Measuring purchasing impact - Procurement as a source of business value

Transcription

1 Measuring purchasing impact - Procurement as a source of business value Sammeli Sammalkorpi

2 Agenda 1. Brief personal and Sievo intro 2. Procurement as a source of business value 3. The challenge of measuring procurement value 4. Future of procurement value delivery 5. Sievo the company 2

3 Brief personal and Sievo intro 3

4 Personal introduction SAMMELI SAMMALKORPI Co-founder, Sievo MSc from DIEM, Aalto (HUT), major in business strategy Prodekon Isäntä,

5 We help Turn procurement data into $ by providing leading procurement analytics solution combining software, services & content

6 Procurement as a source of business value 6

7 Exemplary breakdown of company s costs from spend perspective All numbers in millions euros EBIT: 953 Sales: Costs: Salary: Source: Kone Corporation Financial Statements % of costs are spend Total purchase spend*: Direct: Indirect: % of spend is direct materials, supplies, and subcontracting * Total purchase spend = Costs salary Net investments. Net investemnts = - (Depreciation & Amortization) + Invesments. For Kone in 2013, the Net investments = -2 7

8 Procurement is THE value driver for most companies Typically 5% procurement savings produce the same improvement in profits as an increase of 30% in sales. + 30% increase in sales -5% cost of goods and services Profit 8

9 ...which is reflected in the fact that CPO s top priority remains at creating cost reduction, i.e. savings Source: The Deloitte Global CPO - Survey

10 The challenge of measuring procurement value 10

11 How big share of the sourcing savings created hits the bottom line? 1) Significant misalignment creating distrust 2) Significant value leakage 6.4% 42% Average yearly savings claimed by procurement For company of Kone s size, this missing leakage equals 110 meur/year 3.7% Average yearly savings recognized by Finance 11

12 Spend & Savings Challenge 1: Establish detailed Spend Analysis meur Spend year 2016 Why change? Savings? meur Spend year

13 Conceptually Spend Analysis is simple What (product/service) has been purchased, from whom (supplier), and by whom (buying organisation). 13

14 Sievo s real world experience - typical spend data challenges Lack of PO coverage Multiple data sources Multiple classification standards Poor master data quality Multiple languages and geographies 14

15 Who is this gentleman? 15

16 Good taxonomy is a must for Spend Analysis Exemplary indirect taxonomy Marketing ICT Energy Travel Cars External Labor Facilities Office Operating Services MRO Print Hardware Electricity Airlines Leased cars Temps Utilities Furniture Consulting Spare parts Marketing materials Software Gas & Steam Train Acquired cars Subcontractors Cleaning Supplies HR Maintenance Service Marketing agency Services Oil Car rentals Natural benefits Catering Equipment Insurance Tests Exhibitions & events Fixed Other fuels Hotels Rent Newspapers & books Tax & Audit Equipment Advertising Mobile Other Agency fees Security Legal Supplies Representati on Data Taxi Facility Management Research Membership fees Other Food & accomodatio n Facility Maintenance IPR Sales services Operating services Taxonomy should be built from supply market perspective and be aligned with organizational responsibilities. Generic taxonomies rarely provide this alignment 16

17 Examples of real life data challenges PRODUCT item codes Purchase Order descriptions accounts Client example: purchases classified Print stk stk.menukort 4X3000 stk. forsider 5000 stk. postere MailHerbsteventTAB-WerbungGmbH Parkplan3.AuflageSCHODERDRUCKGMBH&C OKG PromotionPageforTVSpielfilm ProspektverteilerBodenseeregion reklamaprasowaclaudia-rodzice-g+j stk brevpapir, 90g laseregnet additional costs for reprint D version CHRISTMAS CARD/04 KOREA CHRISTMAS CARD/04 UK TEXT D-1801 Gavepapir LLW FREE TICKET VOUCHERS/D prøver til Anette: 6 stk af hver SL SUPPLIER supplier codes Client example: Ernst & Young 98922: ERNST & YOUNG LLP 43244: XXXX - ERNST & YOUNG LLP 17297: XXXX - ERNST & YOUNG 69305: ERNST & YOUNG LLP 30692: ERNST & YOUNG spolka doradztwa 36234: XXXX - ERNST & YOUNG LLP 47664: ERNST & YOUNG LIMITADA 35996: ERNST & YOUNG AG 61589: ERNST & YOUNG 62526: ERNST & YOUNG 89630: ERNST & YOUNG 21568: Ernst & Young Consulting 33054: ERNST & YOUNG Belastingadviseurs... In total 38 Ernst & Young companies; and this customer has 1 global ERP-system 17

18 Conceptually Spend Analysis is simple What But (product/service) in practice there has is been a purchased, from whom (supplier), huge data, process and and by whom (buying knowledge challenge organisation). 18

19 Spend & Savings Challenge 2: Link changes in spend to PnL development Challenge 1: Establish detailed Spend Analysis meur Spend year 2015 Why change? Savings? meur Spend year

20 and secondly isolating different drivers of spend Total cost change Market Performance Currency Volume Delta One Off meur Why change? Savings? Procurement contribution meur Spend Year 2017 Spend Year

21 Future of procurement value delivery 21

22 Procurement needs to change it s role from savings chaser to proactive business partner... Key role of procurement professionals of the future: Not only about telling how must savings procurement has created... but more about having a dialogue with internal business stakeholders on what are the opportunities and threats related to external resources and how those can be managed proactively 22

23 ...and to do so new language and analytic approach is required 1 Category savings Cost reduction on PnL 2 Backward looking Forward looking 3 4 Static reports Continuous opportunity feed In-house performance measurement Cloud-based analytics with external benchmarks 23

24 Sievo the company 25

25 Global Leader in Procurement Analytics 26

26 Sievo the leading Procurement Analytics SaaS solution provider Truly international business Global delivery projects Strong client portfolio Cloud software business Rapid, profitable growth 27

27 Sievo has proven delivery capabilities for global clients 28

28 Sievo is experiencing rapid, self-financed growth

29 Our team of 109 employees with Sievo. + You? Part-time, Full-time, Dippa positions available. Contact sammeli.sammalkorpi@sievo.com

30 Thank You! 34