Identifying and handling complexity in global sourcing projects. Peter Smedberg, Global Category Manager

Transcription

1 Identifying and handling complexity in global sourcing projects Peter Smedberg, Global Category Manager

2 What drives complexity in sourcing? How do we overcome it? My experience from 3 cases

3 MFS design

4 SKF Group Purchasing has over a 3 year change journey into a category driven organization tripled our relative contribution to the SKF Group Category driven Fact based Cultural change Focus areas From mainly localized operational purchasing into category driven global strategic purchasing Increased attention towards data analysis and fact based negotiations New ways of working, Strategic sourcing etc Collaborative approach, gaining trust from other departments Value and cost leadership as main focus areas Resulting in: From barely covering our own cost to contributing with savings of 3 times our cost Majority of the 456 people in Group Purchasing is working on Strategic level Strategic Tactical Operational

5 Road transportation 500? 50!

6 LED table lamp

7 Orthopedic implants

8 What drives complexity in sourcing?

9 Complexity in sourcing can be a result of multiple reasons, often with large numbers of stakeholders or data points as a complexity driver Product Product specifications Applications for the product Volume demands or constraints Internal Organization Extreme objectives Decision making processes Decentralized and matrix structures Pushing technology development Cost cut initiatives Time constraints How do we handle complexity? Data Availability Quality Quantity Industry Business chains with multiple interdependencies External Supplier base Limited or seemingly endless IP or know-how lock-in Cost structures Opex vs Capex Comparing different business models or technologies with each other

10 But first What made the three example case complex?

11 Decentralized sourcing by a large number of stakeholders and a fragmented supplier base paired with low data visibility and new way of working created complexity Internal Product Organization Extreme objectives 500? 50! External Data Industry Supplier base Cost structures Urgent saving initiative from top management following a larger transformation Change from decentralized lane by lane sourcing to centralized consolidated sourcing, Logistics going from profit center to cost center Data challenges both in availability, quality and quantity Very large and fragmented supplier base with global players, alliances and small local players we will get increased cost and destroyed supplier relations

12 Extreme objective for a product with limited possibility for specification changes locked-in to one supplier and related to a technology under development created complexity Product Internal Organization Extreme objectives External Data Industry Supplier base Cost structures Product specifications only partly possible to change and requirement to maintain black figures Market price leader product going into market know-out pricing on a new technology Industry undergoing massive technology change with global IP arms raise while rapidly development of performance and cost levels Locked in to one main supplier and limited component suppliers impossible, the lamp will not be recognizable

13 Decentralized decision making of high profile people related to strategically crucial and complex products in a market with close supplier interaction created complexity Product Internal Organization Extreme objectives External Data Industry Supplier base Cost structures Products related to core business, eg implants aimed to stay in your body for life, thus also highest possible risk in case of a failure Highly decentralized with 100 well-renowned doctors as decision-makers for sourcing decisions, also with strong supplier ties Data availability and quality very good for some aspects, but comparison difficult due to specialized product solutions Limited supplier base with fragmented product assortment Product cost, although costly, only accounted for a minor cost in the totality I will quit my job if this project proceeds

14 How do we overcome complexity?

15 Overcoming complexity requires a well designed sourcing project, with a range of ingredients to make use of, here are my top 6 ingredients Businessmanship People Process Tools Supply chain integration Importance of each ingredient and mix will differ depending on the specific project s need Early stage designing and preparation for your project is building the foundation for a successful result at the negotiation table 6-12 months later! Spend time here, it is worth the effort! Mandate

16 Overcoming complexity requires a well designed sourcing project, with businessmanship creating the opportunity to begin with Businessmanship People Process Tools Supply chain integration Mandate Your understanding of the category, cost drivers and stakeholders needs makes ALL the difference Therefore: Take good time to analyze the category, let the facts talk Talk to people, ask around Calculate TCO from several different stakeholders perspective Be street-smart and look for unorthodox solutions, don t expect a new result repeating the same method but dare to explore new ways until you understand!

17 Overcoming complexity requires a well designed sourcing project, with people being the most important factor that can lift or destroy any project Businessmanship People Process Tools Combination of availability and right competence is a must Therefore: Map competence and if it is missing, find it Secure availability and right dimension of team Make sure to have commitment from key resources Analyze what competences you will need based on specify project needs along the process Supply chain integration Mandate before you start!

18 Overcoming complexity requires a well designed sourcing project, with process structure as the guide serving your purposes through the obstacles Businessmanship People Process Tools Nothing will serve you better than a process to lean on and point towards Therefore: Choose a good one! Have all engaged commit to follow the decided process Make use of the process, namely the steering group for decisions, and milestones to drive the project forward Don t underestimate the power of deadlines! Supply chain integration Mandate let it serve you!

19 Overcoming complexity requires a well designed sourcing project, with tools as an accelerator of efficiency and enabler to create visibility Businessmanship People Process Tools Supply chain integration Mandate Tools can accelerate efficiency and create visibility in big data but not replace process nor needed competence Therefore: Never before have we had these exceptional tools to drive big data analysis, make use of it! Whenever possible make use of tools to automate and increase efficiency Try to keep all data and communication through the systems used However, don t rely on tools for insights make use of them!

20 Overcoming complexity requires a well designed sourcing project, with supply chain integration unlocking potential beyond your horizon Businessmanship People Process Tools Supply chain integration Mandate Go beyond what seems possible by helping your suppliers help you Therefore: Don t limit yourself to what s possible for your company, but instead define targets and find ways to reach it together with partners Try to capture total cost of supply chains direct and indirectly impacting what you are working on, you might find unexpected opportunities Seek cost efficient solutions for all parties, all cost comes back to you seek win win!

21 Overcoming complexity requires a well designed sourcing project, with clear mandate not only being a prerequisite but paving the way for buy-in Businessmanship People Process Tools Supply chain integration Mandate Don t ask first for each action, but make sure to always have buy-in for the change Therefore: All change requires effort, you will need support when the complaining begins. Always be aligned with your sponsors Let communication to stakeholders pave the way for you Better delay a start, than crash hard halfway through because of lack of support Work both top-down and bottomup secure buy-in!

22 Let s look at the three cases What ingredients were used to overcome the complexity?

23 Complexity was handled with cross functional team efforts, combination of top-down and bottom-up approach, management support, emphasis on analysis and persistence Businessmanship People 500? 50! Process Tools Supply chain integration Mandate Extensive analysis and mapping of network through both internal and external sources Top management support and cross functional project team 7 step strategic sourcing process and dedicated project management Using Trade Extensions in all phases of the project Fierce competition with 125 participating suppliers biding for full Europe scope, enabling SKF to leverage on volume and trade imbalances

24 Complexity was handled with cross functional team efforts, close cooperation with the supplier and supply chain integration in several steps Businessmanship People Process Tools Supply chain integration Mandate Thorough cost break down and analysis of all different aspects Cross functional team to find solutions while maintaining product identity Close cooperation with supplier on the shop floor Supply chain integration for several key components, introducing new subsuppliers to supplier, negotiating rates with combined volumes for other products towards component suppliers, resourcing of supplier s materials Using forward pricing strategy with volume commitments

25 Complexity was handled with cross functional team efforts, combination of top-down and bottom-up approach, management support, emphasis on analysis and persistence Businessmanship People Process Tools Supply chain integration Mandate Highly engaged top management fronting the project and cross functional team running it Pre-study project to analyze and find solutions to all foreseen obstacles Bottom-up approach and personal interaction with large number of doctors and facilitating for everyone to have a say, also mapping everyone s preferences and acceptance for different brands and solutions Enabling comparison between solutions by comparing everything needed for a certain operation and by using national quality statistics for re-operation and standard cost for reoperations Team of full-blood management consultants with Excel and Outlook to substitute for Trade Extensions

26 And the results Did we meet targets and what happened to the doubters?

27 Road transportation This is really a remarkable result, I m chocked that they could offer this low prices 500? 50!

28 LED table lamp Can we do the same exercise for the full lamp family?

29 Orthopedic implants I did not believe this was possible, but I m very pleased with increased quality at lower cost XXX

30 Key success factors and learnings Top management support Cross functional competences Allow time for analysis Don t underestimate effort required for driving change, communication Crucial to have believers in the project and to be persistent Use Trade Extensions, of course!

31 Thank you! Peter Smedberg