Strategic Sourcing: Moving Purchasing Beyond Price. Jeoff Burris, Founder and Principal, Advanced Purchasing Dynamics

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2 Strategic Sourcing: Moving Purchasing Beyond Price Jeoff Burris, Founder and Principal, Advanced Purchasing Dynamics

3 Transformation/History Jeoff Burris Founder and Principal Ford Motor, Metaldyne, Intier Purchasing Industry Leader with Substantial P&L Experience Knowledge based purchasing approach Data / Fact driven purchasing Make solutions broader to manufacturing Service Delivery & Optimization 2 Consulting 2004 APD Cloud Cost Engineering Training Placement Innovation Phase Today

4 3 Company Foundation

5 4 Facts and Figures

6 Company Strategy Essential tools for knowledge based collaborative purchasing Enable organizations to take ownership Tailor sequence of tool set delivery Minimum disruption Easy adoption 5

7 Objectives Strategic Sourcing Understand Company Strategy Assess commodities to Identify the Strategic Ones For Strategic Commodities Build the right teams Develop an ideal supplier profile Evaluate current and potential suppliers Develop Strategy Implement Ongoing management 6

8 It Starts at the Top Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly dive it to completion. Jack Welch, former Chairman and CEO, General Electric 7

9 and Moves to Purchasing Leadership Good Purchasing Leadership develops a function that works within and externally the company to deliver the vision 8

10 and Moves to the Supply Base Strategic Supply Base Management develops and manages a supply chain that fits the vision for the business. 9

11 Leverage the Supply Base Technology Investment Knowledge Global Reach Cost Growth Supply Base Effort 10 Load

12 Obstacles to Strategic Purchasing The important vs. urgent battle: Time: External Conflicts: Suppliers will have visions for their businesses that are not 100% in alignment with the customer s vison. 11

13 Purchasing Leadership Responsibilities Understand Corporate Strategy Assess Commodities Strategic Impact Develop the Purchasing Strategy 12

14 Understand the Corporate Strategy Easy if your CEO is Jack Welch Company Strategic Plan Technology HR Manufacturing Purchasing 13

15 Understand the Corporate Strategy If you don t work for a Jack Welch Listen Question Summarize Resources: Annual reports Earnings Calls Website What is my company s strategy????????????? 14

16 Developing the Purchasing Strategy Process Are the current processes capable of supporting the corporate and purchasing visions? Cost, Quality and Delivery How could they be improved? Tools What are the tools in current use to achieve Quality, Delivery and Cost expectations? Do they support the corporate vision/strategies? People Are roles & responsibilities clearly defined? Is a robust performance management process in place? Does the team have the right skills and knowledge required to run the processes and use the tools? 15

17 16 Cost Tool Example

18 Open Book Shop Floor Models Developed on a supplier by supplier basis based upon manufacturing cost studies on supplier shop floor Each stamping supplier would have a unique cost model. Examples: GM OneCost Honda 17

19 Open Book Shop Floor Models Highly credible and accurate Time intensive to develop Requires detailed supplier participation Used for Stampings, injection molding, fabrication, fasteners 18

20 Open Book Shop Floor Models The Road to Strategic Relationships In the past customers exerted more of their demands and considered less of the suppliers needs But the need to get more out of the supply chain has changed the relationship to more collaborative. Technology Reduced warranty & recalls Speed to market Cost improvements 19

21 Open Book Shop Floor Models Collaborative Tool Jointly Developed Designed to understand a supplier s cost structure Enhance transparency between customer and supplier Determine/form long term relationships Identify risks and opportunities Open Book Used to: Facilitate transparent cost related discussions with suppliers (driven by data) Identify and eliminate waste Become the baseline for any pricing related discussions 20

22 Open Book Shop Floor Models Open Book Is.. Supplier/Plant specific Models Understanding true costs to manufacture a product Activity based Costing features and process are linked to cost Collaborative Open Book Is Not One and done Generic one size fits all modeling Audit tool 21

23 Knowledge Based Quote Models Regional or local based models developed using industry best or supply base best cost drivers. Statistical based developed using data gathered through knowledge based quote activity with a high degree of accuracy and competitive pressure. Industry or supply base best. Examples: Ford Optimal Cost Estimate (OCE) JCI Stamping 22

24 Knowledge Based Quote Models Good level of credibility as they are using supplier data. Less time intensive than True Cost Models Less accurate than True Cost Models Used for Stampings, injection molding, fabrication, fasteners, others 23

25 Knowledge Model Application RESINS Index Based Projection Feedstock Cost 100 OPPORTUNITY Prior Pricing agreement allowed gap to grow when cost inputs were falling Cost per Pound Supplier Pricing Cost Model 0 Q1 Q2 Q3 Q4 After Pricing agreement tied pricing to input costs Cost per Pound APD Transparency as a Service Index Based Projections Adjustment Frequency OPPORTUNITY Quarterly Monthly 40 Jan Apr Jul Oct 24 APD Transparency as a Service

26 Attribute Based Quote Models Developed based upon regression performed of physical part attributes. Best if done when pricing has been establish with competitive pressure. Usually developed when suppliers will not provide detailed cost breakdowns. 25

27 Attribute Based Quote Models Does not require supplier participation. Easy to develop. Less accurate used mostly to identify outliers for investigation. Used for Bearings, Seals, Motors.. 26

28 Rule of Thumb Models Simple benchmark rules of thumb: Grey iron castings should cost $ per pound. Tools for a simple stamping should cost $10 15,000 per part. 27

29 Power and Importance High Low Impact on Buyer s Business Commodity (Leverage) Commodity (Non-Critical) Product (High Attention) Product (Low Attention) Low Complexity High Complexity Buyer has Many Options Buyer has Few Options 28 Buyer s Supply Market Complexity (Source A.T. Kearney, Inc.)

30 29 Excel Tool

31 Single Tool Approach to Pricing Very High Open Cost Level of Transparency and Savings Should-be Cost Medium Cost Estimates Very Low Piece Price Cost Breakdowns Time 30

32 31 Single Tool Approach to Pricing

33 32 Multiple Tool Approach

34 33 Multiple Tool Approach

35 Purchasing Leadership Responsibilities Understand Corporate Strategy Assess Commodities Strategic Impact Develop the Purchasing Strategy 34

36 High Level Initial Assessment Strategy Grow in Asia Understand: How does the company plan to achieve this: Products Manufacturing Strategy Customers 35 Assess: Commodities impact on Asia Strategy? High/Low Ability to Support Easy/Hard

37 36 Identify High Impact Commodities

38 37 Strategy Matrix

39 Strategic Sourcing a Commodity Build the Team Continuously Manage Educate the Team Implement Develop Strategy Develop an Ideal Supplier Profile Evaluate Suppliers 38

40 Strategic Sourcing a Commodity Build the Team Differentiate between functions that need to approve and those that need to be advised Ensure it s a crossfunctional priority Establish charters 39

41 Strategic Sourcing a Commodity Educate the Team Ensure teams understand Corporate strategy Purchasing strategies Purchasing processes and tools Other functional strategies 40 Be a Jack

42 Strategic Sourcing a Commodity Develop an Ideal Supplier Profile Build on the initial analysis. Quality Tech. Mfg. Financial 41

43 42 Identify High Impact Commodities

44 Strategic Sourcing a Commodity Develop an Ideal Supplier Profile Quality Tech. Mfg. Financial Build on the initial analysis. What characteristics would the ideal supplier have to have to support the vision? 43 How do you measure?

45 Strategic Sourcing a Commodity Evaluate Suppliers Quality Tech. Mfg. Financial Identify potential suppliers Agree who to assess Cross functional assessment against the Ideal Supplier Profile 44

46 Strategic Sourcing a Commodity Develop Strategy Determine who to develop Select tools Cost Quality Delivery Determine who to eliminate 45

47 Develop Commodity Action Plans Strategy: Establish manufacturing location in India in 2016 to support product sales to Indian market. 46

48 Strategic Sourcing a Commodity Implement Continuously Manage Establish processes that develop suppliers to the ideal 47

49 48 Strategic Sourcing a Commodity

50 This image cannot currently be displayed. This image cannot currently be displayed. This image cannot currently be displayed. Senior Management Cloud Conferences Top 5 Ways for Purchasing Management to Jumpstart Savings for 2016 June 25 th, 10 10:30am EST We will overview: Key factors that contribute to a highly successful purchasing organization Must know cost savings approaches for purchasing teams The secret sauce APD uses to build high velocity purchasing teams Is your Purchasing Organization Ready for Strategic Sourcing? July 30 th, 10 10:30am EST We will review: How success at implementing a strategic sourcing program is dependent on having a few fundamental processes and skills established in their organization What are those fundamentals? A self assessment tool to evaluate if your team is ready for strategic sourcing Winning the War for Purchasing Talent August 28 th, 10 10:30am EST We will discuss: The war for strategic purchasing talent that is happening now Do you have alternative ways to focus resource dollars to better impact your bottom line? Current market trends, opportunities, and challenges How high performing organizations structure their organization to deliver results For more information, visit ApurchasingD.com

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