Experiences in Outsourcing

Source-to-Pay

Service Excellence at

Dow Corning:

Dow Corning

David HirschiGlobal Procurement Director - Indirect Services

www.sig.org/eval

Enhancing Category ManagementImplementing a managed service model

David Hirschi – Dow Corning Corporation

March 2015

SIG Summit – Amelia Island, FL

Agenda

• Dow Corning – Brief Introduction

• Managed Services Defined

• Services Selection

• Program Design

• Implementation

• Results

• Lessons Learned

3

AV15087

4

Guided by our vision

to benefit everyone, everywhere.

We are innovative leaders

unleashing the power of silicon

5

A global leader in silicon-based technology and innovation

Area Headquarters

Manufacturing Sites

Warehousing Sites

Commercial/Service Centers

Science & Technology Centers

Equally owned by The Dow Chemical Company and Corning Incorporated

6

Dow Corning Corporation – Fast Facts

• $5.71 billion USD in sales

• $376 million USD net income

• 7,000 products and services

• 25,000 customers

• 11,000 employees

• 6,000+ vendors

• 4-5% investment of sales in R&D

• 5,377 active patents

• 62 manufacturing and warehouse locations

Agenda

• Dow Corning – Brief Introduction

• Managed Services Defined

• Program Objectives & Services Selection

• Program Design

• Implementation

• Results

• Lessons Learned

7

Procurement Service Options

8

Managed

Services

Type o

f S

erv

ice O

ffering

Technology

Driven

Labor

Driven

Content

Driven

Continuous

Service Consumption

Discrete

(Project Based)

Content /

Connectivity

Software

Applications

Research

Content &

Community

Knowledge

Process

Outsourcing

Business

Process

Outsourcing

Consulting

Firms Contractors /

Temp Labor

SaaS tools, MDM, Hosted

applications, EBP

Supplier Networks, Integrated Templates & Tools, Syndicated

Content

Crowd Sourcing, Research & Advisory programs

Benchmarking, Benchmarking, Consortia

Market Intelligence

Multi-Tower, Customized, Niche

3PLs, MSPs etc…

Management, IT Consulting etc…

Contingent Labor,

Staff Augmentation

1099 consultants

Source: Spend Matters – Jason Bush

Managed Services Defined

9

Managed

Services

Typ

e o

f S

erv

ice

Off

eri

ng

Technology

Driven

Labor

Driven

Content

Driven

ContinuousService Consumption

Discrete

(Project Based)

Content /

Connectivity

Software

Applications

Research

Content &

Community

Knowledge

Process

Outsourcing

Business

Process

Outsourcing

Consulting

FirmsContractors /

Temp Labor

SaaS tools, MDM, Hosted applications, EBP

Supplier Networks, Integrated Templates & Tools, Syndicated Content

Crowd Sourcing, Research & Advisory programs

Benchmarking, Benchmarking, Consortia

Market Intelligence

Multi-Tower, Customized, Niche

3PLs, MSPs etc…

Procurement Business Process Outsourcing

Shifts the responsibility, and process management over

to a 3rd party to execute on behalf of the client often

includes establishment of COE, external shared service

organization.

BPO replaces procurement organization for outsourced

processes

Procurement Managed Services

Provides service augmentation to stretch existing resource

under the guidance and direction of the procurement

professional.

Providers tend to offer ala carte or customized services

based on needs and can range from discrete project work

to sourcing & contract desk services

Managed service providers do not replace the

procurement organization

Program Design

• Use existing process framework

• Will not “outsource” strategic processes

• Retain/build stakeholder engagement

High-Level Value Proposition by Procurement Process

Strategic Processes

Value Proposition depends upon getting more

out of the market

- Increasing spend under management

- More competitive bidding

- Bringing in specific market expertise

Transactional Process

Value Proposition depends upon becoming more efficient

- Process Standardization

- Improved Governance/Compliance

- Labor Arbitrage

Strategic Process Transactional Process

Spend

Analytics

Contract

Management

Vendor

Management

Purchase &

Returns

Accounts

PayableSourcing

Category

Management

• Maintain/enhance market intimacy

• Improve team’s strategic skill sets

• Bring more spend under management

Key Objectives for Managed Service Program

Work Load & Process Mapping

• Identify workload by business process

• For each work stream/business process get an

accurate understanding of FTEs spent working the

process

• Identify resources outside of Procurement function

supporting or working on a procurement workflow

• Data will be used in a number of ways:

– Better understand your cost to deliver each process

– To identify where FTE resources are being consumed

– Select which areas would lend themselves to Managed

Service Support

11

Strategic

Sourcing

Category Mgmt

Spend Analysis

Market Research

Contract

Management

Types of ProvidersStrengths & Weaknesses by provider type

12

Provider Type Strengths Weaknesses

Full Service

Providers

Transaction

Specialists

Boutique

Sourcing Firms

• Well developed process

• Experienced at transitions

• Very savings driven

• Deep bench & resources

• Inflexible process

• Loss of market intimacy

• Stakeholder engagement

• Competition for mindshare

• Transactional experts

• Brings standardization

• Ramp up/down quickly

• Cost effective

• Transactional experts

• Brings standardization

• Ramp up/down quickly

• Cost effective

• Adapts to your workflows

• Strong sourcing skill sets

• Engage as program or

SOW based

• Easier to get mindshare

• Lacks true global scale

• Rely on 3rd party for gaps

• Limited commercial flex

• Mostly Indirect experience

Agenda

• Dow Corning – Brief Introduction

• Managed Services Defined

• Program Objectives & Services Selection

• Program Design

• Implementation

• Results

• Lessons Learned

13

Program Design – Augmentation Services

Execute Sourcing Projects – simple / standard / complex Augment Sourcing Projects - RFx input into Ariba, Market Research etc… Special Projects – e.g. EBP optimization , standardization of bid templates

Vendor Prequalification PO Terms & Conditions Negotiations Contract Negotiation – simple / standard / complex

Market Research Projects – simple / standard / complex Vendor Identification Spend Analytics to support category plans & sourcing projectsMarket Research &

Spend Analytics

Sourcing Support

Contracts Support

S2C Services

Network of Category Coaches & Market Experts Category Management Training Category Strategy Development Support

Category Management

Enablement

Program Design – Operating Model

Market Research &

Spend Analytics

Sourcing Support

Contracts Support

S2C

ServicesCategory Management

Enablement

Program Leadership

Managed Service

ProviderDow Corning

Program Manager

Regional Operations MgrsGlobal Sourcing Mgr

Global Sourcing Mgr

Regional Sourcing Mgrs

DirectorService Line Lead

Service Line Lead

Service Line Lead Global Contracts Mgr

Management

Activities

- SLA Development /Tracking

- Resource Planning / Budget

- Contract Management

- Scorecard & Reporting

- Category Plan Review

- Template / Tool Development

- Training

- Capacity / Demand Mgmt

- Operating Guide Development

- Quality control

- Capacity / Demand Mgmt

- Operating Guide Development

- Quality control

Research Mgr- Capacity / Demand Mgmt

- Operating Guide Development

- Quality control

Dow Corning governance/management investment ~ 4 FTE

Program Design: SLA / Scorecard Philosophy

Financial Perspective Customer Perspective

Learning & Growth Internal Perspective

16

Performance &

Effectiveness

Customer Satisfaction

Quality & Continuous

Improvement

Operational Efficiency

High Level Program Dashboard

Backed up with detail KPI’s

Program Design: Example Monthly Dashboard

17Behind schedule / immediate intervention required

Activity needs to be monitored, else can go to red. Not to be concerned but aware

Activity progress as planned

Behind schedule / immediate intervention required

Activity needs to be monitored, else can go to red. Not to be concerned but aware

Activity progress as planned* SLA

Performance Metric Target

Current

Month YTD G / A / R Comments

Total Annual Savings ($M) * $XM - - EOY Total Procurement Target (Prevention + Reduction)

1-Year Portfolio Value (1.5X vs. Savings Target) * $1.5xM - - Based on 2015 savings target

3-Year Portfolio Value (1.75X vs. Savings Target) * $1.75xM - - Based on 2015 savings target

Category Plans Completed * X - - Plans = Full Strategies, Category Briefs; defined by Roadmaps

Spot Buy Prevention Cost Savings * X% - - Total spot buys -Low volume

Retention - Staff Turnover Percent * <x% - - % of total service staff; Quarterly measure not Monthly

Post-Project Satisfaction Surveys - NPS * X% - - % of "Yes" responses; Simple Sourcing projects

Post-Project Satisfaction Surveys - 3/5 Question * X - - Average score (1-5) across Std/Complex Sourcing and Contracts

Total Project Throughput Volume X - - Contract project throughput improving

Total Project Addressed Spend ($M) $XM - - Total Spend addressed from Providers Completed Projects

% Sourcing Projects < Target Cycle Time * 90% - - % of Sourcing Projects under target Turn around Time (TAT)

% Contract Projects < Target Cycle Time * 90% - - % of Contract Projects under target Turn around Time

Spot Buy Cycle Time * 90% - - % of Spot Buys under 2 day TAT target - Low volume

Managed Service Resource Capacity Utilization 80% - - Actions in process to better utilize off shore -sourcing team

Issue Log Non-Compliances - Level 1 0 Severity 1 issues that require RCA and Preventive Measures

Issue Log Non-Compliances - Level 2 0 Severity 2 issues that require RCA and Preventive Measures

Issue Log Non-Compliances - Level 3 0 Severity 3 Issues logged for tracking

PERFORMANCE & EFFECTIVENESS

CUSTOMER SATISFACTION

OPERATIONAL EFFICIENCY

QUALITY & CONTINUOUS IMPROVEMENT

Agenda

• Dow Corning – Brief Introduction

• Managed Services Defined

• Program Objectives & Services Selection

• Program Design

• Implementation

• Results

• Lessons Learned

18

Implementation - Knowledge Transfer

19

• Create operating

guide for each

Service Line

• Regional

addendums

• Ariba RFx

templates

• Contract Templates

• Opportunity

Assessment

• Complete Joint

Project

• Complete

Independent

Project

• Deliverables

Complete

• Projects executed

• CM confident in

service provider

1. Operating Guide

Development

2. Knowledge

Transfer Projects4. CM Signoff

The four key deliverables for the Knowledge Transfer process:

3. Define Templates

Build & Sign-off on managed service provider’s internal on-boarding, quality Control, &

governance processes. Establish an audit routine for these!

Week 1

20

General Knowledge Transfer Approach (each country)

Week 2 Week 3 … Week TBD

Kickoff Meeting

KT Workshops

(3 Hrs each Category)

Scope & Kick-off KT Projects

Execute KT Projects

Complete Operating

Guide Country

Addendums & Templates

Category Manager Sign-off

Country Guide Addendums Completed

Ariba templates completed

Completed KT sourcing projects

Implementation: Total Program Timelines

Internal Analysis & preliminary business case development (4 – 6 months)

RFP time lines (2 – 4 months)

Due Diligence & Contracting time lines (5 – 7 months)

Execution & Ramp-up (12 – 18 months)

Total Time (24 – 36 months)

21

Contract (SA) signed

Initial wave of StC projects kicked-off

Oct 7 Jan 6 June July

Board

review

SepSep 16Aug 15 Feb 10 Oct

US KT for Managed Services

EMEA Go Live

US Go Live APAC Go Live

APAC KnowledgeTransfer

EMEA KTKnowledge Transfer

Agenda

• Dow Corning – Brief Introduction

• Managed Services Defined

• Program Objectives & Services Selection

• Program Design

• Implementation

• Results

• Lessons Learned

22

Results

2014 Results

• Implemented across NA, EMEA, Asia in ramp up year

• Exceeded total savings expectations by 20%

• Gross ROI = Incremental Savings / Managed Svc Cost = 3.5x

• 2015 Portfolio - Built proactive portfolio valued at 1.2x in 2014

2015 Improvements

• Increase ROI to > 7x in 2015

• Significantly increase support for Direct Procurement projects

• Improve cycle times on projects to increase capacity

Lessons learned

01 Implementation / change management VERY HARD

02 Shared Goals between Category Managers & Service Provider ESSENTIAL

03 Assess the providers internal governance & training in due diligence

04 SLA development critical to drive proper behavior – LESS is MORE

05 Don’t underestimate IT and system access issues

06 Spend a lot of time defining roles & responsibilities

07 Own your future – team stronger & more independent

25

David HirschiGlobal Procurement Director

Dow Corning Corporation

Work: 989 496-4000

Email: david.hirschi@dowcorning.com

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Session #13

Service Excellence at Dow Corning: Experiences in

Outsourcing Source-to-Pay

David Hirschi

Dow Corning989 496-4000

david.hirschi@dowcorning.com

Speaker:

www.sig.org/eval