A White Paper Presented by Corbus, LLC Accelerating Realization of Cost Savings

Transcription

1 A White Paper Presented by Corbus, LLC Accelerating Realization of Cost Savings

2 Part 1 Operational/Low End Processes In today s economic scenario, as the global economy continues to limp out of recession, procurement leaders are faced with an unusual set of cost pressures. They are now expected to accelerate the pace of cost savings delivered without compromising other aspects like quality, delivery, etc., all with no further significant investments for resources and/or in many cases reduced resources. These sets of new challenges call for some bold, fast action; complacency with status quo is not an option for any procurement organization. Historically, savings programs have been in place, however, the pace at which these are delivered needs to be accelerated. Similar to a key contractual term that time is of essence, the same applies to procurement organizations as well. Corbus is presenting this two part series on how to accelerate the realization of cost savings and increase overall value delivered to the organization. Part 1 focuses on the processes at the lower end of the spectrum i.e., transactional and operational, while Part 2 focuses on strategic sourcing delivery models, thinking beyond the traditional boundaries and reshaping the approach to organization design. Over the years, many procurement organizations have supported other internal business units with their outsourcing decisions for various functions including call centers, IT, etc., which are now in a very mature state. It is procurement s turn to really look internally in an unbiased manner and see how incremental value can be delivered. What Needs to be Done? In many companies, category managers or senior strategic buyers are involved in some lower value transaction work versus focusing entirely on strategic work. The question is can we really afford to continue working in this manner? Obviously the answer is a big NO. It is absolutely critical that the most valued resources (strategic buyers focus on real strategic work ), transactions or low value added activities should be offloaded to a lower cost specialist provider as quickly as possible. Once identified, many options exist as to how this offloaded work is performed and by whom. Should these services be performed by an internal shared service center or a third party? Should it be onshore, onsite, offsite, offshore or a combination? We are not suggesting replacing all activities, but picking some so that the end to end supply chain delivery model is redesigned. If the answer is a third party provided blended model, can this provider perform services in multiple global languages? How seamlessly can the outsourced shared service center provide services, also within the same time zone? Evaluation will need to be done, but it s definitely one that needs to be performed quickly. How to Get There A full blown Business Process Reengineering (BPR) exercise is absolutely not recommended and would be too much. However, some BPR tools do come in handy to effectively meet the objective to separate the wheat from the chaff and leave only those activities in-house that are strategic and must stay in-house, for example: Low Value: Identify, stratify and offload to a third party Non-Value: Minimize or even eliminate from the process chain over time High Value: Retain in-house and further polish these processes to reshape category management As a starting point it is critical to solidify understanding around various aspects as to how and what type of work is currently performed within the organization. Understand the internal customer requirements, baseline spend information, etc. Understand use of current employee resources and actual total costs Understand and define complexities around various processes Understand current systems in place and systems enabled processes Identify inefficiencies and challenges around spend categories and specific processes Generate improvement ideas Quantify volumes, time and efforts Stratify work into various buckets/sub-buckets (for example: low value, non-value, high value) Evaluate workload Define retained structure

3 Tools that Come in Handy Work Distribution Analysis: Describes the staff time and costs expended on activities within a department or a process. Helps prioritize areas for improvement by reviewing the actual work done by various resources within the procurement function and start developing ideas for better usage of resources. This tool can be applied to an entire process or used on a limited basis for a process subset. Process Flow Chart Analysis: Creates a step-by-step diagram of how work is done in a particular process. It tracks the wealth of data about the as-is process, such as sequence of activities, costs, time, delays, and errors and provides a basis against which improvements can be measured. Often times in procurement processes, indirect spend will cut into other functional areas like the HR or real estate business units. That would contribute to lower adoption of procurement functions due to the shadow mini-procurement organizations within business units. Flow chart details will aid in appropriate centralization discussions. Volume Analysis: Evaluate the different types and numbers of transactions that flow through a process. This helps with three aspects: determining types of special handling for transactions, appropriate approval requirements and reasonability of employee workload. A volume analysis can be used to gain a deeper understanding of many aspects of a current process or to project effects of potential changes. In addition to using a variety of information sources, it is important to be flexible in volume data collection methods; data may not be readily available and/or one hundred percent sampling is not required or necessary, for instance, extrapolate data from one or a few departments to estimate the total transaction volume. Correlate the transaction volumes to the dollars associated with each transaction type. Once the analyses of baseline spend and organizational structure is completed, some potential areas that can be focused on as quick, easy and early candidates from an offloading standpoint are: 1. Spend Categorization and Analysis Good quality data is critical for successful sourcing programs Getting this data enhancement done better and in a cost efficient manner is the key; many expensive solutions are available The best bet is to use offshore data analytics resources for categorization of various spend data sets (per UNSPSC or custom schemas) to meet sourcing objectives at a fraction of the cost This cleansed/categorized spend data is the primary input for the sourcing team to develop specific sourcing action plans in conjunction with business units (immediate, short and long term) 2. Requisitions to Purchase Orders/Service Orders Transaction Processing Validating requisitions to ensure completeness and accuracy from right vendor name, account codes, category codes, item descriptions, pricing, approval limits, preferred vendors, standpoint, etc. Converting requisitions to POs for global operations Compliance monitoring 3. Tail-End Spend Management, Spot Buys and Small Deals (Managed Services) Spend typically characterized by high fragmentation, high transactions and spot buys below a certain threshold Can be found in a number of spend categories like MRO, contingent labor, etc. Uneconomical to get strategic buyers involved in these type of activities Can a third party effectively manage the tail-end spend and deliver cost savings? 4. Low Cost Country Sourcing (LCCS) Typical target categories within indirect spend are MRO and some promotional item products pens, pouches, bags, can openers and various other products that are available through local distributors who source from various global manufacturers In addition to execution of transactions, service provider s offshore proximity to the LCCS vendor base helps significantly 5. Policies and Procedures Maintenance Policies and procedures maintenance Monitoring compliance to policies, for example in

4 the travel category, pre and post travel monitoring compliance 6. Systems Related Work Vendor master maintenance Catalogs maintenance and system administration work Execution of RFx/e-auction events including supply market intelligence P-cards Contracts Administration and Compliance Monitoring Basic contract administration work, for example, maintaining repository of contracts, statement of work documents, key contract terms and timely management of various activities Monitoring transactions for compliance to preferred vendors to ensure that the right products are being purchased at the right price 8. Price Benchmarking Does our pricing reflect the most current market conditions? How is the external supply market changing? As you will notice the key areas addressed above in Part 1 are: Transactional driven and in most cases technology enabled processes Consistent and scalable processes In Part 2, we will address more strategic processes that are knowledge driven and require some unique skill sets. Therefore, similar to any transformation initiative, particularly one that is going to change the way a business operates, it will require strong executive management sponsorship as well as ownership to ensure these get executed. Leadership teams will need to ensure progress via strategic metrics and a supporting management system to validate the execution of the strategic roadmap and its success. This is definitely no overnight task, but a much faster approach to the transformation journey with promising results to shareholders, ultimately delivering millions of dollars of cost savings to your company by providing the much needed competitive advantage in this market. Part 2 Strategic Sourcing Revisiting Approach to Strategic Sourcing Delivery Model Part 2 focuses on the procurement organizations Delivery Model for strategic sourcing services where we are today and what s next. Since the formal evolution of strategic sourcing methodology in the 80s, many leading edge organizations have recognized and embraced the value that strategic sourcing brings to the organization. There is no question that strategic sourcing continues to be successful when used to improve costs and increase speed to market and access to innovation. The question now is about increasing the delivered value and at a much lower cost. So moving forward, how do we really do it? In the last few years, few BPO providers have ramped up their strategic sourcing delivery capability. The question is, how can this development be leveraged by other companies to develop a new delivery model for their organizations to attain a true cost leadership position and where do we begin? Two key areas that may help provide some answers are: Spend/category analysis The classic seven step sourcing methodology A. Category Analysis and Positioning Upon completion of an organization-wide spend analysis that most of us are familiar with, typically various spend buckets are plotted on a four quadrant matrix. Various versions available, but the underlying intent is to develop a differentiated strategy for each category of spend depending on a number of factors, for example, supply market complexity, internal complexity, risks, savings opportunity and various other factors that are often times unique to each organization. As organizations begin their journey in the evaluation process of a procurement BPO provider, it is critical to conduct these internal assessment exercises versus just lifting and shifting certain categories of spend to a third party aggregator while losing control over this spend area. With this lost control, we see two critical risks: Unique organization needs not being met overtime Initially cost savings appear to be good but disappear quickly Take another look at a couple of category positioning matrices originally developed by some leading consulting firms that now have become a standard in any sourcing organization.

5 Positioning of Spend Categories For Illustrative Purposes Only B. Seven Step Sourcing Methodology Internal Category Assessment Category Definition Usage/Internal Requirement Specifications Stakeholder Assessment Others External Supply Market Assessment Analysis of Market Dynamics Identify Universe of Potential Suppliers Others Supplier Capability Assessment Develop and Execute RFIs Shortlist Based on Criteria Sourcing Strategy Development Bidding Strategy: Leverage/ Relationship/etc. Execute Bidding Event RFx Management Event Management/Evaluations Negotiate In reviewing the above illustrations, it is pretty evident that the broad strategy for each category is driven by a number of characteristics supply market complexity and business impact. These tools help develop an annual sourcing program cycle that can be delivered in a phased approach. Supplemental sourcing support from a BPO provider comes in handy to accelerate the pace at which sourcing projects can be completed and also increase the depth and breadth of categories that can be sourced quickly. Negotiation Strategy Development Execution Price, Service Levels, Geographic Coverage, etc. Implementation Communication Plan Transition Plan/Monitoring

6 In addition to the tasks touched upon the seven steps noted above, we also have the project governance structure: steering committee, project leadership, relationship manager, etc. Based on our experience, we highly recommend that this activity be retained inhouse. Reviewing the mapping of spend categories and tasks involved in typical seven step methodology, three distinct BPO service delivery models have emerged and can be leveraged by clients to supplement internal strategic sourcing organizations. Supplemental staff can be based either onsite, onshore or offshore. Sourcing Analytical Support: Depending on commodity characteristics like risk, complexity and value, clients have the flexibility to leverage analytical capabilities while high end project activities like stakeholder management and relationship building are retained in-house. Services include: Data collection, cleansing and analysis, and development of category fact base RFx development and execution Market basket development Proposal analysis and development of recommendations Supplier score cards Commodity trend reporting: industry capacity/cost drivers, price forecasting, etc. Cost analysis and TCO modeling Spot purchases Various others E-Sourcing Desk: Tactical tasks involved in managing e-sourcing events, for example, setting up erfx and e-auctions, and supplier training tasks are important but time consuming and can be transferred to an external service provider. Services include: Provision of e-sourcing technology Data collection, set up and run e-rfx, auctions and event management End to end management of the e-sourcing desk Full Category Sourcing: For certain categories where clients need external commodity expertise and/or pure additional sourcing bandwidth, service providers can be engaged to deliver the entire end to end sourcing cycle. Services include: Full end to end sourcing for certain categories of spend like legal, energy, employee benefits, etc. Team on the ground and utilization of a structured seven step methodology In order for today s procurement organizations to succeed and respond to the rapidly changing environment they need to think beyond the current boundaries in order to execute a new, compelling strategic supply management vision to the organization. Our strong background and proven success in driving rapid and strong results have showcased the evolution and effectiveness of the above service delivery model. Bottom-line, what does a BPO provider give to its clients: A shortened cycle time of sourcing projects (large projects: 3-4 months, small projects: 2 weeks-2 months) Optimized use of available resources to maximize results across a portfolio of categories Improved reach of spend under management A scalable sourcing delivery model to support client growth in various geographies A consistent sourcing process while leveraging available technologies Helped attain a cost leadership position through maximized cost savings delivered to the organization and the lowest possible risk improved overall total cost of ownership and return on investment A recent engagement delivered over 21% savings on MRO spend to a large pharmaceutical client using a strategic sourcing global delivery model onshore in the US and offshore. For more information and a copy of this case study, please contact Jason Evans at (937)

7 Corbus, LLC Corbus, LLC, a global solutions provider founded in 1994, offers superior services combining years of experience, solid partnerships and adaptability. Corbus solution offering includes Information Technology (IT), Supply Chain Management (SCM) and Project Management (PMO) services. Corbus creates technology-empowered solutions with industry leading processes and technologies that deliver business value to global clients through year-on-year savings and are known for the ability to work in true partnership with clients to innovate and bring cost reduction along with enhanced product quality. With competitive positioning and complete transparency, Corbus and clients together achieve success. For more information, visit Corbus is a global organization, headquartered in North America with presence in Europe and Asia Pacific markets. Corbus is a wholly owned subsidiary of Soin International LLC, a private multi-national holding company that provides strategic management, administrative systems, and financial support to a diverse array of worldwide subsidiaries and affiliates sales@corbus.com