The benefits of data transparency by a harmonized product classification. Cologne / Düsseldorf, September 2008

Transcription

1 The benefits of data transparency by a harmonized product classification Cologne / Düsseldorf, September 2008

2 Actual loss of money in France due to non-use of data standards and classification is about 7 bn. per year Negative financial impact in French industry companies by non-use of available data standards (ref.: translated Internet communication 17/04/2008 of the PFI committee *) * ec@t-npmi.net uses the concepts of ecl@ss and provides an electronic catalogue, multilingual and multi manufacturers, managed by Afim and PFI. The catalogue allows to access data and documentation of industrial products. PFI (Produits de fonctionnement industriel) is a French initiative from Afim, Arc International, EDF, Michelin, PSA Peugeot Citroën, Renault, Schneider Electric, Total & other parties. The benefits of data transparency by a harmonised product classification PAGE 2

3 Actual loss of money in building industry in The Netherlands due to non-use of standards for data or communication is about 6.2 bn. per year Negative financial impact in The Netherlands by not using available standards for data and communication (ref.: translated Internet communication 11/04/2008 of USP [NL] on ) The benefits of data transparency by a harmonised product classification PAGE 3

4 Missing business data transparency seriously hampers profitability and organizational effectiveness Lack of business data transparency Request for analysis/ reporting Holding Transparency roadblocks to business data reporting Synergy potentials e.g. in procurement not identified Heterogeneous IT landscape High geographic dispersion High number of legal entities Language diversity Lack of common commodity groups Working capital reduction levers not taken advantage of Business Unit 1 Business Unit 2 Business Unit 3 Master data quality in source systems not monitored Comp. 1 Comp. 2 Comp. 3 Comp. 1 Comp. 2 Comp. 1 The benefits of data transparency by a harmonised product classification PAGE 4

5 because reporting on spend analysis is not possible if an organisation lacks material master data homogeneity Lack of master data transparency and demand pooling Corporate Center/Sourcing Teams Request for spend analysis Spend analysis per category Spend analysis per supplier Spend Data Collection of data Cleansing of data Validation of data Local BU 1 Local BU 2 Local BU Different classification systems Unclassified data Incorrect classification Fragmented supplier base High share of inactive suppliers Spend Data Spend Data Spend Data Material master data not or infrequently updated The benefits of data transparency by a harmonised product classification PAGE 5

6 Cost savings on material master data management result from increased efficiency in more sophisticated transparency, and sustainability effects Major blocks of material cost classification savings Effect 1: Improved sourcing Effect 2: Sustainability 3-5% savings Level of excellence + Superior practices Increased level of excellence through transparency and comparability Savings on continuous basis Savings benefits Sourcing optimisation feasible only with adequate infrastructure Erosion of savings Ø Inferior practices Traditional sourcing Time Increased savings through increased transparency as proven in practice Assurance of ongoing value capturing process by adequate sourcing infrastructure The benefits of data transparency by a harmonised product classification PAGE 6

7 Main lever is improved sourcing activities through transparency on material classification Example decentralized organisation with 1 bn. addressable spend Spend volume ( mil. p.a.) Material classification Area Activities Expected Results % Material master data with internal classification Optimised material master data with international classification Assessment of current material master data management system, if available Definition of future material master data management system on a harmonised level Definition of implementation plan with relevant stakeholders Levers than can be applied: - Volume bundling - Benchmarking / Best Price Negotiation - Respecification Harmonised system for material master data classification, which ensures increased data transparency Eased sourcing activity results through availability of transparent data Reduction of sourcing cost Current Future The benefits of data transparency by a harmonised product classification PAGE 7

8 A solid basis makes an identification and prioritisation of savings possible Structuring of the purchasing basis Activity Result Design and coordination with the responsible contacts at all involved BUs Design and Coordinate Data Extraction Data Extraction Extract Data (Flat file or ABAP) from all ERP-Systems Validation with the assistance of P&L, Balance and Accounts payable Validation, Revision, Consolidation Categorisation Assign the existing Categories manual to Initiation of a global Validation and Optimisation Process Validate and optimise Categorisation Client companies Purchasing basis Suppliers Categories Sustainable savings by procurement organisations only to expect in future if internationally accepted classification and communication standards are used The benefits of data transparency by a harmonised product classification PAGE 8

9 The profit contribution of procurement A promising lesson to understand profit contribution of procurement: B = procurement costs as share of turnover (in %) procurement costs share of turnover (company examples from different branches) operating result other expenditure personnel costs procurement costs K = cost reduction target of procurement costs (in %) UR = return on sales GB B = potential profit contribution of procurement disclosed as comparable sales increase GB B = B*K UR percentage of turnover 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% machine builder chemical industry food industry trade return on sales as is 3,3% 5,0% 2,5% 3,4% A reduction of procurement costs by 1% has the same effect on results as an increase in sales by 14,3% 8,0% 19,9% 17,5% The benefits of data transparency by a harmonised product classification PAGE 9

10 Improved material classification and data transparency set more than 800 mil. free for sourcing activities, which then resulted in average savings of 10% p.a. 5,8 20% ( bn. p.a.) 4,64 1,39 Example Materials with bundling potential 30% Other materials 60% Newly addressable by improved classification (~ 830 mil.) Spend 80 % Materials without bundling potential 70 % Direct, mostly raw materials 40% Previously addressable (~ 560 mil.) Client revenue 2004 Third party purchasing volume after applying ecl@ss Volume for bundling 60% of potential volume for bundling could previously not be pooled due to limited data transparency The benefits of data transparency by a harmonised product classification PAGE 10

11 material classification is an important enabler for cross-business unit commodity management Integrated, cross-bu commodity management * ecl@ss as enabler Example BU 1 BU 2 BU 3 BU 4 BU n Commodity 1 Commodity 2 Commodity n * typically conducted by SSO/SSC organisations Interface Commodity / BU Transparency on materials and services due to improved classification Commodities can be defined on ecl@ss basis, such that each commodity manager can drill down into the material and services layers Categories and subcategories can be efficiently differentiated from one another, overlaps are eliminated, and ground is prepared for sourcing and cost-out activities Re-specifications can be more easily triggered by a neat ecl@ss definition Resource needs and allocations in each commodity enabled The benefits of data transparency by a harmonised product classification PAGE 11

12 Furthermore noteworthy to know about is unique is actually supported by more than 60 almost internationally operating companies headquartered in the EU and North America According to recent publications no other classification and product description standard is growing as fast and consistent as does only provides deep and detailed structural product information by standardised and internationally harmonised attributes is able to provide additional benefit of big or small companies Fast integration of new products and branches into the classification structure; web-based online service available for manufacturers, suppliers and consumers Multilingualism: up to 15 different main languages supported; easy language conversion Experiences of companies show strong easing and reduction of administrational work on master data management and contracting after implementation of appropiate infrastructure (IT; classification; organisation ) The benefits of data transparency by a harmonised product classification PAGE 12

13 To get off to a good start: we can help you In practise it s not so easy to find what fits best for the company s future: Savings: how much? Transparency: how to get? IT, classification, standards and master data optimisation: who knows? Organisation: need to optimise? Since 2007 A.T. Kearney Central Europe and ecl@ss e.v. are in an active cooperation to support companies in the field of procurement and product classification optimisation. Therefore we offer a broad range of expertise and experience. For more information visit our web-sites or simply give us a call: A.T. Kearney GmbH Frank Thewihsen, Vice President Kaistraße 16A Düsseldorf +49 (0) frank.thewihsen@atkearney.com ecl@ss e.v. Dr. Thomas Holzapfel, Member of Board Gustav-Heinemann-Ufer Köln +49 (0) thomas.holzapfel@eclass.de The benefits of data transparency by a harmonised product classification PAGE 13