Oriflame Purchasing Management Workshop Module 5 – Sourcing Process Stages Cost & Cash Data gathering RFI RFP Market Evaluation Supplier Scorecards

Oriflame Purchasing Management WorkshopModule 5 – Sourcing Process Stages• Cost & Cash Data gathering• RFI• RFP• Market Evaluation• Supplier Scorecards

2005-10-11 Oriflame Purchasing Management Workshop2

Purchasing Workshop Module 5

© The Delos Partnership 2005

Sourcing Process Stages

Risk & Risk & Value Value

Analysis Analysis

Cost & Cost & Cash Data Cash Data CaptureCapture

Scope, Scope, URS, URS,

Market Market TestingTesting

Supplier(s) Supplier(s) RFI, RFI,

RFQ, & RFQ, & PerformancPerformanc

ee

Leverage Leverage & &

DealmakiDealmaking ng

Supplier & Supplier & Results Results

ManagemenManagement t




Sourcing Project Scope

•Projects need to have defined and agreed Scope and Boundaries – some projects may be vetoed “Sacred Cows”

•Timing and prioritization is determined by factors such as risk, cost avoidance or impact, savings opportunity, customer importance, impact on the business etc.

•Resources and ease of implementation are also key factors




Project Scope Examples

A top down Board imperative to immediately reduce inventories & then achieve further sustained improvement

An integrated Supply Chain & Procurement project to improve Customer Service levels & improve ROCE (Cost, Cash and Assets)

Finished Product Stocks

Raw Material

& WIP Stocks

ERP & Systems

Integration

Inventory Reduction

ProjectSales & Operations Planning Process

Sea, Rail & Road Into Europe, Out of Europe, Within Europe

Warehousing

Insourcing

Outsourcing

Workflow Costs

Logistics Project

All Logistics Charges & Invoices




Cebal

& Other Tube

Supplier Manageme

nt

Cebal

& Other Tube

Supplier Manageme

nt

Tubes Supply Demand

Tubes Supply Demand

TubesTotal ValueManagemen

t

TubesTotal ValueManagemen

t

Produce a detailed Strategy paper for

the Oriflame Business

leadership with

recommended sourcing

options

Produce a detailed Strategy paper for

the Oriflame Business

leadership with

recommended sourcing

optionsDefine best value approach under the existing planned future contract & Total Value Plan goals.

Define best value approach under the existing planned future contract & Total Value Plan goals.

Define current & projected HSE, Quality, Net Cost, Delivery, Service and Innovation in all Oriflame user plants.

Define current & projected HSE, Quality, Net Cost, Delivery, Service and Innovation in all Oriflame user plants.

Develop a Request for Proposal for the new Tubes contract (RFQ).

Develop a Request for Proposal for the new Tubes contract (RFQ).

Define Oriflame future specification needs & choices, forward demand plans & current contract supply performance gaps.

Define Oriflame future specification needs & choices, forward demand plans & current contract supply performance gaps.

Complete a risk analysis on Cebal

& other key suppliers –

Tupack, Norden, Soupletube

Complete a risk analysis on Cebal

& other key suppliers –

Tupack, Norden, Soupletube

Define near & long term Tube Supply Demand position,

options, developments, risks & balance

Define near & long term Tube Supply Demand position,

options, developments, risks & balance

Create Strategic Sourcing share & cost options for each supplier& define partnership types & structure

Create Strategic Sourcing share & cost options for each supplier& define partnership types & structure

Define the optimum current & future Tubes Supply Chain & Logistics strategy & benchmark

Define the optimum current & future Tubes Supply Chain & Logistics strategy & benchmark

Prioritise the Top Value goals by supplier and select areas for 2005 and 2006 action & implementation

Prioritise the Top Value goals by supplier and select areas for 2005 and 2006 action & implementation

Tubes – Strategy Plan Overview

Element Element Oct 05 Oct 05 Nov 05 Nov 05 Dec 05 Dec 05 Jan 06 Jan 06




• Engage all Oriflame stakeholders to ensure all key issues are covered and internal customer needs are met

• Complete a global Cebal Supplier Assessment

• Assess new supplier capability through both a quality and supply chain audit.

• Conduct detailed supplier Interviews to verify information

• Gather data from Plants and Finance on current Cebal Tubes Cost, Cash & process baseline

• Gather data to allow a complete strategic analysis of the Cebal business

• Gather global data on Tubes supply sources, specifications, quantities and complete a Tubes Market evaluation (Consultant support?)

• Gather data on the current Cebal supply risks and ensure the supplier completes an RFI & risk assessment.

• Ensure the Financial Status & Stability of all potential suppliers is known.

• Understand Supplier Strategies and Tubes growth rates

• Understand Tube market shares and relative status of each supplier.

• Put together a view of the best Oriflame Strategic Supplier options

• Define M&A Strategies

• Complete a list of preferred short and long term Oriflame Tube suppliers

• Sign off on the list with the Tubes stakeholders

• Agree when to start to issue the Tubes RFQ and Total Value Plans.

Gather Inputfrom Oriflame Stakeholders

Gather Inputfrom Oriflame Stakeholders

EstablishCebal & Supplier

key criteria

EstablishCebal & Supplier

key criteria

Form Listof future supplier

RFQ recipients

Form Listof future supplier

RFQ recipientsProject

Data gathering

Project Data gathering

Cebal & Supplier Management




• Meeting / Disk / CD

• Electronic / Mail

• Oriflame Intranet

• Completion timelines

• Obtain key stakeholder sourcing goals & needs

• Utilise Oriflame current tubes knowledge

• Use Market/Industry Information

• Oriflame Business Open-ended questions

• Oriflame Business Closed-ended questions

• Oriflame Business current specifications included?

• Oriflame Business deal making & supplier relationship strategy

• Key Oriflame performance measures

• Summarise supplier RFQ content

• Focus on the RFQ Supplier Candidates

• Visit the Supplier Sites

Determine RFQ

TransmissionFormat

Determine RFQ

TransmissionFormat

DetermineTubesRFQ

Format

DetermineTubesRFQ

Format

Analyse Tube RFQ

Analyse Tube RFQ

EstablishTubes Key

Criteria

EstablishTubes Key

Criteria

Develop a RFQ for Cebal & Others




Oriflame long term commitmentSupplier Strategic alignmentCompetitor AlignmentTechnical service capability

HSE ComplianceNew product supply & developmentOverall Capacity availableOriflame specification / grade capacity Multiple plants Financial StabilityGeographic locations, distanceCapital Investment Process Innovation Electronic CommerceOriflame Integration - Inventory, Cash, SFDM

Tubes Schedule Achievement100% On time in fullSupply Chain / Logistics Mgt.Inventory Management

Tubes Right First Time Quality (ppm) Defective Product ProcessISO accreditation & process

Percentage of supplier turnoverOriflame ERP system integrationTPM & EngineeringTransport/packaging qualityInsurance coverIndemnity Warranty – acceptance of penalties

Deal type & cost transparencyLowest cost producer status Price strategy & stabilityLowest “total cost”

Purchasing & Consultant Expert Data Oriflame Stakeholder Input Other Market Knowledge

Establish Tube Evaluation Criteria

Tubes Supply Sources – Future Trends / 5 Year View / Supplier CriteriaTubes Supply Sources – Future Trends / 5 Year View / Supplier Criteria

OriflameLong Term

SupplyCapability

Delivery

Quality

Oriflame Alignment

Cost

Others




Oriflame Tubes RFQ Scorecard

See Delos Procurement

ExcelWorkbook

Supplier A Supplier B Supplier C Supplier D Benchmark

HSE HSE Compliance 15 3 45 30Q RFTQ - 100% of the Time 14 3 42 14D Schedule Achievement - 100% On time in Full (OTIF) 13 3 39 26D Supply Chain/Logistics Mgt 12 3 36 0I On Time New Developments 11 3 33 11C Price (Total Cost) 10 3 30 12

C/D Inventory Management (SMI) 9 3 27 9I Strategic Alignment 8 3 24 8C Payment Terms 7 3 21 7C ERP / e Commerce 6 3 18 0I Investment in Product Specification used by the Business 5 3 15 0I Investment in end Customer / Business Product Development 4 3 12 0S Is responsive to the Business immediate needs 3 3 9 0S CRM (Customer Relationship Management) in place 2 3 6 2

C/S Self Performance Measurement / Assessment 1 3 3 0Total Value Total 45 360 119

33%

Stakeholder RFQ Scoring Levels Current Supplier (Benchmark) score is an example0 Fails to meet the Business needs1 Entry level - RFI & Supplier Project Plan are required2 Underperforming / Development Supplier - Improvement / Approval actions required 3 Approved Supplier - Meets Business needs and is approved for use 4 Preferred Supplier - Delivers significant added value &/or low cost 5 Strategic Supplier - Joint Strategic Value agreements & Investments

Weighting would need to be agreed by the stakeholders as would the levels and the

score that would be allocated to the current benchmark.

Total Value Element RFQ Key Measures Weight Average

Request for Quotation (RFQ) Scorecard Supplier Scores

Percentage versus Approved Supplier Average Score

Scores





• Put together the Tubes negotiation plans & agendas

• Ensure that the Cebal agreement has been thoroughly reviewed.

• Ensure an NDA is in place so that there is no market leakage of strategic Oriflame information.

• Analyse & evaluate completed RFQ’s

• Use/modify evaluation criteria

• Get key stakeholder input

• Discuss and develop Oriflame needs and wants.

• Discuss and agree the different Oriflame Negotiation roles & styles.

• Create the Oriflame

Tubes negotiation team (never alone!! and typically 3-4 people)

• Decide on Tubes negotiation team roles.

• Tubes Supplier Selection

• Legal Supply and Service level agreement and Total value plan,

• Performance Measures

• Supplier and Oriflame relationship management

• Communicate of results on a need to know basis.

Plan the Tubes Meetings

& new Oriflame

Agreement

Plan the Tubes Meetings

& new Oriflame

Agreement

DevelopTubes

Negotiation Strategy

DevelopTubes

Negotiation Strategy

Post Tubes Negotiation

Actions

Post Tubes Negotiation

Actions

DevelopTubes

NegotiationGoals

DevelopTubes

NegotiationGoals

Negotiate / Select the 2006+ Supplier(s)


ExcelWorkbook




P rocurem en tD irec t

P urchases

P rocurem en tInd irec t

P urchases

S upp lie rs

S upp lie rs

W arehouse

Receiving

Inven to ry

£

VISIO C O RPO RA T IO N

F inance£

£

A ccoun tsP ayab le

Q ua lityA ssu rance

Invo ices&

P aym ents

U nm atched Invo ice and P ON o P urchase O rde rP aym ent te rm s queriedM iss ing G oodsM iss ing invo icesS ta tem en t D iffe rencesM iss ing D iscoun ts

E R P S ys tem

Ind irec t S upp lie rO rder to C ash

S ys tem

In te rna lC us tom er

s

U nau tho rised R equ is itionsN ew supp lie rs unapp roved by P urchas inge -M a ils no t e -R equ is itionsInco rrec t lead tim esO rders launched on supp lie rs w ho canno t de live rO TIF

S upp lie rs w ith no p lann ing sys temS upp lie rs w ith no e capab ilityS upp lie rs w ith no rese rved capac ityS upp lie rs w ho accep t o rde rs bu t canno t m ee t da tesS upp lie rs w ho have p rob lem s w ith the ir supp lie rsS upp lie rs w ho have no d irec t flow

Paper Orders & PaperAcknowledgm ents

D irec t S upp lie rO rder to C ash

S ys tem

Workflow – Oriflame / Suppliers

Include Savings opportunities in Oriflame – Supplier Workflow




Supplier Management involves the implementation of a formal program that focuses on current performance & continuous supplier improvement within the overall business Supplier Map.

Formality ensures;

• Joint Key Performance measures are defined

• There is focus on what is important to the customer

• The deliverables (service levels) in the agreement are measured

• Continuous improvement occurs

• The Business / Supplier relationship is improved versus competition

Final Stage – SRM

Supplier & Results

Management




Supplier Management Tool


ExcelWorkbook

PERFORMANCE ELEMENT Perfect Score Supplier PerformanceRisk & HSE Management 5 3RFTQ100%OTIF 5 4Cost (Price) Improvement 5 2On Time New Development 5 4Responsiveness 5 5Payment Terms 5 4Inventory Management 5 3ERP / Workflow Investment 5 2Product Investment 5 2Strategic Alignment 5 3

TOTAL 50 32

2= Below average performance (Underperforming)3= Acceptable level of performance (Approved) 4= High level of performance (Preferred) 5= The Benchmark - Outstanding level of performance (Strategic)

SUPPLIER PERFORMANCE ASSESSMENT TOOL

SCORING SYSTEM1= Unacceptable - Requires immediate action 0

1

2

3

4

5Risk & HSE Management

RFTQ100%OTIF

Cost (Price) Improvement

On Time New Development

Responsiveness

Payment Terms

Inventory Management

ERP / Workflow Investment

Product Investment

Strategic Alignment





• Sourcing or Category Manager

• Business Managers

• Key Users & Stakeholders

Total Value Elements

• HSE

• Cost

• Supply Chain

• Delivery & Service

• Quality

• Innovation

• Performance Measures

• Metrics

• Collection Methodology

• Business Standards

• Market Dynamics

• Industry Standards

• Best Practice

•Weighting & Scoring System

•Product / Service Classification

•Performance Incentives

•Performance Remedies

•Contractual Issues

•Publication frequency

•Raising the Bar

•Scorecard / Assessment

Supplier Management Considerations & Process Stages

Supplier Assessment

Assemble

Product /

Supplier

Team

Identify

Supplier

Participants

&

Performance

Goals

Agree

feedback,

Meet

Suppliers for

review & set

milestones

Obtain Inputs

against

agreed

Scorecard

Define

Scoring

System and

Verbiage

•Senior Level

•Business Update

•Vision & Strategy

•Competition

•Carrot / Stick

•Volume Impact




First Stage of Sourcing Process

Risk & Value Analysis

Internal• Create cross-functional team, led by Sourcing, consisting of representatives from each stakeholder

• Sales & Marketing • Development • Supply Chain• Operations• Purchasing / Sourcing• Finance• Etc.

• Baseline current spend and usage• Review current contracts (if any)• Internal supplier analysis• Map transaction processes – ERP and P2P process• Identify opportunities and project scope• Develop a source plan detailed workplan / timeline

External• Consider use of expert consultant for data gathering & data interpretation• Benchmark best practices with others (including e-commerce)• Supplier / Industry / Economic analysis• Investigate new technologies that are available




First Stage of Strategic Sourcing

Risk Driver Example Consequence

Supplier HSE Risk Major Accident at main Supplying Plant

Disruption / Cancellation of Supply

Supply Risk Supplier declares Force Majeure No product – Production plants on stop

Quality Risk Raw Material Contamination Major Customer Claims

Lead Time Risk Lead Time increases to 8 weeks Customers buy elsewhere

Commercial / Trading Risk Supplier Corporate Fraud Administrators seize all

inventories

Cost Up Risk Price increase of 10% Customer supplied at a loss

Risk Management (Assurance of Supply, Cost Control)




First Stage – Risk Analysis

Target Date for completion

SUPPLIER SCORE %

3 60%

3 60%

4 80%

3 20%

4 40%

2 40%

19 42%

RISK MANAGEMENT EVALUATION - SUPPLIER X

Date the Risk Management Evaluation started

Supplier Key Account Contact

Person Responsible for the Risk Management Paul Warrick

25th November 2005

14th December 2005

John Smith

IDEAL SCORE

Quality Assurance / Regulatory ScoreHSE Score

55

1510

Product or Service Score Commercial Score Development & Innovation Score Supply Chain & Procurement Score

TOTAL SCORE5

45

5RISK MANANGEMENT ELEMENT




First Stage – Value Analysis

Example Freight Project Spend Scope

Finance P&L accounts

Define the Define the accounts that will accounts that will

be included in be included in value & spend value & spend

analysis so that analysis so that there is complete there is complete

understanding understanding and visibilityand visibility

Primary Accounts

Inbound Domestic

Outbound Domestic

Export

Demurrage

Duty

Lease Costs

Courier Costs

Secondary Accounts

Repairs

Samples

Storage

Repackaging

Fork Lift Hire

Printing

Baseline Current Spend




Second Stage of Sourcing

Cost & Cash Data Capture

• Define service requirements/ understand individual business needs

• Define the scope

• Formalize sourcing strategy and objectives

• Build pricing models

• Draft RFQ

• Gain agreement from team on RFQ

• Define supplier base to receive RFQ

• Distribute RFQ




Third Stage of Sourcing

Scope, URS, Market Testing

• Define internal customer needs – now and in the future

• Develop supplier evaluation criteria for RFQ’s

• Circulate draft RFQ to stakeholders

• Issue to all Suppliers

• Review and score supplier responses

• Decide on “short list” of suppliers




Fourth Stage of Strategic Sourcing

RFI, RFQPerformance

• Supplier discussions with “short list”

• Negotiate pricing and service levels with final supplier(s)

• Develop savings methodology for on going saving tracking

• Gain management approvals




Leverage and Dealmaking

Leverage & Dealmaking

•Decide on the deal that you want and the realistic chances of obtaining it.

•Work with legal on formal contract and service level agreement based on discussion during the RFQ process

•Develop communications plan to utilize vendor sourced

•Identify the key performance metrics for supplier management

•Develop scorecard process for on-going vendor management




Supplier Management involves the implementation of a formal program that focuses on current performance & continuous supplier improvement within the overall business Supplier Map.

Formality ensures;

• Joint Key Performance measures are defined

• There is focus on what is important to the customer

• The deliverables (service levels) in the agreement are measured

• Continuous improvement occurs

• The Business / Supplier relationship is improved versus competition

Final Stage – SRM

Supplier & Results

Management




Questions ?

Documents

Oriflame Purchasing Management Workshop Module 5 – Sourcing Process Stages Cost & Cash Data gathering RFI RFP Market Evaluation Supplier Scorecards