
▪ Aligned, prioritized set of risks
and opportunities
▪ Common taxonomy and
approach to allow ‘apples-to-
apples’ consideration of risks
Innovation
6
Risk appetite overview (2/3): Financial loss thresholds
Risk appetite overview (3/3): Brandname thresholds
Risk appetite overview (1/3): Public health thresholds
4553 50 50
Q4
60
Q3
60
Q2
60
Q1
60
3 5 7
Product Risk Action
▪ Pharm 1 ▪ Factory
shut down
▪ Increase
inventory
by 0.5M
units
▪ … ▪ … ▪ …
▪ … ▪ … ▪ …
▪ … ▪ … ▪ …
▪ … ▪ … ▪ …
5
3 4 6 4
Exposure profile (# of commodities)
Procurement dashboard: Summary overview of commodities by risk level over time
Low riskMedium riskHigh risk
Details regarding sources of risk and actions
are provided for commodities carrying excess
risk
commodities that have high exposure
(% of revenue those commodities
represent)
# of
commodities
% of sector
revenue
Generated for (1)
Public Health, (2)
Financials (3)
Brandname
Focus on
commodities
exceeding risk
thresholds
Display the absolute
number of
commodities in
breach of thresholds
over time
1
2
3
4
Technology
SOURCE: McKinsey Risk Practice
1 Reputational risks are those that impact a company’s brand such as mishandling of sensitive data, interactions with customers and/or sub-contractors
4
McKinsey & Company | 46
Scalable solutions is a major trend in industry but also highly
relevant for procurement
5
SOURCE: Company websites, McKinsey
Procurement value through
modular, scalable solutions
Integrated facility
management
Consumables catalogues
Spare part management
solutions
….
“As an innovative partner we
offer considerably more than
just high-value products: We
support our customers in
facing a multitude of
challenges and offer them
tailor-made solutions”
McKinsey & Company | 47
Tear it down! 7
SOURCE: McKinsey
McKinsey & Company | 48
Are we a little blind on one eye?
Purchase
quantity
8 Measurement of procurement achievements
Purchase price
Procurement
process
Your supplier Your company Your Customer
SOURCE: McKinsey
McKinsey & Company | 49
What can you take
home from it?
SOURCE: McKinsey Procurement 20/20
McKinsey & Company | 50
Thanks for
your attention!
Shopping, Trading or Procurement
- an innovation journey enhancing value from your Contract Awards
Doug Else-Jack,
MCIPS, Switzerland & Cambridge Branches
52
Products of Hitachi Zosen Corporation
Environmental
Systems
Plants Machinery Process
Equipment
Infrastructure Precision
Machinery
Energy-from-Waste
Plants
Material Recycling
Systems
AOM (After-Sales,
Operation,
Maintenance)
Long-Term Business
Operations
Biomass Utilisation
Plants
Eco-Agriculture
Systems
Water Treatment
Systems
Desalination Plants
Chemical Plants
SCR Nox Removal Plants
Hitz Dehydration System (HDS®)
Biodiesel Fuel Production Facility
Power Generation Systems
ORC (Organic Rankine Cycle) Heat Recovery Power Generation Plants
O&M/IPP and After Sales Service
New Energy (Wind Power and Fuel Cells)
Marine Diesel Engines
Deck Machinery for
Ships
Press Machines
Boilers
Process Vessels
Heat Exchangers
Nuclear Fuel Cycle
Equipment
Bridges
Hydraulic Gates
Shield Tunnelling
Machines
Movable Flap-Gate
Type Breakwater
Bridge Maintenance and
Earthquake Protection
Marine Civil Engineering
Steel Stacks
Slurry Ice Plants
GPS Buoy Wave /
Tsunami / Tide Obser-
vation System
Electric Discharge
Impulse Crushing
System
Food and Medical
Machineries
Plastic Machinery
OELD Production
Systems
Electronic Equipment
and Control System
Foreign Substance
Removal Equipment
Lapping Plates
Laser Patterning
Equipment
Polishing Machines
Vacuum Machines
Sales: € 2.6 Billion
Employees: 8846 FTE
INOVA: 480+ plants WW
Energy from Waste Power Stations
Cost of Build
• Approx. €250 Mio & 200+ Bid Packages
• 25% = Civils build
• 50% = Process Equipment
• 25% = Engineering & Project Management Time
Time
• From bid to build = 5-7 years
• 18 month Build & 2-3 year warranty
Typical Site (2-3 EU projects per annum)
• 200,000 tonnes of waste
• 90 KWH electric output
• Process, Domestic, Industrial and Special Wastes
• Reclaim Steel, Aluminium & Gold
• Boiler = 25m high,
• 10,000 tonnes structural steel
• Engineers always want to innovate / tinker!
• Client consultants, architects & planners constrain
efficiency
53
• What our Engineers could be expected to do
given a free hand
• All Suppliers would be Swiss or German
• Most Sales or R&D contacts would have
served in the Swiss Military
• Solutions expensive but good / cutting edge
• Negotiations limited to give me 10%
off…………………ok 2%
• T&C’s = Swiss Code
• Claims limited as old boy scheme / handed
on to next project!
Shopping @ HZI
54
• What our Engineers and Buyers have been
doing
• 1/3 Suppliers E Europe & balance CH or D
• All Sales or R&D contacts speak German and
hopefully English (Some served in the Swiss
Military)
• Solutions good / cutting edge and competitive
• Iterative bidding process starting with 3-5
qualified bidders, rapidly reducing to dual or
single close out, 3-5% savings generated
• T&C’s = Based on Swiss Code or UK Law but
project specific
• Priorities = Specification and then Price
• Con’s = Claims rate @ 7%+
Trading @ HZI
55
• ½ Suppliers are not CH or D
• Supplier Management, Sales & R&D speak
English & German
• Solutions awarded against Balanced Scorecard
criteria including being competitive
• Standardised design being implemented across
80% of site, Key Suppliers identified for certain
elements (25%) and limited iterative bidding
process 3-5 qualified bidders, closeout by
eAuction, 7% genuine savings generated
• T&C’s = Based on Swiss Code or UK Law but
project specific
• Priorities = Safety & Right Award Every Time
• Con’s = Claims rate @ <3%
Procurement @ HZI (12 month journey)
56
• A good Award Process is only as good as your
suppliers, consistency of application and fairness
• Our process began by improving Supplier
Selection
• Better Suppliers mean better opportunities and
more chance of break through’s
• Also needed to understand the Good, the Bad &
the Ugly within our Supply Chain
• Needed Engineering to involve Buyers earlier to
help educate colleagues and minimise spec
constraints
• Asked Engineering & Project Staff to confirm
Supplier Performance over past 3 years!
Get the ground work and history right!
Building upto Balanced Awards
57
Assessing Suppliers
4 part approach…
• Assess potential suppliers • Profile Questionnaire light registration
• eRFI extended Supplier Questionnaire
• Audit supplier • Scorecard records detrimental findings & helps
track improvement planning
• Measure Performance • Scorecard records project by project
performance, facts and opinions
= Long Term Supplier Capability Score
+ Bid • eRFP/Q & Auctions
= HZI Supplier Contract Awards
58
Suppliers Overview Dashboard via Executive Analytics Module
59
Assess Potential Suppliers
• Initial approach via Supplier Portal (Supplier Information
Management Module)
• Internally applications of interest routed to
relevant Supply Management Category Teams
• If of interest Supplier asked to complete
Supplier Questionnaire (RFI via Sourcing
Module)
• Supplier Questionnaire scores key criteria in
background
• Category Manager then double checks inputs
and approves within Supplier Information
Management module
• Supplier then registered as Potential Supplier
with an initial Supplier Capability Score
• Tool updates annually and rescores accordingly
60
Information reviewed
Contacts
Organisation
Products & Services
ISO registration
EH&S
Code of Conduct
D&B rating
Assess Potential Suppliers via Supplier Information Management Module
61
Assess Potential Suppliers via RFI within Sourcing Module
Reserved Questions
• Hidden from Supplier
• Allow scoring by buyer
• Use Altman Z as backup
to D&B
62
Audit Suppliers
• Category Manager or Buyer decides when audit
required based on Category and Supplier Risk process
• Audit mandated for all major business / re-occurrence
varies between annual to 5 yearly
• 4 part activity
• Pre visit Survey and information to prepare
• Conduct Site Survey
• Agreed actions
• Adaptation of Supplier Capability Score
• Findings can increase or reduce Supplier Capability
Scores (including removal from approved Supplier
List)
63
Audit Suppliers logged via Supplier Performance Management Module
64
Bid Suppliers
• All supplier bids above €50,000 via IASTA
SmartSource
• Buyer may use RFI, RFP, RFQ and eAuction based on
Category Strategy
• Awards are assessed on balanced scorecard
• Scope of Work
• Legal Terms & Conditions
• Project Delivery Schedule
• Long Term Supplier Capability
• Total Cost of Ownership
• 99% of Awards accepted based on scoring,
irrespective of value have been accepted across
Supply Management, Engineering, QA, Project Team
and Senior Management
65
Bid Suppliers via Sealed Bids/Auctions within the Sourcing Module
Able to adjust bids for
known additional costs,
risks or added value
66
Measure Performance:
• 3 years of Supplier order performance uplifted into
Executive Analytics Module
• Good performance increases Supplier Capability
Score
• Bad performance reduces Supplier Capability Scoring
• Performance includes:
• On time delivery
• First past yield
• Project satisfaction
• Claims rate
67
Does our Award Process result in better Awards?
• Automated process is transparent to Supply
Management & our Internal Clients
• We can share definitive information with Suppliers
• HZI awards business using a balanced scorecard
based on:
• Scope of Work
• Legal Terms & Conditions
• Project Delivery Schedule
• Supplier Capability
• Total Cost of Ownership
• Savings up from nominal 3% to 7%+
• Claim rates are reduced from 7%+ to <3%
• Supply management pushing ahead with Category
Management and Supplier Development
• Board level satisfaction increased & SSC-SM now
member of the Management Team
68
Project Bungle, innovating inefficiency
EfW Plant Revenue Stream
50% Tonnage Gate Fee for Abfall
45% KWH Strom Fee
5% Reclamation of Steel, Aluminium & Gold
• Electricity Generation & Metals reclaim at science vs’s
significant expense
• Burn rate of waste a function of Concrete, steel, design
and length and angle of fall
• During a Supplier review noticed Sales & Engineering
discussing Boiler efficiency etc…., next improvements
etc….
• This confused me as I know we make more money
burning waste than generating steam
Outcome = 8% more inefficient boiler for nominal cost
Message = Hot air costs money!
or
Efficiency must be at right cost!!
© Thames Television
69
• We score not just facts but controvesy & so our internal partners know they’ve been heard
• We weight facts and average opinions (200+ per supplier)
• There’s now a genuine awareness of the good, the bad and the ugly
• Be pragmatic but don’t run from controvesy, simply account for it!
• Don’t forget that despite creating a highly automated and repeatable framework for success, you have to live it and continue to think creatively!
End
Our Innovation?
Leading global excellence in procurement and supply
CIPS Switzerland Network Group Event – Innovation in
Purchasing - 26 June 2013
