Embed Size (px)
Citation preview
PURCHASING MARKET INTELLIGENCE
Setting up and running a function for continuous tracking and analysis
of factors that impact the company’s Strategic Sourcing activity
Table of ContentsWhat you will find in this presentation
2
• Competitive Intelligence - introduction• Purchasing Market Intelligence (PMI)• PMI theory• Business cases – 2 examples of running PMI• Summary
This presentation is brought to you by MySourcingLeader.com.We can arrange for you this presentation in editable PPT-format,
or present it for groups in the form of webinar.For any inquiries, please contact us via email:
Copyright 2015 © MySourcingLeader.com. All rights reserved.
Smart buyers do smarter deals!Examples on situations in your life when good decision supporting information is desired
3
• Imagine you are Slovakian living in Czech Republic, and you need a consumer loan.Shall you go for a loan in a Czech bank or a Slovakian bank?In which country do you find the most attractive offer (interest rate)?
• Your household’s electricity bill was 20% higher 2006 than in 2005 (per kWh)! Was that increase acceptable, and according to the general market development?How do you easily control if the price increase for electricity was relevant?
• You will have salary negotiation with your boss (not changed since Jan 2006)!Your expectations are a salary increase, covering the inflation, good results and your increased competence. Do you know the CPI (inflation) development this year and last year?
It is all about knowing more – getting smarter and better off!
Corporate Intelligence workWhat is it all about?
4
Identify what the company needs to know
Gather information about the business environment
Use internal and external info sources
Select and compile key information
Analyse - build up knowledge
Spread intelligence to decision makers
Decide and act smartly!
$$$
Definitions of Competitive IntelligenceUnderstand what is “CI” before applying the very same concept on strategic sourcing
5
“CI is the art of defecting and monitoring weak signals regarding the marketenvironment for use in the strategic decision-making process.” (Gilad, 1988)
“CI is proactive work which includes to identify information need, and tocollect, process, analyze and report findings about the market’s competitionfactors, such as industry conditions, customers, competitors and suppliers.”(Sandström, 1988)
“CI function have developed as a hybrid between strategic planning and market research.” (Tyson, 1990)
“A CI function is a company’s department with the assignment to continuously and quickly provide intelligence about news and changes in the business environment which could affect the company.” (Docere, 1997)
The Competitive Intelligence cycleAn iterative work process consisting of 4 basic steps
6
The CI cycle
1. FOCUS
2. COLLECT3. ANALYSE
4. PRESENT
Why Competitive Intelligence?Benefits and reasons for companies doing CI
7
Objectives of CI
Identify threats and opportunities earlyIncrease knowledge within the organisation
Make the right decision at the right moment
Drivers of CI
The world around is constantly changingIncreased competition on saturated markets
The business environment steers usManagers need to have a holistic view
Decision support information must have better quality
The real world aroundIn our minds exists only a perceived picture of the world around
8
The real world around each one of us knows only partly.Instead, a perceived picture of the world around is being built up in our brains.
Do we make our decisions based on the real or the perceived business environment?
Need of Competitive IntelligenceDegree of change and industry complexity determine your need for CI
9
Where is your company?
Slow
Degree of Change
Fast
Low High
?
Industry Complexity
?
?
?
?
Purchasing Market IntelligencePMI is about applying CI processes and tools in the company’s strategic sourcing department
10
Competitive Intelligence supporting your purchasing and supply chain activities
What is Purchasing Market Intelligence?“PMI” is “CI” applied to support the company’s purchasing activities
11
Same concept, models and way of working as “CI”, but focuses on continuous monitoring and analysis
of business environment factors
backward in the supply/value chain (supply, supplier market)
rather than forward in the supply/value chain (sales, customers)
Why applying CI in the Procurement or Sourcing field?Monitoring and analysis of factors that impact the company’s cost of goods/services sold
12
50%= The share of the average purchasing turnover
of the total sales turnover for a typical FMCG company
(cost of goods sold)
Purchasing - not seldom a neglected
area within large companies for professional
Competitive Intelligence activities…
Become stronger buying company through PMIUsing Michael Porter’s 5-forces model of industry analysis
13
The Suppliers
Industry Competitors
Degree of Competition among extisting players in the industry
The Customers
Potential Establishers
Substitute Products
One goal with PMI is to
enable better handling of
suppliers’ bargaining power!
Bargaining powerfrom the suppliers
Threat from newcomers who wants to enter the industry
Bargaining powerfrom the customers
Threat from substitute products, satisfying same customer needs
Why Purchasing Market Intelligence?Desired future statements about “PMI” by the users (the buyer community)
14
“By keeping track of the market factors which influences my business, generally and specifically, I will become more aware of real costs and
excited to secure my future competitiveness.”
“By using PMI among my other key information sources, I avoid so called “information overflow” and keep my purchase market monitoring simple
and focused, supporting good decisions.”
“By knowing what is affecting my prices and how much we should really pay for a certain product, I will as a purchaser enter the negotiation table
more equipped with hard facts and confidence.”
All companies are dependent on the world aroundYou need to monitor and analyse what impacts your cost and profit, supply risk, etc
15
THECOMPANY
BUSINESS ENVIRONMENTTHE INDUSTRY
SOCIETY ENVIRONMENTTHE WORLD AROUND
Macro-economics
Economicalfactors
Naturalresourcesavailability
Social and cultural factors
Laws
Politics
Opinion
Suppliers
Commercialregulations
Distributionsystem
Technology
Customers
Competitors
Markettrends
Raw materialprices
TraditionalCompetitiveIntelligence
PurchasingMarket
Intelligence
Platon and the CaveGet to know more about your complex supply market – step out from the cave!
16
We know quite well what is going within our company and our supply chain.PMI helps us to “step out from the cave” and learn about the externalfactors we did not have proper knowledge about before, and to benchmarkour internal/suppliers performance with official market levels!
What do the two new information pieces mean in your decision process?
Labor cost in Chinaincreased by5% in 2006
PPI in the metal industry inCZ is around zero this year
My supplier buys stainless steelfor 10% higher price today
compared to the 2006 average
The overseas freight cost is 3 times higher than five years ago and increasing
Aluminium prices has decreasedby 10% since January
Question from your life – 1Only by knowing the interest rates in both countries, you could make right decision
17
Imagine you are Slovakian living in Czech Republic who needs a small consumer loan.Shall you borrow money in a Czech bank or a Slovakian bank?
Where will you most likely find the most attractive offer (interest rate)?
Answer: Czech Republic(Not considering exchange rate fluctuations)
PMI Case 1Example on PMI function within a world-leading home solutions FMCG company
18
Case 1:Purchasing Market Intelligence in a
world leading home solutions company
Focus:To get started with continuous PMI in the companies purchasing communityProduction cost - analysis and benchmarkingCost conscious Intelligence functionEasy-accessible (online) source
Target Group:Business Developers (local/regional buyers)Global Purchasing StrategistsPurchasing Managers and Team LeadersSupply Chain Manager
Case 1:PMI without a
full-time resource managing
analysis work
Objectives with Purchasing Market IntelligenceCommon reasons and benefits for PMI
19
• We are active on a global purchasing market, largely dependent on the world economy and price development of commodities and other important production costs – and our business environment is in constant change!
• Larger and fewer suppliers need strong and professional purchasers
• Possibility to compare our cost performance with general market levels
• No decision is better than the quality of the information on which thedecision is based – relevant information of high quality in right time
• To inspire and motivate us to follow and know more about factorsaffecting our suppliers’ production cost and to continuously work onthe competitiveness of our offer to the end-customers
Get going with PMIProject plan from real implementation example in a large multinational FMCG company (from 2006)
20
The Project milestones:
1. Idea presentation, situation analysis, need for PI Sept-062. Project Plan – background, benefits, time plan, actions Oct-063. OK to continue from IKEA Component’s management Nov-064. Establish a project group Dec-065. Get budget approval from IKEA Supply Chain Mgmt Apr-076. Implementation – practicalities, IT, start subscription May-077. Build up the PI info tool on intranet June-078. Presentation for the potential users Sept-079. Global usage within the organisation from Oct-07
10. Continuous improvements (changing environment, feedback) today11. Evaluation Spring-0812. Next steps (resources, info sources, internal info, etc…) 2009+
The 3 key questionsThe PMI function must satisfy the information needs of the procurement community
21
1. Which information is relevant for the company?
2. Which information sources exist and how shall we manage the information internally?
3. How do we make the information available for the users and in right time?
The user (buyer or decision maker) analyze the information before making the decision
1. FOCUS
2. COLLECT
4. PRESENT
3. ANALYSE
CI cycle:
The Intelligence MapWhat factors in the purchasing market do you need to gather information about?
22
• Agree upon the external factors relevant for the company to monitor
• Decided by the management and line organization (business decision makers)
• Limit the scope
1. FOCUS
2. COLLECT3. ANALYSE
4. PRESENT
Scope of the Purchasing Market Intelligence functionExample on Intelligence Map
23
Raw Material Prices
Steel
Oil & Energy cost
Plastics
Zink & Aluminum
Chemicals
Rubber
Exchange rates
EUR/GBP
EUR/USD
LVL/EUR
CZK/EUR
etc
Interest rates
3-year, per country
10-year, per country
Country comparisons
etc
Inflation
PPI
CPI
…In our major
purchasing and
sales countries
Labor cost
Manufacturing workers
White collars
Unit Labor Cost per hour
Country comparisons
Development over time
..per country
Potential areas
Supplier Financial status
Country risk information
Economical trends
Forecasts
Specific material prices
Technology trendsWorld Economy
Industrial production
CPI and PPI
Commodity prices
Currencies
Furniture production
Furniture price indices
Country Profiles
GDP growth
Unemployment rate
Unit Labor Cost
Exchange rate
Inflation & Interest
Industry indices
INTELLIGENCE MAPFactors in our world around
to monitor and analyze
Note:Economical graphs put on company Intranet will be accessible through a home page with similar layout as the Intelligence Map shown here.
What factors to monitor?Basic cost-break down analyses help to identify the “must-continuously-keep-track-on” factors
24
Input materials (i.e. aluminium, PET,…)
Labour
Energy cost
Investment/Interest cost
Overheads, Other & Profit---------------------------------------
= Purchase Price
60%
15%
5%
5%
15%
Based on the cost break down of the final product price (example):
External factors:Exchange ratesProducer Price indices (industry benchmarks)
The Information SourcesWe build on the best source identified that fulfils the majority of our information need
25
Where do we find the info about the factors in “the intelligence map”?
80% of the information about the world around might be found within the organisation - complex to gather in a global network company and
needs a systematic approach (intelligence reporting system).
External sources: Cost efficient and covering majority of our need –Reuters Ecowin
(Alternatives: Thomson Datastream, Research companies, etc)
1. FOCUS
2. COLLECT3. ANALYSE
4. PRESENT
Reuters Ecowin was selected as the major information source in this project example. Do thorough research of potential sources before subscribing to the one you will use!
Reuters EcowinAbout the information provider
26
Information provider Reuters ECOWIN
External market info available (250,000+ time series)
Mainly macro-economic and financial information
Possibility to create own time series (i.e. wood prices)
Analysis functions
Primary sources of highest reliability
Customers are large financial companies and institutions
Possibility to put graphs in intranet, automatically updated
Administrators use Ecowin - you use what is on Intranet!
Shortly how Ecowin works on next slides…
Reuters EcowinThousands of specific time-series organized by relevant categories
27
Reuters EcowinDaily updated time-series are selected and made accessible to users (buyers) via an intranet platform
28
Organization of the PMI workOne buyer spends a small part of his/her time as “PMI system administrator”
29
• One business developer in the business line (project leader, 10%)• One trainee (project resource, mainly during the startup phase, 50%)• Purchasing strategy manager (project owner, 1-2%)
• The intranet tool runs on its own (no continuous value-adding work).
• More work at startup, followed by easy maintenance and improvements.
• Work with analysis, forecasting, supplier evaluations (D&B based), management reporting, and collection and compilation of information from internal sources, would require one full-timer for the PMI work and high sponsorship by top management
What is PMI in this example?In the example, resources for managing “analysis” is limited
30
• A simple way of working with “Competitive Intelligence” of external info • Quantitative time-series presented as line charts on our intranet• 100 charts totally – easy accessible, “click-and-go”• Mainly economic- and financial information (production cost factors)• A tool to use in order to retrieve decision support information• Taylor-made to support the purchase activities within our company
• One large step forward to professionally monitor our world around• Benchmarking of our own and our supplier’s business performance
1. FOCUS
2. COLLECT3. ANALYSE
4. PRESENT
How is the Intelligence presented?Only using intranet based presentation of graphs (no analyst adding value)
31
Low
Specialisation
of message
High
Low High
Database/Intranet
Newsletter
Communication
Intensity
Written reports
Group
presentation
Special
presentation
How the intranet platform may look likeThe PMI home page with main menu
32
Selection of the information you needThe buyer needs to see the historical development and current price on Aluminium
33
Getting the specific updated info neededThe buyer grabs the graph for use as supporting information material in an upcoming price negotiation
34
PMI – one source among othersThe role of PMI for the business persons in the purchasing organization
35
Source: ECOWIN
Stainless steel price development
Country profile of Poland
Labor cost in metal industry
Exchange rates last year
Energy price in Poland
etc…
Own sources
Suppliers
Colleagues
Contacts
Industry magazines
etc…
PMIInformation turned into intelligence
- selected, focused, relevant, availablevia Intranet or administrator
Tougher!Smarter!Excited!
Businessman
Purchaser
Salesman
Manager
Etc…
An example
What does it cost?The regular subscription cost of the major information provider drives the cost
36
• One very good info provider (online source) for production-and material cost (15,000-20,000 EUR/year)• One internal administrator/analysts (10% of one full-timer)• Simple IT-solution via intranet (?)
• Cost is easy to calculate – what about the benefits?
Analysis of benefitsWill the PMI function be profitable?
37
The Intelligence function is “profitable” if:
Cost Saving > The Cost of + The Cost of theas a result of running CI consequencesusing CI from the info
Example:Yearly “break even” if -1% at one 2 MEUR sized supplier is saved/negotiated by using the info (hard facts) available in PMI!
The cost of running Purchase Intelligence is ca 20,000 EUR/year (info source + people)
PMI summaryThe case illustrated here in summary
38
PMI – a consolidated knowledge bank
Official market information (performance benchmark)
Purchasers knowing more, motivated and stronger
Negotiation hard facts (no assumptions or dependency)
Quick source of relevant info, available when needed
Open for all co-workers
One “administrator” – to support the co-professionals
PMI summaryThe case illustrated here in summary
39
Case 2:Purchasing Market Intelligence
in a large international automotive group
Case 2:PMI with a full-time resource managing
analysis work, located in Global HQ
Competitive Intelligence to support your purchase- and supply chain activities
Note:Some images in Case 2 are done from scanned documents, hence low quality and B&W only
Organization of the Intelligence workOne full-time employee as spider in the web doing analysis, forecast and information distribution
40
Business Environment Analyst (BEA), Business Development Support (BDS)- A special department supporting the purchasing line departmentsBDS manager (BD projects, Legal, CI) reports directly to SSP manager
BEA invited to the SSP management group meetingsBEA verbal presentations 3 times/year for all purchasing departmentsServing on ad hoc questions, running/updating the online tool
One full-timer dedicated to business environment analysis only!Plenty of sources (quantitative data, business news, forecasts, etc)
Hundreds of “users” around the globe (mainly purchasers)
A quarterly paper report changed to a sophisticated online tool
Objectives with the global Purchasing Intelligence functionPOOL – Purchasing Outlook On-Line
41
Objectives with the global Purchasing Intelligence functionThe information needs includes here forecasts – done by the Business Analyst
42
the company
Role of the Intelligence providerThe Purchasing Intelligence analyst and his/her output is key information source for the buyer
43
Start PageThe user goes to the PMI (POOL) start page and select topic through relevant categories
44
Providing Intelligence!The analyst adds value to the raw information by providing comments, forecasts, news, etc
45
1. FOCUS
2. COLLECT3. ANALYSE
4. PRESENTThe full-time analyst provides added-value information in addition to the raw input data (implications for the company, forecasts, etc)
Country ProfilesFor this company, detailed macro-economic information on countries were essential need
46
Latest news!The analyst provides relevant news through the PMI intranet application
47
Examples on deliverablesThe Purchasing Intelligence analyst and his/her output is key information source for the buyer
48
+ answering on many ad hoc requests+ Quarterly presentations for the purchasing staff (“Business Highlights”)
Labour Cost – another deliverable from the PMI functionGlobal overview on comparative labour cost country-by-country (example from 2001)
49
How is the Intelligence presented?Many different forms of presentations, with added value by the global full-time business analyst
50
Low
Specialisation
of message
High
Low High
Database/Intranet
Newsletter
Communication
Intensity
Written reports
Group
presentation
Special
presentation
Examples on information sourcesThe Purchasing Intelligence analyst and his/her output is key information source for the buyer
51
Internal PMI sources
Sales persons
Purchasers
Technicians
Board members
Line managers
Human Resource managers
Product developers
Designers & Design Engineers
Researchers
PR & Communications persons
Environmental specialists
“BSA” – Boundary Spanning Actors
External PMI sources
Reuters Ecowin
Thomson Datastream
Industry magazines
EIU – The Economist Intelligence Unit
Standard & Poor’s DRI
Statistical bureaus
Industry (non-profit) organisations
Dun & Bradstreet (credit rating, P/L, etc)
Corporate Annual Reports
News in media (TV, newspapers)
Personal contacts, network, clubs
Internet sites
Trade Fairs & Exhibitions
CI consultants & Research companies
Press clippings service providers
Business magazines & advertisements
Reuters Business Briefing
Local/International online news providers
Research institutes & Universities
Suppliers & Customers
Other business partners
The automotive case - summary
• POOL – a consolidated knowledge bank online
• Official market information (raw materials, economy…)
• Support tool for strategic purchasing decisions
• “Ammunition” for upcoming negotiations (hard facts)
• “Business Highlights” – verbal/written presentations
• Strong focus on forecasting of future trends
• Open for all co-workers
• One “business analyst” – full-timer as internal consultant
Question from your life – 2 With right information in-house you can easily check if a suppliers argumentation is justified
53
Your household’s electricity bill was 20% higher 2006 than in 2005. Was the increase relevant, according to the general market?
How do you check if the price increase for electricity was relevant?
Answer: Subscribe to a good information providerThe increase was less than average in EuroZone (market: +30%)
Question from your life – 3 Through PMI you may bring hard facts to the negotiation table that you almost didn’t thought about
54
You will have talk with your boss about salary revision for the years 2006-2007.Your expectation is higher compensation covering the increase of general
consumer prices, your good results and increased competence. Do you know the CPI increase for 2006-2007?
Answer: Your salary increase should be ca 5.5% for these two years, only as compensation for inflation. So if you earn 50,000 CZK, you should agree upon +2,800 CZK for inflation compensation only!
PMI – key take awaysEnd words
55
• Define your need for some kind of professional CI (PMI) work – why?• Goal with the PMI work – settle both qualitative and quantitative targets• Choose approach and limitations – how large scope will we manage? • Budget – decide size of initial investment cost and ongoing operations?• Competence – hire consultant or do it all on our own? • Organize the job – project approach, line or support, location, etc – how?• Agree upon the Intelligence Map – what factors to follow/monitor?• Identify relevant info sources and find the key information pieces• Analysis work –who shall turn the raw information into real knowledge? • Presentation methods – automatic online tool, tailor made presentations,…• Feedback from the organization (what to improve, collect “good examples”) –
the target group’s needs and the world around change constantly• Evaluation after one or two years – not a must to continue (costs < benefits?) • Decision by management – continuous CI function?
Vem vill vara med och leka?Typer av lekar 2/2
56
We all need to know more
Step out from the cave!
Thank you
