Procurement for executive leaders

Procurement Advisory Services Pty Ltd

2014 Annual Conference …A driver for change

v5

1994 Director of Procurement Australia and New Zealand for BOC

1997 CPO Chief Procurement Officer [Global] The BOC Group, based in London

Next 5 years in FMCG...George Weston Foods as Director of Procurement

Spent $5,000 per minute non stop for 20 Years

2011 formed Procurement Advisory Services

2012 Commissioned to NSW Government as advisor

Fellow of CIPS …the Chartered Institute of Purchasing and Supply

Sits on the global CIPS Congress …members choice

2013 Interim Managing Director of CIPS Australasia

2014 Global President CIPS

Guest Speaker – Craig Lardner FCIPS

Procurement Advisory Services Pty Ltd

What is CIPS

Definition of Procurement

What was it then …what is it now

10 new pieces of information for the executive leader

A best practice procurement operating model

A basic spend segmentation technique…thank you Mr Kraljic

Finding ‘Quick Win $’ …it’s all in the ‘bubbles’

Suppliers segment you…any idea what box they have put you in?

Your Leaky bucket (what does eat up all your ‘savings’?)

Conclusion…It’s not just about price

Agenda

Procurement Advisory Services

The Chartered Institute of Procurement & Supply 

CIPS is the global peak body for the procurement profession

Established 81 years ago…gained ‘Chartered’ status 24 years ago, Privy Council London

Over 100,000 members in 150 countries 

Worlds largest

Built upon degree level standard  – full membership: MCIPS as post‐nominals

CIPS Australia started in January 2005 5,000 members locally  Wide range of training & education programmes, events and member benefits.  White papers, research and benchmarking Networking and sharing of best practice

Procurement is the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs, or may need, to fulfil its strategic objectives.

Supply chain management is the continuous planning, developing, controlling, informing and monitoring of actions within and between supply chain links so that an integrated supply chain process results which meets overall strategic goals

The 5 rights.....The right things The right place The right time The right spec The right total cost

What is ‘Procurement’?

Procurement Advisory Services

pro·cure [proh-kyoor, pruh-] verb (used with object), pro·cured, pro·cur·ing.

1. to obtain or get by care, effort, or the use of special means: to procure evidence.2. to bring about, especially by unscrupulous and indirect means: to procure secret documents.3. to obtain (a person) for the purpose of prostitution.4. to act as a procurer or pimp.

The Procurement Professionals’ 8 Commercial Priorities

Back then ...

1. Price reduction

2. Price reduction

3. Price reduction

4. Price reduction

5. Price reduction

6. Price reduction

7. Price reduction

8. Pay supplier…late

Today and now ...

1. Security of supply

2. Lower total costs …and life time cost

3. Risk reduction…and management of residual risk

4. Increased efficiency …getting more from less

5. Faster speed to market …cycle time

6. Improved quality …and competitive advantage

7. Greater added value …$ and non‐$

8. Supplier sourced innovation …and new products

Procurement Advisory Services

Procurement Advisory Services

10 Background facts:

• 60% of your revenue income  $ value, will be your supplier spend $ value.

• 1% off your supplier costs brings the same net profit lift (surplus) as a 20% increase in your revenue

• Maverick spend is adding more than 3% of extra cost, to  your cost base

• You have too many suppliers…and >50% of all your spend this year will not be under your contracts

• More customers get managed by their supplier than the other way around

• Your Top 10 suppliers will be over 50% of your spend…maybe your Top 5 …most actually don’t know.

• Buying ….Purchasing….Procurement …are all very different

• After setting the ‘specs’ for what you want to buy, over 70% of the value opportunity is gone

• For your total year expenditure, 80% of the decisions are based just on Price…15% on Cost…5% on Value …a lost opportunity for you to get the most total value from your supplier base

• There is untapped value and innovation sitting with your suppliers‐Apple did not invent the iPod…a bank did not invent the ATM…one of their suppliers did

10 new pieces of information for Council leaders

Strategic Procurement ‘Best practice’ Operating Model

A leading practice model addressing all core end-to-end Procurement related activities

STRATEGY

Procurement StrategyProcurement Strategy Sourcing StrategySourcing Strategy Procurement Capability Planning

Procurement Capability Planning

AoP , 3yr Plan andTarget Setting

AoP , 3yr Plan andTarget Setting

Strategic Supplier Management

Strategic Supplier Management

GOVERNANCE

Compliance StrategyCompliance Strategy Balanced ScorecardBalanced Scorecard Risk ManagementRisk Management Process, Policies & Standards setting

Process, Policies & Standards setting

Roles & Responsibilities

Roles & Responsibilities

INTERNAL CUSTOMER MANAGEMENTInternal Customer

EngagementInternal Customer

Engagement

Project Procurement Management

Project Procurement Management

Long Term Demand Planning

Long Term Demand Planning

CATEGORY MANAGEMENT

Supply Market Analysis

Supply Market Analysis

Category StrategyCategory StrategySpend AnalysisSpend Analysis Demand ManagementDemand Management

Supplier Relationship Management

Supplier Relationship Management

Supply Market Development

Supply Market Development

COMPLIANCE MGMTInternal customer

support and administration

Internal customer support and

administration

Compliance monitoringCompliance monitoring

SOURCING MGMTNeeds analysisNeeds analysis

RFX CreationRFX Creation

Supplier SelectionSupplier Selection

Contract NegotiationContract Negotiation

RFX analysis andRecommendationRFX analysis andRecommendation

Contract PreparationContract Preparation

Contract ExecutionContract Execution

CONTRACTS MGMTSupplier contract

complianceSupplier contract

compliance

Company contract compliance

Company contract compliance

SUPPLIER MGMT

Contract cycle /monitoring

Contract cycle /monitoring

Supplier on-boardingSupplier on-boarding

Supplier developmentSupplier development

TRANSACTIONAL SUPPORT & REPORTING

Order placement

Order placement ReceivingReceiving Supplier

PaymentSupplier Payment

Benefits Tracking & Realisation

Benefits Tracking & Realisation

Contract adminContract admin

Operational Reporting

Operational Reporting

T’s & C’s Contract Review

T’s & C’s Contract Review

Stra

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SPM Supplier performance management

and SLA

SPM Supplier performance management

and SLA

Procurement Advisory Services

Supplier segmentationSupplier segmentation

Internal customer satisfaction

Internal customer satisfaction

Right P Communications Plan and execution …using a structured professional approach to target audience and message needed

Professional Procurement :  Strategic Sourcing Analysis 

List ‘spend by supplier’ in $ descending order , split by category of spend = (spend profiling)

Focus on top segment …80% spend with top 20% suppliers = (Perato analysis)

Map a 2 x 2 model(s)…Criticality of spend and complexity of source = (supplier segmentation)

Obtain market data of potential new sources/suppliers = (supply market analysis)

Multiply possible savings by volume to assess the $ size of the opportunity, Collaborate with others = (Leveraging Quick wins)

A simple procurement scoping study to quantify possible opportunity for savings

Basic spend segmentation …The Kraljic Matrix

Vital supply lines

to be secured

Strategicrelationships

to be developed

Indirect purchases

to becommoditised

Indirectsupply lines

to beleveraged

Mapping expenditure against risk

Low spend:High risk

High spend:High risk

High spend:Low risk

Low spend:Low risk

High SpendCommoditiesI.T. Hardware, fuel, utilities,

travel, temp labour

Raw MaterialsBeef for McDonald's, IT Services to a bank,

Iron ore for steel processorElectricity for an Aluminium smelter

Diesel for long haul truckerWaste services for the Council

ConsumablesStationery

office supplies, Cleaning,

FM services

VulnerabilitiesSpecialist

components, Water,

C.A.T. tyres, Legal advice

Bottleneck Strategic

Routine Leverage

Ris

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gh

$ Spend high

1

4

2

3

Cons –Grinders &Liners

Cons – General

Temp labour mgment

Cons –Drilling

Facilities mgment

Cons- Maintce

Fuels & Lubes

Equipmenthire

Explosives Travel &Entertainment

IT Hardware

Contractors –Professional

Contractors- Admin

Ground Support

Consumables- Packaging

Relative Ease Of Implementing Sourcing Strategies

More Difficult Easier

Econ

omic

Ben

efit

Hig

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w

Safety

Rated on dollar benefit

Rated on• Contract restrictions• Supply market difficulty• Critical to operations• Sensitivity to change

Contractors –Maintenance

Chemicals

Consulting

Bearings

Size of bubble represents spend p.a.

Contractors -Mining

Freight &Logistics

Cons –Indust& Elect

Identify Opportunities ( Quick wins)

IT software

The suppliers view (of you)

High

Low

HighLow

Supplier view of your appetite to step-up

Potential for notable Incremental gain to the Supplier

EXPLORE INNOVATE

DISTRACTION STEALTH

Segmentation done by suppliers to find “Customers of Choice”

….and are you segmenting your suppliers in return accordingly?

Procurement Advisory Services

Key strategic account.Allocate appropriate resources to nurture and protect.Give lotsGoal of growth

Exploit account.Maximise profitability. Invest NIL. Squeeze lotsGive nothingCircumvent the ‘buyer’Lose with minimum painLowest cost to serve 

account.Serve with minimal resourcesAutomateGet volume or charge more.Invest, but not with warm bodies

Future wealth account.Build trustDiscover what we don’t knowMake us ‘needed’Establish our USPGet intell on incumbents

This also explains why they behave, the way they behave, towards you

Benefits of productivity & cost management initiatives

The deal cannot be complied with (unworkable)

Non-compliance : Savings are dependant on buying under the deal

2%

Other costs are increasing

illegitimate consumption increase (poor usage/waste)

Unforeseen cost increasing event inside our control (should have been foreseen)

Saving illegitimately passed on to customer

Saving legitimately passed on to customer (e.g. to protect

market share)

Unforeseen cost increasing event outside

our control

Legitimate consumption increase

Bad deals that cost us to fix or get out of

9%

The deal cannot be complied with

(not competitive)

The Leaky bucket - Why all “benefits” don’t end up as “savings”

Procurement Advisory Services

Over 80% addressable spend under procurement management  with ‘run cost’ of department at <1% spend

A CPO at an executive reporting level with an agreed written procurement strategy in place

Procurement delivery aligned with the corporate (Council) strategy & goals

Working closely with a streamlined / rationalised supplier base 

A well trained procurement team performing to international accepted professional standards 

A risk management process in place – and specifically with all strategic suppliers …and on your key raw material inputs

A balanced scorecard measuring outcomes, supply performance, benefits/savings & risk 

Saving only 1% on a $500m spend, with a team of 10 delivers 500% RoI

Seven characteristics of global best practice today

It’s not just about price ... 

The modern day Procurement professionals do more than cut costs and count benefits

They deliver sustainable commercial solutions across the business

The best procurement teams align their goals specifically to the Executive strategy and policy agenda

They work on what  the business ‘needs’ …not what procurement likes to work on

And these outcomes...

Better Security of Supply

Lower risk profile 

Greater efficiency

Improved quality 

Increased speed

More sustainable options

Lower carbon costs 

Use of locked funds

Capture innovations 

Stronger governance

Improved cash flow

Clearer financial control

Conclusion

Q&A

CraigLardnerFCIPSProcurementAdvisoryServicesPtyLtd

cg.lardner@bigpond.com+61(0)295233704+61(0)406429668

Born Sydney AustraliaPrivate sector for 35 years…Worked internationally [London based]  for 10 yearsQualifications in Accounting…Mt Eliza management school…Columbia University program Strategic management

The BOC Group …foundation years in Commercial, inventory, Sales and Marketing.Executive roles in Customer Service, Industrial retailing and Procurement1994 Director of Procurement Australia and New Zealand….then to London as Chief Procurement Officer [Global]

Travelled in the CPO role extensively for 10 years focusing on supply and procurement techniques across the world in both private and public sector enterprises on all continents.Building capability, best practice and ethical sourcing.

GWF…5 years in FMCG...George Weston Foods as Director of Procurement 2009 winner ‘Australia’s best’ Procurement2011 CIPS Annual award winner in 2 categories:‐Best People development program ,and‐Most Improved Procurement Operation

Business coach and mentor to young professionalsFacilitator on Risk managementCoach of the year GWF 2010

2011 formed Procurement Advisory Services…an independent procurement consulting enterprise for both private and public sector.

2012 Commissioned to NSW Government as advisor and subject matter expert on professional procurement for their whole of Government reform agenda.

Guest lecturer at Universities (Australia and Europe) on the practitioners approach to modern procurement.

Guest speaker at Industry seminars as subject matter expert on procurement practices,  tools, processes, policies and capabilities.

Specialist as a change agent and procurement business transformation.

Fellow of CIPS …the Chartered Institute of Purchasing and SupplyVoted as congress member for Australasia on CIPS Global congress in London…3 year termAppointed Global CIPS president for 2014. First Australian to be elected as president in 80 year history of the Institute.

Regarded as one of the most impactful and experienced procurement professionals in Australia

Craig Lardner FCIPS (Background)

Procurement Advisory Services