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September 18, 2012
A Programmatic Approach to Sourcing:
Delivering Real, Lasting Value
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3
About Denali Expanding Procurement’s Value
for The Global 1000 Since 1996
3 year growth rate: 194%
Managed Sourcing Execution and Procurement Outsourcing
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What Is Real and Lasting Value?
Chasing the Quick Buck
Lasting Value
Characteristics
Total value, not just $
Clear and compelling
Sense of permanence
Eggs not in 1 basket
Passionate team behind it
Permeates organization
Creates unstoppable inertia
State of constant renewal
5
Sourcing Program
Healthy Team
Category Management
Strategic Spend Non-Strategic Spend
How Do We Deliver Real and Lasting Value?
6
Polling Question #1
Are you currently managing a comprehensive sourcing program,
including processes and mechanisms to address all areas of your
companies spend?
A. Category Management approach addressing all strategic
and non-strategic spend, and have a robust sourcing
programmatic approach
B. Starting to extend our category management to target the
non-strategic spend
C. Category management addressing all of our company’s
strategic spend, but no focus on non-strategic spend
D. Working to develop Category Management as a capability
in our sourcing organization, with initial focus on several
key categories
E. Just getting started with several strategic spend projects
Comprehensive Program
Narrow Sourcing Focus
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An
nu
al
$ S
pen
d
# Suppliers
Typical Spend Profile
20% Spend
80% Suppliers (1,000’s to 10,000’s suppliers)
$1k to $500k average spend per supplier
Moderately strategic. Mix of Large/Small, and
Non-strategic, low spend suppliers
15-30% average savings
Non-Strategic Spend
Strategic
Spend
80% Spend
20% Suppliers (100’s suppliers)
$M + average spend per supplier
Strategic Suppliers, critical to supply chain
7-10% average savings
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Supplier
Performance
Management
Strategic Spend & Non-Strategic Spend are
managed under a consistent framework
Category
Assessment
& Planning
Denali Category Management Framework
Phase I
Plan &
Prepare
Phase II
Analyze
(Spend /
Market)
Phase III
Set Sourcing
Strategy
Phase IV
Execute
(Source,
Negotiate)
Phase V
Sustain
(Contract,
Manage)
Stakeholder Influence and Management
Phase I
Internal
Category
Assessment
Phase II
External
Market
Assessment
Phase III
Strategy
Development
Phase IV
Category
Planning
Strategic
Sourcing
Supplier
Development
Contract
Management
Value
Discovery
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Strategic Spend Management
Spend Maturity
Str
ate
gic
Im
pact
Optimize
Develop Manage
Rationalize
Low High
Strategic Supplier Strategy None Defined
Strategy Compliance Low High
Rate Card Strategy None Regular
Stakeholder Alignment Sporadic In-Synch
Focus Strategic
Sourcing
Value
Discovery
Spend on PO Low High
Savings Leakage High Low
Supplier Performance
Management
Reactive Proactive
1) Stakeholders
Stakeholder Alignment
Identify future needs
Interlock on a regular basis
2) Supplier Development
Strategic Sourcing Initiatives
Identify Strategic Partners
Rate Card Strategy
3) Supplier Management
Strategy Compliance
Supplier Performance Management
Spend Governance
Supplier Performance KPIs
4) Procurement Operations
PO Compliance Process
Rate Card Compliance Check
Time to Market
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APPROACH
• Our sourcing project was executed thru a multi-phase
approach managed by a Denali Sourcing Team
• Phase 1 – Data collection and Spend Analytics
• Phase 2 – Opportunity Assessment
• Phase 3 – Market Benchmarking
• Phase 4 – Strategic Sourcing
• The targeted benchmark to cover 70% of lanes and
modes in the spend spanned 20 routes
• Opportunity Assessment through benchmark
• Strategic sourcing initiative to drive costs out and
identify route level savings opportunities to capture
supply/demand at a point of time
CASE STUDY: Freight Management Category
Strategy CHALLENGES
• The Freight Management was not sourced for 3
years and our client was heavily dependent on the
Freight Audit company for the data management
• The data had many challenges including but not
limited to : Unavailability, Incorrect Information
• Spend Analytics and Opportunity Assessment was
challenging since bottoms up analysis needed to
be bridged to data that was not perfect
RESULTS
Formal Spend Lock that is auditable for future: $30M
Savings: $1.4 M (9% of valid spend)
Optimization Savings Opportunity:$5.2M (23%)
PROJECT BACKGROUND
• On behalf of our high tech manufacturing client, we
managed a strategic category management initiative
• Spend Analytics
• Opportunity Assessment
• Market Benchmarking
• Strategic Sourcing
• Key Stakeholder: VP, Logistics and Transportation
• Spend Classification: STRATEGIC
0
10
20
30
40
Baseline Savings Benchmarked Target U
SD
(in
Millio
ns)
Savings Opportunity
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An
nu
al
$ S
pen
d
# Suppliers
Non-Strategic Spend Breakdown
~$100K to $500K Few Hundred Suppliers
$200 K Average Per Supplier
Moderately strategic. Mix of Large/Small
Strategy – Can be sourced directly
<$100K 1,000’s Suppliers
$5K - $10K Average Per Supplier
Non-strategic, low spend suppliers
Strategy – Aggregation, preferred
providers, Category Playbooks
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Non-Strategic Spend Management
Spend Maturity
Str
ate
gic
Im
pact
Low High
Strategic Supplier Strategy None Defined
Strategy Compliance Low High
Rate Card Strategy None Regular
Stakeholder Alignment Sporadic In-Synch
Focus Strategic
Sourcing
Value
Discovery
Spend on PO Low High
Savings Leakage High Low
Supplier Performance
Management
Reactive Proactive
1) Strategies to “find” spend
• Sourcing Requisition Review,
• Contract mining
• Spend Analysis
2) Tail Spend Processes:
• Category strategies, playbooks to
“corral” spend
• Quick quote process
• Bulk Buy Process to drive leverage
for fragmented spend
• Individual PO negotiations
3) Sourcing Desk Approach
• High volume transactional execution
via sourcing desk
• Centralized queue management
• Reporting, Full spend visibility
• Fast Time to Market
Optimize
Develop Manage
Rationalize
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CASE STUDY: IT Hardware & Services Sourcing
Desk (Low Spend Program)
RESULTS
Spend Touched (7 months) : $6.7 M
No of Transactions: 1769
Average Spend / Transaction: $3.8K
Savings: $1.4M (21%)
On behalf of our high technology client we are
executing a tactical IT hardware and software services
procurement desk.
• Overall spend in scope for “Technology” Category is
$17 MM annually for products such as Computers,
Peripherals, Servers, Displays & Software License
purchase (<50K spend / PO)
• Client has workforce distributed across 6 different
site locations & each location has different legal
entity status requiring purchase policy adherence.
• Put together a team comprising of a mix of
experienced resources having knowledge of
sourcing Technology products.
• Developed a tracking tool and process for enabling
spend analysis by business group, by entity, by
product category ,etc. Tool enables tracking of
delivery of approved purchase orders.
• Developed bulk buy process for products and
implemented across 6 legal entities
• Conducted 40 hours classroom training for each
“Buyer” followed by pilot case evaluation.
• Lack of process documentation. Transition time ~ 3
weeks.
• Rate cards provided the guidance and PO level
negotiation yielded additional savings.
• Local suppliers require continuous follow-ups for
delivery of products.
• Process has been streamlined requiring minimal
supervisory support from client procurement team
members.
PROJECT BACKGROUND
APPROACH
HIGHLIGHTS & CHALLENGES
0
5
10
Baseline Savings Generated
Final PO Amount
US
D (
in M
illio
ns)
Savings Opportunity
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Building A Sustainable Sourcing Program REF: April 2012 Webinar
Program Building, Governance
Program Execution
Program Adoption, Change
Management
Customer-Centric Approach to Stakeholders
Internal Communications & Marketing Strategy
Strong Executive Sponsorship
Aggressive, Achievable Goals and Measurement
Align Resources and Skills with Work
Strong Enabling Processes
Solid Technology Platform
A Culture of Continuous Improvement
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Building A Sustainable Sourcing Program REF: April 2012 Webinar
Program Building, Governance
Program Execution
Program Adoption, Change
Management
Customer-Centric Approach to Stakeholders
Internal Communications & Marketing Strategy
Strong Executive Sponsorship
Aggressive, Achievable Goals and Measurement
Align Resources and Skills with Work
Strong Enabling Processes
Solid Technology Platform
A Culture of Continuous Improvement
Have you established a
Healthy Environment
that allows your Team
members to do their best
work?
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Polling Question #2
How Healthy is Your Team?
Less
Healthy
More
Healthy
Team
Clarity of Objectives
Trust
Conflict
Commitment
Accountability
Attention to Results
Fun
1 5
Cohesive team, Minimal Politics
Clear and attainable
Vulnerable trust
Respectful conflict
Committed to Team
Hold each other accountable
Attention to results
We have fun
Group of Individuals
Misaligned or Confusion
Close to vest, Little sharing
Argumentative or No conflict
Out for myself
No Accountability
Focus on tasks
Fun at work, are you crazy?
3 2 4
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4 Suggestions to Improve Your Team Health
1) Build a Cohesive Team
2) Establish Clarity
3) Communicate & Reinforce Clarity
4) Have Fun
Source: Patrick Lencioni, “The Advantage”, “The Five Dysfunctions of a Team”
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4 Suggestions to Improve Your Team Health
1) Build a Cohesive Team
2) Establish Clarity
3) Communicate & Reinforce Clarity
4) Have Fun
Establish vulnerable trust
Learn what makes each other tick
Must start with the leaders, genuinely
Encourage open and constructive conflict
Good conflict is critical
Establishes buy-in for resulting decisions
Hold each other accountable
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4 Steps to Improve Your Team Health
1) Build a Cohesive Team
2) Establish Clarity
3) Communicate & Reinforce Clarity
4) Have Fun
Build a process foundation to enable clarity -need to have
clarity on what you do and ability to measure it
Establish clarity of purpose - clarity on what we do and more
importantly, what we DON’T do
Set aggressive but achievable goals
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4 Suggestions to Improve Your Team Health
1) Build a Cohesive Team
2) Establish Clarity
3) Communicate & Reinforce Clarity
4) Have Fun
Culture of continuous improvement
Team “kaizen” events
Create a learning organizational culture
Formal training
Lunch n learns and other “low cost” approaches
Relentless attention to results: measure, monitor, adjust,…
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4 Suggestions to Improve Your Team Health
1) Build a Cohesive Team
2) Establish Clarity
3) Communicate & Reinforce Clarity
4) Have Fun
Do you consider this fun?
Solving tough problems
Knowing Team and leaders “have your back”
Having success with your team
Getting rewarded for good work
Spend Time Together
Carpet time
Team volunteer activities, etc.
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A Final Word
1) Establish Category Management and
get your Strategic Spend under control
2) Extend category focus to tap into the
fragmented Non-Strategic Spend
3) Design, develop and continuously
improve a Sourcing Program that
delivers real, lasting value
4) Build a cohesive and Healthy Team to
deliver market leading results
Sourcing Program
Healthy Team
Category Management
Strategic Spend Non-Strategic Spend
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Darshan Deshmukh Vice President
Denali Sourcing Services
Mobile: (854) 522-2529
Thank you!
Chris Eyerman Director
Denali Sourcing Services
(412) 736-5311
